The Future of Doha and the WTO: a CEPR trade seminar

CEPR, in collaboration with the UK Department for Business Innovation and Skills (BIS), recently organised a high-level seminar in London on ‘The Future of Doha and the WTO’. Principal speakers included Richard Baldwin, Gary Horlick, Peter Sutherland, Lord Brittan and Alan Winters. The meeting was chaired by Ken Warwick and involved around 50 participants comprised of UK government economists, business leaders, journalists and senior representatives from the UK NGO community.

The Doha Development Agenda (DDA) has made very little progress in ten years. If it fails to be completed, the impact on world trade and the global economy could potentially be very damaging, with serious implications for the credibility and the future of the WTO. The High Level Trade Experts Group Interim Report, published in January 2011, presented four basic arguments for completing the Doha Round – (1) an insurance policy against future protectionism; (2) reform of farm trade; (3) new market access; (4) reinforcing the WTO system. Two of the authors of the High Level Trade Experts Group Interim Report, Peter Sutherland and Richard Baldwin, were speakers at the CEPR event in London.

Richard Baldwin opened the meeting on an optimistic note by making the argument that the Doha Round is not completely dead. He outlined the current state of play, in which he suggested that the fate of the Doha Round revolves around the US and China, and in particular whether or not the US would be prepared to accept moderate increases from the package that was presented in December 2008. He outlined what he saw as 3 action phases going forward:

• Phase 1: pre 29 April 2011 (“last hope arguments”)
• Phase 2: If Doha is suspended, May 2011 – Apr 2013 (“down time”)
• Phase 3: post April 2013 (“next window”)

As a means of mapping the path to the future, Baldwin asked the participants to consider what Phase 3 might look like – would it be an ‘omelette world’, ie, one in which the WTO needs to be broken up and refashioned into something better, or a ‘Humpty Dumpty world’, in which the WTO becomes so fragmented that it would be impossible to reconstruct or even to make a case for it continued existence? Considering the potential implications for the WTO in this way is therefore an important priority during both Phase 1 and Phase 2. An omelette world in Phase 3 would require careful management (and a good deal of prayer) in order to avoid international trade conflicts; a Humpty Dumpty world in Phase 3 would imply a continued DDA but with additional benefits or greater gains required for countries such as China, Brazil and India than are currently on offer. Under either scenario, completing such a deal this decade would be unlikely. Of critical importance however, will be to stress to the US that prevarications and good intentions on their part will not be enough in 2013, as it was in 2010 – US negotiating tactics have eroded all remaining goodwill.

Under either scenario, during Phase 2 it will be important to drive home the changed nature of trade; unlike the 1970s it is currently about trade, investment and services – international commerce is now multi-dimensional and complex. China is the US’s new ‘Saudi Arabia’ – but in industrial inputs rather than oil. We must also consider the real threat of the re-emergence of regionalism and regional trade agreements.

Completing the DDA during Phase 1 is important because we need to lock China into ‘something’, so that it will take a responsible leadership role in line with its economic weight. Secondly, this is the best market access that the US is likely to get into China, India and Brazil this decade – the Trans-Pacific Partnership alternative that is currently gaining coinage in the US will simply not succeed. Thirdly, it will counter the ‘China bashers’ in the US, by showing that China is a country that we can do business with – it would curtail the current tendency towards aggressive unilateralism. Finally, it would save the Dispute Settlement Mechanism (DSA).

Essentially the focus, particularly for the US administration, should be on the systemic losses that would result from not completing Doha (ie, the greater part of iceberg below the waterline) than on the perceived export gains (ie, the tip of the iceberg). And a final consideration: the Chinese symbol for both harmony and compromise is the same.

Gary Horlick’s theme was ‘US Trade: The Trans-Pacific Partnership and U.S. Trade Negotiations’. Horlick chose not to talk about DDA as he thought there was an obvious lack of political will to revive it. He considered USTR’s position as being a rational one in that they simply do not see sufficient market access gains, and that Richard Baldwin is correct in stating that if there are perceived gains there will be progress – if not, then there won’t. Instead, what Horlick wanted to discuss was what will happen with or without Doha, from a US point of view.

