The end of the Doha Round

Why we needed this agreement

Vari­a­tions in trade vol­umes tend to lead annu­al growth rates in an econ­o­my over the peri­od a year or two and on the decades-long scale of eco­nom­ic devel­op­ment. Right now, the world is head­ing into a sec­ond year of low trade growth, down from 8.5% in 2006to 5.5% last year and prob­a­bly 4.5% this year. Eco­nom­ic growth will fall even fur­ther to about 2.6% on aver­age in 2008. Growth in the big indus­tri­al­ized mar­kets of North Amer­i­ca and Europe is slow­ing in part due to the crunch in cred­it mar­kets and high ener­gy and com­mod­i­ty prices. Devel­op­ing coun­tries are slow­ing for the same rea­son, but on aver­age not as much.

For­tu­nate­ly, low­er trade growth does not explain the drop in eco­nom­ic growth—for the moment. But it did in the past and could eas­i­ly do so again. As prices for grains and oil rise, for exam­ple, and as local demand slows, firms press gov­ern­ments to pre­vent domes­tic demand ‘leak­ing’ to for­eign­ers whether for shoes or soft­ware. As eco­nom­ic growth slows, the clam­or for trade bar­ri­ers, mut­ed dur­ing the last decade or so of rapid world eco­nom­ic growth, is again being heard in the Unit­ed States Demo­c­rat nom­i­na­tion bat­tle. If the bar­ri­ers do go up they’ll start to weak­en and post­pone the recov­ery of growth. But that doesn’t stop politi­cians can­vass­ing the pos­si­bil­i­ty or lis­ten­ing to the whis­per that if they threat­en bar­ri­ers, at least, they’ll look strong and will maybe win some con­ces­sions in for­eign mar­kets.

Agree­ments among gov­ern­ments in the WTO and the nego­ti­a­tions that lead to these agree­ments are the only defense we have against the risk that trade bar­ri­ers could put a lid on future growth. The agree­ments com­prise a con­tract among gov­ern­ments on their max­i­mum pro­tec­tion lev­els that very few of them will ever risk break­ing. The nego­ti­a­tions that lead to the agree­ments are devices for ‘ratch­et­ing down’ the max­i­mum lev­els of pro­tec­tion record­ed in the con­tract. Every cou­ple of decades since the 1960s (more often before that), gov­ern­ments have agreed to low­er their max­i­mum lim­its a lit­tle more, and to apply the trade bar­ri­er lim­its to more sec­tors of pro­duc­tion. Man­u­fac­tures trade was ful­ly cov­ered by the end of the 1970s. Agri­cul­ture and tex­tiles and some ser­vices trade were exposed in the 1990s. The upper lim­its are still far too high on agri­cul­ture and sec­tors like fish­ery and there is still quite a way to go to apply the rules to the ser­vices sec­tor that employs most peo­ple in mid­dle- and high-income coun­tries.

The secret to the suc­cess of these nego­ti­a­tions over more than half a cen­tu­ry was that the lim­its agreed in WTO were most­ly what gov­ern­ments had already done or planned to do. This was true even of some of the most impor­tant nego­ti­a­tions such as those with Chi­na when it joined the WTO (Rus­sia is the next major econ­o­my on the list). But, at the mar­gins, the nego­ti­a­tions did usu­al­ly press into new ter­ri­to­ry, espe­cial­ly when they extend­ed the lim­its to areas of trade not pre­vi­ous­ly cov­ered.

Lock­ing-in deci­sions already made is a pret­ty timid pol­i­cy when it is appar­ent that there are big gains to be made by mov­ing more quick­ly to cut bor­der bar­ri­ers. One of the few things that all econ­o­mists agree is that the gains from trade are real and with­in reach; pret­ty easy reach com­pared to oth­er ways to boost income and pro­duc­tiv­i­ty. There are dis­agree­ments about the exact size of the poten­tial gains and their dis­tri­b­u­tion. But the net glob­al gains are known to be big enough to bridge any gaps between ‘win­ners and losers’ ensur­ing every­one is bet­ter off. Most gov­ern­ments already have such income com­pen­sa­tion devices; the pro­gres­sive income tax sched­ule, for exam­ple.

