A Doha Round trade agreement should make most people better off. It can play a role in reducing poverty in developing nations. Why are the negotiations so difficult? Why is this so painful?
In March, Aaditya Mattoo and Arvind Subramanian argued that the negotiations would only produce a modest result: Why Prospects for Trade Talks are not Bright (Finance & Development, March 2005).
Mattoo and Subramanian noted that the pressure for past multilateral trade agreements has come from business interests in developed countries.
Many businesses may benefit enough to find that working for an agreement is a good investment (Global trade advocacy offers huge commercial returns, Peter Gallagher, July 20, 2005). People who might also benefit as individual consumers or workers, either may not see the connection between liberal trade rules and benefits, or may not benefit enough themselves to find an investment in this issue worthwhile. Thus the importance of business leadership, although Mattoo and Subramanian don't get into this.
They do note, however, that this time business interests have been relatively disengaged. And, Mattoo and Subramanian argue, why not: Many developing countries have been reducing trade barriers unilaterally, often at the urging of the World Bank and IMF. This reduces the incentive of businesses in developed countries to negotiate. They can also get much of what they want through regional trade agreements. Moreover, multilateral agreements take a long time to reach - bilateral or regional agreements may be quicker.
Moreover, areas in which developing countries have special interest - agriculture, textiles, labor mobility, and services - are very sensitive for developed countries.
Alan Beattie reports that some wonder if the multilateral approach to liberalizing trading rules may be becoming too difficult to implement: Last round? Intransigence on trade calls into question the multilateral approach (Financial Times, Nov 16).
The title is motivated by Beattie's description of a Spring 2005 paper by analyst Razeen Sally (2005 and Beyond: The Future of Trade, Development & International Institutions ). Beattie says:
But others say that the impasse reflects deep structural flaws in the very idea of multilateral trade rounds, indicating that this function of the WTO is becoming obsolete.
The essence of a multilateral trade negotiation that progresses simultaneously across different strands - goods, services, agriculture, intellectual property rights and rules on legal actions such as the prevention of dumping - is that it allows countries to gain exports in one area to compensate them for loss in another.
Given the inefficiency of European agriculture, for example, an EU focused on protecting its farmers rather than giving its consumers cheaper food would have no interest in joining a trade round that negotiated only on farm goods. The "mercantilist" structure of the WTO - predicated on export promotion - implies that European politicians need to deliver export gains for goods and services to offset the loss of farm production.
However, despite the insistence of European and American business leaders that they need Doha to succeed in order to open goods and services markets, such pressure is evidently insufficient to overcome the resistance of their counterparts on the farm.
So large has the WTO's membership grown, and so wide and complex the range of issues it has taken on, that the basic trade-off structure cannot operate, some experts argue. Razeen Sally, a leading trade academic at the London School of Economics, says the current travails confirm that the WTO has grown too large and unwieldy to make multilateral trade rounds work.
In a paper this year for the London-based Globalisation Institute, he noted that the WTO's previous incarnation, the General Agreement on Tariffs and Trade (Gatt), had fewer members and "small, club-like decision-making glued together by Cold War alliance politics".
Many WTO members have great difficulty keeping up with WTO negotiations and implementing its decisions. Prof Sally argued that the expanded agenda and size of the WTO "has resulted in a loss of focus and a drift towards multiple and contradictory objectives" - not least, loading its trade rounds with unrealistic expectations about the gains for the whole developing world.
The organisation - which operates by consensus, with each member in theory holding a veto - had become as unwieldy as the United Nations, he charged. "The WTO has become much more politicised, buffeted by external criticism and with deep internal pressures," Prof Sally wrote. "These are all symptoms of the increasing UN-isation of the WTO." Unilateral decisions to cut tariffs and relax restrictions offered a more fruitful way forward than seeking the lowest common denominator.
Peter Gallagher is more upbeat: Why is it so hard to get a global trade agreement? The inherent complexity of the negotiation is partly to blame, but it also takes time to build political consensus. This is normal, and healthy.
Jagdish Bhagwati also thinks the thing can still be done. He outlines a set of plausible tradeoffs: How to resolve the deadlock holding back world trade talks (Financial Times, Nov 15).
However, this is a post about difficulty and pain. Of interest in this context is the fact that the painful failure at Cancun was nevertheless associated with progress in the negotiations:
...Besides, Cancun did clear the decks for eventual success of the Doha round by settling some thorny and divisive questions. Pascal Lamy, then the European Union's trade commissioner, had been wedded to the so-called "Singapore issues", first proposed at a ministerial trade meeting in 1996 - competition policy, investment, transparency in government procurement and trade facilitation - but many others objected strenuously. Mr Lamy, who is now the WTO's director-general, gave them up except for the innocuous issue of trade facilitation. Then again, the US pharmaceutical industry had been holding out against demands for easing restrictions imposed under the earlier trade-related intellectual property rights (or Trips) agreement, on the production of generics by developing countries and their use by other developing countries. But the industry was cajoled into compliance and Robert Zoellick, then US trade representative, came to Cancun with the concession in hand. Today, the Trips agreement is not regarded as a stumbling block and negotiations are mainly over residual matters such as exclusive access to geographical "brand" names such as Parma ham and Darjeeling tea.
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