There will always be a WTO with the fundamental purpose of ensuring bound tariffs and providing dispute settlement procedures (even if these are very protracted – “businesses don’t have five years to get their money back”). The other US alternative is Free Trade Agreements (FTAs), such as NAFTA and others, though it is difficult to measure the economic impact of FTAs on the US economy. The problem with FTAs for the US is that there are no real dispute resolution mechanisms.

Horlick suggested that the WTO peaked in 1992, since which time there has been very little progress. From a business point of view it is an imperfect body; it stops export subsidies but it has not been successful in preventing the massive subsidisation of a number of industries; anti-dumping definitions are economically irrational; ‘standards’ and other areas are not going anywhere; and ‘buy national’ has not been prevented during the recession. The members of the WTO are those who are responsible for the stagnation rather than the WTO itself.

What’s changed? The US walks away from NAFTA dispute resolution after losing a case to Canada; there appears to be a ‘half-life’ to US agreements in that they only seem to last for a certain amount of time. The WTO (and especially Doha) has been disregarded, especially during the financial crisis, which is a situation that is far from reliable for business.

Where are we now? In 2001 there were essentially three dominant economic bodies – the US, EU and Japan. If any two of those developed an FTA it would greatly disturb the status quo. A lot has happened in ten years; there are now four big economies (US, EU, Japan, China) and realistically we would have to include Brazil and India. Essentially there are now enough players to suggest that trade policy has become ‘game theory’. If there are any deals made between any two of these six players, the other four are compelled to react. For example, the US is currently ending its FTA with Korea because the EU did – a situation which would not have occurred ten years ago.

In summary, with or without Doha, the US is considering its position in a ‘game theory’ world, and Trans-Pacific Partnership (TPP) has been the result. It began as the P4 in 2004, but has grown considerably as a perceived workable alternative to the WTO. The Obama administration took up the idea as a viable trade policy model, particularly as it included an Asia dimension. In 2008 it was thought that if the TPP included the core eight countries, then by 2012/13 others would join, and there are logical reasons to expect this. Already many countries want to join the TPP, and Horlick is of the firm opinion that the idea will be actively pursued and developed during what he considers will be Obama’s second term in office. In terms of market size the TPP could represent around 30-35% of world GDP. The process is less about competitive liberalisation and more about assembling a bloc that will be big enough to impress China. For many countries there will be no choice but to join the TPP; economies such as China, the EU, India, Africa, the Middle East and Russia would be extended the offer of membership, but they would be unlikely to accept.

The agenda for TPP is extremely ambitious and is not restricted to traditional trade negotiation, but includes such considerations as ‘time to customer’ and harmonising domestic regulatory frameworks. US trade policy is now very focused on TPP because it will be its own big bloc with a highly ambitious agenda.

Peter Sutherland, the first of three respondents, flatly rejected the notion of the TPP. His view was that the WTO and all the rounds that preceded it have played a fundamental role in bringing about a global integrated economic community that is increasingly borderless. It has brought countries such as Japan and former command economies such as India into a recognition of the market economy principles that provide the basis for global integration. Sutherland recalled his time as Director-General of the WTO when China was committed to being a member of the world trading system under the auspices of the WTO. In Sutherland’s view there is no question of the world trading system not operating within a structured global multi-lateral system, ie, the WTO. In his opinion the idea of super-regional trading agreements, such as the TPP, should be dismissed as nonsense. The reality of such a venture will be an increasing number of bi-lateral trading agreements that will fracture and fragment the global economy rather than unite it.

Sutherland found it deeply disturbing that there appears to such a lack of concern in Washington regarding the potential collapse of the Doha round and the consequent implications for the credibility of the WTO. When the successes of the WTO – particularly in terms of the dispute settlement mechanism and the contents of the Uruguay Round – are considered, it puts the organisation in an extremely positive light compared with the failures of other multi-lateral efforts of cooperation such as, for example, nuclear proliferation and climate change.

Failure of the Doha Round will create a dangerous situation for the WTO as well as for the fairness of the world economy more broadly, and for equality of opportunity, including for the least developed countries. In Sutherland’s view, Richard Baldwin was correct in suggesting that we are currently on the verge of the failure of the Doha Round; we have also failed to provide sufficient impetus to the leaders of the global economies to make a success of the round and have now reached the point where the failure or success of the round is largely in the hands of the US. China could have been more flexible and given more, as could have other BRICS,  such as Brazil in particular. No round has ever been completed without active leadership from the US, and they are similarly crucial in this round.