How big would the gross gains be? A wide­ly-accept­ed mod­el cre­at­ed by Prof. Kym Ander­son at the Uni­ver­si­ty of Ade­laide shows that if all bar­ri­ers to mer­chan­dise trade and export sub­si­dies on farm prod­ucts were elim­i­nat­ed, the world would be shar­ing a real income boost of at about $US300 bil­lion ($2001 dol­lars) by 2015, of which Australia’s share would be about $US6 bil­lion or about 1% of our expect­ed real GDP in 2015. Devel­op­ing coun­tries, as a group, would do bet­ter than this (about 1.2% of expect­ed GDP); so would poor groups such as African coun­tries south of the Sahara (1.1% of expect­ed GDP).

But we’re not going to get there. Not even close. The WTO agree­ments are not break­ing down, but the ratch­et of nego­ti­a­tions is stuck for rea­sons that say a lot about how the world we live in. The trade regime began a tran­si­tion to what you might call a ‘demo­c­ra­t­ic’ basis—although ‘demo­graph­ic’ basis is prob­a­bly more accurate—in the mid-1980s at the start of the Uruguay Round. But the real­i­ty of the pow­er-shift has been appar­ent only since mid-1990s when the economies of Brazil and India, and then Chi­na, were begin­ning assume a promi­nent role in world mar­kets. The cru­cial fact about these new mangers of the sys­tem is that they are much poor­er than half the oth­er coun­tries in the devel­op­ing group and much poor­er than the coun­tries that for­mer­ly called the shots. They have their own prob­lems and ambi­tions dic­tat­ed by pover­ty and don’t have much inter­est in pur­su­ing ideas about the health of the glob­al ‘sys­tem’ as long as it serves their inter­est up to a point.

We have become used to the vis­i­ble changes that China’s rise and India’s (to a less­er extent) has brought to what we buy, sell and trade. What would Tar­get (&hellip or Wal-Mart etc) sell if there were no Chi­na? Who could afford an iPod? We have wit­nessed a pro­found change in the trad­ing sys­tem. The era marked by the ‘hege­mo­ny’ of the world’s wealth­i­est and most ide­al­is­tic (or ide­o­log­i­cal) coun­try has long gone. The USA could afford to—and did—care about the glob­al spread of com­pet­i­tive mar­kets and ideas like reg­u­la­to­ry due process. Europe, too, although its for­eign pol­i­cy was a fic­tion before the 1990s. But Chi­na and India, who from now on start to hold at least equal sway in WTO with the USA and Europe, don’t. Not yet.

Backing up to the way forward

In many big inter­na­tion­al treaties, like the WTO trade agree­ments, the ‘dev­il’ is in the detail, as every­one knows. But it is much hard­er to see the ‘big pic­ture’, espe­cial­ly dur­ing long nego­ti­a­tions when the details start to over­whelm a broad­er prospect. Nego­tia­tors need to keep the broad prospect in mind, how­ev­er, because the world is always mov­ing under their feet. The goals they set at the start of the talks might no longer seem so valu­able when they arrive at the end. This can lead to nasty sur­pris­es. For exam­ple, the world’s first attempt at com­pre­hen­sive glob­al trade rules, the Inter­na­tion­al Trade Orga­ni­za­tion, was still-born in 1947 when it turned out that the Unit­ed States that had demand­ed a glob­al com­mer­cial treaty dur­ing the war no longer want­ed it. More recent­ly, the mem­ber gov­ern­ments of the OECD labored for three years on a mul­ti­lat­er­al invest­ment treaty that they had to dis­own as soon as it was ready for sig­na­ture in 1998.

The World Trade Orga­ni­za­tion adopt­ed a rule in 1994 that makes it impos­si­ble to make changes to its agree­ments unless every mem­ber wants them. The so-called ‘sin­gle under­tak­ing’ of WTO nego­ti­a­tions means that every one of the 150+ Mem­ber gov­ern­ment must sign up to every­thing. At first, that sounds like a tough demand to make on the poor­est coun­tries; to abide by the same rule as the rich. In fact, it turns out to be a rule that is tough­est on good agree­ments. For one thing, it means that every part of a poten­tial deal has to wait until all oth­er parts are ready for adop­tion. For anoth­er, it means that gov­ern­ments with only a ‘defen­sive’ inter­est can hold up an agree­ment until their inter­est is met, what­ev­er the cost might be for the growth of the glob­al mar­ket. It has bought the lat­est nego­ti­a­tions on a new set of inter­na­tion­al treaties on goods and ser­vices trade to the point where, if it doesn’t col­lapse after near­ly eight years of effort, it could turn out to do more harm than good.

