The Doha Round Impasse: What Can Developing Countries Do?

The Doha Round Impasse:What Can Developing Countries Do? Alan V. Deardorff Robert M. Stern University of Michigan

The Doha Round Impasse • The Round • Launched in 2001 as the Doha Development Agenda • Intended to continue the multilateral trade liberalization of 50 years under the GATT • Promised to give special attention to needs of developing countries

The Doha Round Impasse • The Impasse • Negotiations stumbled in Cancun in 2003 • Revived in 2004 but barely advanced in Hong Kong in 2005 • Ceased for months in 2006 • Now the leaders of EU, US, WTO are • Pushing to reach enough agreement for the Round to continue • Hoping to persuade the US Congress to extend US authority to negotiate (“Fast Track”) • Prospects are dire

The Doha Round Impasse • The Questions • What can developing countries do • To help the Round succeed? • To achieve their objectives if the Round fails? • How, in any case, should developing countries manage their trade policies, with or without cooperation from others?

Outline • How we reached this impasse • Trade Interests of Developing Countries • Structure of WTO Negotiations • Options for Developing Countries • Conclusion

How we reached this impasse • The Doha Round • Began at the Ministerial Meeting of the WTO in Doha, Qatar, in 2001 • High hopes for real progress • By developing countries • For developing countries • Hence, the “Doha Development Agenda”

How we reached this impasse • Central Issues of the Doha Round • Developed country policies that hurt developing countries • Protection on imports of agriculture and non-agricultural labor-intensive exports • Subsidies in agriculture • Developing country protection in all sectors, including services

How we reached this impasse • Progress, and lack of it • Cancun Ministerial September 2003: Failed to reach agreement on the framework for a negotiating text. • Group of 20 (+ or −) Developing Countries rejected draft proposed by US and EU • It gave too little on agriculture • It asked too much from developing countries, including 4 “Singapore Issues” • Cancun meeting ended in failure

How we reached this impasse • Progress, and lack of it • Summer 2004: framework text agreed, dropping all but one of the Singapore Issues • Kept “trade facilitation”

How we reached this impasse • Progress, and lack of it • December 2005: Hong Kong Ministerial achieved “success” but made hardly any progress

How we reached this impasse • Progress, and lack of it • July 2006: WTO Director General Pascal Lamy • Acknowledged lack of progress • Suspended negotiations

How we reached this impasse • Progress, and lack of it • Today: Negotiators are talking again • Hope is to make some progress • Then persuade US Congress to extend “Fast Track” (US trade negotiating authority)

How we reached this impasse • Importance for developing countries • Doha Round was never really about development per se, in spite of its name • Reducing trade barriers is helpful, but not sufficient for development • WTO hasn’t the power or expertise to assist development

How we reached this impasse • Importance for developing countries • Doha Round was about reducing the trade barriers and other policies that hinder development • Both by developed countries against developing-country exports and by developing countries themselves • All were a residual of the way that “Special and Differential Treatment” had been granted to developing countries: • They “gave” nothing in previous negotiations, and they got nothing in return.

Trade Interests of Developing Countries • Developing countries have a shared interest in exporting • Their greatest interest in the Doha Round is market access for their labor-intensive exports

Trade Interests of Developing Countries • Exceptions to this shared interest • If they export different things • If they export to each other • If some already have preferential market access that would be eroded

Trade Interests of Developing Countries • Competition among developing countries does not justify protection • Many smaller countries fear competition with China and India • This fear of competition is the same that countries throughout history have used to justify protection • The fear is groundless or at least overblown: even small countries have comparative advantages

Trade Interests of Developing Countries • Some developing countries face erosion of preferences • This fear is real and not avoidable • They are likely to have to switch to sectors where they don’t need preferences, and this will be costly • Hope is that they’ve used their preferential gains productively

Trade Interests of Developing Countries • Developing countries can gain by cooperating • Interests are sufficiently common that they can and should act together • Actions of the G-20 in Cancun were encouraging, even though they led to the failure of the meeting • Can they act collectively outside the WTO? Probably not

