European Affairs

By Thalia Bayle -- European Affairs

thaliabayleAlmost a decade after the launch of the Doha Round under the World Trade Organization (WTO), the negotiations are mired in complex deadlock and most experts believe that there is little chance of a significant pact being salvaged by year’s end. That is the effective deadline for this ill-starred round of trade talks since next year is election year in the U.S., never propitious for global trade talks.

Rather than declare defeat, trade advocates at WTO headquarters and their allies in EU capitals and, in smaller numbers, in Washington, are seeking to salvage some of the progress made along the way in the talks. The main 11th-hour idea, put forward by WTO Director General Pascal Lamy, is a call for an “early harvest” of some gains – with bigger issues to be postponed in hopes of a better negotiating situation. Critics jibe at the phrase “early harvest” as a bad joke that refers to a decade-long gestation and a meager crop of results.

Now even this minimalist end-game is threatened by worsening deadlock between the U.S. and China. The Obama administration cannot sell Congress on a “low-ambition” deal that does not contain Chinese concessions; on the other hand, China (along with fellow-BRICs, Brazil and India) has shown itself disinclined to commit to a “high-ambition” deal that would change Beijing’s privileges as a developing country.

A fundamental flaw in this long-running drama is that the very duration of the talks has worked against their success and ultimately has proved their undoing. Negotiations have gone on for longer than in any previous trade rounds and this time, amid rapid and radical global economic change. The result is that the talks have been overtaken by events – essentially, by the accelerating impact of globalization. In response to these economic realignments, the politics of key parties in the talks have hardened around new economic paradigms and compromises that might have been within reach even three or four years ago are now excluded.

“We are experiencing the facts of life about a world that has actually moved from multilateralism to multi-polarity too fast for our bargaining positions and perhaps even for our thinking to keep pace. We have responded to the change with the creation of the more broadly representative G-20, but that body still does not have the power to produce a new global consensus,” according to a U.S. official, who spoke European Affairs on condition of anonymity. His point is that the previous global trade rounds all functioned essentially as a deal brokered by the U.S. and the EU: once a transatlantic bargain was in place, the West then had sticks and (mainly) carrots to bring along the rest of the world. That hegemony simply no longer exists.

The post-Doha future is likely to see the quest for a global deal supplanted by bilateral and regional free-trade agreements. In the past, such fragmentation was seen as the enemy of wider trade deals, but that perception is changing in many analysts’ view. “World trade is actually doing quite well right now, and the current crop of problems – such as intellectual property rights and currency manipulation – seem intractable in the Doha context,” according to a European diplomat. Can there be a return to the ambition of global trade reform? Perhaps, experts say, but probably only in some medium-term future when regional trading blocs have become strong enough to want to come to the table together.

In this sense, many analysts say that it is now important to get past the “doomed” Doha round, take stock and decide on new policy approaches. This argument has been made publicly and powerfully by Susan Schwab, the former U.S. Trade Representative, in an article (published in the May/June 2011 issue of Foreign Affairs magazine) which has found great resonance in the WTO member countries. "For years, the threat of being blamed for the Doha Round's collapse has made it too risky for governments to suggest that the talks are dead. … But the pretense that the deal will somehow come together at long last is now a greater threat to the multilateral trading system than acknowledging the truth," she wrote. Her recommendation is that countries should bring the talks to a close by the end of the year to move onto new initiatives focused on reducing barriers to trade in specific sectors such as healthcare or pharmaceuticals.

Her point was recently echoed in an article by National Journal columnist and member of the advisory board of European Affairs Bruce Stokes. He said that “second-best trade agreements – done bilaterally, regionally, and for specific products – are better than no trade liberalization at all.” According to Stokes, a regional or bilateral approach could particularly benefit the U.S. and its European counterparts if it removed lingering inhibitions against the removing trade hurdles in the transatlantic market.

Many governments are already moving towards such narrower strategies with a view to warding off protectionist pressures, boosting growth and creating jobs. Current efforts of the U.S. and the EU to pursue free-trade deals with India, Japan and other Pacific nations may be harbingers of an adjustment to a truly new “multi-polar” environment for trade.

Ironically, the big losers in the Doha round’s failure are the developing countries that were meant to be the main beneficiaries. The talks’ official designation, the “Doha Development Agenda,” underscored the initial conception of the Doha round as an opportunity for developing countries to be compensated with new advantages for the benefits that had largely eluded them in the Uruguay round, whose success in the pact signed in 1994 was mainly liberalized trade among advanced nations.

The idea of “compensation for the developing countries” circulated in 1999 during the preparatory phase known as the “Millenium Round,” but the talks in Seattle were the scene of violent anti-globalization protests, and governments opted for a cooling-off period. By the time the Doha round was launched in November 2001, the U.S. was reeling from the 9/11 terrorist attacks, and trade was no longer at the top of the Bush administration agenda.

Even so, there was some significant earlier progress, notably the decision by the EU in 2005, to end its subsidies to agricultural exports by 2013. For years, this aid had helped European farmers, already subsidized by the Common Agricultural Policy, to export surpluses very cheaply to third-country markets. The EU concession, in eliminating part of its competitive advantage, seemed to promise big opportunities for developing countries’ farm exports. Unfortunately, this political high-water mark in Europe’s flexibility did not open the way to a wider deal, mainly because the developing countries were split by new differences and competitive fears about each other. Under the uneven impact of globalization, the old bloc of developing nations (known as the “group of 77”) has diverged widely between, say, a China and most African countries.

