Dusting off Doha
Dusting off trade barriers: talks that started in Doha remain stalled
In November 2001 dignitaries from 144 countries met in the arid city of Doha, Qatar, for an ambitious cause: lower trade barriers to help developing countries defeat poverty. The global talks led by the World Trade Organization (WTO) were dubbed as the ‘development round’, a chance to give the poorest nations a fairer opportunity to sell their goods around the world. More than eight years later, negotiations are stalled. The Doha Development Round has become like any other trade round – driven by mercantile principles set to benefit the rich and middle-income countries.
When thousands of officials and journalists gathered in the Arabian Peninsula in 2001 there seemed to be a great deal of enthusiasm. “We agree that special and differential treatment for developing countries shall be an integral part of all elements of the negotiations”, stated the final Declaration of the Ministerial summit.
But after years of giving and taking amongst developing and developed world, the mood has changed. Although negotiations might still be concluded, the process is fraught with frustration and uncertainty. Contrary to its declaration, the Doha Round has always had little to do with welfare gains to poor nations. Its success was always dependent on the willingness of economically distinct nations to compromise – an intimidating task given their conflicting goals.
The Doha Development Round was launched in special political circumstances. After the terrorist attacks of 9/11, American politicians drew a quick line between terrorism and poverty and felt the need to address future threats with multilateral cooperation. “By expanding trade, we spread hope and opportunity to the corners of the world, and we strike a blow against the terror”, said U.S President George W. Bush at that time.
The establishment of a new round of talks also appeared to be the right political answer following the failure of the 1999 Seattle Conference, in which emerging countries felt their priorities were not being taken into account. Since 1947, when the General Agreements on Tariffs and Trade (GATT) was set up, many attempts have been made to eliminate the disparities in world trade. The last significant one was the Uruguay Round (1986-1994), which resulted in the foundation of the WTO in 1995 and renewed hopes for continuing liberalization.
Even though the Uruguay Round produced several agreements on non-tariff barriers to trade, it was criticized by many international organizations (including Oxfam and Global Trade Watch) for only accommodating the desires of developed nations and succumbing to corporate lobbying. Many years later, Doha confronts similar challenges. It must cater to the needs of poor countries to succeed as a real ‘development round’ – and it has to do it within a completely new economic scenario.
Trade liberalization in a new economic scenario
Global trade and the economy have changed profoundly since the outset of the Doha round. WTO members such as Brazil, India and China have emerged as major trading and economic powers. Their share in world merchandise exports jumped from 4.1% in 1993 to 11.5 % in 2008, according to the WTO. Along with South Africa, they are members of the G-20 coalition, and have evolved into major players in international affairs.
The duopoly of the European Union and the United States under the GATT system has come to an end with the emerging new economies, which together dominates vital sectors of the global economy. So far, grievances exposed mainly by emerging nations were responsible for obstructing Doha’s subsequent ministerial meetings. In July 2008, talks collapsed after India and the US failed to reach and agreement on special safeguard mechanisms for agricultural goods.
With the emergence of an influential group of developing countries – which will, according to the World Bank, account for 45% of world trade by 2030 – it is tempting to think that negotiations in the WTO are ought to become more balanced and ‘fairer’ towards poor nations. However this assumption is misleading. Due to the governance structure of the WTO, all members have to reach consensus and agree unanimously before any resolution is passed. So challenging the interests of powerful nations is still a formidable task.
The nitty-gritty of Doha
Despite the economic downturn unleashed by 9/11, the Asian financial crisis of 2005 and the recent credit crunch, total world merchandise has been constantly increasing since Doha began. It almost trebled from $6.2 trillion in 2001 to more than $16 trillion in 2008. Globalization trends and increasingly interlocked global supply chains had help to knock down trade barriers. With so many hurdles already removed, many specialists forecast only modest gains for Doha.
According to an estimate by Sandra Polaski from the Carnegie Endowment, a plausible conclusion to the round would produce a one-time increase in world income of $60 billion to the utmost. This represents roughly 0.1% of global GDP, with least developed countries benefiting only slightly, if at all. Additionally, the complete elimination of all merchandise barriers (which is by no means an attainable target for Doha) would boost the income of developing countries by no more than 1%, predicts the World Bank.
The negotiations have been so far focused on ‘bound’ tariffs, the maximum rate permitted by global trade rules. But in recent years most countries have already slashed these tariffs unilaterally to levels below the highest allowed ones. Another study by the World Bank points out that in services, for instance, the level of actual barriers are on average 2.3 times lower than what is permitted by the policies adopted by the Uruguay Round. The best proposal submitted since the start of Doha, however, would decrease this ratio to only 1.9, meaning that countries could almost double their levels of restrictiveness in the service sector without violating any commitments.
Trade distortions are mainly concentrated in the agricultural sector, which has become the most pressing issue for this round. For a long time, rich countries have resisted international pressure to liberalize the farming sector, which would benefit net food-exporting countries especially in Latin America. Nonetheless, emerging countries are not willing to open up their markets if policies are not implemented with care. They also want to make sure that developed countries are banned from subsidizing farmers and agricultural exporters, and decrease their import taxes.
The current proposal put forward a reduction in the scope of domestic support by 70% in the EU and 60% in the US. Also the average tariffs that food exporters face would fall to 12% from 14.5%. The demands of developed countries are primarily to gain access to emerging markets, where they could obtain a competitive edge in manufactured goods, services and intellectual property rights. But developing nations are reluctant to comply with ‘freer trade’ at the expense of having their national markets flooded by cheap imports.
Much of the debate over the ‘value’ of concluding the Doha Round has been centered on the possible economic results that further liberalization could bring. Quantifying the outcome of trading rounds is a task subject to empirical models and considered by many as precise as fortune telling. Even so, according to recent predictions, only middle-income and rich countries would benefit substantially more from free trade, the latter reaping the largest profits. To Sandra Polaski, who ran conservative models, the economy of least developed countries could actually suffer.
So why conclude Doha?
As explained by Robert Gilpin in ‘The Challenge of Global Capitalism’, the paradox of international trade is that, “even though it greatly benefits societies…[it] is constantly being threatened by protectionism”. As history shows, though economic times have always sparked a sentiment to shield domestic economies. This time it was not different. Global support to the cotton industry, for instance, has doubled to $2.7 billion in 2007/08 and is estimated to reach $5.9 billion in 2008/09, half of which coming from the US.
While trade ministers and their delegations lean towards their countries interests, worries about market access and price stability wound, particularly for the farming sector. Until 2050 the world’s population will rise by a third, but demand for agricultural goods will increase by 70% and for meat will double. As pointed out by the report ‘Conclude Doha, it Matters!’ by the World Bank, “in good times all this may not have seemed worth enough…but in bad times, the value of what is on the table increases”. Thus reinforcing food security and supply of agricultural goods is of paramount importance for generations to come. Laying down international rules that prevent countries from resorting to protectionism is one of the vital reasons to conclude Doha.
In an increasingly integrated world, multilateralism matters more than ever. To keep postponing the end of the first real global trade round is risky to all nations. While countries remain on the defensive and distrustful over a universal deal, the number of bilateral and regional agreements swells, poisoning even more the chances of a deal. It is time for politicians, above all those from rich and leading emerging countries, to leave mercantile principles aside and start thinking globally. If not for development, at least to avoid the danger of protectionism.
