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10 November 2003
Transatlantic Trade: Doha Round Lost at Sea?
Summary
Several volatile trade issues between the United States and
Europe are coming to a head. With neither side in a position to
compromise, escalating trade tensions and a widening gap in the
philosophy of trade liberalization will be growing features in
transatlantic relations through much of 2004. This will undermine
any lingering hopes of resuscitating the Doha round of WTO trade
negotiations and will hurt certain key economic sectors -- such
as steel, agriculture and textiles -- on both sides of the
Atlantic.
Analysis
A perfect storm of trade issues is converging over the Atlantic
and looks to be settling in to form a prevailing pattern in U.S.-
EU relations in the coming months and throughout much of 2004.
First, the World Trade Organization's top adjudicating body ruled
Nov. 10 that U.S. steel import duties, which were imposed in
March 2002 by the Bush administration to protect domestic
producers, violate international trade rules. The ruling is the
WTO's final word on the U.S. tariffs and opens the door for the
European Union -- which brought the case to the WTO along with
Japan, Brazil, South Korea, China, New Zealand, Norway and
Switzerland -- to impose some $2.2 billion in retaliatory duties
on U.S. goods as early as December.
Second, the EU reportedly has put off for at least one month a
controversial decision on genetically modified organisms that
many expected to come this week. A decision to authorize a
certain type of genetically modified sweet corn -- the first such
authorization in five years -- would be a big victory in the
American battle to pry open the European markets for GMO food.
Delaying the decision underscores the difficulty that Europe is
having balancing domestic opposition to biotech products with
intense external pressure.
These developments follow an early November decision by the EU to
begin retaliating against U.S. tax breaks on exports, also known
as the Foreign Sales Corporation credit. Brussels decided to
begin gradually phasing in some $4 billion in tariffs on American
products, beginning with a 5 percent import tax on specified
goods starting in March. The tariff will rise in increments of 1
percent a month for 16 months, to the maximum 20 percent tariff.
Apparently an early November trip to Washington by European Trade
Commissioner Pascal Lamy to discuss the steel and export duty
issues with administration and congressional officials yielded
little progress, and the prospects aren't likely to improve in
the coming months.
No Time for Trade?
Both sides -- the United States and Europe -- are entering key
periods of internal focus. For the United States, the 2004
election cycle is kicking into gear and will increasingly
dominate policy discussions and drive policy decisions.
Inevitably, election cycles tend to rule out significant
concessions to foreign trading partners and are often accompanied
by politically motivated concessions to domestic special
interests -- such as the Bush administration's move in March 2002
to impose new tariffs on steel imports and the massive increase
in U.S. agricultural subsidies passed a few months later,
decisions which preceded a midterm election. Election-year
politics will make it even more difficult for the Bush
administration to roll back the steel protections, which would
impact its campaign in key states like Ohio and West Virginia. It
will be equally hard for Congress to do away with the export tax
credits with an election looming.
Europe's domestic plate is equally full, if not more so. Europe
is deep into a complex and contentious debate over a new EU
Constitution, and the discussion has split up member countries
into various ad-hoc factions. Europe's goal of completing
negotiations by December is looking increasingly unrealistic, and
even if the countries can agree upon a final draft, Europe still
must get through the difficult process of obtaining approval of
the document from all 25 nations, including the new members
joining in 2004. This leaves little bandwidth for Europe to deal
cohesively with difficult trade issues with its top trading
partner.
Moreover, there appears to be a widening gap in philosophy
between the United States and EU over the best way to achieve
open markets. The United States has largely abandoned the current
round of multilateral talks in favor of bilateral agreements,
which are usually easier to negotiate and control. The European
Commission, on the other hand, reportedly still favors the
multilateral route.
According to early November reports, Brussels will present a
"reflection paper" to member nations during the week of Nov. 10
in which it argues that the EU should remain focused on
multilateral trade deals through the WTO rather than shift its
focus to bilateral trade deals. The commission's rationale
reportedly includes difficulty in developing a negotiating
position among its 15 (soon to be 25) members, as well as a
"feeling" that bilateral negotiations put small countries at a
disadvantage in trade talks. Though EU governments might not
happen to agree with the commission, Brussels is in the driver's
seat in terms of European trade negotiations and appears to favor
keeping Europe on the road to Doha.
Lingering Hopes for Doha?
Brussels might still have faith in multilateral talks, but
without U.S. support further progress will be nearly impossible.
In the past, unexpected leaps of progress in multilateral trade
talks almost always have resulted from close cooperation between
the United States and Europe. Though bilateral tensions do not
rule out such cooperation -- Europe and Washington still share
many of the same goals -- the current disagreements and domestic
distractions will make a breakthrough that much more difficult.
As a growing number of signs indicate, any chance that the Doha
round can be resurrected is looking increasingly unrealistic.
Likely frustrated by the huge gap between the developed and
developing economies on agriculture, the WTO's chief mediator for
farm trade, Stuart Harbinson, recently said that he would resign
as soon as the organization finds a replacement. Harbinson said
the WTO's agricultural committee could benefit from a new
chairman with a "fresh perspective," especially as agricultural
negotiations are in a "political phase."
News agency AFX used similar phrasing in a Nov. 10 report stating
that European member states have decided to abandon the four so-
called "Singapore issues:" liberalization of investment laws,
stronger competition policy, transparency in government
procurement and general trade facilitation measures. An internal
EU document reportedly states that these issues "may politically
speaking not be feasible" in the current round of global trade
negotiations. Such a decision could have both negative and
positive interpretations for Doha -- on the negative sign, it
appears to be a recognition by Brussels that Doha is too far gone
to make gains on the Singapore issues. However, it could
represent a positive if the EU actually abandons these issues,
which were greeted with scorn by developing countries in Cancun.
Still, taking those issues off the table would not swing the
balance in favor of Doha, but merely give Washington less
motivation to get behind another major push.
Thus, instead of major progress on trade liberalization, 2004
likely will see increased tariffs and sanctions from various
quarters. Europe's retaliatory sanctions on the steel tariffs
will reportedly be applied to politically sensitive products such
as citrus fruit, textiles and Harley Davidson motorcycles -- all
of which have important domestic constituencies in key electoral
states.
Sanctions also could be applied to a range of other manufacturing
and agricultural goods. Sanctions imposed because of the export
tax credit will be applied to specific products like American
jewelry and toys. These lists likely will expand as the sanctions
dates draw closer. So long as the Bush administration holds tight
on steel tariffs, U.S. manufacturers also will feel the impact of
continued higher costs for domestic steel, as will Europeans
through the retaliatory tariffs. Also on the European side,
steelmakers will continue to suffer from being shut out of U.S.
markets, and consumers will take a hit from rising prices on
targeted U.S. goods.
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