The authors are, respectively, an economist based in London and a trade researcher with the Centre for Trade and Development. The views are personal. A shorter version of this article appeared in the web edition of the Hindu Businessline.
Before the start of the Doha Round, negotiations at the WTO were akin to the Ryder Cup -- a golf tournament between Team USA and Team Europe in which the spoils are evenly shared between the two sides. The rest of the world followed along the edges of the green, feigning interest, struggling to understand the rules of the game, and applauding respectfully.
The Doha Round saw the emergence of more players, and changed the rules of engagement. Countries like Brazil and India became more assertive, while developed countries discovered with discomfort that public opinion, even in the developing world, mattered. Hence, trade experts rummaging through the debris of the collapsed Doha Round trade talks have been looking beyond the usual suspects to apportion blame.
In Brussels, Geneva and political capitals, and the Western media, there is grudging acknowledgment that the calls for lower tariff walls and domestic farm subsidies emanating from Brazil and India can no longer be dismissed as ‘noise’.
The distribution of power at the negotiating table may have become democratised, but has multilateral trade slipped over the edge?
Causes of failure of talks
Three questions dominate the post-mortem of the recent WTO talks.
Firstly, what caused a seizure in the talks?
Opinions on the fault lines vary. Many view the reasons for the talks’ failure as arising out of America’s reluctance to reduce domestic subsidies to agriculture unless the EU made deep cuts in its farm tariffs, and big economies such as Brazil and India also made deep slashes in their market access barriers on agricultural goods and industrial products.
The US wanted deeper cuts in these barriers so that its farmers could be compensated with access to foreign markets for losing generous financial support. While the EU and the developing countries appeared willing to settle for a halfway house deal, the Americans wanted all or nothing.
Some analysts like Deutsche Bank chief economist Norbert Walter have blamed the failure of the talks on the “inexperience of Brazil and India” and their reluctance to let those fully aware of the impact of such negotiations take charge.
No doubt, there is relief in the developing world that its representatives -- Brazil and India -- ignored the guidance of the elders (the United States, EU, Japan and Australia) at the G6 talks.
Many analysts, however, worry that neither the US nor India have displayed adequate interest in a Doha deal, and this could affect the resumption of talks. The American President’s fast-track authority to negotiate without the US Congress amending the deal will expire by the middle of next year. The prospect of a more protectionist US Farm Bill could also scuttle the process. A global economic slowdown and fear of the ‘China factor’ could also reduce the appetite for multilateral trade talks.
Worryingly, real gains made in other areas such as services or duty-free and quota-free access for least developing countries (LDCs) could be lost as the WTO talks work on the principle that nothing is agreed until everything is agreed.
Although several countries appear to be pursuing diplomacy in the background for a resumption of talks, the possibility of the talks being in cold storage for a long time appears real.
End of the Doha Development Agenda?
Secondly, have the lofty ambitions of the Doha Development Agenda been cremated?
Five years ago, when the Doha Round of talks was launched against the backdrop of the 9/11 terrorist strikes in the US, it was portrayed as an opportunity to build solidarity across rich and poor nations to promote inclusive growth and share the benefits of globalisation. Improving access to markets for goods and services from poor countries and reducing the handicap of poor-country farmers competing with rich-country farmers spoilt on generous subsidies were set as ambitious milestones.
Yet, as a chronicle of the talks over the last five years would suggest, progress was slight, with negotiations failing to extract adequate political commitments for free trade from the purported champions of free trade in the developed world, or its alleged opponents in the developing world.
As Larry Elliot of The Guardian captures it aptly, the Doha Round was never about ‘free trade’; instead, it has always been about ‘managed protectionism’ where each country manoeuvred for space to protect its special interests.
In hindsight, ‘development’ in the Doha Round appears to have been a marketing epithet that covered up the reams of tariff schedules, market access commitments and different hues of subsidies, to convince developing countries to come to the table. A bit like the exiled Viking, Eric the Red, who, upon discovering an unending mass of frozen ice and barrenness, named it Greenland to attract others to the island.
So the rich world has retained its protectionism in agriculture, a sector where improved market access could make farming a viable option for millions of poor farmers in the developing world.
Market access concessions were, of course, available in high-technology intensive sectors that still remain beyond the wildest scramble up the ladder of value addition for most poor countries. In return, developing countries were expected to make deep concessions in their markets for agricultural and industrial goods and services.
In industrial goods (non-agricultural market access), the US wanted India to cut its bound tariff levels even below their applied levels. In fact, contrary to much of the media analysis in the West, Brazil and India did show flexibility in agreeing to give up the more developing country-friendly ‘modified Swiss formula’ (the ABI formula) that would have taken into account the existing tariff structure of a country (the average tariff rate) to ensure that there is no disproportionate cut in tariffs. Instead, they were willing to go with the developed countries’ proposal of using the pure Swiss formula that would have cut industrial tariffs sharply, and higher tariffs even more drastically. Any further reductions would have been indefensible domestically.
Formations of developing countries such as the G20 and G33 stonewalled proposals by developed countries for the opening up of their markets. If the US and Europe (including non-EU countries) could claim clout, owing to their 70% share in the global trade in goods and services, member countries of the G20 could, on the other hand, claim to represent 57% of the world’s population and 70% of the world’s farmers! And, unlike in earlier Rounds, developing countries were too organised to buckle. Hence, key concessions that could have enabled this Round meet its developmental aspirations did not materialise.
Bilateralism and regionalism
Thirdly, and finally, will bilateralism and regionalism become even more dominant?
This might be a moot question given the explosion of Regional Trade Agreements (RTAs) since the mid-1990s. The failure of the multilateral talks could increase focus on the expansion of bilateral and regional trade deals. But these trade deals have been growing at a galloping rate all along. If all the RTAs that are currently being negotiated or proposed were to be implemented, there would be nearly 300 RTAs in force by 2008. Since 2000, the US has concluded 14 RTAs and is negotiating 11 more. And the EU intends to pursue bilateral deals in Asia following the failure of talks.
There is an unmistakable trend here. Developed countries have been effectively using the regional and bilateral route to extract commitments that developing countries collectively refuse at the WTO. In fact, the regional route has been used either to make existing commitments at the multilateral level more stringent or to facilitate the entry of non-trade issues.
B L Das, India’s former ambassador to GATT, has argued that after the conclusion of the Tokyo Round in 1979, in which the subsidies agreement was soft on developing countries, the US initiated bilateral agreements and understandings with several developing countries, aimed at reducing their subsidy options, and later consolidated most of them in the Uruguay Round agreement.
When negotiations on Intellectual Property Rights got tough in the Uruguay Round, the US took the bilateral and regional route to conclude stringent and ‘industry-friendly’ agreements with developing countries. Similarly, all US FTAs after 1995 contain rules on labour standards that are even more stringent than those prescribed by the International Labour Organisation (ILO).
The delay in completing the Doha Round will give more time to the US to broaden the ambit of the WTO by bringing in non-trade issues like labour and environment.
RTAs are fashionable between developing countries too. Optimists believe that the spaghetti bowl of developed-country-led RTAs and the noodle bowl of intra-developing country RTAs will lead to a complex maze of trade discrimination that will ultimately push countries back to the negotiating table. Aid-for-trade is another tool that could be effectively used by developed countries to at least get LDCs to come to the table.
Optimism and tactics aside, what the WTO requires is a big helping of political will from key member countries. The spectre of terrorism that launched the Doha Round perhaps competes with it for political attention among world leaders in the rich and poor world. Political commitment to make the rule-based multilateral trading framework that the WTO offers work needs to be prioritised before trade slips back to becoming a game with two star players and lot of caddies. |
