The WTO Hong Kong Ministerial Meeting
A Postmortem
About This Event

While there is widespread agreement that the substantive results of the World Trade Organization (WTO) Hong Kong Ministerial meeting were meager, there is no agreement on where the Doha Round negotiations go from here. Optimists still hold that breakthroughs are possible over the next few months and that the round can be successfully completed by mid-2007. Pessimists argue that WTO members should admit that the talks will certainly extend into 2009—after the French and U.S. presidential elections in 2007 and 2008. To assess the prospects for completion of the Doha Round, AEI has assembled a group of experts to analyze and evaluate the future of the multilateral negotiations.

Agenda
3:45 p.m.
Registration
4:00
Discussants:
Simon J. Evenett, University of St. Gallen
James K. Glassman, AEI
Gawain Kripke, Oxfam America
Thea Lee, AFL-CIO
Phillip L. Swagel, AEI
Moderator:
Claude E. Barfield, AEI
5:45
Adjournment
Event Summary

January 2006

The WTO Hong Kong Ministerial Meeting: A Postmortem

While there is widespread agreement that the substantive results of the World Trade Organization (WTO) Hong Kong ministerial meeting were meager, there is no agreement on where the Doha Round negotiations go from here. Optimists still hold that breakthroughs are possible over the next few months and that the round can be successfully completed by mid-2007. Pessimists argue that WTO members should admit that the talks will certainly extend into 2009--after the French and U.S. presidential elections in 2007 and 2008. To assess the prospects for completion of the Doha Round, experts at a January 24 AEI panel discussion analyzed and evaluated the future of the multilateral negotiations.

Gawain Kripke
Oxfam America

Prior to the ministerial meeting in Hong Kong, most people set low expectations. Although this meeting was not a failure in the same sense as the meetings in Cancun and Seattle, the delegates accomplished very little. The opportunity of the Doha Round is closing, but it is too early to give up on it given its potential for enacting important trade reform.

Oxfam believes that trade is important for reducing poverty and fostering development, and the Doha Round is perhaps the best context in which to bring about necessary reforms. At the launch of the Doha Round, there was an explicit commitment to put development at the center of the agenda. However, because this has not happened, many countries--notably the G20--have thwarted reforms; they will not agree to reforms proposed by the United States and European Union that go against their interests. 

The biggest challenge to making progress is agricultural policy, particularly that of the United States and the European Union. In order for the round to move forward, these two must reduce their current levels of protectionism. Further, even though many people are pessimistic about substantial reform on the part of Europe and the United States, Mr. Kripke remains optimistic and committed to the goals of the Doha Round, because it is the only vehicle with the potential to enact important reforms. However, he does think that we need to begin considering a plan B. One possible plan B is to attempt to extend trade negotiation authority so that the negotiations can go on once negotiating authority expires. Even though this also appears to be an unlikely scenario due to the unlikelihood of substantial progress being made by 2007, we should work to enable fruitful negotiations to continue in the future. 

Phillip L. Swagel
AEI

Despite the pessimism over the prospects of multilateral trade liberalization, there have been three recent items of encouraging news in international trade. First, on December 30, 2005, President George W. Bush rejected imposing new isolationist tariffs on steel pipes from China. Second, Congress voted to repeal the “Byrd Amendment,” an antidumping measure ruled illegal by the World Trade Organization. Third, the United States and Mexico seem to be making progress in lifting antidumping tariffs.

In order for there to be an eventual deal in the Doha Round, reform must take place in several areas. The United States and the European Union need to make changes in agricultural policy, both for the sake of progress in the trade negotiations and over budgetary concerns. Once Europe moves, the United States will be under great pressure to do the same. Developing countries need to open their markets to trade, including trade in services such as financial services and telecommunications. Service liberalization is of particular importance for reducing poverty and improving the overall economy. Furthermore, there needs to be more attention to trade rules. Even if there is success in reducing tariffs and subsidies in the advanced economies, developing countries will still want to make sure that the protection does not sneak back in through use of antidumping and anti-subsidy lawsuits. Because the United States has been running a current account deficit for so long, it will eventually begin to export a great deal, and this change will result in U.S. firms becoming the targets of an increasing volume of antidumping suits brought by other countries. 
 
Thea Lee
AFL-CIO

Practically nothing was accomplished at the Hong Kong ministerial meeting, and this is the third failed WTO meeting in the past six years. If the meetings continue to fail, there is apparently something fundamentally wrong with the World Trade Organization. Organized labor believes in the concept of a multilateral trade system but disagrees with the rules of the current system and the institution of the WTO, namely because labor issues are not on the agenda.

There are three issues that should be on the agenda. First, the international trade system needs to protect workers’ fundamental human rights, and there is an international consensus on what these rights are. In 1998, the International Labour Organization, comprised of delegates from 175 countries, arrived at a declaration of fundamental principles on workers rights, such as freedom of association and protection against forced labor, child labor, and discrimination. The WTO needs to protect workers’ rights just as it protects intellectual property rights. There has been no action at the World Trade Organization in regard to workers’ rights, and until this takes place, there will be no real prospect for making headway on development. Labor is a commercial issue and a trade issue, and there is not even a forum at the WTO to simply discuss labor issues.

Second, the issue of currency manipulation belongs at the WTO. There cannot be a system of trade rules that are incapable of dealing with countries which systematically manipulate their currency to gain an unfair trade advantage. The WTO needs to work with the IMF to meet the problems caused by currency manipulation. One such problem is that the United States has been forced to resort to more antidumping cases and other forms of litigation than it would have to if the currency manipulation could be dealt with through WTO rules.

