Sumario: Speech by EU Commissioner Mandelson: "Doha: What is at Stake?" (London: 23 June 2006)
In this speech EU Trade Commissioner Peter Mandelson offers a stark assessment of the steep costs of failure in the WTO Doha trade talks. Speaking to an audience in London on 23 June, Mandelson argued that the potential gains already on the table in the Doha Round and the heavy systemic and political costs of failure mean that negotiators at the June 2006 Ministerial meeting in Geneva must not be "tempted by the false comfort of inflexible and entrenched positions".
Mandelson offered a complete picture of a final deal, insisting that an ambitious outcome not just in agriculture but also in services, industrial goods and trade facilitation negotiations was the key to a development Round. Mandelson argued that as well as offering a boost to the global economy for both developed and developing countries, the Doha Round offers a chance to integrate the emerging economies of Asia and South America into the global trading system and reinforce the multilateral trading system. The alternative, he said, "is a system in which the large all too often strong-arm the small. Trade muscle instead of multilateralism".
Mandeson argued: "Failure means losing the possibility of binding the EU's agricultural reform in Geneva and the possibility of locking in similar reform in the United States. The world would lose new market access in farm goods - the deepest, steepest farm tariff cuts ever offered. New trade in manufactures would be lost that is not just vital for the EU and the US but for the growing industrial sectors of the developing world. To lose even a modest deal on services trade would mean foregoing the developmental benefits of foreign investment and the global flow of skills and experience to the developing world. We would lose a new multilateral agreement on duty-free quota-free market access for the Least Developed Countries. We would lose a huge new global package of Aid for Trade. We would lose the chance to rewrite the global trade rulebook in a way that opens the door to new trade and closes the door on corruption. And we would lose the conviction that the WTO system can function with a membership that reaches 150 and mirrors every increment of size, interest and capacity in the global economy."
Tackling recent criticism of the EU's development credentials in the Doha Round Mandelson argued that critics of the Round needed to look more closely at the benefits of opening up trade in services and industrial goods among developing countries. He also pointed to the potential benefits of trade facilitation negotiations, which he said could add 8% to Southern Africa's GDP by 2020 - the equivalent of doubling Africa's official development assistance. These potential benefits, he argued, meant those who believed that the developing countries should walk away from the Doha round were "simply wrong".
Looking ahead to Geneva next week, Mandelson welcomed the signal by the US President in Geneva that the US is ready to make tough decisions to reach an agreement and will not allow the Doha round to fail. He said: "There is a three way bargain here. The G20 wants steeper cuts in US farm subsidies before it is willing to table the required cuts in industrial goods. Washington can unlock this by stepping forward with a better offer. If this happens the EU will, at the same time, meet them both with a strengthened offer".
Doha: what is at stake?
I came to this job a convinced multilateralist. Multilateralism is for me the counterpart of, and best response to, our increasing global interdependence.
The multilateral trading system is the engine room of the global economy. The multiplier effect of a global deal like Doha is so great that no bilateral oiling of the wheels can match it. Successive Rounds of trade liberalisation have pushed down barriers and generated huge gains for the global economy. In the last decade, hundreds of millions of people have been lifted out of poverty.
A lot of people have been talking down the current Round. They are wrong to do so. The truth is that it offers the prospect of taking the process much further. A 100 billion euro shot in the arm every year for the global economy. A steep reduction in trade-distorting farm subsidies. New markets for trade in farm goods, manufactures and services. New aid for trade for the poorest and an opportunity to strengthen the WTO rulebook to make it easier to trade, with protection for the weakest.
That is why Europe was instrumental in launching Doha in 2001. Why Europe salvaged the Round in July 2004 with its offer to end all agricultural export subsidies. Why last October Europe made a comprehensive offer to cut trade distorting farm subsides and further open our farm, manufacturing and services markets. And why at Hong Kong last December we put a date of 2013 on the elimination of export subsidies.
The EU has paid, and paid again, into the Doha Round. We have done as much as anyone and more than most. And we will continue to do so, if others play their part too.
Next week in Geneva, Ministers will try again to move ahead on the final difficult steps towards an agreement. We need to approach this not in a spirit of narrow self interest and negotiating machismo, but in a genuine quest for a compromise.
The burden of this work falls on the big players: the EU, the US, the emerging economies of the G20. Not because we can make a deal alone, but because no deal can be made without each of us. We all have to be ready to move. The United States needs to make an improved offer to reform its farm markets and subsidy programmes. The big emerging economies need to live up to their growing weight in the global trading system by making offers to open their markets in industrial goods and services. Europe has to be ready to move further, if others engage in this way, in reducing its agricultural tariffs. But we need to plug all the gaps or there will be no final deal.
The shadow of 9/11
Such failure would be a tragedy given how far we have come, and why. Doha was launched in the shadow of 9/11, 2001. It was an assertion of our common commitment to use multilateralism to shape our world for the better. It meant using trade liberalisation to advance development and social justice in an unequal and uncertain world. Do not forget: this trade Round is about global politics as well as global economics.