Although the WTO nego­ti­a­tions have almost sunk from the skep­ti­cal notice of the press after a num­ber of false starts and re-starts, the sprawl­ing gov­ern­ment-led enter­prise of the Doha round con­tin­ues in Gene­va . Dogged­ly, hun­dreds of gov­ern­ment nego­tia­tors and ana­lysts still fly-in to the Swiss home of the UN every few weeks to wran­gle over the minu­ti­ae of more and more tor­tured texts of pos­si­ble agree­ments to cut import bar­ri­ers or gov­ern­ment sub­si­dies on farm prod­ucts, non-farm prod­ucts (sep­a­rate­ly) and trad­ed ser­vices. The Direc­tor Gen­er­al of the WTO, for­mer Euro­pean trade com­mis­sion­er Pas­cal Lamy, is hang­ing out for an agree­ment on all top­ics before the end of July this year because, in prac­tice, the USA can con­tin­ue nego­ti­at­ing only until the elec­tions for the new admin­is­tra­tion get under way in the sec­ond half of the year.

But it’s like­ly that Lamy will be dis­ap­point­ed. These talks have strug­gled since they were launched in Doha, Qatar, in Novem­ber 2001. With­in two years, they had col­lapsed at a Min­is­te­r­i­al meet­ing in Can­cún, Mex­i­co. They were res­ur­rect­ed in a new for­mat six months lat­er but ground to a halt, in part because the Bush Admin­is­tra­tion was more inter­est­ed in nego­ti­at­ing bilat­er­al ‘free-trade’ deals. Lamy had to shut the talks down in mid-2006 when Trade Min­is­ters includ­ing Australia’s Mark Vaile ran out of ideas on agri­cul­tur­al trade. He ‘reboot­ed’ them after six months, hop­ing the sys­tem would right itself, but it didn’t. The talks fell over again after a brief but stormy meet­ing of the USA, EC, Brazil and India at Pots­dam in June 2007.

Lamy’s ‘fall-back’ strat­e­gy for the past year relies on a tech­nique long-favored by the Euro­pean Com­mis­sion when gov­ern­ments can’t agree: sub­sti­tut­ing process for deci­sion. He has encour­aged the diplo­mats chair­ing each nego­ti­at­ing group to cob­ble togeth­er ‘per­son­al’ drafts of a pos­si­ble agree­ment for their group. The idea is that oth­er nego­tia­tors react to the draft and the chair redrafts in an attempt to reduce the num­ber of objec­tions and to bridge dif­fer­ences. Its a pecu­liar cycle that could pos­si­bly pro­duce what Lamy wants; a text with which no mem­ber gov­ern­ment vig­or­ous­ly dis­agrees. That is, in fact, the def­i­n­i­tion of the con­sen­sus that is sup­posed to char­ac­ter­ize all WTO deci­sions. But agree­ing (or not dis­agree­ing) on what you can is very dif­fer­ent from want­i­ng what you can agree (or don’t dis­agree) on. Lamy’s process, as we’ll see, is a deeply flawed method for achiev­ing ambi­tious goals such as those that the WTO adopt­ed for itself in 2001.

Who wants this, now?

Many gov­ern­ments do not, in fact, still want what they said they want­ed in Novem­ber 2001 at Doha. Then, under the shad­ow of the attack on the World Trade Tow­ers and in the mid­dle of the last glob­al eco­nom­ic reces­sion, they all agreed that it was essen­tial to open world mar­kets in the inter­ests of, among oth­er things, the eco­nom­ic devel­op­ment of poor coun­tries. They said that what they meant by open­ing mar­kets was ‘sub­stan­tial improve­ments in mar­ket access’ and reduc­ing or elim­i­nat­ing gov­ern­ment subsidies—mostly by rich countries—that hurt pro­duc­tion and trade. But it is pret­ty clear that many WTO Mem­ber coun­tries, rich and poor, don’t care so much about those things now.

