Rational Expectations about the Doha Round Negotiations

It’s July, so thoughts turn to summer vacations…and meetings of trade ministers in the World Trade Organization (WTO). Each year the notables gather in Geneva in search of the elusive breakthrough that will advance the Doha Round of multilateral trade negotiations.

Last year, the WTO process deposited detailed drafts, painstakingly crafted by the chairs of the Doha Round negotiating groups on agriculture and non-agricultural market access (NAMA), of the modalities that would guide the final stage of the negotiations. But the trade diplomats dithered; despite making progress on agriculture, the NAMA talks did not advance much. So as trade ministers reconvene next week in Geneva, it’s déjà vu all over again!

Maintain the unblemished record of failure?

Will ministers finally achieve the hoped for breakthrough in the Doha Round, or will they, as expected, maintain their unblemished record of failure? Far from the fog of Geneva, it seems clear to me that hopes far exceed expectations.

Both economic and political factors constrain the ambition of WTO trade negotiators.

• The divide between developed and developing countries remains wide;

• The global economic environment is unsettled with slowing growth, commodity-fueled inflation, and beggar-thy-neighbor trade restrictions on food;

• Key ministers are under attack at home for their Doha positions.

Not in 2008

Dismiss the faint hopes of trade officials that the Doha Round can conclude in 2008. The window for doing so closed months ago.

Even under the best of circumstances, with agreement on the agriculture and NAMA texts this month, the task of completing the detailed national schedule of concessions in those areas, compiling and negotiating new offers on services, and revisiting sensitive texts on rules regarding antidumping and fish subsidies will require lengthy negotiations.

As a practical matter, the end game negotiations will fall to the next US administration and next European Commission, and possibly new regimes in India and Brazil (among others) as well. Such a timeline leads some officials—at least for the near term--to counsel inaction. That would be a big mistake.

Inaction would be a mistake

While the Doha Round probably cannot conclude until late 2009 or 2010, trade ministers still need to make substantial progress in the talks this year. The reason is simple. Unless the next generation of officials believes that the Doha Round is on the verge of producing meaningful results, they might not give priority to finishing the job...and thus condemn the talks to a long winter of hibernation.

The WTO cannot afford a time-out in trade negotiations. If multilateral solutions are put on hold, governments—pressed by their domestic constituencies--will look elsewhere to resolve trade and investment problems, either through unilateral measures (whether arguably WTO legal or not) or through bilateral or regional trade pacts.

Such attention diversion is already evident in the US and Europe and is eroding political support for the WTO talks. In Asia, some officials have discounted the value of the Doha exercise and refocused efforts on intra-Asian arrangements. Over time, these pacts could cause significant trade and investment diversion, thus complicating the resumption of WTO reform efforts.

Additional obstacles to trade and investment could arise from new subsidy and border tax schemes under consideration to confront the new challenges of climate change and border security. Given all these problems and potential threats to the multilateral trading system, it is alarming that so many trade officials lack a sense of urgency about advancing the Doha Round and seemingly discount the systemic costs of continuing drift in the multilateral negotiations.

What is to be done?

So what needs to be done? For starters, forget the lofty objectives set by the Doha Declaration that launched the talks in November 2001. At best, the WTO negotiations will underachieve what developing countries initially hoped to gain from this “development round.” But it still can produce a deal that meets rational expectations about how trade accords can advance economic growth. And developing countries will still be better off with a modest Doha deal than with Doha drift, especially if one considers the likely damage to the multilateral system in which those countries derive substantial benefits.

A 5-step program for Doha rehabilitation

The following is my 5-step program for Doha rehabilitation:

1. Bridge the North-South divide on the draft modalities on agriculture and NAMA and thereby clear the path for progress across the Doha agenda.

In the farm talks, negotiators should accept flexibility by developing countries in setting their liberalization commitments, recognizing that indiscriminate use of this mandate would prevent the successful conclusion of the overall Doha deal. In NAMA, negotiators should pursue several sectoral accords to complement the formula-based tariff cuts and create new export opportunities for both developed and developing countries.

