The Doha Round: Will it Be Revived or Continue to Languish
January 17, 2007
Why is the Doha Round so important? For consumers, the answer is simple. No other negotiation has the potential to reduce prices more than this single trade talk. On the table are a range of tariff reductions that could make a real different to the average American. A tariff is a tax assessed at the border on the value of an import. The cost of the tariff is built-in to the cost of the product or input to production. In this way, these taxes are hidden in the price of the goods you pay. But they have their impact.
In fact more than half of all border taxes assessed by the United States are collected on necessities of life, like clothing, footwear and food products. The tax rate on luxury items is lower than the tax rate on every-day products. These taxes are like a hidden sales tax that you pay every time you go shopping. How big is this tax? Well, on average it's about 2.5%, but on some products its much, much higher. And if you knew you were paying it, you would be unhappy about it. For example, the tax on clothing averages about 13%, on footwear it can be as high as 48%. Food products are the worst, with taxes on dairy (like cheeses) as high as 48%.
These high tariffs were put in place in the 1930s and remain in place because they are (or have traditionally been) supported by special interest groups, who see these taxes as a way to protect American manufacturing. And yet, in the case of footwear, and increasingly wearing apparel, there is very little U.S. manufacturing left to protect. In fact, the cost to working American families as a result of these taxes is much greater than the benefit they provide in protecting U.S. jobs. As a tactical matter, U.S. trade negotiators see these product areas as bargaining chips that can be trade away in a multilateral negotiation for trade concessions that will open markets for U.S. agriculture and industrial goods.
So, in a nutshell, no other negotiations--certainly not so-called "free trade negotiations" undertaken bilaterally--has the potential to remove or significantly reduce hidden border taxes on clothing, footwear or food. As a matter of fact, these high tariff products are routinely set aside in the "free trade" negotiations. In contrast, the industrialized members of the World Trade Organization meeting in Hong Kong in December of 2005 agreed on a goal of trying to eliminate tariffs (border taxes) on 97% of all goods exported from the least developed countries--a move that could have enormous downward pressure on consumer prices in the United States.
But, unfortunately, the Doha Round was suspended in July due to the lack of progress on several issues, the most important being the elimination of subsidies and high tariffs on trade in Agriculture--an issue that is deeply controversial in Europe and Japan. While the United States maintains subsidies and high tariffs on agriculture, the United States has also pushed for significant reductions in these trade distorting practices. Indeed, the U.S. position has been characterized by the Europeans as "too ambitious." Europe, especially France has balked at the prospect of reducing subsidies. This, alone, has brought the Doha Round to a stand-still.
But even if there were not this dispute in agriculture, there would remain a deep divide between industrialized nations and developing nations over the basic issue of tariff (border tax) reductions. Many less developed countries have tax regimes that impose very high taxes on U.S. exports. The United States must obtain some trade concessions from countries like India, which maintains very high border taxes. Indeed, the United States sees value in trading away its residual high taxes in clothing in order to lower taxes on manufactured products the U.S. wants to export. Right now countries like India and Brazil aren't all that interested in dropping their tariffs--not if they can maintain "trade preference" programs like GSP. (See related story.)
Even if the talks are
restarted, the United States faces another complicating factor, because the
President loses Trade Promotion Authority in mid-2007 (see story
on the 110th Congress). Making sure that the president has the authority
to move forward with Doha, even if the talks are suspended, will be one of
CWT's highest priorities in 2007.