Yet in my year and a half as Trade Commissioner I have been struck by the lack of public consensus on the link between trade liberalisation and development. Although every successful example of economic development in the twentieth century points to the value of such liberalisation, some people still believe, no doubt with the best of intentions, that liberalisation is something developing countries must endure, not something they need. Let's look again at the facts.
First, farm reform...
In most people's minds trade justice starts with farm reform in the developed world. They are right on this essential point: the use of subsidies to distort food prices in world markets must end. Europe has not had a good historical record on this. But Europe is now undertaking radical reform, decoupling payments to farmers from production, cutting trade distorting farm supports by 70% and eliminating all farm export subsidies by 2013, with substantial phasing out before this date.
Doha is an opportunity for developing countries to lock in this reform and to push it further in future. Doha also remains the best chance to secure similar commitments to reform from the US. The alternative will be a 2007 farm bill written in Congress with the interests of Kansas rather than Kenya in mind.
...and new agricultural market access.
The Doha Round is also committed to new market access in agriculture. Agriculture remains highly protected, in the developing world as much as the developed world. International competition lowers prices for consumers and generates new income for farmers in highly competitive developing countries like Brazil. Europe has already offered to cut its highest farm tariffs by 60% and its average farm tariff in half to just 12%. These are huge cuts for a single trade round and press against the limits of what is politically and socially possible, and economically viable, for Europe.
Are these cuts also a necessary part of a development Round? Yes they are. But they are not the development panacea some claim. It simply does not follow that, because almost half of the world's poor are subsistence farmers, cutting farm tariffs will somehow lift them out of poverty. Only 11% of the poor world's trade is in farm goods - and that number has been going down steeply for three decades. The countries that have successfully reduced poverty have been those moving to an economy based on manufactures and services.
You only have to look at who is pressing hardest for farm tariff cuts to work out who will benefit most. It is not the poor countries of Africa, the Caribbean and the Pacific: it is the large agriculture exporters of the United States, Australia, and Brazil. Farm tariff cuts will do little to help farmers in Kenya. Or Tanzania, or Uganda. In some cases they will actually erode the preferential market access that Europe already offers to African countries, who almost all pay no tariffs at all for agricultural exports to the EU. Long term dependence on preferential access is a developmental cul-de-sac, a legacy of a bygone age. We saw this in the Caribbean with sugar. But we also saw in the Caribbean that this preference erosion has to be managed over time and compensated.
Global agricultural trade is a tough business, and the market can and will be cornered by highly competitive bulk producers. For the poorest, aggressive farm tariff cuts will spell disaster overnight. That is why the developing world as a whole will never sign up to an overambitious level of farm tariff cuts in the negotiations.
Development beyond agriculture...
About three quarters of developing country trade today is in manufactures. So are most of the tariffs they pay. And most of those tariffs are paid to other developing countries. So is there a development argument for progressively reducing these barriers? Yes, certainly. All the evidence says there is.
...in manufactures
I am often accused of being too aggressive in the EU's demands for developing countries to open their services and manufacturing markets. In reality, in both areas the EU has asked for cuts from only a small number of advanced developing countries, at a lower level than the rest of us, with a right to shelter sensitive sectors. I think that's a good development bargain.
But equally, we should be clear that progressive liberalisation of trade between developing countries - South-South trade - is vital for their economic growth. This provides new markets for developing countries in the huge emerging markets of China and Brazil and India. It starts to unlock the potential that is presently dammed up behind the tariff barriers of the developing world.
...and services
Services trade, equally, provides a vital means of transferring expertise and technology between developed and developing countries, and when it brings much needed capital investment with it, is an important way to build the transport, communications and banking sectors that are the backbone - the hard wiring - of any growing economy.
I recently travelled to Malaysia where a decade of foreign investment and imported foreign experience in the construction sector has underwritten the development of a thriving local construction industry.
Research shows that an ambitious services deal could outstrip the gains for developing countries from new trade in agriculture and even industrial goods over time. The EU has been the leading advocate of this. We have backed India in its call for greater access in what is called Mode 4, which is access for temporary skilled workers. But at every turn this agenda has been painted by NGOs as anti-development. They seem to think that we will actually do developing countries a favour by cutting them off from the advantages of the advanced services economy the rest of us enjoy.
...and in trade facilitation
Few people understand that the greatest benefits for developing countries in this Round are likely to come, not from market access, but from the unglamorous work of securing standardised customs practice in every market and at every border. This is called trade facilitation.
Developing countries have the most to gain from this negotiation, for the same reason that it takes two hours to clear a container through Liverpool and twenty days to clear it through a port in Ethiopia. Small exporters in developing countries are hit hardest by complex procedures and red tape.
