WTO talks fail again -- Good news for agribusiness

July 5, 2006

The stated deadline for successful completion of the Doha round of the World Trade Organization (WTO) talks came and went this weekend. The trade officials from the U.S., EU and developing countries left Geneva without any resolution of the 760 outstanding points of negotiation. The main standoff, however, is that the U.S. wants the EU to reduce agribusiness subsidies by 54%, beyond the 38% cut the EU has already proposed. The EU wants the U.S. to reduce its subsidies by 70%, beyond the 60%  already proposed. In the U.S., agribusiness subsidies total $20 billion per year, while EU subsidies total $22.9 billion.

Oxfam International, a non-profit, has said that none of the subsidy cuts proposed so far will protect developing world farmers. Neither the U.S. or EU will go head to head with their powerful agribusiness lobbies who protect farm subsidies in their countries. These subsidies allow the developed world to under-price the developing world in food products. The developing world will not agree to any multi-lateral trade agreement that could conceivably put their family farms out of business, as has already happened in the developed world.

What It Means:
The only way of saving this agreement is if higher-up heads of state enter the negotiations. This may mean a disruption of the agenda for the upcoming G-8 meeting between the heads of state of the eight leading industrialized nations: U.S., Japan, Germany, UK, France, Italy, Canada and Russia. However, trade agreements may be a lower priority than the agenda which includes possible sanctions against Iran, the current Middle East crisis, and energy security.

Any agreements made after July will be too late to allow documents to be drawn up in time to qualify for President Bush’s trade-promotion authority, which is due to expire in June 2007. The authority allows any trade agreement to be put to an yes-or-no only vote in Congress, without amendments.

Instead of a multi-lateral agreement, there will continue to be ongoing bi-lateral trade agreements between small numbers of countries, as is happening between China and countries in Africa and South America. The losers will be U.S. service and tech industries, who had been hoping for increased access to developing countries' markets. Developing countries are loath to enter bi-lateral trade agreements with the U.S., since many have found their small family farms cannot compete with U.S. subsidized agribusiness exports.

Failure of the rounds may mean the end of the World Trade Organization itself, since it is unable to implement its mandate. The WTO was formed in 1995 to promote free trade and protect developing nations’ economies from dumping and other unfair trade practices.

Action Steps:

The failure of the Doha round is a success for U.S. and European agribusiness. Make sure you have some of these as part of your large cap portfolio.

Source: World Trade Organization web site, Office of the United States Trade Representative web site, Oxfam International web site.