WTO Faces Tough Choices after Latest Doha Round Setback

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World Trade Organization members face a somber Easter Sunday because of a fight over manufacturing trade between the United States and major emerging economies like China, India and Brazil that could finally kill 10-year-old world trade talks.

WTO Director General Pascal Lamy, in a note accompanying new WTO negotiating documents on Thursday, said differences between countries over how much to cut manufactured goods tariffs were “unbridgeable.”

That posed a “serious risk” to the rest of wide-ranging negotiations that also cover agriculture, services and a number of regulatory issues such as fish subsidies, anti-dumping rules and non-tariff barriers, Lamy said.

Members, including the United States, now face the tough choice of whether to cling to long-held positions or to modify their demands in the hope of striking a deal.

But President Barack Obama’s administration risks Congress rejecting any agreement that does not create big new export opportunities for U.S. farmers, manufacturers and service companies.

The Doha round was launched in 2001 in the capital of Qatar with the goal of helping poor countries prosper through greater access to markets in rich countries.

Lamy’s grim warning that the talks were on the brink of failure came one day after a former top U.S. trade official said the Doha round was “doomed.”

“For years, the threat of being blamed for the Doha Round’s collapse has made it too risky for governments to suggest that the talks are dead,” former U.S. Trade Representative Susan Schwab wrote in the latest issue of Foreign Affairs, “but the pretense that the deal will somehow come together at long last is now a greater threat to the multilateral trading system than acknowledging the truth.”

SALVAGE OPERATION
Countries are expected to start thrashing over the question of what to do next when the WTO’s main negotiating forum gathers next Friday in Geneva.

Schwab argued that countries should try to salvage what they can from the Doha round to bring the talks to a close in 2011, and then move onto new initiatives focused on reducing barriers to trade in areas like healthcare, pharmaceuticals and medical equipment or standardizing rules for e-commerce.

She suggested harvesting a “trade facilitation” agreement from the Doha talks which the Washington-based Peterson Institute for International Economics has estimated could boost global gross domestic product by more than $100 billion by reducing the costs of moving goods across borders.

Portions of the agricultural negotiations covering proposed agreements on export credits, food aid, state-trading firms, and the elimination of export subsidies could also possibly be saved, Schwab said.

Certain environmental agreements might also be within reach, such as “cutting subsidies to industrial fishing fleets guilty of overfishing the world’s oceans and … ending tariff and nontariff barriers to ‘green’ technologies in major producing and consuming countries,” she said.

That would require giving up hope for a broader agreement covering all of those elements as well as new market-openings in agriculture, manufactured goods and services.

But repeated effort has shown the differences in the market access talks are too difficult to overcome, Schwab said.

“FUNDAMENTALLY DIFFERENT VIEWS”
Lamy said he concluded talks on manufactured goods were unbridgeable after consulting with seven WTO members: Australia, Brazil, China, the European Union, India, Japan and the United States.

Countries have already agreed most manufactured goods tariffs would be cut by two formulas, one for developing countries like China, India and Brazil and the other for developed countries such as the United States, EU and Japan.

Washington complains its formula would require it to further cut its already low tariffs on most goods and dramatically reduce “peak” tariffs on sensitive items like textiles and trucks, while the developing country formula would allow China, India and Brazil to keep much higher duties.

To level the playing field, the United States wants those countries to sign up for additional “sectoral” pacts covering goods like chemicals, industrial machinery and electronics where participants would reduce tariffs more aggressively.

But China, India and Brazil are resisting U.S. terms, creating the impasse. Members simply have “fundamentally different views” in the manufactured goods talks, Lamy said.

(Reporting by Doug Palmer; editing by Christopher Wilson)