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Excerpt from "Why World Leaders Must Resist the False Promise of Another Doha Delay"
View related content: International Economics
The Obama Administration seems to view Doha delay as a minor issue since they view the export gains from the current package as small. This column argues that this calculation is based on a false premise that the status quo would continue even if the Round dragged on for years. Nations respect the WTO’s Dispute Settlement Mechanism verdicts in order to remain as members in good standing; this allows them to reap the benefits of the WTO as a negotiating forum. If the WTO collapses as a negotiating forum, nations may move towards a crass calculus that assesses verdicts only on the basis of the threats that back them. This would be a deeply regrettable move away from a rules-based global trading regime.
The state of the current round of global trade talks is indisputably dire. It is never a good sign when analysts are quibbling over whether Doha is dead or simply comatose. Despite plaintive, increasingly desperate cries from Geneva, leaders of the G20 countries have shown little inclination to follow through on their repeated commitments to conclude the talks.
The absence of US leadership is critical
There is plenty of blame to go around, but the absence of American leadership has been particularly striking.
• The Obama administration has waited patiently for an agreement to emerge. Yet, in the history of global trade accords, there is no track record of self-generating global trade consensus to suggest that this passive strategy will work.
• There remains a stark gap between the position of the US and those of the most significant developing economies in the discussions: China, Brazil, and India. The Doha Round promised a focus on the concerns of emerging economies. But things have changed since the Round was launched in 2001.
• Emerging economies’ new prominence in the global trading system means that any deal that will be politically feasible in the US will require significant market opening by the more advanced developing nations; something they have shown no eagerness to accommodate.
How might this gap have been bridged?
There were lost opportunities. In the last year, President Obama has visited New Delhi and Brasilia and hosted Chinese President Hu Jintao. Traditionally, such presidential diplomacy can be leveraged to generate progress on crucial world issues, such as the Doha talks. However, there is no evidence that President Obama made the issue a priority in any of his meetings.
Admittedly, for President Obama to push for a Doha conclusion would be a demanding task.
• Key interest groups in the US have shown very little interest in backing a “Doha Lite” package-which is the sort of deal that many developing nations would like.
• The Obama administration believes the terms on the table offer little beyond what they enjoy under the status quo.
• With such limited gains on offer, the US Administration sees little incentive to push an agreement through a legislature well-stocked with trade sceptics.
The interest groups support this stance with reference to analyses that question the value of offers on the table, most prominently the work of Hufbauer et al. (2010). Among other findings, those authors conclude that “on the table” cuts in agriculture and non-agricultural market access offer the US a $7.6 billion gain in exports (the key figure in this mercantilist era) and GDP gains of $9.3 billion or 0.1%. They find that gains could be more significant in a more substantial agreement including services, sectoral initiatives, and trade facilitation. But at the more modest level, the authors’ conclusion seems to be: “why bother?”
Problems with the simple calculations
Such careful analysis rests on a dubious premise, however. It assumes that the relevant comparison is between a new agreement and the status quo.
What if, instead, the alternative to a successful round is a pronounced weakening of the global trading system? There is a hallowed characterisation of trade talks known as the “bicycle theory”: Liberalising trade is like riding a bicycle; you keep moving forward or you fall over. This is quaint-and more accessible than most trade theories-but there is reason to think it captures something real.
The WTO walks on two legs: Dispute Settlement and trade negotiations
Between the conclusion of trade rounds, the WTO sets policy most directly through the decisions of its “court”, the Dispute Settlement Mechanism. This is not supposed to be a policy-setting mechanism, of course, but that is the inevitable result of a functioning legal system. It fills in the blanks left by negotiators.
One measure of the strength of the WTO is the willingness of members to comply with past commitments and to abide by Dispute Settlement judgments. Even in more VOX Research-based policy analysis and commentary from leading economists 48 optimistic times, sceptics in large, powerful countries will ask just why their country should comply with adverse decisions. This is particularly true when the winning complainant is a small country. Why not simply accept whatever meagre retaliation the little country can muster?
The usual reply-for example, the often made by the US government-is that it is important to remain a member in good standing at the WTO. If a large country wishes to reap the benefits of the WTO as a negotiating forum, it must demonstrate leadership and show respect for the verdicts of the Dispute Settlement Mechanism. But what happens to this argument if the WTO no longer appears viable as a negotiating forum? One may be left with the crass calculus that assesses verdicts only on the basis of the threats that back them. This would be a deeply regrettable move away from a rules-based global trading regime.
Further, just as a failed round could call into question the potency of the Dispute Settlement Mechanism, it could simultaneously increase countries’ reliance upon the enfeebled system. As time passes and the last concluded agreement recedes into history, the “blanks” between negotiated agreements and current policy issues grow ever bigger. New issues can be addressed through either negotiation or litigation. In the absence of viable talks, there will be a growing temptation to seek expansive verdicts in dispute settlement.
The US government has been critical of expansive verdicts, but is not immune to this temptation. To illustrate: Among US congressmen, one popular approach to concerns about China’s currency valuation has been to advocate a WTO case under GATT Article XV:4, which says WTO members “shall not by exchange action frustrate the intent of the provision of the GATT.” There is very little supporting detail in the article, beyond a suggestion to ask the IMF what this ought to mean. The only way the US could win such a case would be for a panel to get creative and develop detailed rules-a role that properly belongs to negotiators (Busch and Levy 2010).
The dangers of walking on one leg
In the absence of negotiations, such potentially explosive cases are likely to proliferate. They are likely to leave the WTO in an untenable position. Verdicts in such cases would be modest-and thus show that the WTO is impotent; or They would be ambitious-and potentially face rejection by members as illegitimate. In either case, the trend could prove seriously damaging to the institution and the trading system. For this reason, the status quo is not likely to persist in the absence of trade negotiations.
The Doha talks cannot conclude without attention from the highest level of political leadership. Should this not be forthcoming, we may be in for an extended period of institutional decay. If the status quo is not a durable option, the costs of a failed round may be significantly greater than just forgoing the market access offers on the table.
Philip I. Levy is a resident scholar at AEI.
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