VoxEU Column International trade

Why Doha Round matters to Asia and the Pacific

Discussions on breaking the impasse between the US and China are continuing following last month’s landmark meeting of WTO members. This column – written by the intellectual father of APEC – argues that allowing Doha to languish for years is deeply dangerous. Part of an eBook posted in April, the column asserts that failure to conclude Doha this year would put a dagger at the heart of the multilateral system. With the rise of China, the decline of US trade leadership, turmoil in the Middle East, and a damaged and imbalanced global economy, the world needs multilateralism more than ever.

Editor's Note: This column first appeared in last week's VoxEU eBook Why World Leaders Must Resist the False Promise of a Doha Delay.

So what's the problem? Does it matter if the WTO’s Doha Round is prematurely pronounced dead?

For Asia and the Pacific, it matters, seriously.

It's not just that failure to conclude the Round now would toss away the hard-won gains achieved in the negotiations so far. Most accept that it is a good deal for everyone, including developing countries, and relatively minor and politically manageable accommodation by key players could achieve a substantial outcome.

Multilateral system in retreat for economic and geo-political reasons

What leaders who have it in their power to do this deal must understand is that failure to conclude the Doha Round now will put a dagger in the heart of a multilateral system that is in retreat on all fronts. The threat is not solely economic, even though we are at a critical stage of global recovery from financial and economic crisis. Failure to conclude Doha will also threaten the multilateral system for deep, geo-political reasons.

  • Europe is seriously weakened.
  • The Middle East and Africa have brought the world to an intensely unstable moment.
  • Far more importantly, the emergence of China in Asia and the Pacific challenges the established political order.

How does this all matter to the global trading system?

The multilateral trading system is the economic sinew that constrains the exercise of international political muscle in ways that damage global well being and inflicts national self-harm.

The world without Doha would not be the world status quo ante

Should Doha fail now, there will be powerful momentum to doing other deals of some kind no matter what. In Washington, the Trans-Pacific Partnership (TPP) is all the rage. Does it matter if we get yet another pseudo “free trade” agreement? Especially as TPP is between the US and group of eight partners who in the total scheme of things are pretty insignificant?

It certainly would matter, absent Doha.

A rum deal like the one which is shaping up might be of little economic consequence (of somewhat more economic consequence in the unlikely event that Japan signed on) but it would be of considerable political consequence.

In the context of an insecure global trading system it would be a bold statement taking the world in another direction.

  • It would drive a wedge down the middle of Asia-Pacific – economically and politically; the US and its partners would be on one side with China on the other.
  • It would entrench the adversarial political psychology that is developing in US-China relations in a way that would be very difficult to unravel for a long time.

That might matter less if the WTO was not also in disarray. It matters a lot, as that prospect grows daily.

Despite the continuing importance of global markets to Asia’s exported-oriented economies, bilateral FTAs in Asia and the Pacific have come to be regarded benignly. It’s suggested that they are building blocks to freer trade globally, while global negotiations languish, although very few of them encourage easy sign-in or extension to other trading partners.

It’s suggested that they introduce elements, like services and economic cooperation which global agreements have difficulty dealing with, although it makes little sense to tie these issues to preferential trading arrangements. More tellingly, it’s argued that they don’t do very much harm — their provisions are under-used because they are costly to business — and avoid the really hard and therefore sensitive issues of trade reform (such as agriculture in Japan, and the US, or services in China), their impact on regional and global trade have been trivial. All the hype about them is diplomatic song and dance; they don’t deliver economically.

Suddenly, this trade policy environment seems far less benign.

The global financial crisis has shaken people’s confidence in the resilience of global openness. Protectionist sentiment is on the rise and it has some particular targets, in Asia and the emerging market economies. That pressure will only become stronger over time as Europe and the US move to slower growth in the medium term. While trade barriers are coming down generally, as was the case when the European Economic Community (an earlier incarnation of the EU) was formed, regional arrangements were less of a worry as tariffs and other barriers (except on agricultural products) were coming down against everyone.

In a time of global economic crisis and political uncertainty, there’s a threat that regional arrangements could reinforce, not stem, a retreat towards protectionism.

Dealing with the rise of China

There’s also the issue of dealing with the rise of China. Accession to the WTO embedded China in the global trading system and encouraged behaviour according to global rules and norms. Despite fears that Chinese participation in the WTO might weaken and corrode the global trading system, China has successfully emerged as a responsible stakeholder if not yet an active leader in the system. Yet China too has played the game.

The bigger China grows — it is already the second largest single trader in the world — the less comfortable the rest of the world becomes about the leverage China exercises. Because of China, this is a time when it is particularly important that global strategies and frameworks must dominate regional frameworks and strategies.

In this light, completion of the Doha Round takes on a far more strategic guise:

  • In the context of Doha Round done, the Trans-Pacific Partnership could be a constructive element in a new, innovative WTO agenda.
  • In the context of a failed Round, regional fragmentation poses big economic and geo-political risks.

The idea that it does not matter at this time in human history whether the Doha Round of trade negotiations is allowed to languish or go into hibernation for another two years is, at best, deeply dangerous.

Completion of the Doha Round is important for the gains that have already been achieved in the negotiations so far; it is infinitely more important to protecting the integrity of a multilateral system under threat, and all that system means for the geo-political order.