The six day Doha round of WTO trade talks in Hong Kong just ended.

At the last minute some compromises were accepted preventing a total collapse of the talks. At the heart of the matter is the position of the US and EU who want more access to selling products and services in third world countries, but third world countries want the US and EU and others to end agricultural subsidies first. The target date set by Brazil, India, Venezuela, and many African countries was 2010. Heading into the final hours, the talks nearly collapsed over that date but a last minute compromise was accepted to stretch the date out to 2013.

Bear in mind this “agreement” has yet to be ratified by the US Senate and should that fail, talks would have to start all over. The following articles should give everyone an idea of just how cantankerous the negotiations were as well as what the remaining roadblocks are. Here is a synopsis of what really happened:

As late as Saturday December 17 2005, Peter Mandelson, Europe’s trade commissioner, was saying World trade negotiations are going backwards

Trade ministers from 149 countries were last night bracing themselves for failure in Hong Kong after admitting that four days of intense and bitter wrangling had made only minimal progress in breaking the deadlock in global liberalisation talks.

Peter Mandelson, Europe’s trade commissioner, said the negotiations were going backwards in key areas. Brazil’s trade minister, Celso Amorin, rejected Europe’s argument that developing countries should make concessions on industrial tariffs in return for better market access to the west’s heavily protected agricultural markets. “The EU and the US are asking us to pay to stop them doing what they shouldn’t be doing,” he said.

“It is hard to see where progress can be achieved in Hong Kong if the talks continue in this direction,” Mr Mandelson said. “The level of ambition, if anything, is going backwards.

Fresh splits emerged over services, where developing countries are demanding the current proposals for liberalisation be watered down. There were reports last night that Venezuela had threatened to walk out of the meeting – bringing the talks to an end – unless the services text was amended. Mr. Mandelson said the EU could not accept attempts to water down what he considered an already weak text.

Fake Food Aid

That the talks were going so poorly should not have been surprising given Mandelson’s remarks hammering the US on “fake” food aid.

The opening day of the high-profile trade summit in Hong Kong got off to a disastrous start yesterday. A bitter war of words broke out between Europe, the US and the United Nations, and demonstrators wrought havoc inside and outside the convention centre.

Peter Mandelson, the EU’s trade chief, triggered a row when he branded the US food aid programme, which delivers American produce to needy countries, as “fake” aid designed to help US farmers rather than the world’s poor.

According to this article in Forbes

The European Commission (EU) said it is pressing for changes to the draft agreement relating to agriculture, services and non-agricultural issues, before the final text is released tomorrow at the end of the World Trade Organization conference here.

The EU has been pressing the US, Canada, Australia and New Zealand to cut their domestic support for their farming sectors.

On agriculture, Mandelson said the draft declaration should also recognize the required ‘effective policy reform’ on domestic support, instead of merely referring to the level of cuts in the subsidies being provided by certain governments to their farming sectors.

The EU has been pressing the US, Canada, Australia and New Zealand to cut their domestic support for their farming sectors.

I had to read that last sentence at least twice. Why is the EU is complaining about US and Canadian farm subsidies, even accusing the US of handing out “Fake Food Aid”, when France is both the biggest supporter of agricultural tariffs as well as the biggest roadblock to settling the dispute?

Australia and New Zealand Subsidies?

Signaling out Australia and New Zealand is also mind boggling in that those countries simply have no agricultural subsidies or tariffs according to the Courrier Mail News article Europe fails to bust AWB monopoly .

Agriculture and Fisheries Minister Peter McGuaran last night described as “hamfisted” EU attempts to dismantle Australia’s single desk wheat export arrangement. Responding to claims the EU nations made at the latest round of world trade talks in Hong Kong, Mr McGuaran described their efforts as deceptive and designed to divert attention from real reform.

The pressure on Australia to promote a wheat export business rival to the grower-controlled monopoly, AWB, comes on top of the recent United Nations bribes scandal where an Australian exporter was accused of paying bribes to associates of former Iraqi dictator Saddam Hussein.

US wheat firms, anxious to gain footholds in Middle East trade, have been tireless in seeking to undermine Australia’s reputation in the region.

Last night, as the EU countries sought to exploit the anti-Australia campaign run by the Americans, Mr McGuaran and AWB chairman Brendan Stewart hit back. Mr Stewart said the EU was targeting the single desk because the Europeans could not find any other Australian activities to use to leverage their position in trade negotiations.

