Yet another post on a trade topic, but this is justified by the news from Geneva last week where the WTO Doha Round’s attempts to hang on to life become fainter and weaker. Pascal Lamy was in sombre mood at the meeting:
What we are seeing today is the paralysis in the negotiating function of the WTO, whether it is on market access or on the rule- making. What we are facing is the inability of the WTO to adapt and adjust to emerging global trade priorities, those you cannot solve through bilateral deals.
While no government has yet declared that the Doha Round is dead, it is clearly on life support. It is therefore important to consider the options facing the WTO before the next Ministerial Conference in Geneva on December 15-17. Two recent volumes from VoxEU.org edited by Richard Baldwin and Simon Evenett provide a good discussion of the current malaise (see Next Steps: Getting Past the Doha Crisis and Why World Leaders Must Resist the False Promise of a Doha Delay).
There are essentially just two options, but with a number of permutations within each option: either countries stick with the Doha Round agenda and try to bring it to a successful conclusion sooner or later, or countries walk away from the Doha Round, declare it a failure, and seek other routes either under WTO auspices or not for further trade liberalisation. In this post, I enumerate the various roadmaps which have been put forward.
Options to complete the Doha Round
Seek to reach agreement on the Doha Round modalities by December 2011. This option is recommended most clearly in the report of the Trade Experts Group co-chaired by Peter Sutherland and Jagdish Bhagwati published in May 2011 and in the Baldwin and Evenett False Promise book. It has also been endorsed by Robert Zoellick, President of the World Bank and a former US Trade Representative, who has criticised the dumbing down of Doha as defeatist. The argument is that the draft Doha Round agreement would provide significant economic gains, not least to developing countries, through substantial reductions in agricultural tariffs and significant market-opening in manufactured goods, and the package for least developed countries. All this may well be true, but it does not alter the reality that the political will to make the necessary concessions to conclude the package by the end of the year does not seem to be present.
Reach agreement on a Doha-lite agreement by December 2011 with an agreement to continue negotiations to a comprehensive agreement after that date (‘early harvest’). The idea here, first floated by Pascal Lamy at the informal meeting of the WTO Trade Negotiations Committee in May 2011, would be to salvage elements of the Doha Round of particular interest to least developed countries (LDCs) plus possibly some other issues where agreement was virtually complete. Apart from a deal on duty-free quota-free access for LDCs and cuts in cotton subsidies, candidates for the LDC plus issues include trade facilitation, the agricultural export competition pillar, disciplines on subsidies to fishing fleets and liberalising trade in environmental goods. The difficulty, of course, is that balancing the interests of WTO members in a small package in a way that would be approved by national legislatures (not least, the US Congress) is no easier than in a larger deal. This seems to have been recognised by the WTO Trade Negotiations Committee last week, which concluded that a Doha-lite agreement did not look feasible.
Call a (further) temporary cessation to the Doha Round negotiations with a view to resuming them at a more auspicious time after 2013 (read: after elections and leadership changes have taken place in important negotiating countries in 2012). One twist on this option from Jeffrey Schott of the Peterson Institute is the idea that major trading powers might unilaterally offer a down payment now, for example, by implementing the export competition pillar of the draft agricultural modalities or by making the first 20% reduction in tariffs under the draft agricultural and NAMA modalities. Unlike the ‘early harvest’ or Doha-lite proposal, these concessions would be contingent on negotiations resuming (and perhaps on agreement being reached) in 2013, otherwise they would be revoked by the countries concerned. The idea is to provide both a carrot and stick to stay with the negotiations until successful. Again, the drawbacks are evident. As Baldwin and Evenett note: “The world of trade is changing more rapidly than negotiating positions, so each delay seems to make a compromise based on the existing elements even less likely.” There is also the danger that attempting to keep the Doha Round alive would strangle any attempt to get the WTO to look at new issues which are becoming increasingly important in trade policy.
Options if the Doha Round is declared dead
Under the ‘let Doha fail’ scenario, there are also three options.
Use the opportunity to start negotiations on a series of narrower and more focused agreements under WTO auspices. The most high-profile proponent of this view is Susan Schwab, the former US Trade Representative under President George W. Bush, who in an essay in the May edition of Foreign Affairs called for a formal acknowledgement that the Round has failed in order to allow the WTO to focus on future work plans ( there is a summary of her paper on the VoxEU website and in the Baldwin and Evenett Next Steps book). Schwab’s view is that the Doha Round got locked into a set of modalities (formula cuts with self-designated flexibilities) which inevitably put negotiators in a defensive posture because the impact of their concessions for import-sensitive sectors was easily highlighted but the potential gains to exporters became impossible to identify. Her argument is that declaring Doha dead would allow negotiators to start building the next Round. This would clearly not be a behemoth comprehensive single undertaking like the Uruguay and Doha Rounds – there would be no appetite for that – but would focus much more narrowly on negotiating some small deals with commercial value in order to re-establish momentum. These might include new rules or plurilateral agreements. Another objective of these proponents is to seek a revision of the negotiating conventions that guide the Round. Declaring the Round dead would give time to reflect on new negotiating modalities with a greater chance of success. Not surprisingly, critics question why countries would be willing to negotiate smaller deals with any greater chance of success, and point out that tariff and subsidy reforms in both agriculture and NAMA would remain priorities for countries expected to agree to these new rules.
