EVENTS

Date:	Tuesday, October 3, 2006
Time:	10:00 AM -- 1:30 PM
Location:	Wohlstetter Conference Center, Twelfth Floor, AEI 1150 Seventeenth Street, N.W., Washington, D.C. 20036

October 2006

The World Trading System after the Collapse of Doha: The WTO, Developing Countries, and Regionalism

The collapse of the World Trade Organization’s (WTO) Doha Development Round of trade negotiations has raised important questions about the future of the WTO as an organization, the future of multilateral trade rounds, the place of trade in the development agenda, and the fragmentation of trade through bilateral and regional free trade agreements. At an October 3 AEI conference, a distinguished panel of trade experts gave their analyses and judgments about the future of the world trading system in the global economy. Following the panel, U.S. Trade Representative Susan C. Schwab discussed the administration’s efforts to reach a truly beneficial agreement.

Daniel K. Tarullo
Georgetown University Law Center

Successful completion of the Doha round has been stalled due to numerous structural problems, such as the large number of participants and the complex and sensitive regulatory and welfare issues at hand. Indicative of how these issues have hindered Doha is the number of years--twelve and counting--that have lagged between the completion of the prior round of negotiations and the completion of the current round. Another obstacle has been the waning interest of multinational corporations (MNCs) in a trade deal. Because many MNCs can negotiate with governments directly, they no longer have to rely on the U.S. government to secure favorable trade conditions in foreign countries. In addition, certain major economies, particularly the United States and European Union, have not provided strong leadership in reaching an agreement because they have lost either their capacity or their willingness to lead. Finally, bilateral and regional agreements provide countries far more flexibility than agreements under the WTO and have thus become preferable forms of trade liberalization.

Daniel W. Drezner
Tufts University

While there is a great deal of pessimism among many observers of trade negotiation, it is important to realize that the status quo is actually not so dire. Trade barriers are roughly the lowest they have been in a century, countries that belong to the WTO want to remain members, and countries outside the WTO--Russia in particular--desire admission. At the same time, U.S. trade policy is at a standstill. In addition to the stalled Doha round, the Free Trade Area of the Americas has made scant progress over the past three years. Furthermore, public and Congressional opinion on trade liberalization has grown increasingly negative. According to the Program on International Policy Attitudes at the University of Maryland, in 1999, 57 percent of those who earned over a $100,000 per year supported free trade, but by 2004, that figure had fallen to 28 percent. In fact, there is now less support for free trade in the United States than there is in Europe. Trade has become an easy scapegoat for recent economic uncertainty and the downward pressure on wages of blue collar workers, and people are concerned about the large trade deficit.

If the Doha round fails, developing countries will be worse off. This is because bilateral agreements will become the alternative means of trade liberalization, in which case large economies like the United States and the European Union will have far more bargaining power than the developing countries. If Doha fails, developing countries will realize that they should support multilateral WTO negotiations. Then they might pursue their own bilateral and regional free trade agreements, and economic nationalism may grow in countries like China, Russia, and India.

Grant D. Aldonas
Former under secretary of commerce

It is important to note that since its inception the WTO has been enormously successful. Developing economies now represent over 50 percent of the world’s gross domestic product (GDP) and considerably more than 50 percent of the world’s GDP growth, of which China and India represent 25 percent. No longer does the United States drive the world’s economy. Consequently, the United States needs to adopt a different approach of how it interacts with the international political process.

There is an anti-development bias in the multilateral trading system, especially in the way in which the developing countries have sought relief from manufactured imports, since imports can be far more vital than exports for developing countries. Imports drive competition and bring technology into the country. Basic trade liberalization tends to minimize the government’s role in the market, thereby reducing its burden on the economy. Tariffs and quotas limit an individual’s right to participate effectively in the global economy.

The current way in which businesses bargain tariff by tariff is counterproductive. Instead, the countries should aim at a larger deal that would bring about liberalization among the developing countries that participate in the WTO. Moreover, in order to reach an agreement in the Doha round, there has to be a serious discussion about what drives development, the role of the trading system in that process, and what reforms can play a mediating influence in globalization and support for trade liberalization.

Claude Barfield
AEI

The mercantilist approach to trade negotiation, which is driven by producers seeking export markets, has been customary since 1945. As for the proliferation of bilateral agreements, one major cause is that they allow countries to liberalize at their own pace without having to fear the WTO dispute settlement system. The United States, for its part, has explicitly tied trade policy to a larger set of diplomatic and security goals, a trend that will continue whether Democrats or Republicans are in power. A specific case of this concerns east Asia, where it is in the U.S. interest to match the growing Chinese presence in the region in both economic and political terms. In addition, bilateral liberalization has occurred--especially in east Asia--piecemeal rather than in comprehensive plans. Because countries are assembling products at different stages, imports do not have the same negative meaning they did before; the political economy is very different. This actually reflects the Chinese development model, which, unlike South Korea and Japan, has been very open to importation and foreign investment. While China’s growth still has had much to do with exports, the country welcomed imports as essential to that end.

The Honorable Susan C. Schwab
United States Trade Representative

The Doha round was suspended in July of this year mainly due to the debate over agricultural market access versus cuts in domestic agricultural support. While most countries involved are committed to a successful conclusion, there is disagreement over what a successful agreement actually means. For the United States, a successful conclusion means new and increased trade flows, greater market access for U.S. goods, and alleviating poverty in developing countries. Other countries, however, favor a more meager agreement, which would end up cementing numerous exceptions to liberalization and go contrary to the goals of the round itself. Such an agreement would be bad for both advanced and developing countries, and it is likely that such a package would not pass Congress. Indeed, any trade agreement to get through Congress must be a big, comprehensive package, capable of winning the support of diverse interests, including agriculture, industry, and services.

Concerning agriculture liberalization, one of the key issues is the debate over cutting applied rates versus bound rates. Typically, bound rates are much higher than the actual applied rates, so cuts in bound rates are not likely to generate a substantial amount of new trade.

In order to encourage progress in the round, last October, the United States proposed a bold package in agriculture subsidy cuts, which would have entailed a 60 percent cut in the most trade distorting domestic supports and a 53 percent cut in the aggregate amount permitted in all trade distorting domestic supports. Had this deal gone through, it would have required major reforms in the 2007 farm bill. However, other parties balked, reflecting the fact that while the United States is still expected to lead, its leadership cannot be as unilateral as it was in the past. The negotiation process today is a far more collective effort. The European Union’s (EU) approach to the round is another difficulty, since it comes in with one trade proposal that has been agreed to by all twenty-five members. Further, due to the EU’s enlargement, the pro-trade cause can no longer count on the support of European countries like Sweden, Hungary, and Poland, which had been supportive of increased liberalization in prior rounds.

Regarding the purported prevalence of protectionism, the situation is not as dire as some might claim. Since George W. Bush has become president, Congress has passed and implemented ten free trade agreements and passed another three that are waiting for implementation. Two others currently await Congressional approval. Congress also eliminated the Step Two program in cotton because it violated WTO obligations, voted down the Byrd amendment, and eliminated the Foreign Sales Corporation Provision--actions that many observers would not have predicted.

While the Doha round may be down, there is still cause for optimism, as representatives of various parties are still engaged in fruitful dialogue. However, come June 2007, trade promotion authority will expire, and the farm bill will have been up for debate--two domestic issues that may affect the prospects for a trade agreement.

AEI intern Paul Kozinski prepared this summary.