Modelling of trade facilitation gains by the World Bank and other institutes suggest that a basic package of trade facilitation measures could be worth about 2% of the value of global trade, somewhere between a third of a billion and about a billion dollars a day. A trade facilitation deal could add more than 8% to Southern Africa's GDP by 2020 - the equivalent of doubling the Continent's official development assistance. But these rules can only be negotiated multilaterally. That is yet another crucial feature of this Round. Without Doha, there will be no change.
No simple answers
Of course it is complicated making economic liberalisation work for development. Of course it needs sensitive political management and financial support. The answers do not come ready made from the pages of neo-liberal text books. The development argument deserves better than slogans and dogma. It needs an honest assessment of the economic evidence. It requires acceptance that there will be problems and pain along the way. But the argument that the developing world should contemplate walking away from the Doha table is simply wrong.
Moving to a deal
I have in previous speeches set out the parameters of the deal I think is now in sight. I believe that all sides understand well enough where we can converge. The question now is do we have the political will and capacity to do it - accepting that any solution that is acceptable to everybody will by definition not be ideal for anybody.
Europe has offered to add to its offer of last October if others show similar flexibility and willingness to go further. Europe will match others in its willingness to make tough decisions, although I have a clear negotiating mandate that I must and will respect.
Brazil and the emerging economies of the G20 need to make a significant offer to open their manufactures and services markets, subject to the caveats that I have outlined. This is how these economies will benefit from greater openness - that is why Brazil and India have been unilaterally lowering their industrial tariffs for a decade - and growing at an unprecedented pace in the process.
The United States needs to improve and complete its offer to cut its trade-distorting domestic farm subsidies. The current US offer would leave US spending limits higher than the last US notification of their spending in Geneva in 2001. This, clearly, needs modification. I applaud the desire of the United States to press for the most ambitious possible outcome to this Round. But you cannot get that simply by pushing others to move. The US will have to give more if it wants to get more. I am most encouraged by what President Bush said at the EU/US Summit this week about his determination to reach agreement and readiness to make difficult choices to get there. He is showing leadership.
There is a three way bargain here. The G20 wants steeper cuts in US farm subsidies before it is willing to table the required cuts in industrial goods. Washington can unlock this by stepping forward with a better offer. If this happens the EU will, at the same time, meet them both with a strengthened offer. Of course there is much more to the negotiations than this trio of issues. But this is the key that will unlock the wider deal.
Conclusion
There is much negativism about Doha. It is in my view exaggerated. Of course any negotiation on this scale will be hard fought and tough. The result will not be perfect. But let us not make the best the enemy of the good.
A successful Doha Round will add hundreds of billions of euros to the global economy, for the benefit of every member of the WTO. The alternative is a system of bilateral agreements and FTAs in which the large can strong-arm the small. Trade muscle instead of multilateralism.
For Europe, Doha can offer new opportunities for European businesses and manufacturers to compete in the growing markets of the emerging economies. Our carmakers and chemical and electrical and light industrial manufacturers rightly expect that Europe does not come back empty-handed from Doha. Our own further cuts to our already low industrial tariffs would provide even easier access to Europe's market for our aggressive manufacturing competitors in the emerging economies. We have asked for less in return, but the emerging economies must offer something. The competitive end of global industrial trade is a rapidly levelling playing field on which Europe cannot be expected to make all the concessions.
A successful Doha round that opens south-south trade will reflect the growing reality of the global economy - that China and Brazil and the emerging economies of Asia and South America have a new power but also a new responsibility. Doha is an opportunity to integrate these markets further into the global economy. If we miss that opportunity it will not come back. We will all be huge losers in the years to come economically - and politically. To realise this, you just have to think who will be cheering if our negotiations fail.
And what are the other costs of failure? Failure of Doha would be a blow to the credibility of the international trading system.
Failure means losing the possibility of binding the EU's agricultural reform in Geneva and the possibility of locking in similar reform in the United States.
The world would lose new market access in farm goods - the deepest, steepest farm tariff cuts ever offered.
New trade in manufactures would be lost that is not just vital for the EU and the US but for the growing industrial sectors of the developing world.
To lose even a modest deal on services trade would mean foregoing the developmental benefits of foreign investment and the global flow of skills and experience to the developing world.
We would lose a new multilateral agreement on duty-free quota-free market access for the Least Developed Countries. We would lose a huge new global package of Aid for Trade.
We would lose the chance to rewrite the global trade rulebook in a way that opens the door to new trade and closes the door on corruption.
And we would lose the conviction that the WTO system can function with a membership that reaches 150 and mirrors every increment of size, interest and capacity in the global economy.
As President Bush said in Vienna this week, the Doha Round is too important to fail. Any negotiator tempted by the false comfort of an inflexible and entrenched position in Geneva next week should remember that.
Today I have described why we will benefit from success in the Doha Round. Before we travel to Geneva next week all negotiators, and all those who criticise the process from the sidelines, should contemplate the truly enormous costs of failure - both economic and political.
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