Third, the organization needs to improve its institutional reform and transparency. For instance, the dispute settlement panels ought to be open to the public.

Also, there are issues that are on the WTO agenda but should not be. First, antidumping rules need to be available, easy to use, and fair. Second, there has to be a proper balance between enforcing trade discipline through the multilateral process and allowing democratic governments to regulate their own economies. The WTO has gone too far in restricting the right to regulate. Negotiators have imposed rules with unintended consequences and have not understood the full ramifications of the commitment they have made. This problem is exacerbated by the WTO policy of irreversibility, which states that a country cannot easily modify a commitment without facing strict penalties. The WTO might rethink how it could allow countries to rectify a mistake. For instance, U.S. negotiators mistakenly included gambling in the services of a WTO agreement, which means that state lotteries and Indian casinos could be subject to WTO rules.

Simon J. Evenett
University of St. Gallen

Mr. Evenett focused on the future evolution of the Doha Round from a European perspective. The round will probably not be completed before fast-track trade negotiation expires. The European Union has an entrenched opposition to agricultural trade reform. The opponents of liberalization have instituted a series of Common Agricultural Policy trade reforms that go from 2003-2013, and most E.U. states firmly hold that this is Europe’s contribution to the Doha Round. Further, there is an intense opposition to reducing export subsidies. Another obstacle is that the European Union is now under the leadership of Austria, a country that is not supportive of free trade. Because Austria has sought to revive debate over the E.U. Constitution, the European Commission will probably refrain from proposing anything controversial--namely increased trade liberalization. Austria has also revived the idea of liberalizing services, but because most E.U. states disapprove of the current college of E.U. commissioners who would draft a plan, opponents of reform are in an even stronger position.

Examining the prospect of liberalization from the perspective of the United States, Mr. Evenett noted that 2006 being an election year could pose problems. In 2002, for example, President Bush negotiated higher steel tariffs, and Congress passed a farm bill loaded with subsidies, which has been quite controversial internationally. Moreover, there has to be another farm bill in the next eighteen months, and it could end up harming negotiations. There is little optimism for finishing the round before the close of 2006. Further, France is holding a presidential election in 2007, and the United States begins its primary season for the presidency in 2008. Thus, the only hope is that Congress extends fast track trade negotiation, and the meeting takes place in late 2007 through early 2008--between the French and American presidential elections.

During the interim period before the next meeting, the G20 countries will probably bring some aggressive dispute settlements over agriculture against the United States and European Union. Concomitantly, the United States and the European Union might file suit against countries of the G20. Also, there will probably be a spread of regional trade agreements.

Last, it is important to consider how the WTO might change itself to become more suitable and appealing to developing countries. There are between 100 and 120 countries that see no benefit in the Doha Round and wish that it would just go away. Many already have good trade deals with developed countries and fail to see how the round is good for them. In addition, in places like Latin America, Asia, and Africa, there has been a backlash against further liberalization, especially in regard to services. Perhaps the WTO needs to reevaluate its policies on things such as the dispute settlement system.

James K. Glassman
AEI

Given its history, Hong Kong was an appropriate place for this series of meetings. Hong Kong has become one of the world’s most thriving economies, with a GDP per capita that rivals those of France and Germany. For the last eleven years Hong Kong has been ranked number one in the Index of Economic Freedom, published by the Wall Street Journal and the Heritage Foundation. Despite its utter lack of natural resources save its port, the debilitating effects of World War II, and the duration of widespread poverty into the 1960s, Hong Kong has become a thriving economy. This is primarily due to the fact that it unilaterally reduced its tariffs to zero, not due to international pressure, but because the island recognized that it was in its best interest to do so.

During the recent meetings, most attention was on the developed countries. The developing countries had decided to refuse reform unless the wealthier nations agreed to reduce their agricultural subsides. This did not happen, and as a result, few reforms took place.

However, it is important to pay more attention to the failures of the developing countries because there is a great deal that they can accomplish unilaterally to improve their standards of living. In a recent World Bank study, economists found that global trade liberalization in agriculture alone would produce global gains of $248 billion. Of that, $142 billion would go to developing countries, and of that, $111 billion would result from the lowering of their own trade barriers.

Trade liberalization is a prerequisite for growth, but protection in the developing world is twice as heavy as in developed countries. Further, it is unlikely that developing countries will make the necessary trade reforms in the near future. These countries have assumed an entitlement mentality. They are looking for aid and special treatment, and they are not prepared to make any concessions on their own. Not only are these countries at fault for refusing to act without initial action by the United States and European Union, but also NGOs like Oxfam are making matters worse by encouraging the developing countries to keep their barriers high.

The Doha Round needs strong leadership from the United States and European Union--which was seriously lacking at the Hong Kong meetings--as well as a fresh start. The WTO should extend the Doha Round through 2009 and 2010. In the meantime, it is necessary to pressure the European Union to make important reforms, especially in regard to its agricultural budget. Trade negotiations should remain focused on trade and not social issues like workers’ rights and environment. Finally, there needs to be a campaign to educate developing countries on the benefits of trade liberalization.

Claude E. Barfield
AEI

It is unlikely that the United States will be able to extend fast track trade negotiation. One obstacle is that the Democrats will likely gain a few seats in 2006. An even greater obstacle is that Congress will be hard pressed to extend it because the Doha Round has not yielded any great benefits for the United States. Regarding Europe, it is highly unlikely that any substantial agricultural reform will take place. The current policy is locked in place through 2013. Finally, just as the WTO must refrain from including things such as workers’ rights and environmental issues, the organization must also resist making issues such as capital controls and price controls subject to multilateral negotiations. They are domestic issues.

AEI staff assistant Dan Geary prepared this summary.

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