The world trading system without American leadership

Robert Baldwin 17 May 2010

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Since the signing of the General Agreement on Tariffs and Trade (GATT) in 1948, the US has been the world leader in promoting the reduction of tariffs and nontariff trade barriers among nations and establishing trading rules that serve to maintain the liberalisation achieved.

Among the achievements under US leadership haVE been:

  • The negotiation of eight multilateral tariff-reducing negotiations that reduced average tariffs on industrial goods among industrial countries from 40% in the late 1940s to the current level of less than 4%;
  • The negotiation of a series of codes of good behaviour covering such nontariff trade barriers as subsidies and countervailing duties, anti-dumping practices, safeguards, government procurement practices, customs valuation and licensing, and technical trade barriers (standards);
  • The extension of GATT rules to cover services and trade-related intellectual property rights; and the creation of a meaningful disputes settlement system.

Obama’s backing away from leadership on trade

Yet the Obama administration has backed away from this leadership role. Take the stalled Doha Round negotiations, for example. The immediate reason for the collapse in negotiations in July 2008 was a disagreement between the US and India over the extent to which developing countries could impose safeguards in response to import surges of agricultural goods. India wished to have the unencumbered right to raise duties to the level it deemed necessary to protect the livelihood conditions of its farmers. The US expressed concern 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 argued that the participation by such advanced developing countries as India, China, and Brazil in sector negotiations aimed at significantly reducing tariffs for such products as chemicals was necessary to provide a better balance of concessions for the US, even though the Doha Round mandate specified that participation in such negotiations would be voluntary. The Obama administration has continued to express these concerns.

Moreover, Ron Kirk, the current US Trade Representative 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 for reducing trade barriers in the agricultural and non-agricultural sectors. For example, certain proportions of the products of developing countries can be designated as sensitive products as well as special products and be subject to less than formula 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. Kirk has confirmed that such negotiations are ongoing but has not indicated if progress is being made nor the extent of US dissatisfaction with the negotiations. The US seems to want to avoid being accused of doing nothing to further the Doha Round negotiations but also avoid actions that might lead to real progress.

Weak support for resuming Doha

The fate of a follow-up meeting of trade ministers promised by the G20 leaders at their Pittsburgh Summit in September 2009 further illustrates the weak support of US officials for the resumption of serious Doha Round negotiations. As part of their pledge to conclude the Doha Round in 2010, the leaders stated in their final statement that they would ask their ministers to take stock of the negotiations “no later than early 2010”. Subsequently, however, the US successfully argued that this 2010 meeting should not be at the ministerial level but only among senior officials. As a result, embarrassing pressure on the US by the developing countries to resume serious negotiations was avoided and only technical matters were discussed when the meeting was finally held in late March 2010.

Yet another manifestation of the reluctance of the Obama administration to move forward on trade is its failure to submit to Congress for approval the free trade agreements negotiated by the Bush administration with Panama, Colombia, and South Korea.

Gains from trade

Contrary to what one would expect given the Obama administration’s position on the Doha Round, economic studies of the effects of the tariff-cutting rules already on the table indicate solid gains for the US. For example, a careful study based on trade and tariff data from the WTO by a group of researchers at the Peterson Institute for International Economics (Adler et al. 2009) estimates US GDP gains of $16.9 billion from reductions in tariffs and nontariff barriers already tentatively agreed upon for agricultural and non-agricultural goods at the time of the collapse in the Doha Round negotiations in July 2008. A further 10% liberalisation of services trade would raise US GDP gains by $2 billion while freeing trade in selective sectors would result in gains of $9.7 billion. The increase in GDP for the 22 developed and developing countries in the sample would be $100 billion from the agricultural and non-agricultural cuts on the table while liberalisation in services and sectoral trade would add another $100 billion.

The study also reveals an important reason why US non-agricultural producers tend to lack enthusiasm for going along with what is “on the table.” Increases in imports resulting from the reductions in US non-agricultural trade barriers ($14.3 billion) tend to dominate US export increases resulting from reductions in foreign trade barriers ($6.0 billion) thus implying a more significant short-run adjustment process to demand decreases in import-competing industries for the US than demand increases in export industries. Since achieving “a balance of concessions” has long been considered essential to conclude a successful negotiating round, US negotiators are understandably reluctant to accept what is currently “on the table” in the Doha Round with regard to agricultural and non-agricultural products.

Fortunately, as the Peterson Institute study also shows, a 10% liberalisation of services trade would rebalance the export and import changes for the US. US exports of services would increase by $13.7 billion and US imports by only $3.5 billion yielding a combined goods and services balance of $19.7 for exports and $17.8 billion for imports.

Global changes

Currently there are significant structural changes taking place in global trade as China, India, and other more advanced developing countries assume major roles. The WTO projects the volume of world trade to rise by 9.5% in 2010, thus almost reversing the record 12.2% decline in 2009. With such a trade expansion there are bound to be major decisions made that not only affect such traditional trade-policy issues as government procurement policy, subsidies, dumping and foreign direct investment but also new issues such as trade and climate change; the evolving role of China, India, and Brazil; food security; and changes in the organisation of future multilateral trade negotiations. By remaining on the sidelines of the Doha Round negotiations, the US risks losing influence over how important international economic matters are decided. A loss of economic influence is also likely to be followed by a loss of influence over international political issues.

Conclusion

The US should reassert its leadership role in trade negotiations by taking the lead in undertaking serious negotiations on services trade. At the March 2010 meeting of senior officials in Geneva, the chairperson of the negotiating committee on services reported progress had been made since July 2008 on those aspects of services trade dealing with domestic regulations and less-developed-country waivers but there was still little progress on market access and GATS rules. A bold set of revised services offers by the US could be the catalyst that revives interest in moving ahead on services negotiations and also breaks the logjam on the negotiations on agricultural and non-agricultural goods.

References

Mathew Adler, Claire Brunei, 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.
Gary Clyde Hufbauer, Jeffrey J Schott, and Woan Foong Wong (2010), “Figuring Out the Doha Round”, VoxEU.org, 22 Febuary.

 

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Topics:  International trade

Tags:  US, Doha Round, international trade

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

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