The Doha Round doomed once again: Blame it on the G20

Ernesto Zedillo 28 April 2011

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With all due respect to the otherwise competent ambassadors to the WTO, I want to reiterate a key point. For a long time now, what the Doha Round has needed to reach a satisfactory conclusion is not more WTO Ambassadors or trade ministers but the involvement of the heads of government – particularly of countries with a major stake in global trade.

This is why I proposed – on the eve of the first G20 summit in 2008 – that leaders use the opportunity to clinch the political agreements necessary to conclude the Doha Round (Zedillo 2008). Back then, finishing Doha would have had the additional benefit of exorcising the demons of protectionism – which were clearly menacing at the time.

My plea for leaders’ involvement in the lowly task of deal making was even more explicit in the run up to the second G20 leader’s meeting – the London Summit in 2009 (Zedillo 2009). There I begged for leaders to attend the meeting better informed about the most contentious pending Doha issues and truly determined to advance their solution.

Undeniably, the Doha Round has been one of the standard subjects at the G20 gatherings. Leaders have produced grandiloquent statements about the importance of finishing it and have even issued deadlines for such a conclusion, but any serious effort to bridge the gaps that have precluded that outcome has been absent from the summits’ proceedings. The G20’s tone at the top, as far as the Doha Round is concerned, can be characterised as disappointing if not outright deceptive, given leaders’ failure to deliver.

What happens on 29 April 2011

As the Trade Negotiations Committee prepares to meet on 29 April 2011, I have no reason to be less sceptical than I have been for several years about what negotiators in Geneva can achieve.

  • I see no upside to this meeting – unless some high-level secret trade diplomacy has been taking place.
  • I am afraid its downside – that one more formal suspension of the negotiations is warranted as a result of poor progress in the recent drive in the talks – will be another serious blow to the WTO – which is, by the way, one of the most useful and capable institutions of the entire multilateral system.

Richard Baldwin and Simon Evenett’s urgent call to the contributors to this eBook to argue once again for the importance of finishing the Doha Round is commendable. In all likelihood, however, this collection of arguments will not reach the required audience – and is unlikely to influence it even if it does. After all, sufficient economic arguments to produce a good outcome have existed from day one and they continue to be equally valid today, if not more so. Concluding Doha would make sense for practically all participants, for both what is and what is not on the table.

What is on the Doha Round table

Regarding what is on the table, it would be unnecessary to repeat what has been expounded in papers such as those by Adler et al. (2009), and Hoekman et al. (2009). Overall income gains from a Doha deal not far from where negotiations have got so far will be by no means negligible. As things stand now, the Doha Round would insure everybody some market access and some improvement in terms of trade.

When I say that Doha also makes sense for what is not on the table I mean that it should be doable because it was not terribly ambitious to begin with, which also means that nobody is being asked to surrender to radical trade liberalisation. None of the other parties’ “worst” offers would imply for each party to give up total policy flexibility. As presently envisioned the system would be left with ample, and in fact redundant, safeguards.

Failing to conclude Doha makes no economic sense

In short, the purely economic reason for being uncooperative towards the conclusion of Doha is nowhere to be seen. Indolence on the part of governments is firstly about domestic politics.

  • Governments of the large developed and emerging countries perceive no political cost from forgoing the economic gains that would come with a Doha deal.
  • They do however perceive the cost of a significant political reaction of special interests that may be affected negatively, even if only marginally, by a balanced DDA outcome.

Thus, the preferred option of those governments is to preserve the status quo in the multilateral trading system.

This attitude is reinforced by the free rider incentive stemming from the global public good nature of the trading system. Under this logic it is better to squeeze the status quo to its limits and wait for others to pay the price to change it, if ever that happens.

The dangers of not doing Doha

This domestic political logic is myopic. It is not preordained that the status quo can only change for the better.

  • Governments of the large developed and emerging countries should remember how close to a vicious and catastrophic cycle of recession and protectionism the world was as recently as two years ago.
  • More fundamentally, the major participants in international flows of trade and investment should take more seriously the notion that deepening economic globalisation (which they seem to accept and benefit from) requires improved global governance – a public good towards which they seem so far unwilling to contribute.

Failure to address effectively this stark inconsistency puts globalisation, and the enormous benefits it has brought about, at serious risk.

The drums of trade and currency wars are still beating

The Doha debacle is just one among several expressions of that inconsistency. In fact, the severity of the great crisis of 2008-2009 and its sequel that will last for many years is an even more materially adverse consequence of governments’ reluctance to foster and live with enhanced international coordination in this era of unprecedented globalisation. It is not hard to imagine that the crisis would have been prevented or at least significantly attenuated had governments coordinated early on to contain the global macroeconomic imbalances and deliver a modicum of cross-border financial regulation and supervision. The G20 leaders admitted that lack of coordination was at the root of the crisis when they first met in November of 2008.

They reiterated that diagnosis at their September 2009 Pittsburgh summit when they kept the global imbalances as their central concern, so much so that they launched a framework to “ensure that fiscal, monetary, trade and structural policies are collectively consistent.” However – and this was the bad news from Pittsburgh – the leaders agreed to implement the framework in a way that was condemned to be ineffectual.

They adopted a sort of peer-review mechanism, giving the IMF a mere advisory and secretariat role. That mechanism made it unlikely, if not impossible, that they would have robust policy recommendations ready for an executable agreement by the November 2010 Seoul meeting, as they had agreed in Pittsburgh. Regarding that objective, not surprisingly, the Seoul summit was a failure. There was little in the G20 Seoul Action Plan reassuring the world that the tensions preceding the summit will not re-emerge and worsen anytime soon. The drums of trade and currency wars are still beating.

Doha’s role in the global governance puzzle

The G20 has made confrontation more likely not only by failing on macroeconomic policy coordination, but also by not delivering on its commitment to conclude the Doha Round in 2010 and instead watering it down by only speaking of 2011 as “a critical window of opportunity” to get the job done.

Addressing the question of global macroeconomic imbalances in a cooperative way is the litmus test of whether the international community is capable of managing other imbalances of greater complexity, as economic and geopolitical power continues to shift substantially in the years to come. So far the G20 leaders are flunking that litmus test along with their failure of doing their share to complete the Doha Round and strengthen the multilateral trading system.

References

Zedillo, Ernesto (2008), “Save Doha to Save the G20 Summit”, in Barry Eichengreen and Richard Baldwin (eds), What G20 Leaders must do to stabilize our economy and fix the financial system, A VoxEU.org Publication, 10 November.  

Zedillo, Ernesto (2009), “The Multilateral Trading system: A response to its challengers”, in Richard Baldwin and Simon Evenett (eds.), The collapse of global trade, murky protectionism, and the crisis: Recommendations for the G20, A VoxEU.org Publication, 5 March.

Adler, Matthew, Claire Brunel, Gary Clyde Hufbauer, and Jeffrey J Schott (2009), “What’s on the Table? The Doha Round as of August 2009”, Peterson Institute for International Economics, Working Paper Series, August.

Hoekman, Bernard, Will Martin, and Aaditya Mattoo (2009), “Conclude Doha: It Matters!”, Policy Research Working Paper 5135, The World Bank, November.

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Topics:  International trade

Tags:  Doha Round, G20

Director of the Yale Center for the Study of Globalization, ex-President of Mexico