The US Con­gress doesn’t want more trade agree­ments. It declined to review the most recent set of ‘free trade’ agreements—with Colom­bia and Korea—proposed by the Pres­i­dent. Last week it vot­ed to ramp up farm sub­si­dies, beyond the lim­its being nego­ti­at­ed in WTO, ignor­ing warn­ings from the US nego­tia­tors that this would cause trou­ble. There’s every sign the next Demo­c­rat Pres­i­dent will fall into line with them, or pos­si­bly go fur­ther, revers­ing trade agree­ments that do not result in larg­er US exports (the Aus­tralia-US FTA is safe, it seems).

The gov­ern­ments of the two largest devel­op­ing economies have no ambi­tions to open their mar­kets to more imports that com­pete with local pro­duc­tion. India, which flirt­ed with low­er import bar­ri­ers a decade ago, has no inten­tion of open­ing its farm sec­tor to for­eign com­pe­ti­tion and will keep high bar­ri­ers on oth­er goods, too. Chi­na, which joined WTO in 2001, has stayed on the side­lines of these talks ever since, except to make it clear that it has noth­ing more to give. Oth­er recent Mem­bers includ­ing Viet­nam and Sau­di Ara­bia also get a free pass this time around. By pri­or agree­ment, WTO will not oblige any of the poor­est coun­tries to cut their trade bar­ri­ers, although this would lift eco­nom­ic growth rates in most of them.

Europe? They’ve changed their poli­cies on their most pro­tect­ed indus­try, farm­ing, over the past decade or so to cut costs for their own con­sumers and tax­pay­ers. They’ll go along with a WTO agree­ment that requires them to do just what they’ve already decid­ed and no more. Japan, one of the world’s largest food importers, clings to absurd­ly high pro­tec­tion for its aging and shrink­ing farm sec­tor but is unwill­ing to over­turn a WTO con­sen­sus even if the price is high. Japan has next to no influ­ence in the nego­ti­a­tions until the last moment, when its diplo­mats bar­gain furi­ous­ly to secure mar­gin­al excep­tions.

Fuzz farming

Faced with the declin­ing inter­est in open­ing mar­kets, the nego­tia­tors have react­ed in a way you might con­sid­er either char­ac­ter­is­tic or patho­log­i­cal, depend­ing on your tol­er­ance for the habits of diplo­ma­cy. In an attempt to make dis­agree­ments go away and to make sure all WTO Mem­bers can join the final agree­ment, includ­ing gov­ern­ments that have no inten­tion of mak­ing any change to their trade poli­cies, the diplo­mats have mould­ed the dis­agree­ments into the texts as alter­na­tives or options. They’ve includ­ed mul­ti­ple and over­lap­ping options, or ‘devi­a­tions’ sub­ject to var­i­ous con­di­tions and par­tic­u­lar cir­cum­stances with pro­vi­sions said to com­pen­sate for the fail­ure of any option to move toward the gen­er­al objec­tive. In oth­er words they’ve ‘fuzzed it up’.

In the late 1960s, in a sem­i­nal paper enti­tled “How Com­mit­tees Invent”, a U.S. aca­d­e­m­ic, Mel Con­way, devel­oped a the­sis now taught in every school of engi­neer­ing. Briefly, it states that the design of any com­plex system—like a trade agreement—recapitulates the struc­ture of the design team. The ‘fuzz’ in the drafts for the WTO agree­ments is yet anoth­er demon­stra­tion of Conway’s law. For the process that Lamy has launched chan­nels the views of WTO mem­ber gov­ern­ments through a sin­gle ‘coor­di­na­tor’ who does not have the infor­ma­tion or, ulti­mate­ly, the pow­er to adju­di­cate oppos­ing views. His only option is some­how to com­pre­hend them and ‘fuzz’ is his friend in that endeav­or.

