Trade-off on Doha begins to take shape

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Alan Beattie, FT Syndication Service
LONDON: Great powers have gathered in Potsdam, Germany. The British are changing prime ministers. The French are annoyed at being excluded. The Poles are worried about being sold out. A great deal rests on the Americans.
But there end the similarities between the Potsdam conference of 1945 that set the new international postwar order and this week's meeting in the German city of the "Group of Four" - the European Union (EU), the United States, Brazil and India - at the heart of the so-called Doha round of trade talks.
For one, the conclusions of this week's version, due to wind up at the weekend, are unlikely to be as dramatic. The meeting is intended to provide a framework agreement to help the rest of the World Trade Organisation's membership get an outline deal before the WTO's August break.
Some - particularly Peter Mandelson, EU trade commissioner - have been trying to promote the importance of this meeting, saying time is running out to conclude a deal before the US presidential election campaign next year further muddies the already turbid waters.
But if much of substance does emerge this week, it might well show that agreement is only possible by lowering expectations for real cuts in protection and subsidy.
Such an outcome would be a new departure. The received wisdom in trade circles has been that the talks cannot conclude with what Susan Schwab, US trade representative, has dubbed "Doha-lite" - a minimal face-saving deal that cuts the theoretical maximum limits for import tariffs and farm subsidies while not making much difference to actual "applied" levels.
The support, or at least acquiescence, of US farmers is generally considered vital for a deal, and the strong export focus of much US farming means it needs substantial new markets abroad to compensate for any loss in subsidies.
That may no longer be the case. Last November's mid-term elections deprived agriculture of its near-veto on trade deals, giving labour unions more say.
Charles Rangel, chairman of the House ways and means committee, says Congress would approve "limited" renewal of the White House's authority to negotiate entire trade deals, which expires at the end of June, to sign a deal in Doha.
The ethanol and general commodity boom has also sent demand and prices soaring, relieving many farmers, particularly the politically powerful corn, wheat and soybean growers, of the export imperative.
Price-based subsidies have fallen: the US farm support programme will pay out an estimated $12bn (€8.9bn, £6.0bn) this fiscal year compared with $20bn the previous year.
Farmers caution against assuming higher prices are here for good. Dave Salmonsen, trade lobbyist at the American Farm Bureau, says: "You could make the case for a weaker deal based on this year and maybe next. But programmes need to be sustainable a long time into the future."
Yet it is hard to argue that subsidy ceilings should be nearly twice the most recent pay-out. The current US offer to reduce subsidies implies a ceiling of about $22bn, though, because of restrictions in different categories, only about $17bn of that is likely to be usable.
Rumours suggest a compromise centred on a figure of about $15bn-$16bn. But the high prices that help make such a deal possible would also empty it of substantive impact, at least in the short to medium term.
The quid pro quo would be rich countries ratcheting back their ambition to cut industrial goods tariffs in developing nations. Brazil recently said it would accept a tariff ceiling of a minimum of 30 per cent, around twice what most rich countries have been demanding.
It may concede bigger cuts, but Gary Campkin, head of the international group at the CBI, the UK employers' organisation, says: "Any [ceiling] above 20 per cent would most likely give businesses extremely limited or no new market access, and that would be of grave concern for the balance of the round."
Meanwhile, the so-called "Group of 14" EU member states reluctant to reduce protection for their farmers, led by France with strong Polish support, met last week and reaffirmed their opposition to big cuts in agricultural tariffs.
It is hard to tell whether this is tactical grandstanding to squeeze last-minute concessions, a genuine set of uncrossable red lines, or simply positioning to shift the blame if the talks stall again. But one thing is clear: a trade-off is emerging between practicality and ambition.
Ricardo Melendez Ortiz, director of the International Centre for Trade and Sustainable Development in Geneva, says: "Everybody, particularly the developing countries, will have to adapt their expectations and accept more modest gains in market access as the price of keeping the system alive.
"I think they will accept. Apart from anything else, they are exhausted with their inability to achieve anything stronger."