Seize the opportunity to focus on a new agenda. As Joe Francois put it succinctly, “Success requires a different game, with different rules and different players.” This more radical option, also put forward by John Whalley and by Mattoo and Subramanian among others, builds on the idea that traditional market access negotiations in agriculture, manufacturing and services are issues of the past, and need at a minimum to be complemented by a much broader coverage of new trade issues. As Whalley writes: “By moving into new areas of trade, forward momentum in negotiation can be maintained without first trying to resolve the Doha Round conflicts.” The so-called Singapore issues are obvious candidates. Whalley suggests topics such as intra-state trade in federal states, carbon emission trading schemes and global assets trade. Mattoo and Subramanian suggest adding food security, energy, currencies, finance and the environment to the mix. Consideration of further WTO institutional reform might also be among the issues discussed.There is no doubt these are issues where global governance needs to be strengthened, but it is hard to see how adding them to the WTO agenda now would raise the probability of successful agreements. Much more work would need to be done to build confidence among members on the appropriate disciplines which might be introduced. Also, the argument that the issues the Doha Round is grappling with are now obsolete will be seen by many countries as premature.
Recognise that the overlapping configuration of interests necessary to underpin a successful multilateral outcome does not yet exist and instead pursue the agenda of further trade liberalisation through preferential trade agreements. This option is explored by, among others, Hufbauer and DeRosa. They point out much of the increase in trade during the past decade was due to PTAs. One major objection to PTAs in the past was that it would distract energy from completing the multilateral negotiations. If these are now dead, this objection no longer exists. Another objection is that PTAs are inherently discriminatory and so impose large trade diversion costs on outsiders. With manufacturing tariffs now at such low levels in the US, the EU and Japan, this is no longer a significant criticism of PTAs involving these countries (apart from agriculture). Indeed, we now understand better that the main contribution of modern PTAs is not tariff preferences but rather non-discriminatory rules which also open commercial opportunities for non-members. Hufbauer and DeRosa optimistically forecast that, once the emerging economies pluck up courage to become part of PTAs, the stage would then be set for a new WTO round which would eliminate residual tariffs and harmonise many of the WTO-plus rules found in PTAs.
Associated with the ‘let Doha fail’ options are two further assumptions. Walking away from the Doha Round means accepting the opportunity cost of foregoing the gains on offer from a Doha Round agreement. The ‘let Doha fail’ advocates tend to be dismissive of the size of these gains, arguing that they really don’t amount to very much and are skewed to too few countries, and thus we have little to lose by closing down the negotiations. The ‘lets get Doha done’ proponents naturally disagree. The empirical literature (see Hoekman, Martin and Mattoo; Hufbauer, Schott, Adler, Brunel and Wong) can be read both ways.
The second assumption is that the existing WTO edifice of rules would continue to be enforced. People point to the significant growth in world trade over the past decade without the assistance of a Doha Round agreement However, one does not have to believe in the bicycle metaphor (that is, that unless there is forward momentum on liberalising trade, the existing architecture would come crashing down) to acknowledge that a breakdown of the Doha negotiations would put huge additional pressure on the WTO’s dispute settlement mechanism and would risk undermining respect for existing rules.
What the December 2011 Ministerial Conference must do
The travails of the Doha Round reflect the changing geo-political configuration of the global economy. The US and the EU, the former global leaders, are now both self-absorbed in their own domestic financial and economic crises and, in any case, their shares of global economic activity and trade are shrinking rapidly. China is now the world’s number one exporter, something that was inconceivable even ten years ago when the Doha Round was launched. But China and the other emerging economies have not yet decided how much responsibility they want to take for the global governance of trade. They still benefit from developing country status in the WTO despite being competitive exporters across an increasing range of goods and services. The tripartite distinction in WTO rules – between developed, developing and least developed countries – does not seem sufficiently differentiated to accommodate these new realities.
Against this background, it may be sensible to accept that a multilateral deal during this time of global geo-political transition is simply out of reach, and to call for a further time-out on the Doha negotiations. To reduce the likelihood that the time-out could become a coma, taking up the down payment proposal put forward by Schott would strengthen the incentive to resume negotiations in the future. Some of the scenarios under the ‘let Doha fail’ option will proceed in any case, particularly the pursuit of preferential trade agreements. The trick will be to ensure that putting Doha into cold storage for a number of years does not paralyse the WTO’s rule-making functions. In particular, there is a need to prepare the WTO to tackle some of the 21st trade policy issues which did not appear on the Doha agenda.
This means giving the WTO authority, not necessarily to start negotiations on these topics, but to initiate a work programme which would contribute to their clarification and the type of international rules which are needed to address them. This is the important task facing the eighth WTO Ministerial Conference in Geneva on December 15-17, and there is limited time to prepare. Developing countries may be suspicious of proposals to further widen the WTO’s remit, but they too should see the advantages of keeping these discussions within the WTO framework rather than leaving them to fora, such as preferential trade agreements, where they have much less influence.