22 June 2006
CO06057 | Time for a ‘Plan B’ for the WTO? Or How to Rescue the Doha Round
Commentary
ON 30 May, Pascal Lamy, director-general of the World Trade Organisation (WTO), set a deadline of 30 June 2006 for a long-delayed deal that would conclude the Doha round of global trade negotiations. This means members of the WTO would have to reach a broad- based agreement to cut farm subsidies and tariffs on agricultural and industrial goods before United States trade negotiating authority expired in mid-2007. The deadlock in global trade talks has been accompanied by a frenzied pace of negotiations for bilateral and regional free trade agreements (FTAs), which proponents claim serve as building blocks for overarching multilateral deals. But there is a risk today that bilateralism and regionalism are becoming a stumbling block for the WTO.
While FTAs liberalize trade among its member countries, such agreements may also increase incentives to raise protectionist trade barriers against non-members. The sluggish pace of WTO negotiations has hastened the trend towards FTAs as countries choose a second best option. The pressing need today is for new momentum in the Doha negotiations. Because of the negative role of the European Union (EU) in the current negotiations, the US and China should lead a new initiative for across-the-board trade liberalization.
Hopes for a successful conclusion to the Doha Round were raised when the US presented a proposal last October to cut farm tariffs substantially and to abolish export subsidies over five years. The EU responded with a less ambitious offer but even this aroused the ire of the farm lobby in Europe. French (and EU) foot-dragging on agriculture has become a staple of multilateral trade negotiations. In practice, the EU fronts an even more intractable opposition to agricultural trade liberalization by the cosseted farmers of Japan and South Korea.
Developing World resistance
The developing countries are not making life any easier in the Doha Round negotiations. The largest gains in real income would result from eliminating current distortions in the agricultural policies of developing countries. But even as the Group of 20 comprising larger developing countries such as Brazil, India and South Africa sought deep cuts in the agricultural subsidies of the US, EU and other rich countries, they offered only modest tariff reductions.
Attention is also increasingly drawn to the negative impact on some poorer states. African, Caribbean and Pacific countries that enjoy privileged access to the EU for their exports, particularly of bananas and sugar, find themselves facing an onslaught of global competition. Least-developed countries, which currently enjoy tariff-free access to developed-country markets, will face competition from more competitive economies.
This raises the more problematic issue of the uneven effects of global trade liberalization. In textiles and garments, Bangladesh and Cambodia will be shunted aside by China and India. With little to gain from more liberalized trade, the least-developed countries could be a stumbling block to an agreement unless they are bought off by promises of greater aid to build their trade-related capacity in administration, infrastructure and trade facilitation.
Two solutions to the Doha impasse
Trading economies need to consider what could be done to maintain the impetus for trade liberalization. There are two possible solutions:
First, a two-tier WTO system in which the new rules as well as the rights and benefits would apply only to those states that participated in those negotiations. This took place during the Tokyo Round negotiations in the 1970s, which resulted in the adoption of several plurilateral GATT agreements. There could be an opt-in/opt-out approach. WTO member countries that do not wish to participate in the negotiations or sign on to any results reached would not be obliged to do so.
A more far-reaching alternative approach would be a push for greater liberalization by key countries with an interest in maintaining the momentum of multilateral trade negotiations. The US and China should take the lead in proposing a multilateral free trade agreement under GATT Article XXIV among countries and customs territories interested in opening markets across the board. If the two giants could do so, they would help re-shape the substance and atmospherics of international trade negotiations, shifting the focus away from FTAs.
Politically, this could be the imaginative approach necessary to create a new foreign policy opening between the current global hegemon, the US, and the world’s rising power, China. Such an alignment would assist in ensuring the peaceful development of China. Traditionally, the rise of great powers resulted in the emergence of new great power conflicts if they did not have binding interests. With the end of the Cold War following the collapse of the Soviet Union, there are now analysts in the US and China who are focusing on the coming conflict between the two powers. However, if a new concert of interests can be created between the Washington and Beijing, it is possible that China’s emergence, like that of the US at the end of the 19th century when Britain was the global hegemon, could take place within the framework of a rule-based international system that can accommodate the emergence of new global powers with shared interests in global peace and stability.
