Concluding the long-running Doha Round of trade negotiations would provide a boost to the world economy. New assessments of what is on the table suggest that global welfare (real income) gains on the order of $160 billion could be realised as a result of reduction in barriers to trade in manufactures and agricultural products, even after allowing for likely exceptions for sensitive and special products (Laborde et al. 2010). If in addition the Round were to generate a 10% reduction in barriers to trade in services and account is taken of improvements in trade facilitation, these gains could double or triple (Hufbauer and Schott 2010).
But shoring up the WTO would do much more. The Doha Round is first and foremost about creating greater security of market access, through the negotiation of policy disciplines – such as outlawing agricultural export subsidies and placing tighter limits on the level of permitted tariffs and production subsidies. Indeed, the main outcome of a WTO round is not and has never been dramatic liberalisation of access to markets. The primary deliverable is policy bindings – enforceable commitments by governments that they will not raise protection/support for domestic industries above a given level and will not use certain policies at all (Hoekman et al. 2010).1
We have seen the value of such bindings during the global crisis. This time, unlike previous crises, nations have not resorted to protectionism en masse. The last major world economy crisis (following the second oil price shock and the winding down of inflation at the end of the 1970s), large trading nations resorted widely to protectionism, including in the form of ‘voluntary’ export restraints and quantitative restrictions (Nogues et al. 1986). In this crisis, there was no large scale discrimination against foreign goods or services by major trading states (Evenett, 2009 and WTO 2009).
Concluding Doha would also help, by:
- Strengthening, substantively and symbolically, the valuable role the WTO is playing in restraining protectionism;
- Boosting the credibility of the G20 leaders, who have, in consecutive summit statements in Washington, London, and Pittsburgh in 2008 and 2009, committed themselves to concluding the Round; and
- Creating space for multilateral cooperation on critical policy matters outside the current negotiating agenda, such as climate change, public procurement, and agricultural export restrictions and subsidies.
How close is the deal?
Significant technical progress has been made in identifying the contours of a possible deal. However, in the judgment of a number of major players not enough is on the table to enable a package to be ratified by their legislatures. The US and a number of other OECD nations want additional market access commitments to be made by emerging markets, whereas many developing countries – large and small – want more liberalisation of agriculture. There is general acceptance among negotiators that there needs to be a “topping up” of offers for a deal to be feasible. Absent follow through by G20 leaders on their commitment, it is likely that the round will drag on.
What happens if the impasse persists?
While the opportunity costs of non-Doha are significant (Hoekman et al. 2010), it arguably does not give rise to a major risk of system collapse. As mentioned, there has been little major backsliding to date in response to the crisis/downturn. Moreover, WTO members have already done a fair bit on key development dimensions of Doha, including launching the aid for trade initiative, offering duty-free, quota-free access for least developed countries, and addressing implementation concerns relating to Uruguay Round agreements (Hoekman 2010).
It is important to distinguish between the negotiating function of the WTO (rule-setting or rule-making) and its other functions. As discussed in depth in Hoekman and Kostecki (2009) the WTO provides both a market place where countries exchange policy commitments, and mechanisms to help members enforce these commitments. The latter take the form of surveillance systems, regular information sharing, transparency processes and dispute settlement procedures. All these mechanisms represent a major share of the “output” of the institution.
Fears are sometimes expressed that support by the major players for the dispute settlement process may be eroded if the Doha Round drags on. Bown (2010) argues that as long as a balance over time is maintained in disputes won and lost, the viability of the formal dispute settlement system – the “jewel in the crown of the WTO” that has addressed over 400 cases since the creation of the WTO in 1995 – is not conditional on conclusion of the negotiations. Disputes are increasingly between and against developing countries, in contrast to the bulge of EU-US cases immediately after the creation of the WTO.
Problems with the WTO’s negotiating machinery
Be that as it may, there is clearly a problem with the negotiation part of the WTO machinery. It is difficult to come to closure with 153 members around the table. The approach taken in the market access negotiations was to agree on formulae cuts – so called ‘modalities” – that would be applied to agricultural and non-agricultural tariff bindings.
There are strong arguments in favour of a formula approach – it can greatly reduce negotiation costs and be designed to increase the positive welfare effects of liberalisation.
In practice however the formulae ended up becoming more of a problem than a solution. Negotiators focused on shielding some products from the formulaic tariff cuts. For affected exporters it matters hugely whether the products that they export are covered by such exclusions. Thus, other negotiators want to know what they are “buying”. The lack of transparency generated by the formula approach greatly slowed down the negotiating process.
