Keeping the WTO on track: A Doha down payment plus more

Richard Baldwin, Simon J Evenett, 28 May 2011

a

A

World leaders are in a bind over the Doha Round. Carrying on with business as usual is no longer an option – the impasse that has emerged cannot be solved with a few more negotiating sessions. Abandoning the Round has been ruled out by almost all WTO members, nor is there much appetite for suspending the Round. This quandary has trade ministers and diplomats casting around for creative solutions.

Getting the WTO past the Doha crisis

After talking with ambassadors and senior officials from a wide range of delegations in Geneva, and a few from national capitals, we pulled together the elements of a plan that might suggest a way forward. The plan has four dimensions.

What to do for the December 2011 ministerial meeting

While finishing Doha this year is impossible, the WTO could have something to show for its 10 years of work. This progress could be locked in. A small package or set of stand-alone agreements could be finalised this year – what some call "early harvest" results and others call “Doha deliverables”, or the “Doha down payment.”

The long-scheduled meeting of trade ministers for 15-17 December 2011 provides a natural focal point for finalising these results.

Although these agreements would not constitute a major economic breakthrough, it would be a wise, political response to the Doha crisis. It would demonstrate that the WTO is alive, that it is forum where things can get done.

The nature of the package is dictated primarily by practicality – we can think of including only those items where agreement is already close. There would also be great merit, both politically and economically, to focusing on issues that benefit the world’s poorest countries. The failure of the largest trading nations to find a compromise that suits them shouldn’t be allowed to hold up sensible progress for the least developed nations.

The other essays in this eBook discuss the possible items that might be included in a Doha down payment. We have not been at the cutting face of the negotiations, so we cannot form an independent judgement of what is practical. Canvassing opinions in Geneva, however, the most likely items seem to be:

  • An accord on duty-free, quota-free treatment for least developed nations;
  • A waiver that allows WTO members to provide preferential access to services trade from least developed nations;
  • An agreement to reduce distortions in cotton to the benefit of least developed nations.
  • A package of measures that promote ‘trade facilitation’, i.e. reducing barriers to imports stemming from excessive red-tape barriers in customs, inferior port infrastructure, and other non-trade-policy impedances to trade;
  • Agreement on a monitoring mechanism for special and differential treatment,
  • Agreement to make permanent the RTA Transparency Mechanism that has been operating successfully for years; and
  • An agreement on certain non-tariff barriers such as the Horizontal Mechanism and textile labelling.

Other issues may ultimately prove tractable or necessary to provide balance. Those most often mentioned include a standstill agreement on fisheries subsidies, certain aspects of the less controversial rules negotiations, and export subsidies.

What to do with the rest of the Doha agenda

The small package that might be ready for December 2011 would not solve the WTO's first order negotiating challenge. A vast range of economic interests are still counting on the Round to deliver major progress on market access for industrial goods, agricultural products, and services. If we are to maintain a semblance of cohesion among WTO members, there will have to be an agreement to continue negotiations on the core issues.

But the principal negotiating processes used to date haven’t worked. Efforts by the Big 5 – as they are sometimes called – failed to find a compromise among themselves. There are many explanations for this failure, but one thing is clear – not all trade-offs were explored. In particular, the process has this year fixated very much on trade-offs within industrial goods liberalisation (NAMA). Trade-offs with other areas (services, antidumping rules, and others) weren't considered.

This suggests that the December 2011 meeting could reorganise the process in a way that is more likely to bear fruit. Here are some elements that resonated with many WTO members with whom we spoke.

  • Have a real negotiation under multilateral control with a “conductor” acting as an impartial player with responsibility of assisting members to reach agreement.

This suggests that an essential question will be the choice of the conductor (more on this below).

  • The negotiations must be horizontal.

Except for some issues in particular areas where useful work can still be done regardless of results in other areas (fisheries subsidies, for example) the negotiations should be horizontal. All areas should be on the table without a priori sequencing. Thus a package can be built with trade-offs across the board.

  • Forget "modalities."

