A global economic realignment that has vaulted China, India and Brazil into the top tier of the world’s emerging markets —much to the concern of other developing countries—has emerged as one of the major reasons for deadlock in global trade talks.
As a result, the impasse is not just one pitting Europe against the US, or rich countries against the poor, but also poor countries that depend on trade against each other. Meanwhile, the poorest of the poor countries in Africa and elsewhere charge that the emerging-market economies are ignoring their needs.
“There is no value in blaming any single country over the state of our negotiations,” Peter Mandelson, the top European trade negotiator, said. “But this is not a classic North-South conflict. It is also South-South. The developed countries and the emerging economies have a responsibility to help the poorer countries.”
Trade officials around the world say that a failure of the global trade talks that began six years ago could deal a blow to the world economy, which is supported by more than $10 trillion (Rs403 trillion) in trade of goods and services annually. A new trade deal could add hundreds of billions of dollars to the world’s income, according to the World Bank. The World Trade Organization tried to resolve the impasse over trade last Tuesday by suggesting a series of compromises to be made by all sides. Leading actors in the talks, including Europe, the US and the top-tier developing countries, are studying the recommendations. On Friday, Robert Zoellick, president of the World Bank, urged the parties to heed the recommendation of the WTO. “The global community should stay focused on the prize,” he said. “If the draft texts eventually become the basis of an agreement, all economies should be able to benefit.”
Zoellick served as the US trade envoy when the current round of talks was begun in Doha, Qatar, in 2001. When the latest session of Doha Round talks collapsed last month, US trade representative Susan Schwab charged that India and Brazil displayed “a lack of flexibility, indeed a rigidity” in lowering their farm and industrial tariffs in a way that could benefit not just the West but other poor countries. “There are some folks who may want to portray this as a North-South breakdown,” Schwab said. “I think nothing could be further from the truth.”
The Indian trade minister, Kamal Nath, responded that it was Schwab and the US who were blocking a trade deal by being intransigent in their refusal to lower US farm subsidies, which have artificially kept US farm products competitive against imports from poor countries. Nath, in other words, said he saw the trade impasse in the traditional way, as a conflict between the rich and the poor. But developments since the breakdown of the talks last month suggest that a cleavage has indeed opened up among developing countries, becoming a major new factor in the talks, just as China, India and Brazil have insisted on being recognized as major players in the global economy and in international relations. India and Brazil, for instance, came to the final negotiations in Potsdam, Germany, last month with a proposal that called for drastic cuts in US farm subsidies, as expected. But the two countries also proposed that they themselves lower their own tariffs by a smaller amount than anyone expected.
Specifically, they called for a system in which tariffs would be reduced on a phased-in basis, but leaving the highest tariffs at 30% at the end of the process. Trade officials said they hinted at the session that they might be willing to reduce that level to 25% in future bargaining. This level was rejected by the US and Europe as much too high, but trade experts in the West said that India and Brazil appeared to be worried about inroads made by imports from China and other countries. Many trade experts say that India, like the US, has become increasingly concerned about cheap Chinese imports leading to a loss of Indian jobs.
“Brazil was actually backpedaling from what it had earlier indicated it would offer,” said Gary Hufbauer, a senior trade analyst at the Peterson Institute of International Economics in Washington, a leading economic policy group.
In the last several days, a new bloc of countries has emerged proposing a more conciliatory approach to the US, suggesting that the developing countries should lower their tariffs on industrial goods to a range of the upper teens to the low twenties for the top levels. This new “middle ground” bloc is led by Chile, Colombia, Costa Rica, Hong Kong, China, Mexico, Peru, Singapore and Thailand. If the US has a strategy, it is to rally these “middle ground” countries against Brazil and India. But that will be difficult, because Brazil has recently raised some of its own tariff levels on its own out of concern that its own currency has risen and made imports cheaper.
The US, meanwhile, is still under pressure to do more on its own to reduce its farm subsidies. Current law allows the US to subsidize farm products, if it so chooses, to nearly $50 billion a year. But in the last three years, world food prices have been so high that American subsidies have not kicked in. Last year, the US subsidized farm products at the level of $12 billion. That is the level that India and Brazil want the US to stay at in the future. The Bush administration argues that $12 billion was unusually low, and that its offer of a ceiling of $17 billion is below the levels of most of the last 10 years. European and other trade negotiations charge that unless the US comes down below $17 billion, it will never persuade India and Brazil to lower their tariff offers even if it rallies the “middle ground” countries to its side.
Schwab has hinted that the US might consider a reduction in its subsidy level, but only if it sees signs of flexibility from India and Brazil. What has resulted is a four-way jockeying among blocs involving Europe, India and Brazil, the US and the “middle ground” countries. Outside the picture are the 60 or 70 poorest countries that stand to benefit the most from a trade deal, countries in Africa and the poorest parts of Latin America and Asia. In a speech in Africa last week, Schwab said that 70% of the tariffs paid by poor countries goes to other poor countries. Many trade experts are trying to get the emerging-market economies to recognize that it is in their interest to lower their trade barriers to zero, but that these countries are all worried about China. “A lot of us have spent a lot of time trying to demonstrate to developing countries that they would be better off with no tariffs at all,” said William Reinsch, president of the National Foreign Trade Council in Washington, a pro-trade lobbying group. “What we kept running into is the fact that they are scared to death of China.
“These countries are very much seized with the idea that if we undertake a whole bunch of tariff reductions, they’re going to be overrun by Chinese goods. I’m worried that we’re not going to be able to disabuse them of that, he said.”