More importantly, there has been a neglect of – and lack of progress on – liberalisation of trade in services. This is an area where opportunities for enhancing national and global welfare have only begun to be tapped. They also constitute a part of the Doha Round that is of interest to a large number of major industries. And services are also increasingly important in the context of current debates on re-balancing of the world economy – increasing domestic consumption and economic activity by definition must revolve in large part around increasing the share of services in GDP.
The WTO has not been capable of dealing with the services reform agenda. Most countries have been wary of engaging in negotiations on services. The same applies for a number of the regulatory policies that were initially on the Doha agenda but removed in mid-stream – investment, competition, and transparency in procurement – three of the so-called Singapore issues. This inability to agree on measures that would enhance the contestability of key markets and activities is a major problem.
One suggestion that has been made is to move away from the consensus principle and allow a majority of members to agree on new rules through a system of majority voting. Another is to revert back to the GATT practice of small-numbers agreements. As argued by Gallagher and Stoler (2009) among others, an explicit shift towards ‘critical mass’ agreements that are applied on a MFN basis would move the WTO back towards a negotiating modality that has a proven track record of success. Levy (2010) discusses both of these ideas, concluding that the first has major difficulties and that the second could help in generating greater dynamism.
Hoekman and Kostecki (2009), by contrast, argue that the issue is more fundamental. It is difficult to make the deep legislative and regulatory changes needed to open services markets in the context of international trade negotiations that are based on a mercantile “exchange of concessions.” Lack of progress in multilateral rule-making on regulatory matters in part reflects uncertainty and lack of knowledge concerning the appropriate policies that are needed to accompany liberalisation and concerns on the part of regulators that embedding “their” area in a trade agreement will be detrimental to the achievement of regulatory objectives.
This suggests mechanisms are needed through which countries can engage in a “discovery” process and seek and obtain assistance to put in place appropriate regulatory systems. Feketekuty (2010) argues that future progress in global trade negotiations requires the establishment of a forum where countries and their key stakeholders can think through the economic requirements and benefits of proposed reforms in complex and sensitive policy/regulatory areas, identify good practices, and assess the impact of reforms.
In the interim, rather than taking the view that the multilateral system is not effective in opening services markets, industries should recognise that the WTO can deliver much in terms of greater security of existing market access. Current policies are often much more liberal than what countries have committed themselves to in the WTO. Thus there is great scope for additional “binding” of unilaterally implemented liberalisation (Hoekman et al. 2010). Substantially expanding services commitments is likely to be a pre-condition for concluding the Doha Round. It is also one area where greater ambition is feasible – if by greater ambition we mean an expansion of the coverage of the GATS to additional sectors and modes of supply, as opposed to further liberalisation of applied policies.
This column, and several of the companion Vox columns it refers to, draws on research supported by the UK (DFID) funded Global Trade and Financial Architecture (GTFA) project and discussions at a May 14-16 Cordell Hull Institute/Yale Center for the Study of Globalisation meeting on developing countries and the WTO that was chaired by Ernesto Zedillo, the co-chair of the GTFA. The views expressed are personal and should not be attributed to the World Bank.
Bown, Chad (2010), “The WTO dispute settlement system would survive without Doha”, VoxEU.org, 19 June.
Evenett, Simon (ed) (2009), Broken Promises: Global Trade Alert, CEPR.
Feketekuty, G (2010), “Needed: A New Approach to Reduce Regulatory Barriers to Trade,” VoxEU.org, 19 June.
Gallagher, P and A Stoler (2009), “Critical Mass as an Alternative Framework for Multilateral Trade Negotiations”, Global Governance, 15(3):375-392.
Hoekman, B (2010), “Doha and Development: Market Access, Trade Costs and Aid for Trade”, VoxEU.org, 19 June.
Hoekman, B and M Kostecki (2009), The Political Economy of the World Trading System, Oxford University Press.
Hoekman, B, W Martin and A Mattoo (2010), “Conclude Doha: It Matters!”, World Trade Review, forthcoming.
Hufbauer, G and J Schott (2010), Figuring Out the Doha Round, Petersen Institute of International Studies.
Laborde, D, W Martin and D van der Mensbrugghe (2010), “Measuring the Benefits of Global Liberalization with a Consistent Tariff Aggregator”, IFPRI/World Bank, mimeo.
Levy, P (2010) “Alternatives to Consensus at the World Trade Organisation”, VoxEU.org, 19 June.
Martin, W and P Messerlin (2007), “Why is it so difficult? Trade liberalization under the Doha Agenda”, Oxford Review of Economic Policy, 23(3):347-366.
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1 Martin and Messerlin (2007) note that some two-thirds of tariff reductions between 1983 and 2003 were the result of unilateral decisions – what the GATT did was mostly to lock in these autonomous trade reforms.