Pros and cons of reviving Doha

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Calls to restart global trade talks are intensifying, but yet another meeting aimed at reviving the Doha Round looks set to fail.

WTO chief Pascal Lamy believes the Round fell apart because “too many negotiators focused on the small picture, forgetting the bigger one”. He said that countries must shift their focus away from domestic politics and broaden their vision. 

However, supporters and opponents of the WTO find it difficult to agree on exactly what the broader picture is. 

Economic impact: 

Numerous studies have attempted to assess the economic impact of the Doha Round, but their results vary enormously. 

According to the Carnegie Institute: “Any of the plausible trade scenarios will produce only modest gains, on the order of a one-time increase in world income of $40 to $60 billion. This represents an increase of less than 0.2% of current global gross domestic product.” 

The World Bank, on the other hand, foresees that liberalising trade in a manner consistent with the Hong Kong Ministerial Declaration would lead to “global gains of the order of $95-120 billion per year”. 

Nevertheless, NGOs opposed to the WTO point out that even this staunch supporter of the Doha Round has downsized its original projections; in 2003, the World Bank had forecast an $832 billion-per-year boost to the global economy from the total elimination of trade barriers; the majority – $539 billion – going to the developing world. In 2006, new projections estimated potential overall welfare gains at only $287 billion – just one-third the original forecast. Furthermore, developing country gains dropped to $90 billion, a “loss” of more than 80%. 

Despite contradictions between the figures, even most opponents of the WTO agree that a deal would increase overall economic welfare. However, they underline that these benefits will not fall to those who most need them. They say poorer countries would lose out, whether from the erosion of preferences they enjoy in third markets or from the direct impact on their own agricultural, industrial and services sectors. 

Despite this, there is a general consensus that renouncing to a global deal now would result in losses all around. 

Market access: 

  • The recent agreement that would ensure that all developed countries grant duty- and quota-free market access to all Least Developed Countries would be lost. 
  • Agricultural exporters will miss out on the deepest farm-tariff cuts ever offered by the EU. 
  • Europe and the US would lose new access to the markets of emerging economies such China and Brazil for their exported industrial goods and services. 

Trade-distorting subsidies: 

The US and the EU will be able to continue subsidising their agricultural production, thereby artificially enhancing their competitiveness, leading to over-production and dumping, which hurts poor farmers in developing countries. 

WTO credibility: 

Failure could inflict a serious blow to the credibility of the international trading system and the WTO as an institution. The Dispute Settlement Body, which is currently the only supranational body capable of rendering compulsory judgements on disputes between countries, could be undermined. 

Return of bilateralism: 

The lack of a global trade deal will accelerate a return to a system of bilateral agreements and FTAs in which the large would be able to strong arm the small and where the multiplication of trade rules and tariffs would generate higher transaction costs and damage the trading and investment environment. 

IMF chief Rodrigo de Rato said: "The stakes are far too high to accept failure." He stressed that breaking down trade barriers would raise prosperity around the globe. “We should not fool ourselves that there is a comfortable middle ground,” he added, calling on "the G-7 countries and the major emerging market economies to intervene quickly to conserve the gains made in negotiations made so far, and to put the Doha Round back on track." 

World Bank President Paul Wolfowitz said: “The promise of a better future is in peril…We must consider new ideas—and accept that every party in this deal needs to compromise. The United States needs to accept further cuts in spending on trade-distorting agricultural subsidies. The European Union needs to reduce barriers to market access. And developing countries such as China, India and Brazil need to cut their tariffs on manufactures. Developing countries also need to remove trade barriers that make it harder for low-income countries to trade directly with each other.” 

The American Chamber of Commerce to the European Union (AmCham EU)  urged the EU and the US to be ‘creative and flexible’ on agricultural-policy change, reminding them that agriculture represents no more than respectively 2.2% and 1% of European and American GDP; 7.52% and 6.99% of their trade and; 4.4% and 0.7% of their total labour force. “Maintaining market-distorting agricultural policies and fighting over beef quotas neither secures our economic future nor helps to achieve global development goals,” it stated, adding that the much-needed boost needed by businesses around the globe will come from securing significant reductions in tariffs and non-tariff barriers for manufactured goods and services and urging the EU and the US to concentrate on new developing markets such as biofuels rather than on agriculture. “This is a tough political challenge”, stated AmCham, “but current agricultural programmes are not sustainable.” 

