Why the trade talks collapsed

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Abstract:

The WTO talks between the G-4 nations -- Brazil, India, the United States and the European Union -- have collapsed yet again. This time, the only surprising twist was that U.S. Trade Representative Susan Schwab put the blame primarily on India and secondarily on Brazil.

In truth, the breakdown of the Doha Round in Potsdam, Germany, had less to do with India and Brazil's protectionism than with the U.S.'s paralyzing inability to respond to long-standing, world-wide demands for the reduction of its (and the EU's) agricultural subsidies. Until we confront this central fact, success will remain beyond our grasp.

The good news is that the Doha Round has already made substantial progress on other contentious issues -- such as poor nations gaining easier access to generic drugs and the least-developed countries enjoying virtually free-market access without duties and restrictions. With many of these issues settled or taken off the table, and many players placated, the endgame came down to the four "big players": the U.S., the EU, Brazil and India. Each had to make substantive trade-barrier and subsidy concessions to close the Doha Round. The EU needed to make concessions on agriculture where its barriers and subsidies were huge. It did not seek concessions in this sector from India and Brazil, but rather, wanted reciprocal concessions in manufactures and services.

With its strong farm lobby, the U.S. could not permit meaningful reduction in its substantial subsidies simply in exchange for concessions in manufactures and services; it sought "sectoral reciprocity" in agriculture itself. It's not hard to see why the situation was unacceptable to India and Brazil. At Potsdam, Ms. Schwab refused to offer any real concessions on U.S. agricultural subsidies, while at the same time insisting that the poorer countries offer more. Even as the G-4 talks were in progress at Potsdam late last month, the agriculture subcommittee of the U.S. House of Representatives voted to retain the subsidy portion of the 2002 Farm Bill for another five years.