Asia Pacific and the Doha Round

Muhammad Chatib Basri

28 April 2011

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Of many benefits of the Doha Round for the Asia Pacific economies, one is fostering their reform process and taking advantage of new market access.

Asia Pacific economies (many of them classified as emerging economies) have an enormous stake in the Doha Round.

The trade interests of the Asia Pacific region, mapped back into the Doha Round, show that the region has much to gain from fully and effectively participating in multilateral negotiations.

Although a successful result in the Doha Round relies on all WTO members, Asia Pacific countries should recognise that they can play an influential role in the process.

The region has a very credible record in the area of trade and investment liberalisation and APEC has also done much to advance the thinking on rule making (Bora and Basri 2006).

But Asia Pacific economies can do more to translate this work into the WTO framework. It is worthwhile to note the statement of Indonesia's Trade Minister Mari Pangestu:

"On the trade front, it is well worth repeating that the first short-term priority is to complete the Doha Round of negotiations. It is the surest way to ensure sustainable and strong recovery through flows of trade and investment, and does not need any fiscal outlay." (Pangestu, 2011, 15)

There are several reasons why the Asia Pacific economies should push for completion of Doha Round:

  • Asia Pacific economies are particularly important in promoting the development aspect of the Doha Round.

This point is based on a series of facts linking trade and development. The first is that emerging economies are becoming important markets for other emerging economies. Asia Pacific trade accounts for one-third of the total world trade and this share has been rapidly increasing in the last ten years. At the same time, the intra regional trade, especially in East Asia has also increased significantly from 37% to 54% over the period of 1980-2008 (Pangestu 2010). Importantly, trade among the emerging economies is growing even faster than overall or intra-regional trade. Since 1990 the average annual growth rate of trade between emerging economies has grown twice the rate of the growth of world trade whereas emerging countries' trade with each other is gaining larger share of their total trade (Soesastro and Basri2005; Pangestu 2010). When it comes to Indonesia, Brenton and Ikezuki (2003) shows that the share of Indonesia’s manufacturing exports to non-OECD is increasingly important.

The second fact is that emerging economies have higher levels of tariff than advanced or developed economies, so the Doha Round’s tariff cutting will have an especially large pro-trade effect when it comes to trade among emerging economies. Emerging economies’, including Indonesia, have an interest in seeing tariffs reduced in emerging economies.

Thus, completion of Doha is very important for the Asia-Pacific region. The Asian economies should thus play an important role in promoting Doha.

  • Over the past ten years, many WTO members that favour the most-favoured-nation liberaliasation – including East Asian economies – have started to establish regional trade agreements.

This proliferation of regional agreements is not without concern. It may lead to problems of coherence, or the spaghetti bowl problem, which can result in higher cost of doing business (Bhagwati 1995). Nevertheless, the regional and bilateral arrangements are likely to live on and may continue to proliferate.

Up to now, the proliferation of regional trade agreements has taken place in an environment where the WTO was firmly at the centre of the world trade system. If the Doha Round fails, the fallback is the Marrakesh Agreement of 1994.This could especially be a problem when it comes to ensuring consistency with the WTO principles and rules.

Many of the new regional arrangements are “WTO plus” in the sense that they cover areas (such as investment and competition policy) that are not covered by the WTO (Pangestu 2010). Without completion of the Doha Round as a way of updating what the WTO stands for, the benchmark for “WTO plus” will be very out of date.

  • For many years reduction of world tariffs and subsidies in agriculture has become one of the reasons why Doha has stalled.

In fact, the increase in market access for agriculture is good for both developed and developing countries. As for the developing countries, the increase of the market access in agriculture will not only allow developing countries to export their agriculture products but will also help the poor people in developing countries.

Consider the example of the rice protection in Indonesia. The rhetoric of rice protection is to protect poor rural farmers, but in reality it protects landowners and not the poor farmers since three-fourth of the poor people in Indonesia are net consumers of rice (McCulloh 2008).

