The Doha Round: has the unravelling begun?

Simon Evenett 17 June 2007

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It was bad enough when the Doha Round of trade negotiations was deadlocked; now there are dangerous signs that what progress has been made is unravelling. Over the past four weeks the leading trading powers have moved backwards from a number of established positions. Either senior trade negotiators are planning an extraordinarily welcome summer surprise or they are positioning themselves for the blame game when the music finally stops.

After nearly six years of negotiations, you might ask “what's the hurry?” Well, the small matter of the US Constitution dictates that Americans must vote for their next president in November 2008, and recent history has demonstrated that election years are not known for their dispassionate debates over trade policy. Mentions of “Sucking Sounds,” “Benedict Arnold’s” and scare tactics about outsourcing are more the norm. Avoiding 2008 means that WTO member governments must conclude the Doha Round before the end of 2007, or wait until the new US administration is installed in 2009. (Of course, other nations have elections too – but the received wisdom is that it’s the US election that creates the real deadline.)

A December 2007 deadline for signing the Doha Round may seem a long way off until you realise that it takes 3-6 months to undertake the detailed legal work necessary for a multilateral agreement, to say nothing of the political effort of convincing the 150 members to sign it. After the US lost a case at the WTO a few years back on gambling because of poor legal work at the end of the last major trade negotiation, the US Congress now insists on much more attention to detail. As far as the timetable goes there really isn't much wiggle room. An agreement on the specifics in September 2007 would be cutting it fine. Getting Doha done in 2007 means getting something serious agreed before the August holidays.

Waiting till 2009 or 2010 would be risky. First, disillusionment may grow with the WTO and countries may become more inclined to test the limits of their trading partners' patience. The possibility of some pretty ugly showdowns, not least with China and quite possibly over US and EU agricultural policies, looms large. Second, postponement provides no guarantee of future negotiating success. Interests may diverge further and the basis of a deal may prove even more elusive. Finally, only perennial optimists will see postponement as materially better than failure. Most political animals have much shorter time horizons than trade policy desperadoes – let's not forget Tony Blair’s reference to the Doha Round as the "trade thing" at last year's G8 summit. If WTO supporters like Blair think like this now, how many will be left in 2009 or 2010? Politics is the art of the possible. Procrastination is a luxury WTO members cannot afford.

How far are we from a deal?

In recent months Japan and Australia seem to have fallen by the wayside and now only Brazil, the EU, India, and the US (the G4) are in contact regularly. Their goal is to establish the basis of a deal, the major elements of which will almost surely be 1) the liberalisation of agricultural trade (especially by the US and EU), 2) the cutting of tariffs on manufactures trade (especially by large developing nations), and 3) the liberalisation of service sector trade. Although plenty still remained to be done, there were some encouraging signs from the beginning of this year, especially as the US and EU appeared to have narrowed their differences on certain key agricultural issues. Until recently there were also some glimmers of hope in the manufactures-trade negotiations, but service-sector talks remained stalled.

In case you’re wondering about the other 150 WTO members, they come later. According to the 50 year tradition of GATT/WTO talks, the big players outline an agreement they can live with and then take it to the broader membership for discussion and modification. Thus the Doha negotiations are proceeding in two stages; the G4 are supposed to come close to a deal first and then this is to be followed by a broader agreement among the whole WTO membership, bearing in mind that each member of the WTO has, in principle, a veto over the outcome.

Progress, however, is beginning to unravel. Each G4 trading power has taken retrograde steps. At the end of May Brazil indicated that it could no longer agree to reduce its maximum tariff to 20% (it wants a 30% ceiling). Brazil has also advocated a number of ruses that would allow very high tariffs to remain on certain protected industries while attaining notionally large average tariff cuts. Brazil claims it wasn't going to get what it wanted on agricultural trade reform and so was pulling back on its own promises.

Not to be outdone, the EU threatened to scale back European offers, if others remained unforthcoming.

India adopted an age-old negotiating tactic – suddenly elevating demands in an area known to be very sensitive to a trading partner when negotiations in other areas look like they are making progress too quickly. India's Commerce Minister recently raised the issue of US immigration policy knowing, no doubt, that the US Congress has repeatedly instructed US officials to keep the subject off the table.

The US Administration concluded a mid-May agreement with Congressional leaders of both parties that is likely do much to undermine the faith that US trading partners place in the trade-related promises. Although the US Administration has the power to negotiate commercial treaties, under the US Constitution the power to regulate commerce rests with Congress. American elected officials have long recognised that US trading partners don't, or won't, negotiate twice with the US (once each with the Administration and with Congress). Consequently, procedures have been put in place to allow for up-or-down votes (without amendments) on trade agreements that the US Administration signs with trading partners and that meet certain pre-specified conditions – the famous Trade Promotion Authority, or Fast-Track Authority. The mid-May agreement put this in doubt by insisting that labour and environment conditions be attached to two tiny FTAs (with Peru and Panama) that had already been negotiated under Fast Track authority.

Put bluntly, either much of what US trade policy experts have written about the importance of Fast Track/Trade Promotion Authority is wrong, or in the future, the US faces a major credibility problem with its trading partners. I doubt this point has been lost on the US trading partners who must surely question whether any Doha Round deal could get through Congress on an up-or-down vote. The Congress has shown that it is prepared – with the connivance of the US Administration – to renege on the promised treatment of two tiny FTAs (with Peru and Panama). Given this, how likely is it to stick to its promises when a worldwide trade deal is under consideration? US officials may rue the day that they squandered much of their partners’ trust in return for an increased likelihood that Congress approve two FTAs with limited economic, diplomatic, and strategic significance.

Where does this leave the Doha Round in the critical six to eight weeks ahead? The omens aren't good. No doubt there are some eternal optimists out there who believe it will be "all right on the night." Even so, they ought to acknowledge that the last month has been terrible. There is of course the slight chance that the fear of failure may encourage senior trade ministers into making difficult compromises, but for all their much-vaunted panache, not one of them gives much of an impression of having done the necessary work at home to overcome entrenched interests. Instead stalemate looms. Much depends on how the associated media game is played. Maybe a graceful way will be found to conclude the negotiations without an agreement? Maybe senior trade negotiators and WTO officials will argue for continuing the talks after an 18-24 month hiatus? Or will the talks collapse into irreparable acrimony? Much depends on how the major trading powers fancy their chances at the "blame game." Indeed, I often wonder if the current tactics of some trading nations are aimed at completing the Doha Round or aimed at positioning themselves for the next multilateral trade negotiation.

If it is to be the blame game, the EU will undoubtedly take a beating, but the principal fall guy will be the US. Whatever the US Administration and its apologists may say, the recent US compact on FTAs must surely call into question whether Congress can stick to any commitment to treat a Doha Round agreement in a pre-agreed manner. Moreover, with a US Congress whose majority party is inclined to distrust the current US Administration and that was elected to contain many of its initiatives, the likelihood of Trade Promotion Authority being extended to complete the Doha Round is slim anyway. The US hated taking much of the blame for the suspension of the Doha Round in 2006; it should be better prepared for worse.

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Topics:  International trade

Tags:  WTO, Doha Round, G4

Professor of International Trade, University of St. Gallen; Research Fellow, CEPR

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