Save the WTO From the Doha Round

With a perfect track record of having missed all deadlines and achieving few agreements of scant substance since it was launched in November 2001, the Doha Round's negotiations were fully suspended last summer. The round would probably still be in total hibernation were it not for the fact that President Bush's trade promotion authority (TPA) – which grants him the power to negotiate trade deals that Congress can only accept or reject, with no amendments – is due to expire on June 30. It was feared that if the talks remained stalled, showing no progress, Congress would not renew the TPA. Hence, the rush to relaunch the talks at an informal gathering of trade ministers during January's World Economic Forum in Davos.

The sense of urgency trumpeted at Davos, however, was short-lived. A deadlock on agriculture continues, with a never-ending blame game in play: The Europeans blame the Americans for not offering enough on subsidies abatement; the Americans blame the Europeans for being stingy in their offers for lowering farm tariffs. Each promises not to move unless the other does. Each accuses the other of being the culprit. Meanwhile, Japan and other extreme farm protectionists keep getting a free ride off the paralysis. Leading developing countries, such as India and Brazil, continue to take highly defensive, if not outright protectionist, positions in the negotiations.

Market-access barriers, like farm tariffs, constitute the chief global agricultural distortion – even more than subsidies. The EU has continued to resist major cuts in agricultural tariffs and wants a large number of products to be designated as "sensitive" in order to exempt them from the general rules to reduce protection. The only thing that might shock the EU out of its current stand would be if the U.S. offered to sharply reduce its farm subsidies and decouple them from production. Such a move would force the EU to either make a serious market-access offer or assume the dubious honor of going down in history as this trade round's absolute spoiler.

Of course, there are sound reasons for the U.S., in its own self-interest and for the sake of other countries, to reduce its massive agricultural subsidies and high farm tariffs. A recent study by the Cato Institute estimates that supporting agricultural producers over the last 20 years has cost American consumers and taxpayers more than $1.7 trillion. Unfortunately, reforming these damaging protectionist agricultural policies and those of the other rich countries looks improbable at the present political juncture.

Consequently, it's more realistic to expect – probably after the second round of the French presidential election this month – an exchange of offers between the U.S. and the EU involving only modest improvements over what's already on the table. But this exchange will be presented as a big breakthrough. The U.S. Administration will then try to build enough momentum to convince Congress to pass the TPA extension, which, at best, will be granted for a limited period of time.

It will then be crystal clear that the round's reform ambitions have been irreversibly scaled down. This will be a disappointment and will pose a serious moment of truth for the other active players in the WTO.

Post-Moment-of-Truth Options

What happens then? Basically, there are two options: continue under the illusion that it's worth pursuing the original Doha agenda for as long as it takes to get the job done; or adopt a package of minimal agreements and proceed to close the round in time for ratification by WTO members in 2008.

Needless to say, neither option is good when compared with expectations raised when the round was launched. Regarding the first option, it's hard to see how any further and meaningful progress could be made in the next two to three years, particularly in light of the intensification of electoral politics in key places such as the U.S. Meanwhile, the risk of total collapse would loom over the talks. On the other hand, the WTO will continue to be under the tremendous stress of running the existing system and the round negotiations simultaneously. One activity complicates the other.

The minimal-agreements option is also full of downsides. There's no guarantee that the big pending issues will be resolved when put back into the WTO's built-in agenda. Besides, in the absence of a truly overhauled system, increasing protectionist pressures and trade conflicts--which sooner or later will be brought to the WTO--would inevitably tax the organization's institutional resources. The risk of inefficiency through fatigue will be a serious one for the WTO.

The proliferation of preferential trade agreements would intensify under either option, with two consequences. First, the existing multilateral trading system would be weakened by the preferences and trade diversion generated by the regional trade agreements. Second, those preferences would become entrenched, which would make reforming the system even harder in the future.

Which option should countries choose when the moment of truth arrives? Despite obvious shortcomings the second option is less odious than the first. Settling for a modest outcome sooner rather than later is probably best for the multilateral trading system. Once it's accepted that the opportunity to reform the system has been missed, the goal to preserve it should become the priority of all concerned. In other words, at this stage the relevant question will not be how can the WTO save the Doha Round but, rather, how can the WTO be saved from the Doha Round?