With the G-8 leaders headed to the summit in St. Petersburg, Russia, this weekend, senior Bush administration officials have high hopes that some substantial accomplishments will emerge. While the theme of this year's session, chaired by Russian President Vladimir Putin, is energy security, near the top of the agenda is global tariff reform under the umbrella of the World Trade Organization. A sidelight is Russia's down-to-the-wire bilateral talks with the Untied States over its entry into the WTO--the U.S. being the last nation that has failed to give its approval to Russian membership.

On Thursday, the director of the White House Office of Management and Budget, Rob Portman, who served for 13 months as U.S. Trade Representative, sat down with Forbes editors and reporters to discuss the president's budget initiatives. He also talked about the G-8 and world trade.

Forbes: We're coming up on the G-8 where trade is likely to be an important agenda item. Is there any chance of a breakthrough?

Portman: We need a breakthrough. But I don't know if G-8 is the likely forum for a breakthrough. It is so complex, and it would be difficult for the leaders to get something in the next few days here.

They're bringing in some other countries on the last day, the G-11.

I noticed that. The director general of the WTO will be there, I hope he will. I think his presence there as well as some of the other key players--India has been a key player, Brazil, a key player--not members of the G-8. Australia has been a key player. India and Brazil will be there. Then the Untied States and Japan, the EU are the other main drivers. My feeling is we are actually pretty close, despite all the rhetoric to the contrary. It would be a lost opportunity if we were to allow the end of July deadline to pass. Because then it's difficult to see what you're pushing up against. The end of July was a deadline set in place because TPA, Trade Promotion Authority, was expiring next July, which means it has to get to Congress by early next year, and it takes that long to get all the tariff schedules worked out. So it's a crucial couple of weeks.

They're all going to be in St. Petersburg, though?

There's the political rhetoric and there's what happens behind closed doors. And my feeling is that behind closed doors we're closer than the rhetoric would indicate.

What make you think so? What kind of compromises might be possible, especially with India, which has threatened to walk out entirely?

I was behind closed doors with them until five weeks ago. And I've met with the Indians twice since then when they came to town. It's basically growth countries like India realizing it's in their benefit to open up. They're doing it, by the way, unilaterally anyway, by reducing their tariffs. The question is, can we get them to make commitments.

That to me is probably the key issue to get the Europeans to do what they need to do, which is to open up more agriculture. The Europeans have been relatively protectionist over the years. They have started to reform, but they keep very high protection in terms of tariffs, and they have over four times more assistance than we do in terms of domestic support. So I think they need to see a little more opening in the developing world--the Indias, the Brazils, the Chinas, the Indonesians and so on--for their manufactured products, their services, which is what drives their economy, not agriculture.

With that, I think they could be a little bit more open to let this come together. The U.S., by the way, we're not perfect, we have some of our own protection, but we're relatively open and free here. Our average tariff is now 3%. Most of our trade is manufactured products. Six percent of our trade is agriculture. Their average tariff is at 12%. Global averages are 30% and 64% respectively. So we are relatively open. Our issue has been domestic support. We provide $20 billion a year in payments to farmers. And Europeans, they provide three times more than we do. What President Bush has shown some courage on is saying, well, we're willing to cut our spending.

I thought the Europeans would do more based on what they were telling me at the time. They did go from basically almost nothing to 38% and agreeing to the formula that the G-20 nations had put out, which was basically cutting higher tariffs the most, a formula which we like. We adopted the same formula, but our number was 66%, theirs was 38%. So they have moved. This notion that the U.S. proposal didn't make any difference, it revived moribund talks and got the Europeans up to 38 and now up to 50. So we're making progress. That's why I don't think we're that far apart.

If we get an agreement with Russian for their accession to the WTO, can we get it through Congress?

It's going to be tough. The reason is substantively their market access commitments that they're willing to make at this point are not consistent with a lot of other major economies in the WTO. But we'll see what happens. Maybe we'll see a breakthrough there. The other issue is intellectual property. The Russians are doing better protecting intellectual property, but there are still a lot of issues there that Congress is concerned about. And the history is, we thought we had some agreements with China on that issue. They got into the WTO, and then it ended up that intellectual property enforcement was weak. So people don't want so see that repeated.

It's in the Untied States' interest to have Russia join the WTO. Definitely. It's in the world's interest. They're the biggest economy that's out there that's not in the WTO. So I'm hopeful we can close some of these gaps in the next couple of days. And at least get them through a bilateral agreement with us and then a multilateral agreement, and get as many commitments as we can on the rules, including intellectual property. If we can do that, then I think we have a shot getting it through Congress.

Russia stands to gain a lot from this?

If you look at the benefits they can derive from this, basically concentrated in investment. If you're a New York financial service company, and looking where to expand and other WTO members offer higher equity participation, more transparency, and in Russia you don't have that, then you're more likely not to go to Russia. So there's not just trade, though they will increase their trade with all the WTO nations, but also investment. It could really help them.

Long term, they will need to modernize their economy. And investment is critical to them.

News source: forbes.com
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