Structure of the Negotiations • Developing countries have played only a small role in past negotiations • In the past deals have been made between US and EU, then sold to others • Developing countries did play a small role, with a handful included in each particular negotiation (the “Green Room”) • But there was never any formal representation in WTO decision making

Structure of the Negotiations • The “Development Agenda” should provide assistance to liberalization, not exemption from it Should the Doha Round include a bias in favor of developing countries, to correct for the past? • No, not if it would be interpreted again as exempting them from making “concessions” • Yes, if it can provide resources to help them liberalize

Options for Developing Countries • Act collectively to reinvigorate the WTO • Can they matter? Clearly yes, since it was their own reluctance that contributed to the impasse • Major developing countries (the G-20) must recognize that trade liberalization is in their interest

Options for Developing Countries • Act collectively to reinvigorate the WTO • It may help to note that developing countries have the most to gain from liberalization, in relativeterms, far more than the developed countries • If the Doha Round fails, it is the developing world that will lose the most • The Doha Round is not primarily a rich-country game

Options for Developing Countries • Act collectively to reinvigorate the WTO • What they must do: • Continue to press hard for removal of tariffs and subsidies on their products in developed countries • And offer meaningful tariff cuts into their own markets

Options for Developing Countries • Encourage and cooperate in Aid for Trade initiatives • These initiatives, by the IMF, World Bank and others, would provide financial assistance in implementing and dealing with liberalization • This is also explicitly called for in the Doha Round Declaration • What is needed are firm commitments, not just statements of approval.

Options for Developing Countries • Regional and/or bilateral arrangements • These are usually Free Trade Agreements (FTAs), often with the US, EU or other developed country • The current surge of FTAs started when the previous GATT round foundered in the 1980s, stimulating the US-Canada FTA and later NAFTA • Today there are almost 300 of them

Options for Developing Countries • Regional and/or bilateral arrangements • These are • Inferior to multilateral free trade • Potentially distinctly harmful • But in practice most have been beneficial to the world

Units: $billions Source: Brown, Kiyota, and Stern (2006)

Options for Developing Countries • Regional and/or bilateral arrangements • Choice of partners • Neighbors – most likely • Other developing countries – little to gain • Developed countries • Most to gain • Danger of asymmetric power: May be pressed to give more than they wish

Options for Developing Countries • Regional and/or bilateral arrangements • Structure of FTAs • Should approach and approximate multilateral free trade • If FTAs are formed between A&C and B&C, then A&B should also form FTA • Rules of origin should then encompass all three • Might as well then enlarge to a single FTA of AB&C • All FTAs should permit new entrants easily

Options for Developing Countries • Focused initiatives in sub areas • Industry agreements have been successfully negotiated among developed countries • These are unlikely to work among only developing countries • Between developed and developing countries there are dangers, as the trade tends to go only one direction; concessions are one-way only

Options for Developing Countries • Unilateral liberalization • If tariffs are high and/or the developing country is small, and if the Doha Round is failing, don’t wait! Liberalize unilaterally • The tariffs are damaging the country and undermining development

Options for Developing Countries • Unilateral liberalization • But if tariffs are already low and the country is large enough for its markets to matter to others, then further unilateral liberalization is probably unwise • Keep them as “bargaining chips” for future negotiations • Potential market access abroad may gain more than reducing low own tariffs; worth waiting for

Conclusions • What is best for developing countries? • That’s easy: Success in the Doha Round • That success, as well as the full benefits of success to developing countries, requires that they offer to reduce their tariffs • Developing countries must recognize that tariff reductions are in their interests • For the traditional gains from trade • For “buying” market access for their exports

Conclusions • If the Doha Round fails, then the best remaining options are • Aid for trade • Bilateral/regional FTAs • Unilateral liberalization in most, but not all, cases

The Doha Round Impasse: What Can Developing Countries Do?