This disunity is cited by U.S. and European analysts who say that part of the responsibility for the Doha stalemate has to be shouldered by the developing countries themselves. Over the decade of the Doha round, countries such as China, India and Brazil, until recently developing nations themselves, have emerged as export powers and big players in global trade, pursuing their interests vis-à-vis each other as well as in the global community. Nowadays “India is more afraid of food exports from Brazil than from the U.S.,” says a U.S. government source who commented on condition of anonymity. But both these countries agree on resisting tariff reductions because they fear being drowned in imports of manufactured goods from China. This produces conflicts within the developing countries bloc. So, when India adopted measures to protect its 800 million farmers from food imports, Brazil was urging faster global liberalization of agricultural trade. This duality – a quest for new markets to conquer coupled with a fear of being inundated with imports – applies to the emergent category of countries headed by the BRICs (Brazil, Russia, India, China), with their new economic and export capabilities to promote and defend. Of all these countries, China has been the most resistant to concessions at the WTO, a stance often motivated by Beijing’s determination to keep its status as a developing country, with attendant preferential treatment.

Illustrative of these new rivalries was a deadlock over the so-called “Singapore issues” that were put on the table at EU urging during the negotiating meeting in 2003 in Cancun. Dangling its pending concession on farm exports, the EU (backed by South Korea) sought to revive an earlier package of new rules aimed at increasing transparency in governments’ procurement practices, facilitating the flow of information about importing countries’ trade regulations and making it easier for companies to set up businesses in foreign countries. Intended to facilitate trade with and among the developing countries, they encountered strong opposition from many countries that they were supposed to benefit. Leading opponents included India, Indonesia, Malaysia and Tanzania, which complained that the proposed measures could curb their freedom to channel state aid to their local companies.

These profound shifts came to a head during the 2008 talks in Geneva. This session had been expected to shape an overall “win-win” deal – essentially a trade-off in which the U.S. and the EU would rein in farm subsidies and further open their markets to the least developed countries as a quid pro quo for big cuts in industrial tariffs by China and other BRICs. The deal offered big potential gains in global gross domestic product and, consistent with the Doha Development Agenda, the GDP gains for developing countries would have been greater than for the developed countries (1.3 percent versus 0.3 percent).

In Geneva, however, protectionist temptations were rising amid the burgeoning global financial and economic crisis, and both “sides” of the proposed bargain made new demands. India and China proposed a “Special Safeguard Mechanism” allowing countries to sharply raise their agricultural tariffs in the event of a surge in rice or cotton imports. This proposal met uncompromising opposition from Washington. So the big breakthrough never materialized.

Three years later, there seems little likelihood that the U.S. – or the EU – has a strong motive or incentive for mounting a big last-minute push on the Doha round. The WTO is not going to be the crucial forum for action in the coming years,” the U.S. source said – meaning that that the main focus of U.S. trade policy has become the effort to get China to open closed parts of its economy. European diplomats concur, saying that the Doha round could only produce significant results if new common ground between Washington and Beijing can be found. “We have worked for an accord, but there is little more that we could offer” after the EU action on farm exports, a European diplomat said.

The U.S. position is not escaping criticism. World Bank President Robert Zoellick recently accused Washington of “dumbing down” the ongoing round by abandoning the ambitions announced for the WTO when he was the U.S. trade negotiator in 2001. “I single out the U.S. because the U.S. should still be the world leader,” he said this month. Crucially, the powerful U.S. farm lobby has blocked Obama administration’s efforts to slash major agricultural subsidies, so Washington has lost a major bargaining chip. And the high level of unemployment in the U.S. – blamed by many Americans on imports from China and outsourcing of manufacturing to low-wage countries – has hardly put the U.S. Congress is the mood to approve any new trade deals.

As a result, Lamy’s proposed “early harvest” package is unlikely to get much support from the U.S. or the EU. In May, the WTO adopted an “implementation plan” for the early harvest proposal, but most analysts describe this step as little more than an attempt to veil the death of the round with some minor deliverables by December. This plan would provide some quick benefits for developing countries such as duty-free and quota-free access to the rich world’s markets. The plan would put off for at least a year an unspecified set of contentious issues, notably those of particular interest to the U.S. and the EU such as market access for industrial goods and services.

Now the feeling is growing in Washington and Brussels that efforts to keep Doha alive are unlikely to have any political payoff. Many American supporters of freer trade have rallied to the motto “no deal is better than a bad deal.” European Commissioner for Trade Karel De Gucht echoed the U.S. stance by saying that Brussels could only accept a package, even a small one, if it is “balanced” (i.e. not be a “development only” deal). In particular, he said, the EU will insist on a “standstill” agreement on tariffs to pre-empt protectionism while countries continue talking about a broader deal.

What would be the consequences of this dismal outcome for the WTO and future trade? For systemic reasons, it seems unthinkable for Lamy and the WTO membership to acknowledge failure publicly. That would risk undermining the remaining legitimacy of the WTO, which also has an important role as a quasi-judicial system ensuring transparency in trade policies. The WTO also functions as an anti-trust watchdog in the global trading system. Even without success on its core aspiration, the WTO will retain an indispensable place as the arbiter of existing rules on global trade – and potentially as the venue for a renewed bid to achieve global trade liberalization in a new, and still evolving, world order.


Thalia Bayle is an Editorial Assistant at European Affairs