Doha In The Red Zone

It's the 'Come to Jesus' moment for the Doha round of multilateral trade negotiations. 'We are now in the red zone,' World Trade Organization Director General Pascal Lamy said recently. 'And we are not far from the red part of this red zone. The timetable is a number of days, not weeks.'

After four-and-a-half years of talks, negotiators face an end of June deadline to resolve their differences over agricultural and industrial trade and an end of July deadline to agree on how to further liberalize commerce in services and fine tune international trade rules. If the 149 members of the WTO cannot strike a deal by the end of the summer, it would be extremely difficult for them to have legal text ready for Congress by the end of March 2007, the last date for the Bush administration to submit an agreement for congressional approval before the expiration the president's trade negotiating authority.

Everyone agrees what must be done to finalize a deal. Yet, to date, no one has wanted to make the necessary concessions. The United States must accept deeper cuts in its farm subsidies. The European Union needs to offer foreign farmers greater access to its market. And emerging economies, such as Brazil, need to offer more substantial reductions in their industrial tariffs.

Up to this point, Brussels, Brasilia and Washington have each been playing a game of chicken, waiting to see who will blink first. Now they have run out of time. And if everyone does not show their cards in the next few weeks, the meeting of trade ministers now scheduled for the end of June in Geneva will be a wake for the Doha Round.

Agriculture is the principal sticking point. The Bush administration has widely touted as 'bold' its offer to cut domestic farm support by 60 percent.

But a recent computer simulation conducted by Canada concluded that the U.S. proposal would not bring total U.S. farm spending below the 2001 level and would, in fact, allow Washington to increase future overall agricultural support.

The simulation suggests the Bush administration has been engaged in a negotiating shell game, ratcheting up spending in the current farm bill so any future cuts will still leave U.S. farmers more than whole. Foreigners now see through this charade and are demanding real, not rhetorical, reductions in U.S. subsidies. For example, Brazil, India and others demand slicing overall U.S. subsidies to about half what they were in 2000.

But as my CongressDaily colleague Jerry Hagstrom reported last week, a recent administration feeler to U.S. farm groups to cut agricultural support by 70 percent - more or less what Brazil and others have been asking - got a cold reception. 'We believe that it is important to make clear that American agriculture will not support any deeper cuts in domestic support than those already proposed by the administration,' said American Soybean President Bob Metz in a prepared statement.

U.S. farm groups still might be amenable to lower subsidy payments if the European Union were to offer deeper reductions in its own farm tariffs. The European Union currently proposes cuts that would result in the agricultural tariffs it actually imposes averaging 13 percent, according to a recent computer simulation by the Australian government. The United States has proposed a formula that would result in E.U. farm tariffs averaging just 8 percent.

To bridge that gap, the Bush administration has sought Brazil's help in pressuring the European Union to improve its offer. It is conventional wisdom in trade circles that Brazil is dragging its feet because of its reluctance to lower its industrial tariffs unless it receives far greater access to the European agricultural market. But the Australian simulation highlights another complication, underscoring just how complex this negotiating end game has become.

Under the U.S. farm tariff cutting proposal, Brazil would have to apply lower duties on 16.5 percent of its agricultural imports. Under the E.U. proposal, Brazil would only have to cut tariffs on 6.6 percent of its imported farm goods. As an emerging agricultural export power, Brazil sees little value in opening its own market to greater competition.

The key to breaking this deadlock may rest in the industrial sector. The European Union has offered to cut farm duties more if Brazil reciprocates by lowering its industrial tariffs. So far, Brazil has offered to reduce its average manufacturing duties to between 22 and 25 percent. Europe would accept about 19 percent, which also would be acceptable to the United States. But Brazil has refused to budge.

This 'After you, Alphonse' routine has to end. The time for negotiating posturing is past. If U.S. farm groups and their supporters in Congress are serious about not accepting more than a 60 percent cut in U.S. agricultural subsidies, then the Doha Round is finished. Similarly, if the Europeans can't cut their average farm tariffs to about 10 percent or so, there is no use in talking. And if the Brazilians aren't willing to table a new offer on cutting their industrial tariffs, then negotiators might as well go home.

In any negotiation, as in poker, 'You gotta' know when to hold 'em and know when to fold 'em.' But you also need to know when to play the cards you have in your hand. Now is that time. Or the game is over.