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On December 12, the WTO’s Doha negotiations collapsed. More accurately, trade negotiators from the member states finally acknowledged what had been evident for months–the substantive divisions on central issues were too deep and the political will too puny to bridge the gaps. In recent weeks, there have been frantic calls for quick action to restart the negotiating process. That would be a mistake.
The stature of the WTO itself has suffered incalculable collateral damage by seven years of fruitless negotiations and the petty bickering of national trade ministers.
The credibility of world leaders–and the credibility of the fora through which they express themselves, such as the G-7, the newly upgraded G-20, APEC, the World Bank, and the IMF–has already been severely debased by a succession of toothless and increasingly vacuous demands that the negotiators settle their differences and wrap up the round. Beyond this, the stature of the WTO itself has suffered incalculable collateral damage by seven years of fruitless, arcane negotiations, and more recently by the petty bickering and blame-games of national trade ministers. And recent in-depth analysis by Paul Blustein (2008) of the Brookings Institution on the breakdown in Geneva, first last July and then again in December, demonstrates that negotiators were still far apart on a number of issues–not tantalizingly within reach of an agreement after a few more adjustments and compromises.
Conclude a ‘small’ Doha deal and plot a survival course
It is time to step back and build political support for a limited, scaled-down conclusion to the Doha Round and then plot a course for the long-term survival of the multilateral system and the WTO.
Bringing the current round to a conclusion before moving to potentially more radical reforms of the WTO is defensible on both substantive and political grounds. While one cannot be certain of the exact details of what was on the table in December, an economic analysis by Antoine Bouet and David Laborde of the International Food Policy Research Institute of the July 2008 proposals estimated small, but positive gains–an increase of world trade by more than $300 billion per annum and real income gain of $59 billion.
Hidden within these small numbers, however, were significant constraints or elimination of important trade distortions, such as the elimination of agricultural export subsidies, the reduction of most US domestic agricultural subsidies, reduction of agricultural tariffs in rich countries by about 50% (admittedly with important loopholes), the mandate of a 10% cap on developed country tariffs, and the establishment of a 20% cap (again with some loopholes) on most developing-country tariffs.
Of equal, if not greater, import, is that a limited agreement would deter backsliding toward protection as the rapidly cascading global financial and economic crisis tempts nations to raise tariffs from their current levels to their (much higher) legal limits. Bouet and Laborde estimate that such a course could decrease world trade by $0.7 to $1.8 trillion annually.
Why we can’t dump Doha and start brand-new negotiations
There are dissenters who argue against an effort to revive Doha and are pressing to bypass the current negotiations and move directly to a new round of global Bretton Woods talks that would introduce sweeping new authority for the WTO. In their recent essay in Foreign Affairs, trade economists Aaditya Mattoo and Arvind Subramanian espouse this cause. Positing the “limited relevance” of the Doha agenda with “little of consequence” on the table, the two economists recommend a vastly expanded negotiating remit (in some instances in conjunction with other international institutions), including food security, energy and climate change, competition policy, new currency and financial regulations, and supervision of sovereign wealth funds.
There are two huge problems with proceeding in this manner. First, WTO members are fiercely protective of their rights, and many would rebel against a wholesale revision of the 2001 Doha ministerial decisions regarding the substantive agenda. Second, the issues championed by Mattoo and Subramanian are exceedingly complex could take years to sort out. Further, a move to short-circuit the negotiating process would be taken as a direct, coercive attack on the policy space of the developing world–this is particularly true of the larger countries such as China, India, Brazil, and South Africa. Attempting to move directly to a “more ambitious agenda” thus would likely backfire and deepen the already deep divisions in Geneva.
Drastic action is need to revive WTO fortunes
But it is also true that drastic action is needed in the immediate future to revive the fortunes of the WTO and the multilateral system. To that end, Director-General Pascal Lamy should move to suspend formal negotiations for one year, until January 1, 2010. Such a timetable would match political realities. First, the incoming Obama administration will have its hands full in the immediate future with the economic crisis and recession. Planning and pushing through a huge stimulus package, reforming health care, shoring up the US housing system, and constructing a new energy policy–to name just a few big-ticket items–will tax its human and intellectual resources to the maximum. In addition, though the Democratic Party platform endorses a successful conclusion of the Doha Round, President Obama will still face a difficult time constructing a coalition to support a Doha package. In the last few weeks, powerful trade associations from the US agricultural and manufacturing sectors have signalled adamant opposition to the compromises on the table in Geneva, and these concerns were strongly echoed by congressional leaders of both parties.
Further, over the course of the next year, two other key WTO actors, the EU and India, will get new governments (India through national elections, and the EU with the arrival of a new European Commission). In the interim, India, particularly, will not be in a position to agree to politically difficult compromises; and the EU will be in a holding pattern.
Engage the WTO in halting crisis-linked protectionism
Suspension of the formal negotiations over the next twelve months would not preclude important incremental actions to attempt to head off a wave of protection in the interim and enhance the chances for the ultimate success of the Doha Round.
The US is the linchpin player: Is Obama a multilateralist or protectionist?
In all of this, whatever its own multiple economic problems, the US remains the “indispensable nation” and guarantor of the global trading system.
As a candidate, Senator Obama was equivocal on trade issues. Yet a constant theme of his campaign was the necessity for the US to eschew unilateralism and reassert its support for global teamwork. Thus it will be important for President Obama early on to enlist the soaring rhetoric that will define his presidency in the cause of the multilateral trading system embodied in the WTO.
Claude Barfield is a resident scholar at AEI.
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