Challenge for the EU
This would pose a challenge to the EU. European governments would have to decide whether they wished to support French-led opposition to further liberalization, especially of agricultural trade, or whether they would be willing to bear some costs to ensure that the wider global benefits could be attained. It could lead the United Kingdom, the Netherlands and the Scandinavian countries to push for the EU to join this global move to prevent the marginalisation of Europe.
If such a development occurred, it would be reminder of the critical impact of the decision by President Clinton to convene a “leaders’ meeting” in Seattle in November 1993 of the countries participating in the Asia-Pacific Economic Cooperation (APEC) forum to break the stalemate in the Uruguay Round of GATT negotiations caused by EU opposition to agricultural liberalization.
Within the EU, there was grave concern that the US intended to form a new preferential trade grouping that would exclude the Europeans. After urgent consultations between French President Francois Mitterand and German Chancellor Helmut Kohl, the EU agreed to the inclusion of agriculture, leading to the conclusion of the Uruguay Round negotiations in December 1993. For the East Asian economies in APEC, this was the first recognition that they could benefit from the regionalism card in multilateral economic diplomacy. APEC also provided a learning experience, as the agreement for sectoral liberalization in APEC was the model for sectoral liberalization in the WTO.
East Asian support for this initiative provided the critical mass in the WTO. This also provides a cue for the future. A European willingness to concede on agriculture is only likely if it can be framed in the context of wider interests. If the US and China seek an early and successful conclusion to the Doha Round negotiations, they should be prepared to propose a Plan B — a multilateral free trade agreement among countries interested in across-the-board trade liberalization. An initiative in APEC would be a first step.
About the Author
Barry Desker is Director of the Institute of Defence and Strategic Studies, Nanyang Technological University. He was previously Chief Executive Officer of the Trade Development Board and represented Singapore in WTO negotiations.
Commentary
ON 30 May, Pascal Lamy, director-general of the World Trade Organisation (WTO), set a deadline of 30 June 2006 for a long-delayed deal that would conclude the Doha round of global trade negotiations. This means members of the WTO would have to reach a broad- based agreement to cut farm subsidies and tariffs on agricultural and industrial goods before United States trade negotiating authority expired in mid-2007. The deadlock in global trade talks has been accompanied by a frenzied pace of negotiations for bilateral and regional free trade agreements (FTAs), which proponents claim serve as building blocks for overarching multilateral deals. But there is a risk today that bilateralism and regionalism are becoming a stumbling block for the WTO.
While FTAs liberalize trade among its member countries, such agreements may also increase incentives to raise protectionist trade barriers against non-members. The sluggish pace of WTO negotiations has hastened the trend towards FTAs as countries choose a second best option. The pressing need today is for new momentum in the Doha negotiations. Because of the negative role of the European Union (EU) in the current negotiations, the US and China should lead a new initiative for across-the-board trade liberalization.
Hopes for a successful conclusion to the Doha Round were raised when the US presented a proposal last October to cut farm tariffs substantially and to abolish export subsidies over five years. The EU responded with a less ambitious offer but even this aroused the ire of the farm lobby in Europe. French (and EU) foot-dragging on agriculture has become a staple of multilateral trade negotiations. In practice, the EU fronts an even more intractable opposition to agricultural trade liberalization by the cosseted farmers of Japan and South Korea.
Developing World resistance
The developing countries are not making life any easier in the Doha Round negotiations. The largest gains in real income would result from eliminating current distortions in the agricultural policies of developing countries. But even as the Group of 20 comprising larger developing countries such as Brazil, India and South Africa sought deep cuts in the agricultural subsidies of the US, EU and other rich countries, they offered only modest tariff reductions.