Sutherland does not like the idea of an alternative in the form of a ‘Doha light’ – it will be a failure and be perceived as such. There is now a month left in which we can get the round over the line. The Humpty Dumpty world is the preferred scenario, but in the intervening period the pursuance of TPP-type agreements would simply serve to fracture the global economy. Sutherland concluded by suggesting that Pascal Lamy has a huge responsibility over the coming weeks and that he should “play a high-risk game”.

Lord Brittan argued that if the Doha Round does not come to fruition it would pose a systemic risk to the future of the WTO. What was created in the WTO as an institution is larger and more important than any trade round; it is the cornerstone of the trading system, the guardian of the trading rules and the source of the enforcement of those rules – and that is something, in Lord Brittan’s view, that is too precious to put at risk. Any failure would indicate a failure of the members of the WTO rather than a failure of the institution as such.

As to where we currently stand on Doha and the WTO, Lord Brittan considers it to be “extraordinarily tantalising”, in the sense that during the six months that he was working as David Cameron’s trade advisor, he met most of the people who were leading on the Doha negotiations, each of whom suggested that they had something substantial in terms of trade liberalisation that they could put on the table in addition to what was currently on offer. This suggests that the means of reaching an agreement is there, though the question remains of how to move to the end game and make it happen, and clearly the key to moving this along or not is the US.

In Lord Brittan’s opinion there has been no progress because: (1) there are large numbers of people in the US who are of the opinion that trade is not necessarily a good thing; and (2) there is the illusion in the US that alternative agreements to the Doha round are a viable substitute or ‘as good’.

Lord Brittan concluded by suggesting that the US is not immune to pressure, and that countries like the UK could be exerting much more pressure than they currently have been – it appears that there is little evidence of any effort to do so.

Finally, on China – Lord Brittan argued that China would be ready to move substantially, but not to take the initiative. China has not yet got used to the idea of a leadership role in international relations. It is used to the idea of being a major participant, but it is not yet ready to push and to advance, even though in Lord Brittan’s opinion it has more to gain than many other countries. The Chinese are very farsighted and fully understand that what is happening now won’t go on forever; they also realise that access to markets is something that is important for them. But they are not yet in position to play a leadership role in these matters. In the absence of the US playing that role, it is currently unknown whether the situation can be salvaged by Pascal Lamy. However, even if the Doha Round was to fail, it would not necessarily herald the collapse of the world trading system; it signifies more a case of missed opportunity.

Alan Winters began by commenting that the GATT and the WTO had been immensely important to the welfare of the world economy, but this is not what is in question. Winters also agrees that if the Doha Round fails, it does not necessarily mean the collapse of the world trading system. The question for Winters is how long the erosion will take before reaching serious levels? Dispute settlement processes would continue, but if the WTO’s role was simply about policing the rules, then the future credibility of the WTO as an institution would fall into question. From Alan Winters’ perspective it also appears that there is a significant lack of understanding of the seriousness of the situation within the US. 

One point that had not been yet made, according to Winters, was that whilst clearly the big decisions have to be taken by unitary governments, such as the US, China, India, and so on – and potentially the EU might also have a role to play here – it should not be forgotten that there are over 140 other members of the WTO who should also be consulted on their views, as they too have a strong interest in the preservation of the system, and in the credibility of being able to take out a case against the US, for example, and win. In Winters’ is opinion it is important to have a clear view of what we would do should Doha fail, and not to be necessarily resigned to 3 years of inaction and indecisiveness.

One of the important messages that should be sent to the US is that discrimination is at the root of many current problems and is the issue we should be fighting against. A question to ask in this respect is whether the route of TPP would be discriminatory in the sense of countries deciding which of the major players it would be in their interest to sign up with, rather than to consider themselves in a sufficiently benign environment that it wouldn’t become necessary to sign up with anyone, apart from the multi-lateral system itself.

Winters concluded by suggesting that the debate needs to be raised above mere mercantilism, above mere economics, and located more broadly within a foreign policy framework.