Speaking at the Cairns Group meeting, WTO chief Pascal Lamy said the trade pact on the table was “impressive” and would be “a quantum leap for economies”. "It is pretty unfortunate that the negotiations broke down over a few thousand tonnes of beef, a few thousand tonnes of poultry and a few billion dollars of trade-distorting subsidies," he said. “Are these problems insurmountable? Probably not.” 

Australian Prime Minister John Howard criticised the EU for its “indifference” towards the current situation but said he remained “optimistic” that officials could still conclude a multilateral deal. “Things do not look good at the moment, but we must not be deterred,'' he said. 

In an effort to show a more conciliatory approach while attending the Cairns Group meeting, US Secretary for Agriculture Mike Johanns said: "We're willing to be at the table and negotiate our way through this.” He added that “the United States is willing to improve its existing offer, but Europe had to break out of its "1930s mentality". He added that the EU would have to be more flexible. “They cannot continue to maintain very high tariffs. Even at the end of this, they'll still be able to subsidize their farmers at twice the level the US would,” he said. 

US Trade Representative Susan Schwab said that, although she could not endorse any specific proposal, she thought the Australian plan was “an important one” that “has potential to move the conversation forward”. She said: “A proposal that has both more market access and more cuts in domestic support is ultimately the right way to go.” 

But the EU's ambassador to the WTO, Carlo Trojan, said: "We are certainly not prepared...to go north of G20 as far as market access is concerned.” He added that Peter Mandelson would head to Washington next week for further talks, but said that the EU and US were “not much in a negotiating mode” ahead of the US mid-term elections in November. This could please a number of NGOs more critical of the WTO, such as War on Want, Greenpeace and Friends of the Earth, which all viewed the collapse of talks as good news for the world’s poor and the environment. 

John Hilary, Director of campaigns and policy at War on Want, explains: “The WTO has shown itself unfit for purpose when it comes to addressing the needs of the world's poorest communities, and the ‘deal’ on the table in Geneva would have exposed developing countries to immense damage…Abandoning the negotiations was the only positive option left, and we should be thankful for it.” He added: “It didn't have to be this way. The WTO could have focused its energies on brokering a deal to stop the dumping of EU and US farm-produce on developing-country markets, one of the very worst abuses of the international trading system.” But this did not happen, he said: “In place of a development agenda, the talks degenerated into an unapologetic market access agenda.” 

An annual meeting of the World Bank and International Monetary Fund ended on 20 September 2006, amid calls from world leaders to revive the multilateral trade talks that were suspended in July. 

On the same day, the 20th anniversary of the 18-nation Cairns Group of agricultural exporters opened in Australia. The original aim of the meeting was to rekindle talks on the basis of a compromise proposal put forward by Australian Trade Minister Mark Vaile. 

Vaile had suggested “a middle-ground position” that he believed could close the gap between the two main players in the negotiations, the EU and the US. The deal would have seen an additional reduction of 5% in average agricultural tariffs for the EU (to be added to the 54% average reduction that it had already agreed to on the basis of the G20 group of developing nations’ proposal) and an extra cut of around $5 billion in domestic support for the US. 

However, Trade Commissioner Peter Mandelson put an end to Australia’s hopes by announcing that he would not attend the conference and by rejecting the deal as “undoable”. 

So, despite world leaders stating their will to reach an ambitious and speedy conclusion to the negotiations, a compromise still appears far off and a successful outcome to the Round increasingly unlikely because the broad trade authority granted under the Trade Promotion Act (TPA) of 2002 to US President George W. Bush expires in July 2007. Past that date, Congress will regain its power to make amendments to any trade deal presented to it, thereby making it less attractive for other WTO members to participate in negotiations as they are unsure of obtaining any real commitments from the US. 

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