Attention is also increasingly drawn to the negative impact on some poorer states. African, Caribbean and Pacific countries that enjoy privileged access to the EU for their exports, particularly of bananas and sugar, find themselves facing an onslaught of global competition. Least-developed countries, which currently enjoy tariff-free access to developed-country markets, will face competition from more competitive economies.
This raises the more problematic issue of the uneven effects of global trade liberalization. In textiles and garments, Bangladesh and Cambodia will be shunted aside by China and India. With little to gain from more liberalized trade, the least-developed countries could be a stumbling block to an agreement unless they are bought off by promises of greater aid to build their trade-related capacity in administration, infrastructure and trade facilitation.
Two solutions to the Doha impasse
Trading economies need to consider what could be done to maintain the impetus for trade liberalization. There are two possible solutions:
First, a two-tier WTO system in which the new rules as well as the rights and benefits would apply only to those states that participated in those negotiations. This took place during the Tokyo Round negotiations in the 1970s, which resulted in the adoption of several plurilateral GATT agreements. There could be an opt-in/opt-out approach. WTO member countries that do not wish to participate in the negotiations or sign on to any results reached would not be obliged to do so.
A more far-reaching alternative approach would be a push for greater liberalization by key countries with an interest in maintaining the momentum of multilateral trade negotiations. The US and China should take the lead in proposing a multilateral free trade agreement under GATT Article XXIV among countries and customs territories interested in opening markets across the board. If the two giants could do so, they would help re-shape the substance and atmospherics of international trade negotiations, shifting the focus away from FTAs.
Politically, this could be the imaginative approach necessary to create a new foreign policy opening between the current global hegemon, the US, and the world’s rising power, China. Such an alignment would assist in ensuring the peaceful development of China. Traditionally, the rise of great powers resulted in the emergence of new great power conflicts if they did not have binding interests. With the end of the Cold War following the collapse of the Soviet Union, there are now analysts in the US and China who are focusing on the coming conflict between the two powers. However, if a new concert of interests can be created between the Washington and Beijing, it is possible that China’s emergence, like that of the US at the end of the 19th century when Britain was the global hegemon, could take place within the framework of a rule-based international system that can accommodate the emergence of new global powers with shared interests in global peace and stability.
Challenge for the EU
This would pose a challenge to the EU. European governments would have to decide whether they wished to support French-led opposition to further liberalization, especially of agricultural trade, or whether they would be willing to bear some costs to ensure that the wider global benefits could be attained. It could lead the United Kingdom, the Netherlands and the Scandinavian countries to push for the EU to join this global move to prevent the marginalisation of Europe.
If such a development occurred, it would be reminder of the critical impact of the decision by President Clinton to convene a “leaders’ meeting” in Seattle in November 1993 of the countries participating in the Asia-Pacific Economic Cooperation (APEC) forum to break the stalemate in the Uruguay Round of GATT negotiations caused by EU opposition to agricultural liberalization.
Within the EU, there was grave concern that the US intended to form a new preferential trade grouping that would exclude the Europeans. After urgent consultations between French President Francois Mitterand and German Chancellor Helmut Kohl, the EU agreed to the inclusion of agriculture, leading to the conclusion of the Uruguay Round negotiations in December 1993. For the East Asian economies in APEC, this was the first recognition that they could benefit from the regionalism card in multilateral economic diplomacy. APEC also provided a learning experience, as the agreement for sectoral liberalization in APEC was the model for sectoral liberalization in the WTO.
East Asian support for this initiative provided the critical mass in the WTO. This also provides a cue for the future. A European willingness to concede on agriculture is only likely if it can be framed in the context of wider interests. If the US and China seek an early and successful conclusion to the Doha Round negotiations, they should be prepared to propose a Plan B — a multilateral free trade agreement among countries interested in across-the-board trade liberalization. An initiative in APEC would be a first step.
About the Author
Barry Desker is Director of the Institute of Defence and Strategic Studies, Nanyang Technological University. He was previously Chief Executive Officer of the Trade Development Board and represented Singapore in WTO negotiations.
