Standstills in WTO trade negotiations are not that unusual

Robert Baldwin

15 December 2009

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For those who believe that trade liberalisation promotes economic prosperity and peace, the continued stalemate in the Doha round of negotiations is of serious concern. Country leaders are still not ready to make the compromises needed to at least resume meaningful trade negotiations. This site has repeatedly warned of the threat of “murky” protectionism, and I have argued that fears of protectionism might actually help solve some of the technical sticking points holding up the Doha negotiations, whereas Claude Barfield has questioned the political appetite for trade in the US.

The current stall in trade negotiations need not be cause for despair, however. The history of previous negotiations is littered with lengthy stalemates. So long as the governments of the leading participants are committed to a successful outcome, delays may stretch into years without resulting in the complete failure of a negotiating round.

Two reasons for standstill

Standstills in the trade liberalisation process occur for two reasons:

  • Influential groups within a key country disagree on an important policy decision (Baldwin 2009a).
  • Disagreements arise among the major countries participating in trade negotiations (Baldwin 2009a).

An example of the first occurred in the US during the early years of the Eisenhower administration when Republicans took control of both houses of Congress. Rather than requesting from Congress the usual three-year renewal of the Reciprocal Trade Agreements Act, President Eisenhower in 1953 merely asked for a one-year extension without any new tariff-cutting authority plus the creation of a commission composed of public citizens and members of Congress to examine US foreign economic policy. After rejecting efforts to include protectionist provisions in the measure, the Congress finally passed a bill that largely conformed to the President’s request.

In 1954 the President sent a special message to Congress recommending adoption of the recommendation of the commission (the Randall Commission) that the Trade Agreements Act be extended for three years with an additional 15% tariff-cutting authority. However, opposition to this proposal from Republicans in the House forced the administration to simply settle for another one-year extension. But in 1955, with control of Congress again in Democrats’ hands and the administration playing a more active legislative role, the President obtained a three-year extension of the Trade Agreements Act along with the additional 15% duty-cutting authority. Whereas GATT trade-negotiating rounds had been held in 1947, 1949 and 1950, it was not until 1956 that another round of negotiations took place.

An example of the second reason took place in the Kennedy Round of negotiations (1964-67) between July 1965 and February 1966, this time within the European Economic Community. The Commission had proposed using revenues from the common external tariff on industrial products to finance the Community budget, the largest part of which was the cost of its farm policy. It also proposed revisions of the Rome Treaty that would give the European Parliament a greater role in the budget-making process. Five of the six Community members supported these proposals, but the French did not. One consequence of this dispute was that the European Economic Community’s participation in the ongoing Kennedy Round negotiations in Geneva ceased. Some efforts were made to proceed without the European Economic Community but little was accomplished. Fortunately, at a meeting in Luxembourg on 30 January 1966, European ministers reached a compromise on these issues, and the Kennedy Round negotiations resumed with active French participation.

Breakdowns in negotiations among GATT/WTO members are associated with the adjustment process to changes in their trading-power relationships. In the early days of GATT, the US dominated the setting of the negotiating agenda. However, with the formation of the six-nation European Economic Community in 1957, its enlargement to include the UK, Ireland, and Norway in 1973, and the eventual creation of the EU in 1993, the US was forced to share agenda-setting with this group of nations.

Developing countries play an increasing role

In instances of deadlocked trade negotiations since the Uruguay Round, developing countries have played a key role. They have long complained that the developed countries ignored the trade issues of most concern to them and that they were kept out of key GATT negotiating sessions. But only in recent years have they had the economic power and resolve to bring negotiations to a halt unless their demands are met.

The first instance of this occurred in 1999 at the Seattle ministerial meeting aimed at launching a new round of multilateral trade negotiations. The developing countries became resentful and uncooperative on being excluded from talks between the US and the EU on agriculture. Disagreement among the developed countries on this and other issues also played an important role in accounting for the failure of the ministerial meeting to settle on an agenda for a new negotiating round. It was not until November of 2001 that a new round was finally launched in Doha, Qatar.

Indications that it would be difficult to reach agreements in the Doha Round became clear at the midterm ministerial meeting held in Cancun, Mexico in September 2003. These negotiations collapsed after a group of 20 developing countries, led by Brazil, China and India (including other important WTO members such as Mexico, South Africa and Thailand), refused to negotiate on the so-called "Singapore" issues of competition, foreign investment, government procurement, and trade facilitation. This was because of insufficient commitments from developed countries to reduce agricultural subsidies and lower import barriers on agricultural products.
It was not until negotiators reached agreement in Geneva on the so-called "July 2004" package that Doha negotiations again resumed. They agreed to drop negotiations on competition policy, foreign investment, and government procurement policy from the Doha agenda.

