Doha’s woes and the long-gun structural issues facing trade negotiations

Bruce Blonigen, 17 July 2008

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As the current Doha Round languishes, the trend is obvious. Recent rounds of the General Agreement on Tariffs and Trade, and now the World Trade Organization (WTO), have become increasingly lengthy. Initial rounds after the Second World War took a matter of weeks or months. In contrast, the most recently completed negotiations – the Uruguay Round – took more than seven years to complete. The current Doha Round, which began in late 2001, has clearly stagnated – and even if completed, it is likely to achieve very little.

While the trend is obvious, the main drivers of this trend towards ever longer negotiating rounds are far from obvious, though there are a number of suspects.

  • The number of participants has grown substantially, from 20-30 participants in the early rounds to well over 100.

But until the World Trade Organisation's (WTO) ministerial conference in Cancún in September 2003, when Brazil, China, India and other developing countries formed a negotiating coalition (the G20), the active lead negotiators had always consisted of only the United States, the main European nations, and a few other developed countries.

  • The easy issues have already been agreed.

After so many successful early rounds, it may be that all that is left are the distorting measures in trade in goods that countries have tried hardest to protect from the very beginning. In other words, the “low-hanging fruit” are gone and the “high-hanging fruit” are indeed very difficult to reach.

  • Negotiations have begun to reach into completely new areas, which are much more complex.

An example is trade in services, for which even developed countries have great difficulty in measuring trade volumes, much less trade distortions due to government policies and regulations. Other obvious examples are negotiations over “trade-related matters”, such as intellectual property protection.

  • Countries may simply have less political will to conduct successful negotiations than they did in the past.

The end of the Cold War may have made multilateral agreements less crucial for the developed market economies, the main drivers of these rounds. This, or other forces, may have made the main players more regionally oriented, turning their efforts towards regional integration rather than multilateral integration.

A new Kiel Institute-CEPR report: Monitoring International Trade Policy

Much of the current attention is rightly focused on efforts to close the Doha Round.1 The longer-run issues facing WTO members, however, will soon be critical. A report released today by the Kiel Institute and CEPR – Monitoring International Trade Policy: A New Agenda for Reviving the Doha Round – presents important analysis of the challenges by noted trade policy scholars: Patrick Messerlin, Alan Deardorff, Robert Stern, John Whalley, Philippa Dee, and Christopher Findlay.

Patrick Messerlin begins the analysis by examining the most salient long-run issues for the developed countries, traditionally the main drivers of the trade negotiations. A significant portion of his analysis examines the declining ability of the big developed countries to lead current and future negotiations. His argument is not the common one that the US is a declining world power and thus unable to impose its will on others. Rather he points out that the length of the rounds now extends past these main countries' political cycles. If rounds are not completed in one political cycle, then momentum is often lost as a new political regime comes into place. Likewise, ever-thinner majorities for the ruling parties of these countries can undermine their will to lead the negotiations.

With this issue in mind, Messerlin offers a number of reforms that can help the WTO have shorter, successful rounds. A main recommendation is to limit the objectives of each round and focus on the core goal of increasing market access. His recommended reforms also include much wider use of simple rules, such as the “Swiss formula” for reducing trade protection, and considerable loosening of the “single undertaking” principle. Messerlin’s goal is to “flexipline” the negotiations – that is, to provide new flexibility combined with disciplining rules.

A second chapter by Alan Deardorff and Robert Stern from the University of Michigan, along with John Whalley from the University of Western Ontario, examines the trade negotiation issues most salient to developing countries. Such a focus on the developing world's perspective has become crucially important with the Doha Round labelled the “development round” and the rising prominence of developing countries such as Brazil, China, and India in recent ministerial conferences. A main message that comes from the Deardorff-Stern-Whalley analysis is that the developing countries are not served very well if the implicit (or explicit) understanding is that they do not have to offer “concessions” in this round of negotiations. As economic theory and empirical evidence suggest, developing countries gain from liberalising their own trade. Their analysis also points out the varied ways in which historical preferences given to special groups of developing countries by the developed world likely contributed to developing countries' lack of enthusiasm for multilateral liberalisation.

Both of the first two chapters provide a number of new and interesting perspectives on the role of preferential trade agreements (PTAs) in the multilateral negotiating process. Messerlin's chapter argues that PTA activity has not been increasing by nearly as much as is usually supposed. In particular, the PTA activity by larger countries/regions such as the European Union and the United States has been with much smaller countries, and these PTAs appear to be about preferential treatment rather than market access.

The chapter by Deardorff, Stern and Whalley reviews the ways in which PTAs could be beneficial or harmful and provides some empirical evidence from previous work that recent PTAs have modestly increased global welfare. But they also have specific recommendations about how PTAs can best improve welfare by “approximating” multilateral trade liberalisation as closely as possible.

The final chapter by Philippa Dee (Australian National University) and Christopher Findlay (University of Adelaide) provides a more focused analysis of services, an issue that will be increasingly important in future trade negotiations. Dee and Findlay first provide a cogent analysis of how and why service sectors can be quite different economically than traditional manufacturing industries and why this then leads to potentially different treatment in trade liberalisation negotiations. Their main point is that for many service sectors, domestic liberalisation is required before foreign firm access (that is, national treatment) would be useful in achieving efficient market outcomes. In other words, one cannot put the cart before the horse. Because of this, they argue that services may not be the area to lead concessions and ultimately a successful round of liberalisation; rather, the WTO can provide an important framework for furthering domestic reform by its members.

In summary, the chapters in this volume identify a number of important long-run trends that the WTO and its members must simply come to grips with before meaningful progress can be made:

  • Rounds need to be shorter, and this is likely to be achieved by focusing on core principles such as market access and the wider application of simple rules.
  • New issues such as services are much more complicated than simple trade liberalisation of manufacturing sectors and are likely to require prior domestic changes before trade liberalisation is beneficial.
  • Successful outcomes for developing countries come not only from trade liberalisation concessions made by the developed world but also by the developing countries themselves.
  • PTAs should be viewed with caution, though not seen as necessarily evil. But if the WTO and its members cannot solve the key issues, there is likely to be much more activity in PTAs and the WTO will be in danger of becoming obsolete in furthering trade liberalisation.

Reference

Alan Deardorff, Philippa Dee, Patrick Messerlin, Christopher Findlay, Robert Stern and John Whalley (2008). “Monitoring International Trade Policy: A New Agenda for Reviving the Doha Round.” CEPR and Kiel Institute.

 


 

1 See also Jagdish Bhagwati and Arvind Panagariya’s July 2007 column and Simon Evenett’s September 2007 column.

Topics: International trade
Tags: Doha Round, trade liberalisation, WTO

Bruce Blonigen

Knight Professor of Social Science, Department of Economics, University of Oregon