The original sequencing of the talks – known in WTO-ese as modalities – has not worked.1 Perhaps this should have been obvious from the start, but now it is clear to all. No government can be expected to agree to formulae and other elements without knowing the full impact of such an understanding.

For example, by common agreement, nations get to choose a limited number of products to exclude from tariff cutting. As nations know better where they themselves will apply the flexibility, we have a situation where nations know what they are conceding on tariffs, but they don’t know what their exporters will be getting in exchange. Only when countries bring their national tariff schedules to the bargaining table will we know what the formulae will actually mean tariff line by tariff line – the level that ultimately interests business.

This is one of the things the December ministerial meeting could decide. It could set a date for the submission of schedules (for industrial goods, agricultural products, and services). This would unleash a process of real negotiations.

These changes need to be made explicit. What momentum exists comes from a decade of negotiation groups working in silos. This momentum needs to be redirected by a ministerial decision. One part of this that would be critical to keeping the process in some sort of order would be to grant a sort of “conductor's role” to the WTO Director-General in his role as chair of the Trade Negotiations Committee. It was a good idea to try to let the Big 5 find their way to an accord, but it did not work.

Keeping the WTO relevant to 21st-century trade issues

Members should look beyond the 10-year-old Doha agenda and agree to a work program to begin a discussion and analysis (not necessarily a negotiation) of other issues relevant to today's economic relations. Some of these could be:

  • Investment

Trade and investment have long been linked, but internationalisation of supply chains has greatly strengthened the link. For most WTO members, a pro-trade policy requires a pro-foreign-investment policy. This has blurred the line between what is a trade policy and what is a domestic or investment policy.

For example, during the global economics crisis, many countries set up protectionist measures on investment. Indeed, these went up even among members of the EU. The demand for mutually advantageous disciplines can be seen by the popularity of investment measures that are covered in 21st-century free trade agreements. Frequently these include investment chapters guaranteeing national treatment and most-favoured-nation treatment on a reciprocal basis.

  • Competition policy

Now more than ever there is a greater appreciation of the harm that exercising monopoly power can have on international trade and developing countries. Ask any developing country farmer who has had to bargain with large foreign supermarkets or has had to pay extortionate prices for its produce to be transported to the local port or airport.

Access to foreign markets is impaired as well as the gains from globalisation compromised by anti-competitive practices. The spread of competition law enforcement around the globe has put in place one building block, now the challenge is to develop international collaboration between enforcement agencies to tackle specific cases of anti-competitive conduct.

  • Climate change

Attempts to arrive at multilateral agreements on climate-change policies failed last year. Nations are thus pursuing uncoordinated national policies aimed at climate-change mitigation and adoption. Taxes, subsidies, and regulations are part of these plans, and this brings them potentially into conflict with WTO rules that were designed without climate-linked policies in mind. WTO members could usefully address the question of whether the present rules are sufficient and/or appropriate to meet this 21st-century policy challenge. Is there a need to devise special disciplines and increase transparency? Is there a need to define acceptable limits or complementary policies?

  • Export restrictions and duties

Whether on food, raw materials, or other goods, the present disciplines are quite weak as the GATT/WTO rules were written in an era where imports (exports) were almost universally viewed as a political bad (good). Rules on export restrictions simply weren’t necessary. The 21st century, however, has witnessed frequent imposition of such measures. As these can lead to a classic ‘prisoners’ dilemma”, they are naturally suited for WTO-like disciplines that help maintain a win-win situation in the face of unilateral incentive to undermine cooperation. Just as with tariffs, the point would not be to ban such restrictions. They may be necessary and indeed useful in certain circumstances, but multilateral disciplines would be useful to prevent their application from leading to unintended consequences.

  • Revisit some of the WTO Agreements

The world of trade has changed radically since the WTO Agreements were struck in 1994. Some, such as the Agreement on Safeguards, could probably due with an updating.

  • Enhanced transparency

Current transparency practices could certainly be improved to the benefit of all. Now they are based on notifications by members with the result that they are very often incomplete and late. The suggestion here is to discuss ways of improving this, perhaps leveraging new information technology.

