After more than a decade of trade talks under the Doha Development Round, the international community has nothing to show for its efforts. The talks broke down in 2008 and despite efforts to revive them there is still no agreement. Rather acrimonious finger-pointing from opposing countries has also soured the mood and further entrenched the stalemate. This signifies a failure to deliver potential welfare gains, across all WTO member nations, of an estimated US$120 billion.
When the Doha Round, dubbed the Development Round, was launched in 2001, the world was a very different place. Developing countries’ share of world trade was only 19.5% in 1996 as opposed to 41% in 2010, and these countries had considerably less clout in international politics. The talks were seen as a vehicle to empower developing countries through removing barriers to trade with developed countries.
Although 157 countries are party to the talks, negotiations have come down to a leadership group of countries and regions, the United States, European Union, China, India, Brazil, Japan and Australia. These countries are some of the key players in the trade of agricultural goods, which is the primary source of the disagreement. Eighteen items out of 20 on the agenda were agreed but the final two items, related to the trade of agricultural goods, could not be resolved.
These items relate to US and EU subsidies of their farmers and access to developing countries’ markets for these goods. Countries such as India and China pushed for ‘safeguards’ of their markets, in the form of tariffs, which they could impose when imports of these subsidised agricultural products flooded their markets. Essentially, agreement could not be reached on what level at which this safeguard mechanism would be set.
It is widely acknowledged that developing countries have been disadvantaged in the past by the structure of the world trading system. The majority of rich countries established their wealth by protecting their domestic markets and promoting their industries via ‘infant industry’ policies, meaning providing investment and support to businesses and producers in the early stages of their development.
Industrial manufacturing in today’s developed world was strongly established by the late 1980′s, also establishing their competitive edge in the global economy. The other side of ‘infant industry’ policies, ‘investment’, is still most notably present today in rich countries in form of subsidies to farmers, particularly in the EU and the US.
Developing countries are under pressure to compete without such assistance to their industries or farmers whilst rich countries still reap the benefit of earlier use of such methods. It’s also now clear that developed countries have moved away from the principle of a ‘Development Round’, one which redresses these imbalances in the trading system and would benefit developing countries.
It is a great failure that the round collapsed, but its agenda was hugely ambitious, attempting to cover industrial goods, agriculture and services. Furthermore, discussions took place in a decade where global economic power has shifted more than at any other time in the last 100 years.
Still, development economists despair at the lack of agreement and have made it clear which nation is to blame. Jadish Bhagwati commented, “In short, the US killed Doha. Or at least put it into intensive care. The WTO Ministerial in November 2011 ended without concluding Doha, in defiance of all the efforts that leading scholars and statesmen worldwide had been making in its behalf”.
While agreement in these multilateral talks has been elusive, many nations are instead pursuing preferential trade agreements (PTA) which are less advantageous to all countries and particularly developing countries, which experience a power imbalance when negotiating such agreements. Bhagwati further commented, ‘and now, the US, not content with killing Doha, is even promoting the regional PTA called the Trans-Pacific Partnership, compounding its folly twice over’.
The importance of salvaging some agreement out of Doha cannot be overstated. According to the WTO, trade as a share of global GDP has risen from roughly 40% in 1980 to around 60% in 2012. During this time, trade has been a significant contributor to increasing economic growth and increasing prosperity in many developing countries.
The ‘Washington Consensus’, which advocated opening markets to trade and investment, was preached to developing countries in the 1990s and 2000s and many have diligently undertaken liberalisation of their economies, including removing barriers to trade.
There is a strong case of ‘do as we say, not as we have done’ from the US and the EU. The US simply finds it too politically sensitive to cut subsidies to agricultural producers, which also double as strong lobby groups. When head of the World Bank, Robert Zoellick pointed out the importance of a deal and urged the US to show leadership saying, “The world needs a global growth strategy and opening trade drives growth. We’ve seen it with proven effectiveness all throughout the past 60 or 70 years”.
The quagmire economies of EU and US could benefit from an agreement but is it the insecurity in those countries which makes an agreement even more unlikely. It seems clear now that officials have concluded that the ‘grand bargain’ originally intended from this round is not possible. In October 2012, the head of the WTO, Pascal Lamy, conceded, “It is now clear the goal of achieving a Doha package encompassing 20 topics among the WTO’s 157 members is out of reach in the short term. But in this difficult environment the possibility still exists of advancing in smaller steps”.
It’s clear that political leaders are now bypassing the Doha talks. At the World Economic Forum in January 2012, David Cameron called on Europe to bypass the Doha talks on a world free trade deal in favour of seeking separate agreements with the United States, Africa and other willing parties.
In 2013, negotiators must move to conclude talks on those topics which parties can agree. Agriculture accounts for only 10% of global trade in merchandise, but has been the sticking point for an overall agreement whereas merchandise trade of manufactured goods accounts for 55% of global trade.
Lamy has spoken of a Doha-lite agreement, the Australian Trade Minister, Craig Emerson, is advocating a ‘modest agreement’ by breaking the large agenda into smaller pieces and concluding each one separately, and the Economist has taken a similar approach, in a recent article, calling for a ‘Global Recovery Round’ again being broken into smaller chunks and allowing member nations to pick and choose which agreements to pursue.
As the global economy is still stalling, these kind of pragmatic steps really would be the least worst option. Rather than simply let multilateralism slide and protectionism rise, all parties have a lot to gain from even a partial resolution to the battle.