Hoping for can-do talks at Cancun

By BRIAN FALLOW economics editor

Trade Negotiations Minister Jim Sutton leaves for Cancun, Mexico, today optimistic that he and 145 of his peers will be able to muster the collective political will to get the Doha Round of world trade talks moving forward again.

"If we can clearly see a way forward for these negotiations, an emerging consensus on some of the key issues, I will be well pleased," Sutton said yesterday.

This time agriculture, a perennial New Zealand concern, is generally accepted to be the key to a successful round.

The heads of the International Monetary Fund, the Organisation for Economic Co-operation and Development and the World Bank said in a joint pre-talks statement that reforming current practices in global farm trade held perhaps the most immediate scope for bettering the livelihoods of the world's poor.

"Yet developed countries impose tariffs on agriculture that are eight to 10 times higher than on industrial goods.

"Many continue to use various forms of export subsidies that drive down world prices and take markets away from farmers in poorer countries.

"In every sector except agriculture these same countries long ago agreed to prohibit export subsidies," they said.

"Agricultural support costs the average household in the European Union more than US$1000 [$1750] a year."

By the Ministry of Agriculture's reckoning the more than $500 billion that agricultural protectionism cost OECD countries' taxpayers and consumers last year would be enough to buy each of the 56 million dairy cows in the OECD a first class around-the-world air fare, with $3000 spending money.

Trade officials negotiating in Geneva have been unable to agree on even the outline of a deal on agriculture.

A draft text issued by Carlos Perez del Castillo, who chairs the WTO general council, largely echoes a joint document hammered out between the Europeans and the Americans but rejected by a wide range of other WTO members.

Sutton emphasised that the chairman's text was not agreed.

"We wanted a more ambitious text, others wanted a less ambitious text," he said.

"Both sides have effectively battled each other to a standstill in Geneva."

On both export subsidies and market access the draft embodies a two-tier approach.

Export subsidies in some commodities "of particular interest to developing countries" would be slated for elimination over a period, but for the rest subsidies would only be reduced.

On tariffs, some would be subject to reduction on the "Swiss formula", which ensures the highest tariffs get the deepest cuts, but other "import-sensitive" commodities would be subject only to the gentler formula used in the Uruguay Round.

It lays down an average and a minium cut, but allows for minimal progress on the most protected commodities.

Sutton said New Zealand wanted clear language about getting rid of agricultural export subsidies.

The Doha declaration that launched the round calls for "reductions of, with a view to phasing out, all forms of export subsidies" - a form of words that papered over the chasm between those willing to see subsidies cut and those determined to see them cut out altogether.

"And we need to have a robust commitment to securing real improvements in market access for all agricultural products."

At the same time New Zealand, which stopped subsidising farmers in the mid-80s, wants to see a reduction in the levels of domestic support - estimated by the OECD to top US$300 million a year - paid to farmers in rich countries.

Merely switching support from the most trade-distorting production-linked forms to lump-sum forms, as recent reforms to the European Union's common agriculture policy (CAP) do, would not be enough.

The EU argues that these reforms mean that most of its subsidisation of agriculture will be in forms that are less trade-distorting or not trade-distorting at all, and that the objective of the WTO is to reduce farm subsidies that distort international trade and harm the interests of developing countries.

"The rest," it says, "is rhetoric."

This sort of language reinforces concerns among larger agricultural exporters that Europe thinks it has done enough already and that any concessions wrung from it will be targeted at the most needy of developing countries.

"That is a tactic some of the protectionist elements within the EU adopt," Sutton said.

"They think they can win over some of the poorest of the poor by telling them the value of the rather pathetic concessions on sugar or whatever they enjoy is at risk if the greedy agricultural exporters insist on general liberalisation."

"But when one considers that the markets the EU is suggesting it will avoid sabotaging with their export subsidies amount to something like only 2 per cent of their agricultural exports, one can see what a token it is they are putting on the table. It's beads-and-blankets stuff."

Nonetheless, Sutton welcomes the CAP reform as a "remarkable achievement" which has given the Europeans room to manoeuvre.

"The indications are they will make us pay in blood for every centimetre."

New Zealand was prepared to be constructive about subjecting investment and competition policy to disciplines - aims dear to the EU's heart - in the context of an outcome sufficiently ambitious on agriculture, Sutton said. Meanwhile United States Trade Representative Robert Zoellick turned up the heat under the Cancun meeting by saying the US would pursue its trade liberalisation agenda through bilateral free trade agreements if the WTO process failed to deliver.

He also delivered a veiled criticism of Japan for failing to take a leadership role.

Japanese resistance to trade liberalisation in fish and forest products casts a shadow over New Zealand hopes in those sectors.

There is a proposal to target eight sectors for accelerated progress to zero tariffs within the non-agricultural market access negotiations. Fish is one of them.

"That does not look as if it has too many feathers to fly with at the moment," said Alastair Macfarlane of the NZ Seafood Industries Council.

It is opposed by the Japanese and Koreans, who fear the effects on their local catch, and by some developing countries that currently benefit from preferential access to European markets.

But trade in fish is one area where overall liberalisation would benefit developing countries, Macfarlane says, because between 40 and 50 per cent of world production is internationally traded and nearly half of that is from developing countries.

Forest Industries Council chief executive Stephen Jacobi said forestry was not one of the eight sectors tentatively identified for fast-track liberalisation.

Forest exporting nations would be pressing for its inclusion.

"But the whole approach is under discussion because they are not prepared to accept any sectors being singled out.

"If they don't get a good outcome on agriculture they are not going to give developed countries a free ride on non-agricultural trade."

Among developed countries Japan was the one most opposed to liberalised trade in forest products, he said.

Sutton said Japan at the end of the day had an internationalist outlook and would seek to avoid being the obstacle to final consensus. "They won't move any more than they have to but they won't pull the whole round down."