WTO Takes Step Toward Accord Cutting Duties, Farm Aid (Update4)Aug. 1 (Bloomberg) -- World Trade Organization negotiators agreed on the outline of an accord cutting farm aid and tariffs on manufactured goods, taking a step toward a 147-nation pact the World Bank says may add $500 billion to the global economy.
Representatives of WTO nations rescued trade talks that collapsed last September in Cancun, Mexico, overcoming differences between rich and poor countries on agriculture and pledging to strike a final accord that lowers border barriers and enables exporters to sell their goods in more markets.
``The WTO has reached a monumental agreement on agriculture,'' Judith Lee, an international trade lawyer with Gibson Dunn & Crutcher LLP in Washington said in an interview after five days of WTO talks in Geneva. ``Even though it may not be as comprehensive as some developing countries would like, it represents the most significant progress on the most intractable issue that the organization has dealt with.''
Companies such as Unilever and Microsoft Corp. are pushing for a broad accord that the World Bank says may pull 140 million people out of poverty and add $350 billion to developing countries' annual incomes by 2015. Obstacles remain: With U.S. elections and a change of European Union administration likely to steer the world's two biggest trading blocs' attention away from trade, a global pact may not be possible for years.
New Faces
Three men who are central to the talks -- WTO Director General Supachai Panitchpakdi, EU Trade Commissioner Pascal Lamy and U.S. Trade Representative Robert Zoellick -- may all be out of office by the time negotiations resume in earnest. Lamy's mandate runs out in November and Supachai's term ends next September. Zoellick will lose his job if U.S. President George W. Bush isn't re-elected.
Negotiators still have a lot of work to do before a broad agreement is possible, Lamy told reporters, adding that ``we've broadly covered 50 percent of the road'' to a final pact.
Indian Trade Minister Kamal Nath said the WTO may be able to cobble together a global agreement by 2006, though to do so ``it's got to move at the same pace as in the last six months,'' he said. ``We must keep the momentum.''
Supachai told journalists after the accord was secured that WTO members had been urged ``to do the best they can do so the final agreement can be reached some time in the foreseeable future.'' He declined to elaborate.
Protectionism
Industrialized nations, including the U.S., EU members and Japan, agreed to scale back protection for their farmers in exchange for boosting trading opportunities for products ranging from computers to cars. Agriculture was central to the talks because about 70 percent of the world's poor live in rural areas and earn their income from farming, according to the World Bank.
The $184 billion in subsidies and other forms of aid the U.S., EU and Japan give each year to support their cotton, rice, sugar, beef, dairy and wheat farmers have been the biggest obstacles to reaching a broad WTO agreement to dismantle trade barriers. Support in Organization for Economic Cooperation and Development countries totals $330 billion a year, of which $250 billion goes directly to farmers.
Governments agreed to fix a date for ending subsidies for agricultural exports that distort world market prices, cap spending on farmers -- including an immediate cut once the full agreement becomes effective -- and outlaw short-term commodity export-credit programs used by the U.S. The agreement was welcomed by Auckland- based Fonterra Cooperative Group Ltd., the world's biggest dairy exporter.
Breakthrough
``This is the breakthrough we have been looking for,'' said Henry van der Heyden, chairman of Auckland-based Fonterra, which is owned by the 13,000 farmers that are its suppliers. ``Export subsidies are the single most damaging and trade-distorting weapon in the protectionist arsenal.''
Participants at the WTO talks also pledged to work out ways to simplify customs red tape and trim import duties for agricultural and industrial products on a sliding scale that would reduce the highest border duties the most. The accord calls on rich nations to consider scrapping all tariffs and quotas on imports of manufactured goods from the world's poorest nations.
The agreement on a framework for negotiations ``is a vote of confidence in the WTO process after the failure of talks in Cancun last year,'' said Patricia Hewitt, Britain's Trade and Industry Secretary, in a statement. Success would be ``an important prize for the global economy,'' she said.
After a year of pressure from African cotton producers including Chad, Benin and Mali, the U.S. agreed to scale back its more than $3 billion in payments to 35,000 American cotton farmers. The WTO ruled last month that U.S. cotton aid is illegal, supporting a complaint by Brazil.
Cotton
``For the first time, we are seeing success in dealing with the product which is very important for least-developed countries, which is cotton,'' Supachai said. ``We have seen real commitment, courageous commitment, from the developed countries on agreeing'' to the text on cotton.
The blueprint answers few questions about so-called sensitive products -- or agricultural goods that countries protect most strongly with high-tariff levels -- such as the 490 percent levy that Japan imposes on imported rice to protect its farmers from foreign competition. The framework leaves room for smaller reductions on sensitive products, and the WTO will decide in coming months how to treat these crops.
``There will be tremendous momentum to tackle other issues now,'' Lee said, adding that the ability of trade negotiators to find common ground ``shows people that the WTO isn't a paper tiger because everything else until now has depended on agriculture.''
Executives from Microsoft, Nestle SA, Caterpillar Inc., DaimlerChrysler AG and other companies have pressed government negotiators to agree on reductions in farm aid that they say will boost sales to the developing world and cut the prices consumers pay for their goods. An accord will help poor nations to increase production and exports, spurring economic growth, they said.
Successful Round
``A successful round is good for both developing and industrialized countries,'' said Carlos Braga, a senior trade adviser at the World Bank in Geneva. Companies in rich economies ``will see new markets growing in the developing world if a significant liberalization package'' wins approval, he added.
The last world trade pact -- signed under the WTO's predecessor, the General Agreement on Tariffs & Trade -- was in April 1994 during the Uruguay round. That trade round took more than seven years, twice the original schedule, to yield an accord covering products from toothbrushes and pleasure boats to banking, AIDS treatments and the genes of wild rice.
Since then, an attempt to start a new round of talks derailed in Seattle in December 1999 after ministers from developing countries such as Colombia and Venezuela were barred from final bargaining. They threatened to walk out and, with many other disputes still pending, WTO leaders called it quits.
Cancun Lesson
Negotiations in Cancun aimed at reaching a framework deal crumbled 10 months ago after 20 poor nations including China, Nigeria and Brazil refused to discuss trimming duties on manufactured goods or barriers to commercial services until the U.S., EU and Japan agreed to slash farm subsidies.
``People learned a lesson from Cancun, that they cannot wait until the final moment to thrash out a solution,'' Supachai said.
``We have laid out a map for the road ahead,'' Zoellick told reporters after the agreement, which he described as ``a milestone.''
The WTO's credibility would have been ``severely undermined'' had the efforts in Switzerland failed, said David Woods, managing director of Geneva-based consultancy World Trade Agenda. Supachai said the blueprint underscores that a multilateral system works.
``It has been only 10 months after Cancun, but we have come back and now achieved what we failed to do in Cancun,'' he said. ``Today, multilateralism has made a minor triumph. The major triumph will be the day that we successfully complete the Doha development agenda.''
Sanctions
Countries have turned to the nine-year-old WTO to resolve more than 300 disputes involving issues ranging from U.S. steel import duties and its use of cotton subsidies and credits to EU sugar subsidies and the ownership of Havana Club-label rum. The U.S., Argentina and Canada have also complained to the WTO about the EU's restrictions on gene-modified foods.
A 2002 ruling by the WTO that an American export tax subsidy was illegal cleared the way for the EU to impose the first-ever sanctions on the U.S. Those sanctions, which may reach $4 billion annually, began in March with a 5 percent duty on products such as jewelry, textiles and wood and will remain in place until U.S. lawmakers revise the subsidy.