2. To supplement the agriculture accord, commit not to impose export controls (or at least agree to exempt food shipments contracted by the World Food Program from export restrictions), make best efforts not to tighten other restrictions on food trade, and remove "buy national" requirements that impede the distribution of food supplies.

The Doha Round will not be regarded as relevant if it does not respond to this fundamental problem.

3. Agree to table substantially improved offers on services by October 2008.

As in NAMA, the objective should be for at least the major trading nations to put forward offers that open new access in specific service sectors. The “signalling” conference set for July 24 in Geneva needs to highlight the specific service sectors and modes of supply where key developed and developing countries will upgrade their offers.

4. Restructure the negotiations on rules, which involve initiatives on antidumping and countervailing duties, disciplines on fish subsidies, and transparency of regional trading arrangements (RTAs). I recommend that the three topics be delinked.

The RTA provisions have been implemented on a provisional basis since December 2006, and thus already have been handled separately from the other two topics. The work on fish subsidies should also be delinked from the rules negotiations, and joined to the other environmental initiatives pursuant to paragraph 31 of the original Doha declaration. That would leave antidumping as a self-standing accord. This is probably my most controversial recommendation, so it merits further explanation.

The antidumping issue has been contentious throughout the Doha Round. Some countries want to curtail the perceived abuse of antidumping practices. Those countries want the WTO rules clarified and augmented with regard to issues (e.g., zeroing; cumulation) dealt with in recent WTO dispute panel rulings. Others follow a more tactical than substantive approach. They recognize the resistance to reform, particularly in the US, and conclude that US reluctance to move on antidumping will allow them to take their own sensitive issues off the table in other areas of the Doha Round. And, of course, some countries want it both ways—i.e., curtail the use of antidumping by developed countries but allow developing countries unfettered use of these import relief measures. Developing countries, including China, now rank among the most active users of antidumping, and want to maintain their policy flexibility.

What’s the solution? Ideally, negotiators would accept the proposal that Gary Hufbauer and I put forward more than two decades ago during the Uruguay Round – recognize that antidumping measures generally provide temporary import relief against fairly traded goods and thus should be treated like general Article XIX safeguard measures (that is, with degressive and time-limited terms of protection). But politicians don’t buy the economist’s logic, and our proposal has always been a “non-starter.” Pragmatically, the deal has to be less ambitious – agree to greater transparency of administrative procedures, revised notification and consultation requirements for antidumping investigations, and a commitment by all participants to faithfully implement rulings by WTO dispute panels and the WTO appellate body.

5. Ministers should include two new items in the final Doha Round package, a “peace clause” and a “built-in” agenda.

In the “peace clause” WTO members would agree not to institute for several years new trade restrictions based on the carbon content of imports, so that such measures do not create obstacles to the negotiation of a global post-Kyoto regime. With the “built-in” agenda, WTO members would agree to pursue a list of initiatives immediately after the entry into force of the Doha accords. This agenda should comprise at least three items: (i) rules on subsidies and border levies taken pursuant to current and prospective multilateral environmental agreements (including a new code of conduct on climate change issues); (ii) rules on border measures to clarify the scope of national security exceptions under GATT Article XXI; and (iii) WTO institutional reforms (building on the Sutherland report and subsequent work in WTO committees).

Conclusion

Trade ministers should not discount the possibility that the Doha Round could fail, causing irreparable harm to the WTO’s credibility as a negotiating forum. So better to invest in the Doha Round this year, so that WTO members have the chance to conclude talks—and reap the economic dividends--in the future.

Reference

Gary Clyde Hufbauer & Jeffrey J. Schott, 1985, Trading for Growth: The Next Round of Trade Negotiations, Policy Analyses in International Economics 11, Washington: Institute for International Economics. September.