The texts on farm and non-farm prod­ucts are filled with com­pro­mis­es based on qual­i­fi­ca­tions, option­al rules, excep­tions and even exemp­tions to the rules for self-select­ed groups of prod­ucts or groups of coun­tries. This clut­ter has been cre­at­ed by iter­a­tive draft­ing and re-draft­ing of the chairmen’s texts (there are no women chairs) that allows excep­tions to build on them­selves. For exam­ple, devel­op­ing coun­tries as a group were assured, from the out­set of the talks in 2001, that they would be required to open mar­kets less than the indus­tri­al­ized coun­tries. But the elab­o­rate excep­tions craft­ed for dif­fer­ent groups of devel­op­ing coun­tries in the text on agri­cul­tur­al trade rules mean that more than half of the group (not count­ing the poor­est of them that have no oblig­a­tions at all) will have still soft­er, more excep­tion­al, tar­gets than the nom­i­nal ‘devel­op­ing coun­try’ tar­get. Even so, this tar­get is bol­stered by claw­backs that allow the restora­tion of bar­ri­ers in rou­tine cas­es such when import prices or import vol­umes rise.

Devel­oped economies, too, have craft­ed excep­tions built on ‘carve outs’ they nego­ti­at­ed in the last WTO round. The broad­est of these is the right to des­ig­nate the most high­ly pro­tect­ed agri­cul­tur­al products—those where trade would expand most if pro­tec­tion were cut—as ‘sen­si­tive’ and thus sub­ject to small­er duty cuts and excep­tion­al quan­ti­ty con­trols. They must expand the imports of ‘sen­si­tive’ prod­ucts to a small extent. But the pro­posed rules for cal­cu­lat­ing th e expan­sion, using proxy num­bers, spe­cial pro­vi­sions for dif­fer­ent sec­tors and thou­sands of lines of ‘coef­fi­cients’ to dis­trib­ute the prox­ies are so com­plex that they’ve been giv­en their own annex. Here’s a sam­ple of the rules on ‘sen­si­tive’ prod­ucts:

“For one of those two prod­uct cat­e­gories only, if the aver­age annu­al vol­ume of com­mer­cial exports of the prod­uct cat­e­go­ry not ben­e­fit­ing from export sub­si­dies in the 2003–2005 base peri­od rep­re­sents at least 15 times the vol­ume of imports of the same prod­uct cat­e­go­ry, and pro­vid­ed the min­i­mum devi­a­tion is applied, Mem­bers shall have the option to pro­vide a tar­iff quo­ta expan­sion that is equal to the larg­er of the tar­iff quo­ta expan­sion result­ing from the appli­ca­tion of the par­tial des­ig­na­tion method­ol­o­gy using a 1.75 per cent expan­sion (of the domes­tic con­sump­tion allo­cat­ed to the Sen­si­tive tar­iff lines) or 1 per cent of the domes­tic con­sump­tion of that prod­uct cat­e­go­ry.”

A rule-of-thumb for would-be WTO jurists says: “There’s at least one excep­tion to every WTO rule (includ­ing this one)”. With such a prin­ci­ple, soon­er or lat­er, the excep­tions take over the rule-book. That has final­ly hap­pened in the case of the pro­posed Doha agree­ment on agri­cul­ture. In real­i­ty, you need only a sen­tence to agree to pro­hib­it export sub­si­dies on farm prod­ucts such as those from the EC that brought the inter­na­tion­al sug­ar trade to its knees in the 1990s. A deci­sion to cut import bar­ri­ers needs per­haps a para­graph or two and just a few lines more would describe the cuts need­ed in harm­ful pro­duc­tion sub­si­dies as defined by WTO in the 1990s. But thanks to the ‘fuzz’, the chair’s draft text for an agri­cul­ture agree­ment has swollen to almost 80 pages of sin­gle-spaced text. Even then it doesn’t make the cuts that mat­ter (more of this in a moment).

Deals far from done

Although offen­sive to clar­i­ty, fuzz helps post­pone the con­se­quence of mean­ing dif­fer­ent things until after the agree­ment is done. So fuzz is Lamy’s friend in bring­ing these nego­ti­a­tions to a con­clu­sion in mid-2008. Even­tu­al­ly, there would be a reck­on­ing because the senior legal arbi­tra­tor of dis­putes among WTO members—the Appel­late Body—interprets the text of the agree­ments by con­sid­er­ing their plain mean­ing, as far as pos­si­ble. It cuts ambi­gu­i­ties into lit­tle pieces, when­ev­er it has the chance, and it rebuilds the sense of the text in a way that may sur­prise every­one.