Progress in the negotiations on market access for agricultural and non-agricultural goods seemed to have been reached. By July 2008, a ministerial conference was held with the purpose of reaching agreements on the formulas and other methods to be used to cut tariffs and subsidies. Unfortunately, these negotiations collapsed, and progress in the negotiations has since been confined mainly to technical matters.

The right for duties

Disagreement between the US and Indiaover the extent to which developing countries could raise agricultural duties in response to import surges led to the 2008 collapse. India wanted the unencumbered right to raise duties to the level it deemed necessary to protect the livelihood of its farmers. The US was concerned that this freedom of action would lead to tariffs being raised to levels above those agreed on in the Uruguay Round negotiations and thus would represent a step backward from the hard-won liberalisation gains in agriculture of that round.

US negotiators also requested the participation of advanced developing countries such as Brazil, China, and India in sectoral negotiations aimed at reducing tariffs for products such as chemicals significantly or even to zero to provide a reasonably balanced set of concessions for the US. This was despite the Doha Round mandate specifying that participation in such negotiations would be voluntary.

In recent months, the US has stressed the importance of bilateral discussions with the leading developing countries aimed at better ascertaining the manner in which these countries plan to use the “flexibilities” provided in the general rules proposed for reducing trade barriers in the agricultural and non-agricultural sectors. Certain proportions of products, for example, can be designated as sensitive products as well as special products and be subject to smaller than formulaic cuts or no cuts at all. US negotiators argue that this information is needed so that they can determine the extent that the Doha Round opens markets for the US. US Trade Representative Ron Kirk has confirmed that such bilateral negotiations are underway and that they will continue for several months.

Two key issues

The first problem is that developing countries only recently acquired the ability to bring multilateral negotiations to a halt, and they are still unsure of just how much negotiating power they have. There is a danger that they will overestimate their power and possibly insist on concessions that are unacceptable to the developed countries.
Similarly, because the developed countries are also unsure of the bargaining strength of the developing countries, there is a danger that the developed countries will make demands that are unacceptable to the developing countries. Political pressures from export-oriented manufacturing, service, and agricultural interests for further opening world markets have also been weak compared to those from import-oriented sectors that favour protectionism. Part of this has been due to the unfavourable economic conditions brought about by the worldwide recession and will hopefully change as these conditions improve.

The second problem is the uncertain position of President Obama on trade policy. While he has stated his support for a successful outcome of the Doha Round on numerous occasions, he has made pre-election statements including that he “will not sign another [bilateral] trade agreement unless it has protection for our environment and protection for American workers” (February 2008) and that he will adopt a trade policy that “serves the interests not just of multilateral corporations but of America’s hard working families” (March 2008). These statements do not emphasise an attitude in favour of multilateral trade agreements.

President Obama's delay in nominating an ambassador to represent the US in the WTO is another disturbing development. Clearly a successful conclusion of the Doha Round has not been high on the President’s agenda. But, as time passes, he is likely to appreciate more fully that the successful conclusion of the Doha Round can play an important role in furthering his goal of portraying the US as more cooperative and less dogmatic on foreign policy matters.

Conclusion

While the current standstill is a concern, as the history of previous trade negotiations reveals, lengthy delays in negotiations have been commonplace. The repeated statements of country leaders that they are committed to a successful conclusion of the Doha Round are encouraging, but even with this commitment, past episodes of failure illustrate how difficult it will be to achieve this goal.

While it will be difficult to resuscitate, the current stoppage does not mean that the Doha Round is dead.

References

Baldwin, Richard and Simon J. Evenett (2009), “Don't let murky protectionism stall a global recovery: Things the G20 should do”, VoxEU.org, 5 March.
Baldwin, Robert E. (2009a), “US Trade Policy Since 1934: An Uneven Path Toward Greater Trade Liberalization”, NBER Working Paper 15397.
Baldwin, Robert E. (2009b), “The botched Doha Round negotiations on a Special Safeguard Mechanism”, VoxEU.org, 11 March.
Barfield, Claude (2009), “The US, the London summit and trade”, VoxEU.org, 11 April.

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Topics:  Global governance International trade

Tags:  trade policy, WTO, Doha Round

Hilldale Professor of Economics, Emeritus, at the University of Wisconsin-Madison

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