US relying on allies to save Doha talks

The US President, George Bush, is poised to strike a deal to save the Doha round of trade talks, says the world's pre-eminent trade economist.

America's failure to offer real reductions in farm subsidies was widely blamed for last month's collapse of World Trade Organisation talks in Geneva, Switzerland.

But Jagdish Bhagwati, Professor of Economics at Columbia University, says Republican Party leaders have already decided to slash subsidies and save the round - but they cannot do so until after the mid-term Congressional elections in November.

President Bush will need close friends like the Prime Minister, John Howard, to "hold his feet to the fire" and strengthen his resolve, Professor Bhagwati told the Herald.

"Your prime minister's complete alliance to whatever Bush does, more or less, means he should be able to call in some debts. I think one of them is the Doha round," he said.

ANU's Professor Hal Hill said Professor Bhagwati, who coined the phrase "spaghetti bol" to describe the proliferation of bilateral trade agreements, has been widely regarded as the world's most influential trade and development economist for 40 years.

Potential gains from a successful round have been estimated as high as $US287 billion ($374 billion) - with the benefits skewed towards agricultural exporters like Australia, Brazil and much of the developing world.

Top Australian Government officials also believe the Doha round will be saved.

"We are very close to a breakthrough," the Trade Minister, Mark Vaile, said in a speech last week. "The WTO has recovered from worse setbacks than the current suspension of the round."

And Indonesia's Trade Minister, Mari Pangestu, visiting Canberra, said the Doha round was "stalled but it's not stuck".

Indonesia chairs the G33 group of developing countries, which is pressing for special trade preferences.

Indonesia - along with most other lead negotiating countries except the US and Australia - placed responsibility for saving the round squarely on the US.

"We continue to wait for more from some countries, particularly the US," Dr Pangestu said.

Professor Bhagwati says the US is now "the key problem", with its offer to give up "practically zilch" on subsidies. But senior Republican sources have told Professor Bhagwati that they are prepared to cut subsidies by enough to satisfy the European Union - but cannot do so while the Democratic Party is pushing an anti-free trade agenda leading up to the Congressional elections.

"The inside track story is the Americans have actually decided to go from $US22 billion to $US19 billion, or 18 or 17 maybe, internally, but they did not play.

"That suggests the president is willing - so the question is why didn't he make it now?

"It's because he's badly wounded at home because of the Iraq war and if Bush made an accommodation right now before the election the Democrats would just decimate him.

"I think he will play right after the election. Now, in the meantime, his hand has to be strengthened."

Optimists say the Doha talks, while painfully slow, have cleared away a forest of side issues. The Europeans have dropped their insistence on substantial services reform and have shown willingness to improve market access to agriculture.

The US has agreed to generic drug concessions to developing countries despite vehement opposition from pharmaceutical companies.

Agricultural producers have agreed to eliminate export subsidies by 2013.

And the least developed countries have been granted preferential access to key markets. Dr Pangestu said the G33 bloc was prepared to be "flexible" but only when others moved first.

The Cairns Group of agricultural exporters meets in Cairns next month, with guests Pascal Lamy, director-general of the World Trade Organisation, and US trade representative Susan Schwab, after the more influential Brazil-led G20 group meets in Rio.

But Dr Pangestu and Australian officials are sceptical about the prospects of any breakthrough ahead of the American and Brazilian elections.

Professor Bhagwati said there was little point in hectoring the EU's trade representative, Peter Mandelson. "There's been a lot of beating up on the Europeans so far. We've done enough with these guys and now is the time we turn our attention to the Americans."

Earlier this month, Mr Mandelson accused Mr Howard and the Foreign Minister, Alexander Downer, of "Europe bashing" and said Australia "has got to show some realism or get the United States to show some realism on farm subsidies".

Many believe the Doha round must be concluded by about March if it is be presented to US Congress before the Bush Administration's special fast track authority expires, although Australian officials are confident that the authority will be renewed.

Professor Bhagwati says President Bush is a man of conviction who wants free trade. But he needs help from his four loyal allies:
Britain's Tony Blair, Germany's Angela Merkel, Japan's Junichiro Koizumi and Mr Howard.

"He talks to God but God is asleep at the switch unfortunately on Doha, so you've got to rely on these four mortals."