World trade talks collapse every year, and this year was no exception. What different this year is the accompanying disappointment and acrimonious exchanges between the US, India, and China. Let’s follow a few headlines and see how the talks went.

Banana wars

On Thursday, July 17 the EU seeks key deal on fruit trade.

EU Trade Commissioner Peter Mandelson said he would not block compromise proposals on the EU’s controversial banana import tariffs. He warned that if others did, then they would “assume a grave responsibility for the failure of the Doha Round”.

The WTO has repeatedly ruled in favour of Latin American banana exporters in a long-running dispute with the EU. They argue that the EU’s preferential trade accords with poor African, Caribbean and Pacific (ACP) countries are discriminatory.

That anyone would risk a global trade agreement over bananas is pretty absurd in and of itself. However, having banana tariffs in the first place is also absurd. Consumers pay higher prices for bananas and literally no one wins except of course the subsidized banana grower.

EU offers 60% cut in farm tariffs

On Monday, July 21, optimism was running high when the EU offered 60% cut in farm tariffs to cut a deal.

Perhaps portending the eventual collapse “Canada’s Trade Minister Michael Fortier said he hoped that any new deal would protect its dairy and poultry farmers from foreign competition.”

Hope Springs Eternal On Last Throw Of The Dice

On Saturday, July 26, there was Hope of deal in world trade talks.

“There are still potential potholes in the road…But we are closer to a deal than we have been at any point in the last seven years,” Peter Mandelson, EU trade commissioner, said. “What is emerging is a deal that is not perfect, not beautiful, but is good for the global economy and good for development.”

The proposed settlement, brokered by Mr Lamy, calls for cutting limits of European farm subsidies by 80% and US payments by 70% to about $14.5bn.

“This is the last throw of the dice” said Peter Mandelson, EU trade commissioner.

Snake Eyes

On Tuesday, July 29, to the disappointment of all, the roll of the dice was snake eyes. The World trade talks end in collapse.

Marathon talks in Geneva aimed at liberalising global trade have collapsed, the head of the World Trade Organisation has said. The main stumbling block was farm import rules, which allow countries to protect poor farmers by imposing a tariff on certain goods in the event of a drop in prices or a surge in imports.

“There’s no use beating around the bush, this meeting has collapsed,” Mr Lamy said.

Analysts have said that the collapse of the Doha talks could symbolise an end to multilateral trade agreements. Instead, nations may pursue dual agreements with partner nations, preferring to focus on their own requirements rather than a more common negotiating goal.

Trade officials had struck an optimistic tone on Friday, but this evaporated over the weekend amid acrimonious exchanges with the US accusing India and China of blocking progress.

The US said they were being overly protective towards their own farmers and are failing to do enough to open their markets, with US trade representative Susan Schwab calling the stance “blatant protectionism”.

“In the face of the global food price crisis, it is ironic that the debate came down to how much and how fast could nations raise their barriers to imports of food,” she said.

The acrimony this year seems worse than ever. Repeatedly every country wants complete open access to exports while wanting some tariffs or restrictions on imports. There is plenty of blame that can be placed, especially on US and EU where farm tariffs, agricultural subsidies, and ethanol tariffs drive up costs and result in massive inefficiencies. However, when there was near agreement to end 70%-80% of the tariffs only to see talks collapse, everyone is a loser and everyone is to blame.

The solution is simple. The first country that removes all tariffs regardless of what anyone else does will be a big winner. I have one more point. Trade wars and protectionism are hallmarks of deflationary times. Indeed the Smoot Hawley Tariff Act significantly contributed to the severity of the Great Depression.

Mike “Mish” Shedlock
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