  • Government Procurement Agreement

Governments buy a very large slice of the world’s goods and services. Moreover, there is an increasing realisation that open procurement is beneficial to taxpayers by lowering costs and to consumers by boosting competition and quality. Indeed, procurement is frequently the subject of ambitious free trade agreements. All this suggests that re-visiting the market access provisions of the Government Procurement Agreement in future negotiations might produce mutual gains for a wide range of WTO members.

  • Institutional reform

The Marrakesh Agreement, signed in 1994, was the last time the organisation’s structure was examined in its entirety. Since then, the world of trade has shifted radically – most obviously in terms of the trade weight of some developing nations but also in terms of how the internationalisation of supply chains has blurred the distinction between trade policies and domestic policies. This suggests that a cooperative and construction evaluation might reveal improves that could attract widespread support.

A bold initiative from the middle powers

This is a round where the biggest players failed to provide leadership. There may be many reasons for this, but the fact is not in dispute. The Big 5 gave up trying to work out a compromise (although at the last minute, the EU made an unsuccessful attempt to find an approach to bridge one of the gaps). This failure, perhaps reinforced by a lack of trust among the biggest players, created a vacuum.

One idea that could help unblock the broader talks is a bold unilateral move by the middle trading powers. These WTO members have often been a source of terrific ideas in the past; this time around they might demonstrate their additional commitment to the multilateral trading system precisely when so many commentators and business interests appear to have discounted the WTO. Such a bold step could encourage other WTO members to follow suit, injecting a further liberalising dynamic.

While middle powers cannot realistically expect much from "holding out" for bigger concessions, a simultaneous set of unilateral moves by this group could generate commercial opportunities that influential business lobbies would notice. Not to mention that a welcome injection of competitive pressure would keep producers and traders in the middle powers on their toes.

The middle trading powers could, for example:

  • Offer to bind their tariffs at the applied level, even if the application of a formula doesn't go below the bound level;
  • Offer to bind 100% of tariff lines on NAMA. If a tariff line is unbound, bind at the applied level;
  • Table improved offers on services that reflect unilateral liberalisation undertaken to date;
  • Freeze all harmful fisheries subsidies and offer to reduce them by 10% in the first year provided a critical mass of members do the same;
  • Offer some additional restraints on the use of flexibilities presently available in the Agriculture and NAMA draft modalities;
  • Implement trade facilitation even before it becomes a legal obligation;
  • Implement improvements in transparency obligations under the Antidumping and the Subsidies and Countervailing Measures Agreements;
  • Provide duty-free, quota-free treatment for 100% of products for least developed countries with flexible rules of origin;
  • Offer tariff concessions on environmental goods.

Concluding remarks

After 10 years of much progress and frustration with the DDA programme, it is time for a new approach to bringing negotiations to a successful conclusion, doing so in a way that enhances the contemporary relevance of the WTO. Such an approach – like the others described by contributors to this eBook – imply that the current impasse is not inevitable.

Here we have outlined a four-part approach, which WTO members could take up over the summer of 2011 and have tangible results to show for the WTO Ministerial Conference in December 2011. Such "a Doha down payment" would demonstrate that the WTO can deliver; it would build confidence. Work on many other items – including the remaining elements of the DDA – would go beyond that time. Should further momentum develop, no doubt other initiatives could be taken on board. Partly through action, partly through reflection a renewed WTO would emerge as this process unfolded over time. 


1 The idea that first there would be an agreement on the levels of ambition in agriculture and NAMA, with this conditioning discussions on sectorals and the remaining areas.

 

Topics: International trade
Tags: Doha Round, Next Steps, WTO

Professor of International Economics, Graduate Institute, Geneva; Director of CEPR; VoxEU.org Editor-in-Chief

Professor of International Trade, University of St. Gallen and Member of the Warwick Commission on the Future of the Multilateral Trading System after Doha. Co-Director of the CEPR Programme in International Trade and Regional Economics.

Vox Talks