“They only claim it’s price distorting because they want to knock it down. AWB received no government subsidies, underwriting or insurance,” Mr Stewart added, noting that “they really don’t want to deal with the key issues.” Mr McGuaran said AWB’s commercial competitors had made numerous attempts to abolish Australia’s export monopoly.

“None have succeeded for the simple reason that the single desk is not in breach of WTO guidelines,” Mr McGuaran said, declaring that the single desk would remain, so long as the majority of growers continued to support the arrangement. According to the minister 80 per cent of Australian wheat growers want the single desk marketing system which operates on commercial terms, without taxpayer subsidies, to continue.

“This is because it is the best way to do business,” Mr McGuaran said.

Harmy on the Motley Fool responded to the above articles by saying:

The amazing thing to me is the lengths the EU and the US will go to in order to divert attention from their own bloated, inefficient agricultural industries. US wheat farmers are subsidised to the hilt and yet they still cannot compete with unsubsidised Australian wheat. EU barley and wheat farmers receive huge subsidies to grow grain on unsuitable land, more subsidies for fertilisers, more for chemical sprays, yet more for transport and still more in the form of export subsidies to dump it.

New Zealand is also completely unsubsidised, has no tariffs and receives zip government assistance and yet can produce dairy products which it ships around the world to successfully compete with subsidised countries so much so that the US and the EU have to erect barriers in the form of tariffs and quotas to prevent entry.

For every subsidy, quota or tariff the dumb taxpayer pays billions and thinks that they are getting a good deal. About the only thing which makes me laugh is the way the Chinese buy up all the cheap subsidised food generously paid for by the US taxpayer in order to feed its own citizens and who then go to work making cheap cotton clothing for the US which is also subsidised by the US taxpayer.

The system is nuts.

Indeed Harmy, the system is nuts, but the goal of the US and EU seems to be to prolong the agony as long as possible.

Back in November, France threatened to torpedo a deal if the WTO called into question the bloc’s agricultural policy.

France may veto a global trade deal if no agreement can be reached on farm tariffs, the country’s trade minister said in an interview published on Saturday.

“The threat of a veto is real if we are beyond what is acceptable,” Christine Lagarde told French daily Liberation.

“But I hope that we will not have to use that weapon.”

President Jacques Chirac warned European Union leaders last month he was ready to torpedo a World Trade Organisation (WTO) deal if it called into question the bloc’s Common Agricultural Policy (CAP), of which France is the biggest beneficiary.

Just hours before the talks closed Bloomberg was reporting WTO Negotiators Pan Revised Proposals on Farm Aid.

Dec. 18 (Bloomberg) — Trade negotiators, embroiled in their final hours of negotiations in Hong Kong, criticized a proposal calling for speedier cuts in payments to U.S. cotton farmers and dates for ending European Union farm-export aid.

Yesterday’s draft compromise by Director-General Pascal Lamy of the World Trade Organization sets an end date for farm-export subsidies of either 2010 or five years after an agreement comes into force, now scheduled for 2008. The EU has resisted attaching a date. The draft also calls on the U.S. to begin slashing cotton subsidies earlier than other farm aid.

The 2010 date is “an absolute red line, as it falls squarely outside my mandate,” EU Trade Commissioner Peter Mandelson told negotiators, according to a copy of his speaking note.

In Washington today lawmakers criticized the proposed compromise saying it requires the U.S. cut subsidies and tariffs without demanding the same of India, Brazil and other developing nations.

“I seriously doubt that any agreement with this imbalance will be acceptable to the Congress,” Senate Finance Committee Chairman Charles Grassley said in a statement. “For a final agreement all countries have to contribute, or there just won’t be a Doha Round agreement to implement.”

Four West African countries have pushed the U.S. to slash its subsidies to cotton farmers within the next year, a move U.S. Trade Representative Rob Portman called politically unfeasible. Choguel Maiga, Mali’s trade minister, said the text on cotton is “a step forward compared with two years ago. The rules of the game have been fixed by subsidies.”

U.S. Trade Representative Rob Portman said the key step forward he expected this week is a deal on how to abolish duties on products from the world’s poorest nations, such as Rwanda, Zambia and Cambodia. Lamy proposed phasing in that duty-free access and allowing the U.S., Japan and the EU to exempt some products from unfettered access over that time.

That’s inadequate, said Zambian Trade Minister Dipak Patel, who represents the WTO’s 32 poorest nations. “We will not be part of any attempt to disguise failure,” he said in a statement to negotiators.

