Time to Sort Out the Long Overdue Doha Round

WASHINGTON: As American joblessness and recession remain grim, Barack Obama looks to exports for recovery. The US president has called for a doubling of exports in the next five years. No doubt other leaders have similar hopes for their countries’ exports. Recovery from the global recession, however, depends on restoring the momentum of trade liberalization, which first of all means completing the Doha Round of multilateral trade negotiations. 

At the last G-20 summit, held in Toronto, trade was the dog that didn’t bark. World leaders dwelled then, as in previous summits, on stimulus, debts and deficits. The G-20 summit in Seoul this November could be more effective – promising to address the difficult issues that have held up negotiations in the World Trade Organization for nine long years of fits and starts.

To break the impasse in the Doha Round negotiations, the United States must reconsider its position, said Ernesto Zedillo, the former president of Mexico, in a chairman’s statement issued after an international meeting of trade experts at Yale in May. 

By offering to reduce agricultural subsidies further, the Obama administration could induce Brazil, China, India and other developing countries to improve their market-access offers, a major goal of US trade negotiators.

More specifically, the US could offer to reform its trade-distorting programs for sugar, cotton and certain grains, to abandon its “zeroing” practice in calculating anti-dumping duties and to reduce its immigration barriers to “mode 4” business in the services sector enabling employees of foreign providers of services to enter the country temporarily.

From day one the Doha Round negotiations have been in trouble. Neither the US nor the European Union has made the substantial concessions on farm subsidies and tariffs expected of them after the Uruguay Round negotiations of 1986-94. They are still temporizing over the liberalization of agricultural protection and have been doing so for 40 years!

In the Uruguay Round negotiations and since, the Cairns Group of smaller agricultural-exporting countries – 19 nations ranging from Argentina and Canada to Thailand, lacking financial resources to subsidize farmers – have pressed for liberalization of trade in farm commodities. The resistance has mainly come from the EU, but also from subsidized farm interests in the US, as well as smaller industrial countries. 

At first the Cairns Group, led by Australia, held up progress in liberalizing trade in industrial products until progress was evident on the agricultural front. In the Doha Round negotiations its obduracy was overtaken by the WTO’s Group of Twenty developing countries led by Brazil. These countries have been more obdurate than the Cairns Group in fighting EU and US agricultural protectionism. 

The Doha Round has not only suffered from lack of leadership in the EU, the US and smaller industrial countries. It has also suffered from the dissipation of political support for trade liberalization. 

Indeed, the negotiations have been driven by defensive interests in both industrial and developing counties. In the latter, defensive interests have included fear of “preference erosion” implicit in the reduction of tariffs, although World Bank studies have shown that only a few very small economies would be significantly affected.

If the US made worthwhile concessions on farm-support policies, which incidentally would get underway the liberalization of agricultural trade, it could expect the developing countries to open their markets to farm produce. The potential growth of export markets for agricultural products is almost entirely in developing countries.

Secondly, the developing countries could also be expected to open their markets to services from the US and other industrial countries. Opening the economies of developing countries to the competition of firms engaged in mobilizing financial resources would benefit them enormously.

Whether, thirdly, the developing countries would significantly improve access to their markets for industrial products might be something else. At present developing countries are not as fearful of US or EU imports as they are of Chinese imports, which they believe would flood markets, killing infant industries.       

Prior to the Uruguay Round negotiations the multilateral trading system was dominated by industrial countries. Since then, with the entry into force of the WTO, which embraces the revised General Agreement of Tariffs and Trade and other Uruguay Round agreements, the system is now dominated numerically by developing countries, including economies “in transition” from being centrally planned.

Today the “free riders” among them account for most of the WTO membership. These consist of the least-developed countries, “recently acceded members” such as China and the ACP countries – the small ex-colonies of the EU in Africa, the Caribbean and the Pacific.  

With sluggish progress in the Doha Round, many negotiators have said, in private surveys of opinion, “a new approach” is required. Since World War II all nine rounds have been based on unconditional most-favored-nation (MFN) treatment. The effect has been to slow the pace of negotiations to that acceptable to the least willing participants – to the slowest ships in the convoy. 

An alternative could be a conditional MFN approach under GATT article XXIV – which provides for free trade areas and customs unions – covering substantially all trade, including agriculture. The pace of negotiations would then be set by the most willing participants. 

Other options could be a critical-mass approach, as in the Information Technology Agreement of 1998, or a “club of clubs” approach with each club embracing a particular trade or group of trades. 

Abandoning the Doha Round would weaken the WTO system. Protectionist trends would increase and, in due course, the proliferation of preferential trade agreements would accelerate – meaning more discrimination, a subtler form of protectionism.

And in the longer run? Lorenz Schomerus, a former state secretary of the German ministry of economics, expresses the problem thus: “Multilateral institutions and rules cannot be left on a standby basis. They have to be used, supported and developed day by day. Failure to do so,” he adds, “will destroy the WTO system and its rules.”

It isn’t good enough for the G-20 leaders to say, as they did in their Toronto communiqué, “we renew for a further three years, until the end of 2013, our commitment to refrain from using barriers, or imposing new barriers, to investment or trade in goods and services, imposing new export restrictions or implementing WTO-inconsistent measures to stimulate exports, and commit to rectify such measures as they rise.”   

The leaders went on to say that in Seoul they would discuss reports on “the benefits of trade liberalization.”

In the face of such studied complacency, it is not too soon for the smaller G-20 powers to press others, especially the emerging-market economies, to rethink the WTO system and give priority to liberalizing international trade. The “middle powers” have a strong stake in the multilateral trading system and cannot continue to rely on the economic superpowers – too big to see beyond their rivalry – to take the lead in promoting an open world economy.