Completing the Doha Round and developing countries

Sübidey Togan 28 April 2011

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The aim of economic activity is to generate wealth through high but sustainable growth in real income per-capita. Views on market-oriented policies to achieve this aim have converged recently into a set of policy principles known as the “Washington Consensus” and later revised as the “Post-Washington Consensus.”

The related principles of sound economic policy consist of policies that aim at achieving allocative efficiency, macroeconomic and financial stability, and social inclusion. Allocative efficiency requires protection of property rights, contract enforcement, rule of law, market-based competition, appropriate incentives, liberalisation of foreign trade, and liberalisation of foreign direct investment.

Macroeconomic and financial stability requires sound money, prudent supervision, fiscal sustainability and current-account sustainability. Finally, social inclusion requires social safety nets and targeted poverty-reduction programs. In addition a functioning market economy requires the availability of appropriate institutions, i.e. institutions for securing property rights, regulatory institutions, institutions for macroeconomic stabilisation, institutions for social insurance, and institutions of conflict management (Rodrik 2007).

In a market economy entrepreneurs need to have adequate control over the returns to assets, and private appropriability of the returns to accumulation is an essential requirement for achieving allocative efficiency. Since markets fail when participants engage in fraudulent or anticompetitive behaviour, every market economy needs to be overseen by regulatory institutions.

Establishment of appropriate institutions that will assure sound money, prudent supervision, fiscal sustainability and current-account sustainability are requirements for achieving macroeconomic stabilisation. In addition, social insurance in a market economy is needed to achieve social stability and social cohesion. Finally, for conflict management, market economies need the rule of law, a high-quality judiciary and an effective police force.

The Doha Round will help developing nations

For developing countries, following the principles of sound economic policy and establishing the appropriate institutions of a functioning market economy is a very challenging task. But completing the Doha Round in principle may help them follow at least some of the principles of sound economic policy and establishing some of the appropriate institutions of functioning market economies.

Economic theory emphasises that countries can derive welfare gains from freer trade, and that the proposition applies to both goods and services. Although liberalisation of foreign trade and investment may in principle lead to welfare gains, there is no guarantee that these gains will be derived. To derive welfare gains the country has to establish competent authorities that will enhance market competition, secure property rights including intellectual and industrial property rights, establish the institutions required for the elimination of technical barriers to trade and barriers arising from food safety and sanitary policies followed by foreign countries, and establish modern customs administrations. The country may also lack the expertise and resources to devise and implement the establishment of appropriate institutions and regulatory policies to liberalise trade in services. Here, improved prudential and pro-competitive regulation will be necessary to deliver the full benefits of services liberalisation.

Since these are challenging objectives, international efforts to achieve these goals could be enhanced. One mechanism that could help to achieve these objectives is fostering aid for trade. In addition the WTO could help developing countries by establishing a ‘services knowledge platform’ and a ‘standards knowledge platform’. While the ‘services knowledge platform’ would bring together sectoral regulators, trade officials and stakeholders to assess current services policies and identify beneficial service sector reforms, the ‘standards knowledge platform’ would bring together standardisation and conformity assessment officials, trade officials, and stakeholders to assess current standards policies and identify beneficial reforms for elimination of technical barriers to trade, food security , and sanitary and phytosanitary policies in foreign countries.

The fundamental role of the WTO has in fact been the establishment of a rule-based trading system based on norms that are generally accepted and respected. These rules have helped countries follow some of the principles of sound economic policy. Expansion of these rules and policy disciplines in the Doha Round by squeezing out water from tariff bindings and extending commitments on services to cover a much larger number of services sectors could help reduce policy uncertainty in the world trading system, and help the developing countries to achieve higher levels of economic growth (Hoekman 2011). On the other hand, for conflict management economies need the rule of law and a high-quality judiciary. These have been supplied in the international economy by the dispute settlement system of the WTO, where disputes are adjudicated by an international court whose rulings are universally implemented.

Note that a central goal of multilateral negotiations has been to improve market-access opportunities and the security of WTO members’ market access. Recent research indicates that the average tariff in agriculture in the absence of a Doha agreement would be 14.5%, while the average bound tariff would be 40.3%. On the other hand in the case of non-agricultural market access the average tariff in the absence of Doha agreement would be 2.9%, while the average bound tariff would be 7.8% (Martin and Mattoo 2010). Finally, in the case of services, research indicates that barriers to services trade remain prevalent, and that service barriers in both high-income and developing countries are higher than those for trade in goods.

In the case of non-agricultural market access the GATT/WTO has achieved its mission to a large extent. On the other hand multilateral negotiations on agriculture and services began only during the Uruguay Round, which culminated in the signing of the ‘Agreement on Agriculture’ and ‘General Agreement on Trade in Services’ in 1995.

  • In agriculture the Doha negotiations focused chiefly on reductions of world tariffs, reducing trade distorting domestic support to agriculture, support to products like cotton and sugar, and reduction of export subsidies.
  • In the case of services WTO members pursued a bilateral approach to negotiations, submitting request to others and responding to requests with offers between 2000 and the end of 2005.

But large asymmetries in interests across membership impeded progress on both areas. In 2006 WTO members launched an effort to complement the bilateral request offer process with a plurilateral or “collective” approach. This involved subsets of the WTO membership seeking to agree to a common “minimum” set of policy commitments for a given sector. But even with the new approach not much progress could be achieved until now.

Concluding remarks

Completing the Doha Round is a challenging task, but potential gains from trade liberalisation and expansion of WTO rules and policy disciplines are considerably large. To benefit from these gains the process requires the ultimate political backing of the WTO member countries.

References

Rodrik, D. (2007) One Economics, Many Recipes: Globalization, Institutions and Economic Growth, Princeton, NJ: Princeton University Press.

Hoekman, Bernard (2011), Message of on CUTS website, 5 April.

Martin, Will and Aaditya Mattoo (2010) “The Doha Development Agenda: What is on the Table?”, Journal of International Trade & Economic Development, Vol. 19, No. 1, 81-107.

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Topics:  International trade

Tags:  WTO, Doha Round, institutions, developing countries

Professor of Economics and Director of Center for International Economics, Bilkent University

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