Mean­while, Lamy’s short-term goal is threat­ened by the lack of com­fort­ing fuzz in the draft agree­ment on non-agri­cul­tur­al prod­ucts. Pro­tec­tion for man­u­fac­tured prod­ucts, espe­cial­ly, is more straight­for­ward than pro­tec­tion for farm prod­ucts. Sub­si­dies of all sorts were pro­hib­it­ed decades ago, as were quan­ti­ta­tive import bar­ri­ers. Unfor­tu­nate­ly, the greater clar­i­ty only expos­es the dimen­sions of dis­agree­ment. You and I might think that it fol­lows from a deci­sion to make ‘sub­stan­tial improve­ments’ in mar­ket access that coun­tries with high tar­iffs would need to cut their pro­tec­tion more than coun­tries with low tar­iffs. But that sort of think­ing caus­es deep offense in WTO these days, espe­cial­ly when the high pro­tec­tion coun­tries are devel­op­ing coun­tries. The hap­less chair of the non-agri­cul­tur­al nego­ti­a­tions had tried telling the truth plain­ly, not telling it at all and telling it with some slid­ing win­dows and a cou­ple of com­pen­sat­ed options. But with few­er oppor­tu­ni­ties for obfus­ca­tion his text tends to put mem­ber gov­ern­ments on the spot. Some of them don’t like it; per­haps enough to walk away from the whole deal (again).

No fuzz can con­ceal the empti­ness of the text on trade in ser­vices. So small is the prospect of con­tin­ued sub­stan­tial open­ing of ser­vices mar­kets that the text cir­cu­lat­ed in that nego­ti­at­ing group fails even to name the date by which mem­ber gov­ern­ments will make rel­e­vant offers to their trad­ing part­ners. That blank line is elo­quent about the low ambi­tions of the devel­op­ing major­i­ty of WTO mem­bers.

The text on new WTO ‘rules’ deals with a rule that the Unit­ed States alone wants to break. It con­cerns an appli­ca­tion of the pho­ny math­e­mat­ics of anti-dump­ing known as ‘zero­ing’ that is pro­hib­it­ed because it is bla­tant­ly unfair to importers. But they don’t pay the fees of the U.S. anti-dump­ing bar that wants to break the rule. There is no appar­ent com­pro­mise on this issue and, with­out fuzz, Lamy’s process is unlike­ly to deliv­er a result. Anti-dump­ing must go to Min­is­ters for deci­sion.

But wait… there’s more (of the same). For exam­ple, in the pro­pos­als for agree­ments on fish­eries sub­si­dies, devel­op­ing coun­tries want the flex­i­bil­i­ty to sub­si­dize their fish­ing industries—the largest in the world—without restraint, appar­ent­ly on the the­o­ry that they deserve an oppor­tu­ni­ty to over­fish their seas just as devel­oped coun­tries have done in the past.

Agriculture alone?

The dif­fer­ences among WTO mem­bers seem stark every­where but in agri­cul­ture where they’ve been blurred by the fuzz. That might be suf­fi­cient to make an agree­ment that would res­cue at least one part of the Doha round from a final col­lapse. Although the rules on the ‘sin­gle under­tak­ing’ do not per­mit an agree­ment on one sub­ject with­out an agree­ment on all, Mem­bers could agree to remove every­thing else from the agen­da (a sleight of hand, but so what?). In real­i­ty, there is no prospect of that; the EC would nev­er accept a nar­row agree­ment in which Aus­tralia, Brazil and New Zealand seem to be a big ‘win­ners’ at Europe’s expense. The cur­rent US Con­gress that has just over­turned a Pres­i­den­tial veto on high­er farm sub­si­dies seems unlike­ly to rat­i­fy any WTO deal, but not in any case one that left out a new rule on ‘zero­ing’.

