Don’t Dump Doha
A bad deal is worse than no deal at all. On that, at least, U.S. congressmen and Washington’s Doha Round negotiators are at one with Friends of the Earth. But is no deal really better than a worthwhile—if unspectacular—deal? Failure to make a deal at Doha puts at risk the entire multilateral trading system that has served the world so well for half a century, and has been a poverty-reducing driver of globalization. We have reached a critical stage and, maybe, a hopeless one. Yet undeniably agreement is within reach and has been for some time. There are just two possible explanations for the failure to grasp it. The first is that politicians in some major trading countries are fearful of having to sell a compromise settlement, which may generate some heat in their capitals as elections approach. The second is that they are negotiating in good faith and want a deal, but are allowing the perfect to be the enemy of the good.
No trade round ever ended with all parties proclaiming they had secured everything they wanted. There is always a mixture of shared pain and shared benefit. That is the nature of negotiation. The pain is usually perceived rather than real and, in any event, is much less than the overall benefits. Deals were reached in the past partly because the collective interest warranted it—and in a global economy there are few more important shared interests than the health of the multilateral trading system.
The issue now is whether the foreseeable level of achievement makes sense, and could be the basis for a demonstration of political leadership not seen so far in the Doha Round. Certainly, to read some of the statements from U.S. officials and congressional representatives, one could only conclude that what is on the negotiating table—or signalled—is devoid of value. That is not the case. Indeed, the notion of “Doha-lite” is a crude misnomer; a handy, quotable means of avoiding a deal. What is on the table is not “lite.” Take the key political dossier of agriculture:
§ World Trade Organization members have all agreed to eliminate export subsidies by 2013, and to discipline other unfair forms of export support in the same timeframe. That would have been an unthinkable prospect a decade ago.
§ The European Union has agreed to cement the largest reform of its Common Agricultural Policy in a generation through WTO commitments on domestic farm support. Once adopted in the WTO, there will be no going back to massive trade-distorting farm subsidies. The U.S. will also have to make an effort here.
§ New markets for agricultural exporters will open up. Applying a tariff-cutting formula close to that proposed by the “G20” countries (like Brazil, Argentina, South Africa and other big agricultural exporters) would bring new opportunities. Yes, there are too many exceptional conditions. However, sensitive products that escape the mainstream cuts will nevertheless be subjected to quota enlargement and easier conditions within quotas. And bilateral bargaining could improve the attractiveness of the overall package for specific farm groups. Here, the EU must make the effort.
Of course, trade in industrial goods accounts for more jobs than agriculture in the U.S. and in other Organization for Economic Cooperation and Development countries. In this sector too, the gains to be made in market access are very substantial. The application of a “Swiss formula” (at the most likely acceptable level) for tariff reduction would, at a stroke, eliminate peaks in customs duties in industrial countries that have remained remarkably high, despite several trade rounds. That means lower prices in the shops for consumers—especially poor consumers—and cheaper inputs for the manufacturing industry. If we ever get past the current blockage, then there would be the potential bonus of zero-duty sectoral deals in industries of particular interest in the U.S. and Europe.
Now, it will be argued that while industrial countries stand to concede much on market access, the developing nations—and especially the big emerging markets—are giving too little. It is certainly the case that the flexibilities and exclusions from which they “benefit” have a real impact on the potential for opening their markets. Yet it was the U.S. and EU, in their anxiety to launch and move the round forward, that willingly and knowingly agreed on these flexibilities. Remember, this was intended to be the Development Agenda, even if the “special and differential treatment” provided to developing countries is arguably an anti-development agenda. In any event, it is no use coming back at this stage and claiming that the flexibilities were not intended for use.
Brazil and India must offer more than they have to date; but nobody should discount the importance of these and other countries committing to bring most of their high, WTO-guaranteed tariffs down close to the tariffs actually being applied. That commitment brings a degree of certainty and stability to the trading and investment environments that we have not seen before. Many U.S. and European firms will benefit. It represents a big change in attitude and means that the clock of economic reform cannot be turned back.
What else would be in the Doha package? The biggest single advance in the entire round would be a trade-facilitation agreement. This is far advanced already and is hardly controversial. Developed and developing countries recognize the benefits to be drawn from fast, efficient customs clearance and processing systems. Too many poor nations cannot compete in global markets because large administrative burdens and high costs make them unable to get their products across their own borders. For the same reasons, they handicap themselves in the race for inward investment. A WTO agreement would change that. And firms in OECD countries would see credible, new and improved markets as a result.
An agreement to end fishing subsidies remains a possibility, as does freeing up trade in environmental goods. Above all, the opportunities that could be generated by a more convincing negotiation on trade in services are being lost. Unfortunately, none of this can move while the big players refuse to face the endgame in setting the basic terms for concessions in agricultural and industrial goods.
Why is none of this happening? The political agenda is obvious and problematic: mid-term elections in the U.S., followed by presidential and national-assembly elections in France, are probably the most significant events. We cannot conclude the round in time for the expiration of “fast-track” U.S. negotiating authority next year. But a framework “modalities” deal could and should be agreed to, and quickly. Let’s be in no doubt: failure to do it means we will lose everything—and with that, the risk to the world economy is large. Bilateral trade agreements are a pathetic alternative.
One way forward now is for Pascal Lamy, WTO Director-General, to be told to put squarely on the table his best bets on the figures for tariff and subsidy reductions that would command—reluctant but perhaps relieved—consensus support among WTO members. If some still refuse, they will have much to answer for, as the multilateral trading system faces potential disintegration. And they will have robbed the world of a worthwhile trade deal. Good should be acceptable. Perfect is out of reach.
This article was first published in The Wall Street Journal