WTO Hong Kong talks head toward another failure

Sunny Tanuwidjaja, Dekalb, U.S.

After the failure to reach agreements in several meetings in Seattle, Doha, and Cancun on the promotion of free and fair trade, developing and developed nations meet again in Hong Kong, from Dec. 13 to 18, 2005. The basis for the meeting is the previous Doha Development Agenda (DDA), which was launched two months after Sept. 11, 2001, aimed to help developing nations benefit from the continuing process of economic globalization.

The main agenda in the meeting was to find common grounds on several key issues such as industrial tariffs, trade in services, aid for trade, and farm protection; between the developed and developing nations.

Due to the immense challenges, achieving agreements at the end of the meeting is analogous to a utopian dream. Realizing the existing road blocks, members of the WTO have lowered their expectations of the meeting, while planning to conclude the talks by the end of next year.

One of the main challenges in achieving the goal of the meeting is the issue of agricultural protection. Developing countries demand that the developed countries lower their farm protections policies in the form of subsidies and tariffs. In the meantime, developing countries such as India and Brazil are still reluctant to lower their agricultural protectionist policies, and would be willing to revise their agricultural protection policies only if the developed countries do likewise.

According to a study done by Anderson and Martin from the World Bank, what is at stake for the world economy on this issue is that agriculture accounts for almost two-thirds of economic gains that could be acquired when trade barriers in the global system are dismantled.

The World Bank also points out that if trade in industrial and agricultural products was fully freed, the developing countries will gain US$86 billion more in 2015 and will be able to pull out 30 million people from poverty.

In agricultural and farming issues, the stake is high for developing countries, especially in countries where agricultural products are their main source of income. Despite the fact that many developing countries have been relying more on manufacturing, agriculture still accounts for approximately 30 percent of GDP in developing countries.

If the developed countries are not willing to lower or eliminate their agricultural tariffs and subsidies for their domestic farmers, it will be hard for developing countries to compete in the global market. The study done by Anderson, Gorter, and Martin from the World Bank shows that there has been a decreasing export percentage of tropical products (e.g. coffee, cocoa, tea, nuts, spices, textile fibers, sugar, and confectionery) in developing countries from about 40 percent in 1981 to less then 20 percent in 2001 due to agricultural protection policies in global economics.

While developing countries are mostly eager to have open trade on agricultural products, developed countries have not been willing to lower their agricultural protections and this was and will be the main cause of deadlocks in the Doha trade talks.

The United States only agrees to cut its agricultural subsidies if other developed nations are willing to do the same. Unfortunately, the European Union is not willing to offer any more concessions.

The EU's common agricultural policy (CAP), which is the agricultural protection policy, has cost the EU 40 percent of its total budget (about $47 billion), despite the fact that farming only accounts for 2 percent of its workforce. The question is why is it so hard for developed countries to lower their agricultural tariffs and subsidies? Answering this question allows us to understand the reason behind the deadlocks in achieving the Doha Development Agenda.

One of the main reasons for EU's reluctance to relax its agricultural protection is France. Despite accounting for only 3 percent of its GDP or 4 percent of its workforce, agriculture and thus its protection is very important to France for several reasons. France is getting about 20 percent from the whole CAP EU's budget (approximately $9 billion), which means France is the country that stands to lose the most if CAP is reformed.

On average 90 percent of the income of farmers in France comes from the CAP and reforming the CAP will reduce the farms in France between two-thirds to one-third; a very significant amount. Last but not least, France's political class supports the existing protections because 80 percent of the CAP France gets goes to the richest, while 20 percent goes to the farmers who have significant political influence.

Looking into what is happening this week helps to further understand why it is challenging to reform the CAP. From Dec. 16 to Dec. 17, 2005, the European Union will hold its summit, which has on its agenda the EU budget for 2007-2013. Holding the current EU presidency rotation, Britain has the role of proposing the budget, but its initial proposal has been bluntly rejected by the EU nations.

The EU nations, particularly France, demand that Britain accept smaller rebate and increase its overall contribution to EU's budget. Since the budget requires unanimity to pass, it is essential for Britain to secure support from every nation, including France, so that the budget proposal can pass. This means that it very unlikely Britain will accommodate CAP reform in the EU's budget this week.

The future of the Doha trade talks in Hong Kong this week will need to wait for another year to gain significant progress toward freer agricultural trade between developed and developing countries.

The writer is a political science graduate student in Northern Illinois University.