While regional trade agreements and bilateral agreements may push trade liberalisation in some region or between countries, there are a number of issues that cannot be resolved regionally or bilaterally, including removal of subsidies and domestic support in agriculture. Thus, completion of Doha is vital for both developed and developing countries.

Creeping protectionism

While the Great Recession of 2008-2009 did not see the sort of protectionism that came with the Great Depression of the 1930s, the risk of creeping protectionism remains.

The trade collapse due to the global crisis led some policymakers into a question of the relevance of export led growth strategy. Take Indonesia as an example. Many believe that the relatively insulated economy is one the reasons why Indonesia has performed relatively better than other economies during the global crisis.

This then brings to the surface the question of whether an export-led growth strategy is still relevant, bearing in mind that what saved Indonesia from the dreadful effects of the global financial crisis was the domestic economy. This is not only specific to Indonesia, because data shows that may countries that are more supported by their domestic economy are proven to have a better performance compared to countries that are extremely dependent on exports during the global financial crisis.

This phenomenon has led to many lively discussions among commentators, politicians, and some policy makers in Indonesia about the importance of relying less on exports and focusing more on domestic market. Often the conclusions of such discussions are advice to policymakers in Indonesia to pay less attention to “openness” to trade and investment, and to concentrate more on protecting the domestic economy against external volatility.

This then creates a political pressure for creeping protectionism and pushes policymakers to embrace somewhat more nationalist or protectionist view for a new reason (Basri and Rahardja 2011). In addition, real exchange rate appreciation in Emerging Economies, rigidity in labour market, and high cost economy have eroded Emerging countries especially Asia Pacific’s competitiveness. These in turn will induce the demand for protection.

Thus, given the fragile and uneven economic recovery in various parts of the world, and the trend of real appreciation of the emerging economies' currency, the threat of protectionism continues and the current global and regional setting for trade policy remains full of uncertainties. This phenomenon will complicate the process of further unilateral trade liberalisation or even preventing it all together. Thus, the pressure for trade liberalisation needs to continue to come from external such as the Doha Round.

Looking from this perspective, Asia Pacific economies have an enormous stake in the Doha Round. The trade interests of the Asia Pacific show that the region has much to gain from the completion of Doha. In that forum, the Asia Pacific countries should recognise that they can play a major and influential role in the process.

References 

Bhagwati, Jagdish (1995), "U.S. Trade Policy: The Infatuation with Free Trade Agreements", in Jagdish Bhagwati and Anne O. Krueger, The Dangerous Drift to Preferential Trade Agreements, AEI Press

Basri, M Chatib and Sjamsu Rahardja (2011), “ Should Indonesia Say Goodbye to Strategy Facilitating Export?”, in Mona Haddad and Ben Shepherd (eds.), Managing Openness: Trade and Outward-Oriented Growth After the Crisis. Washington DC: World Bank 

Bora, Bijit and M Chatib Basri (2006), " Asia Pacific Economies and the Doha Development Agenda”, in Hadi Soesastro and Christopher Findlay (eds.) Reshaping the Asia Pacific Economic Order . Routledege and Pacific Trade and Development Series

Brenton, P and T Ikezuki (2003), “Market Issue Access for Indonesia and the Doha Development Round”, background paper for World Bank Report

McCulloch, N (2008), “Rice Prices and Poverty in Indonesia”, Bulletin of Indonesian Economic Studies, 44(1):45-63.

Pangestu, Mari (2010), “The Challenges for Trade Policy in a Dynamic World and Regional Setting: an Indonesian perspective”, Richard Snape Lecture, 22 November.

Soesastro Hadi and M. Chatib Basri (2005), “The Political Economy of Trade Policy in Indonesia“, ASEAN Economic Bulletin, 22(1):3-18

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Topics:  International trade

Tags:  China, Doha Round, Asia, Indonesia, Pacific

Senior Lecturer, University of Indonesia; Co-founder, CReco Research Institute

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