An agri­cul­ture agree­ment made pos­si­ble by fuzz has mod­est val­ue, at most, for Aus­tralia, or Brazil or New Zealand or for glob­al trade, for that mat­ter. The fuzz rules out any chance of the 1% of GDP gain that the mod­el projects for Aus­tralia. The rea­sons are tech­ni­cal but not com­plex. We saw before that the main func­tion of the WTO nego­ti­a­tions is to ratch­et-down the max­i­mum lim­its of pro­tec­tion. In the most pro­tect­ed tar­iff lines in Europe, the Unit­ed States, Japan and in many devel­op­ing coun­tries, espe­cial­ly India, the max­i­mum pro­tec­tion lev­els are set well above the lev­el required to defend the actu­al domes­tic whole­sale price. This excess pro­tec­tion is often called ‘water in the tar­iff’; a lot of it was cre­at­ed by the fuzz need­ed to reach agree­ment on agri­cul­ture in the last round of glob­al trade nego­ti­a­tions.

When the ‘ratch­et’ bites down, it first has to swal­low the water in the tar­iff before it reach­es the point where it starts to make a dif­fer­ence to com­mer­cial com­pe­ti­tion. In most cas­es where Aus­tralia faces high lev­els of pro­tec­tion against our agri­cul­tur­al exports—wheat or rice in Japan or India, for exam­ple, or dairy or sug­ar or beef in Europe or the USA or Canada—the pro­posed deal on the table in Gene­va will do lit­tle more than wring out some ‘water’. Although the head­line tar­iff-cut num­bers look big—including a pro­posed 54% aver­age min­i­mum tar­iff cut by devel­oped economies—ninety per­cent of that cut is ‘water’ in prod­ucts whose duty rates are cur­rent­ly in the 15–30% range. Half of the pro­tec­tion in prod­ucts whose duties range from 60–150% is water, and two thirds of the pro­tec­tion of prod­ucts whose duties climb from 150–300% (some Japan­ese wheat wheat bar­ri­ers).

That leaves the expan­sion of the ‘sen­si­tive’ prod­uct quo­tas as the most like­ly avenue for increas­es in import oppor­tu­ni­ties. Here the rules for cal­cu­lat­ing the tight­ly con­strained increas­es in quo­tas make it almost impos­si­ble to assess the gains. At a max­i­mum, in these mar­kets, some ‘core’ prod­ucts (unprocessed meat, grains, com­mod­i­ty dairy and sug­ar) import quo­tas might dou­ble over the vol­umes that were agreed in 1994; up to around 6–8% of domes­tic con­sump­tion. For some idea what that means, imag­ine what our roads would be like if 94% of domes­tic sales were reserved for Aus­tralian-made cars and trucks. Very like­ly you’d still be dri­ving the Torana that you bought in 1989 (if you could get it start­ed).

What of the devel­op­ing coun­tries? What would they get out of an agree­ment based on the cur­rent text on agri­cul­ture? If they export tem­per­ate agri­cul­ture (Brazil, Argenti­na, Thai­land) they will win some share of the indus­tri­al­ized coun­try ‘sen­si­tive prod­uct’ expan­sion. But they’ll miss out, like every­one else, on expand­ed access to some of the most rapid­ly grow­ing mar­kets in the world—in oth­er devel­op­ing countries—because of the fuzz of ‘flex­i­bil­i­ty’ in the rules on devel­op­ing coun­try import bar­ri­ers. Most oth­er devel­op­ing coun­tries will be, on bal­ance, worse off than they would have been with low­er import bar­ri­ers because that’s were the biggest boost to the income of most of their pop­u­la­tion (con­sumers) would come from. Worse, their food sup­ply will be less secure because pro­duc­ers at home will have no incen­tive to become more effi­cient or adopt new tech­nolo­gies and pro­duc­ers abroad will find farm­ing less prof­itable. Their economies will hold on to agri­cul­tur­al jobs a lit­tle longer, but the jobs will pay less than they would in a more open mar­ket because the work­ers will be less pro­duc­tive. Also, with work­ers stay­ing on the farm, the econ­o­my of most devel­op­ing coun­tries will devel­op more slow­ly and wealth—in the non-farm sec­tor, too—will grow more slow­ly.

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