The long drawn-out multilateral trade negotiations known as the Doha Round have reached the last fork in the road. On 29 April, World Trade Organization ambassadors strove to break the deadlock in the Doha Round, but ended up only with an agreement to keep talking. Time is running out. Unless the round is successfully concluded this year, political calendars of the major players in coming years will make revival almost impossible.
The latest meeting was positive because it gave – for the first time – a peek at the impressive progress made to date. But unfortunately global trade negotiations are an all-or-nothing business; 80 percent of a final deal is no deal, and failure is a real possibility as the talks are deadlocked.
The Doha Round, which started in 2001, has been deadlocked for so long why should one care about one more delay? The answer is laid out in a recently published ebook Why World Leaders Must Resist the False Promise of a Doha Delay. The book argues that 2011 is do-or-die year. The logic is simple. Economic hardship combined with upcoming elections could lead to less goodwill internationally, more poisonous politics inside the US, and a new Chinese leadership that must prove its toughness. Specifically:
US Congressional politics will be much rougher after the 2012 presidential election. With members cowed or driven to extreme positions, a poisonous climate could make the US president less likely to compromise on multilateral trade matters early in the term.
The new Chinese leadership, also poised to take office in 2012, cannot start off by making what can be viewed as major unilateral concessions to the US.
Much of the goodwill will have evaporated as several of the big players suspect some others of negotiating in bad faith so far this year
But breaking the deadlock in 2013 would require new additions to the agenda – something that China and India would bargain for in return to acquiescing to US demands for substantial trade liberalization. The big concession the US offers in Doha is on agriculture. This interests Brazil, but China and India need other inducements, such as visas for temporary IT workers. Unfortunately, negotiating an expanded agenda would take years.
This is why 2011 is a fork in history’s road. If the US and China cannot break the deadlock in 2011, no deal is likely before 2020. Opting for a brief pause is code for killing multilateral liberalization for the foreseeable future.
Failing to complete the round will have insidious effects, as outlined in the ebook. The WTO, which operates by consensus – all 153 members must agree – finds it basically impossible to update its rules without the vehicle of a successful round. Because some nation will likely object to any one rule change, proposals must be packed up in a grand bargain to make new rules palatable to all.
The last rule updating was in 1994– early years in office for Bill Clinton and Chinese President Jiang Zemin; few people used email and shared data by airmailing 1.44 MB floppy disks! If the next update comes in 2020, the WTO will be running on rules designed before global warming became a pressing issue, before China became the world’s top exporter.
If Doha is not concluded this year, WTO authority, its centrality in global trade governance will erode. Like global warming, the erosion won’t be a set event but a gradual process. And like global warming, the costs will come in unexpected spurts and unexpected ways.
If the WTO’s negotiating and legislative roles fall into abeyance, members will be less likely to respect its “judicial” function, the Dispute Settlement Mechanism. And with no end in sight for Doha, nations already shift focus from the WTO to regional agreements. So far, regionalism and multilateralism have evolved in more or less complementary ways. But with multilateral negotiations deadlocked, regionalism could easily reinforce rather than contain protectionist forces, as it did in the 1930s.
In the ebook Ernesto Zedillo, former president of Mexico and director of the Yale Center for the Study of Globalization, argues that failure of such engagement would put globalization, and its enormous benefits, at risk. Direct and immediate involvement of heads of state is required to avert failure. But signs are not promising.
US President Obama thinks he cannot win the domestic political battle against US protectionists necessary to ratify an agreement without fulsome support of US export interests. Such support, he maintains, would require large additional tariff cuts by China, India and Brazil. These nations likewise contend they cannot make these cuts.
In the end, even heads of state cannot wave away the political conflicts on which the deadlock turns. Today, as in 2013, and as will be the case for the rest of the decade, the US will demand deep Chinese tariff cuts in industrial products – such as chemicals – that China will refuse. If US and Chinese leaders are to find more room for compromise, they must find ways to loosen their domestic political constraints. This means challenging the premise on which the deadlock is based – namely, the view that Doha is mostly about new market access. The narrow special interests creating the Doha deadlock should not be allowed to jeopardize the world trading system and the benefits Doha would bring to all nations.
Obama and the Chinese leadership must make the case to their own domestic constituencies that Doha matters for reasons far beyond what is on the negotiating table. After all, the multilateral trading system delivers benefits – in the form of greater transparency about foreign policies and greater predictability about those policies – to both countries' exporters.
They should argue that Doha needs to be concluded in order to preserve one of the world’s most precious public goods – the rules-based, WTO-centric trade system – a system that has created so much prosperity in the US and lifted so many out of poverty in China, India, Brazil and, more recently, in Africa.
In particular, the narrow focus of US export lobbies on additional market access should be challenged by the Obama administration. These farmers, industrialists and service providers are some of the biggest users of the WTO-centric trading system. US farmers, for example, benefit from existing WTO rules that foreign health and safety standards must be scientifically-based. They should understand that concluding the Doha Round – even if it appears insufficient in the short run – is in their enlightened self-interest.
World leaders should also consider compensatory arrangements that could make Doha reforms more palatable to special-interest groups behind the deadlock, especially China.
The Obama administration and Chinese leadership should “sell” completion of the Doha Round to their own domestic audiences on national-security grounds.
A flourishing, forward-moving multilateral system over 60 years has proved to be one of the most cost-efficient, surest ways of fostering world peace and security at a time of substantial geopolitical transition. Both the old superpower and the rising superpower should view Doha as a good, practical, and above all immediately available step towards the sort of mutually beneficial, mutually respectful relationship countries must develop if internal and external harmony is to be maintained. For all of these reasons, world leaders should not give up on Doha by letting it drag on beyond 2011.
Richard Baldwin is professor of international economics at the Graduate Institute, Geneva; policy director of the Centre for Economic Policy Research; and VoxEU.org editor-in-chief. Simon Evenett is professor of international trade at the University of St. Gallen, member of the Warwick Commission on the Future of the Multilateral Trading System after Doha and co-director of the CEPR Programme in International Trade and Regional Economics. This article is based on Why World Leaders Must Resist the False Promise of Another Doha Delay (2011), a VoxEU.org ebook, edited by Richard Baldwin and Simon Evenett. Rights:Copyright © 2011 Yale Center for the Study of Globalization. YaleGlobal Online
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