Trade Commentary - Summer 2007

On June 19, the G4 countries (US, EU, Brazil, India) convened in Potsdam, Germany to try and reach convergence on many trade issues in hopes of expediting the WTO negotiations. The idea behind the meeting was that if the four major countries could narrow their differences it would act as a catalyst to push the Doha round towards completion by the end of the year.   Instead, negotiations followed an all too familiar pattern – a lot of finger pointing among countries led to the collapse of the meetings on June 21.  Adding to the disappointment of the collapsed talks was the fact that originally the talks were to last until June 23.   With the early collapse of discussions among G4 members, negotiators from member countries nervously returned to Geneva in late June in hopes of quickly reviving the stalled Doha round.  

After nearly a month of further consultations and negotiations, Ambassador Crawford Falconer released the latest version of the draft “modalities” text which offered an assessment of what might be agreed upon for cutting tariffs and trade distorting agriculture subsidies.   

Some of the highlights of the text include a $13.1 – $16.5 billion cap for US domestic spending, 66-73 % cut for tariff values over 75%, and 4-6 % eligibility of dutiable tariff lines for sensitive products.  Since the release of the draft text there have been a lot of comments ranging from praise to disapproval, but the overall outcome has been an agreement among countries to take a break in August to review the material and return to Geneva in early September to continue negotiations.

Although there are positive elements of the text, the proposals still fall short of achieving a fair deal for Canada’s agriculture industry. Tighter controls on trade distorting subsidies does suggest that the US will have less wiggle room to increase domestic spending, but a cap set as high as 16.5 billion is still an exorbitant amount of money.  Also, if the 2007 US Farm Bill that recently passed through the House of Representatives is any indication, the US government still regards domestic spending on agriculture as a priority, regardless of WTO commitments. 

Deep cuts to high tariff rates sounds good, but the draft text failed to mention reducing in quota tariffs which is the real barrier for many of Canada’s export products.   Allowing 4-6 % of dutiable tariff lines to be considered sensitive is completely unacceptable as it only allows Canada to protect one half of its sensitive product lines, while the EU will still get to protect many of its products due to their already high level of dutiable product lines.

The start of the Doha Round in 2001 feels like ages ago and if the current draft modality text and new potential US Farm Bill are any indication, an agreement in the foreseeable future is still in doubt.