U.S. textile makers complain that such a move would enable Bangladesh and Cambodia, which together exported more than $3.5 billion of textiles and apparel to the U.S. last year, to flood the U.S. market with their products. It might also anger farm groups such as sugar growers, they say.

“This proposal would not make it through Congress,” said Cass Johnson, president of the National Council of Textile Organizations in Washington. “With this text they are creating the perfect coalition to kill off the Doha Round.”

In the early hours today Hong Kong riot police began arresting about 900 South Korean anti-trade activists after using teargas to quell the most violent protests since the city returned to Chinese rule.

Korean farmers and unionists were marched 15 at a time through a cordon of riot police onto buses, ending a 12-hour protest that spurred the biggest ever mobilization of security forces on the island. About 2,000 riot police earlier surrounded activists 250 meters from where the trade ministers were meeting.

South Korean activists, who say the WTO would force them out of business because it would lower tariffs on rice imports, have vowed to halt the WTO meeting. On Dec. 16 they sprayed slogans on the wall of the U.S. Consulate and stormed a building housing their own diplomatic envoy. Police used pepper spray and batons to repel demonstrators after protests turned violent yesterday.

The talks have concluded and Reuters is now reporting World trade deal survives stormy Hong Kong talks.

Ministers from 149 states saved long-running global trade talks from collapse on Sunday with an interim deal to end farm export subsidies by 2013 and open rich-country markets a bit wider to the world’s poorest nations.

Ministers expressed relief that they had averted a repeat of failed conferences in Seattle in 1999 and in Cancun in 2003.

But they described the Hong Kong pact as disappointing and said it would be tough to wrap up the talks on time by the end of 2006, after which U.S. President George W. Bush may lose his Congressional authority to negotiate trade deals.

“In a week of disappointments, this is no small prize,” said European Union Trade Commissioner Peter Mandelson. “It is not enough to make this meeting a true success. But it is enough to save it from failure.”


Big-hitters among developing nations, led by Brazil and India, gave their nod to the draft but voiced their frustration over the EU’s refusal to agree on 2010 as the cut-off date for export support.

“I think the EU owes one to the developing countries. We showed a real will to negotiate and we didn’t feel it was the same from the other side,” Argentine Trade Minister Alfredo Chiaradia told reporters.

The agreement will bring the elimination of export subsidies for cotton in 2006. It will also quicken the pace at which Washington dismantles subsidies enjoyed by U.S. cotton producers, which African nations say are ruining their economies.

On trade in manufactured goods, the accord fell short of U.S. and European hopes for greater access to poor nations’ markets.

But non-governmental organisations, which campaign on behalf of developing countries, branded the Hong Kong talks yet another victory for the rich world.

“This is a profoundly disappointing text and a betrayal of development promises by rich countries whose interests have prevailed yet again,” relief agency Oxfam said in a statement.

One key element of the plan — an offer of duty-free, quota-free access for imports from the 49 poorest nations of the world — was watered down because of U.S. and Japanese reluctance to accept unbridled trade in goods such as textiles and rice.

“It’s a shame the richest countries in the WTO outside Europe could not go the extra mile for the world’s poorest countries,” Mandelson said.

British Trade Secretary Alan Johnson said it was “thoroughly disappointing” that 3 percent of goods from the poorest countries, amounting to 250-300 tariff lines, had been exempted from the scheme.

Outside the conference centre, thousands of demonstrators chanting “Down, down WTO” marched peacefully through Hong Kong. But there was no repeat of Saturday’s fierce fighting with riot police in which more than 140 people were injured.

The bottom line:
While the trade talks did not collapse in complete failure, they certainly were no real success either. It also remains to be seen if the US senate will ratify the final agreements of if they will be torpedoed over something as stupid as cotton subsidies. Perhaps in spite of the rhetoric, cotton was the one thing the US was willing to give in on in this round of talks. As best as I can tell the US and EU did not give in on much of anything else.

The US, France, Brazil, and Venezuela all seem to have torpedoes locked and loaded. It’s hard to say who may fire the first one. Regardless, it will still take another 8 years before farm subsidies are eliminated, and that is if everything goes well. Don’t hold your breath. Defeat can still be snatched from the jaws of victory.

I have a suspicious feeling that whatever “success” these talks may have produced will be undone by Congress when the US economy takes a slide in the upcoming consumer led recession.

One more critical point: Trade wars and protectionism are hallmarks of deflationary times. Does anyone remember Smoot-Hawley?

Mike Shedlock / Mish/