Saturday, July 26, 2008

No Doha deal better than a dud one

Free trade remains in Australia's best interests.  This week trade ministers descended on Geneva for negotiations to try to break the deadlock in the Doha Round of World Trade Organisation negotiations.  But if a good deal cannot be reached, no deal would be better than a bad deal.

The present bottleneck in negotiations surrounds the preparedness of the US and European Union to cut deep into their agriculture subsidies.  In exchange they want developing countries, led by India and Brazil, to reduce their tariffs on industrial goods.

But if a deal is struck in the next week it is likely to be short, because commitments to liberalise will be low.  In particular, the US and EU are likely to give little and developing countries will reciprocate.  Poor negotiating positions by the US and EU are driven by domestic politics and demonstrate why politicians should be kept away from trade policy.

At the last mid-term elections protectionist Democrats took control of the US Congress.  As a result, US Trade Representative Susan Schwab has her hands tied.  For political and protectionist reasons the Congress is unlikely to agree to a trade deal that would provide outgoing President George W. Bush with a moral victory.

And the official campaign for the US presidency has begun.  Lurking in the shadows is the prospect of a Barack Obama presidency.  To date Obama's trade positions have pandered to ignorant anti-trade populism.  But at least the US problems are cyclical.  The problems of securing a deal from the EU were entirely avoidable.

On July 1, French President Nicolas Sarkozy took on the rotating presidency of the EU.  Following his accession he launched a tirade against the EU's trade commissioner, Peter Mandelson, and his commitments to end export subsidies and reduce production subsidies.

As Mandelson admitted, Sarkozy's attacks make his job harder.  Because of Sarkozy's attacks it is now unclear what the EU negotiating position is and what Mandelson can commit to.

Negotiating a successful round is being bookended by difficulties.  The prospect of a global economic slowdown is also likely to cause a retreat to protectionism in the US and EU.  Populist politicians are likely to blame lost jobs on off-shoring and cheap Chinese labour.  However, there remains a slim chance it could be a wake-up call.  With scarcer funders the US and EU governments might finally realise the excesses of their subsidy programs.

All these factors make the successful conclusion of the Doha Round in the next week unlikely.  And that might be good news for Australia.

Core gains for Australia from the round stem from agricultural subsidy cuts.  Only deep cuts meet our interests.  And beneath the surface of the main negotiating issues are two concerning proposals.

In the committee dealing with intellectual property, the TRIPS Council, there are negotiations to expand the mandatory scope of geographic indications.  GIs are a questionable form of intellectual property that allows only select products to be branded based on their geographic origin.

Under present rules special GI status is provided for wines and spirits.  The EU wants to push it into agriculture.  The risk is Australia would no longer be able to export cheeses under their common names -- parmesan and cheddar -- like we cannot export Australian champagne.

Developing countries are also championing amended intellectual property rules related to the UN's Convention on Biological Diversity.  These changes would nationalise genetic resources, introduce international regulations on how to distribute commercial gains from innovation and increase the cost of innovation.

The consequence would be to remove the commercial incentives for the pharmaceutical and biotechnology industries to prospect for new medicines and treatments.

Boosting the pharma and biotech sectors has been made central to the Government's innovation review.  They may find their efforts are undercut in the WTO.

The EU has already stated they expect their GIs proposal included in the text of the final round.  In a text circulated last week the EU and developing countries have joined in alliance to support each other's intellectual property reforms.

The consequences of the proposed amendments to international intellectual property rules have not been fully considered.  Their inclusion is premature and dangerous.  Unless these intellectual property reforms are offset by deep cuts in agriculture subsidies there will be few gains for Australia from the round.

It looks as if the best outcome for Australia from the WTO is to wait and pray.  France's EU presidency will end and there is hope Republican candidate and staunch free trader John McCain will be elected the next US president.  If these things happen negotiations are much more likely to meet our interests.  There is a need to finish this round.  But, for Australia, no deal remains better than a bad deal.


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