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Time is ripe to close the Doha trade deal
By Pradeep S Mehta |
May 19, 2011, Thursday
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OSAMA bin Laden's death is an opportunity to close the Doha deal, argued the hugely optimistic Jagdish Bhagwati in a recent letter to the editor of the Financial Times.
He was reacting to an editorial in FT which called for giving up on the Doha Round of the WTO due to an impasse.
The Doha Round was launched after the September 11, 2001, tragedy to send a message to the world, that we are together and will not be fazed by the horrendous attack on the symbolic World Trade Center in New York.
"By a strange irony, bin Laden's assassination nearly 10 years later presents an opportunity to close the round, again in affirmation of the same values. What a glorious opportunity this presents to a much-strengthened President Barack Obama finally to emerge from his eloquent silence on Doha..."
For far too long Obama has been silent on the US' approach to the Doha Round, with his aides arguing there is not enough on the table, while developing countries have countered the Doha Round is a development round, which seeks to correct the imbalance which resulted from the Uruguay Round agreements. That is the cause for the gridlock.
On the other hand, all countries are investing a significant amount of political capital in negotiating preferential trade agreements which are second or third best options of trade liberalization.
There are three essential virtues of trade multilateralism: non-discrimination, gradual liberalization of tariff and non-tariff barriers, and binding commitments to rules.
None of these essentials are guaranteed in preferential trade agreements. They are, by definition, discriminatory. Not only do they provide better market access to parties to PTAs but also (and for some countries this is very important) they divert trade to the detriment of other countries (non-parties).
Bystanders
A seminal work by Sussex economists showed other South Asian countries as "innocent bystanders" as a consequence of a likely free trade agreement between the European Union and India.
Contrary to multilateral trade liberalization, PTAs can erode a country's policy space in a much bigger way. This is because PTAs are negotiated at the level of applied tariffs; on the other hand, the Doha Round of negotiations on multilateral trade liberalization are focused on reducing bound tariff levels.
It is true that the higher the bound level the higher will be the actual cut in tariffs, but for countries like India which has consistently maintained a large gap between bound and applied rates, there will not be much erosion of its policy space.
In any case, maintaining bound rates four-five times higher than the average applied rate (as in case of some agricultural commodities in India) does defy economic logic. Furthermore, all new generation PTAs (particularly those with which the EU and the US are engaged) have chapters which are WTO Plus in nature.
For example, the US-Colombia FTA is an interesting case.
A recent study by Kevin Gallagher of Tufts University has proved how detrimental the provisions would be in undermining Colombia's ability to take policy measures for capital control, particularly in times of financial crisis, which Colombia had successfully done while weathering the recent financial crisis.
Thirdly, there are certain disciplines of trade rules to which countries can be bound only through multilateral agreements. This is particularly true in respect to agricultural subsidies. The only way to discipline the scandalous nature of agricultural subsidies as practiced by the US and the EU is the WTO forum.
Multilateralism
The other part of this paradigm lies in the fact that businesses are not pushing for conclusion of the Doha Round. Because, the nature of world trade has changed hugely over the last couple of decades or so.
Governments do not trade, firms do. Today more than 60 per cent of world trade is intra-industry. This is expected to rise steadily as more and more sectors are enjoying increasing returns to scale.
The role of sovereign governments is to facilitate trade by reducing costs. And this can best be done by adhering to three essentials of trade multilateralism.
Taking part in a recent debate on Doha on the CUTS Trade Forum, Bernard Hoekman of the World Bank commented that "It (the Doha Round) would still be a significant achievement if WTO members were to agree to reduce the water in tariff bindings, lower the ceiling on permissible production subsidies, and expand the coverage of services commitments."
Fortunately, a clear landing zone (to conclude the Doha Round) has appeared on the horizon. To date, it was not clear what the US wants emerging economies to do. From the WTO DG's note to the Trade Negotiations Committee of April, 2011 on the current state of negotiations on industrial tariffs it is clear that the US wants substantial market access from emerging economies like India, Brazil and China in seven identified industrial sectors.
And while maintaining their position that engagement in sectoral negotiations should strictly be voluntary, these emerging economies are willing to negotiate five out of those seven - except chemicals, and electrical and electronic products.
The onus is now on Obama to invest his political capital on Doha. Given his new-found popularity, time is ripe for him to do so.
(The author is Secretary General of CUTS International.)
He was reacting to an editorial in FT which called for giving up on the Doha Round of the WTO due to an impasse.
The Doha Round was launched after the September 11, 2001, tragedy to send a message to the world, that we are together and will not be fazed by the horrendous attack on the symbolic World Trade Center in New York.
"By a strange irony, bin Laden's assassination nearly 10 years later presents an opportunity to close the round, again in affirmation of the same values. What a glorious opportunity this presents to a much-strengthened President Barack Obama finally to emerge from his eloquent silence on Doha..."
For far too long Obama has been silent on the US' approach to the Doha Round, with his aides arguing there is not enough on the table, while developing countries have countered the Doha Round is a development round, which seeks to correct the imbalance which resulted from the Uruguay Round agreements. That is the cause for the gridlock.
On the other hand, all countries are investing a significant amount of political capital in negotiating preferential trade agreements which are second or third best options of trade liberalization.
There are three essential virtues of trade multilateralism: non-discrimination, gradual liberalization of tariff and non-tariff barriers, and binding commitments to rules.
None of these essentials are guaranteed in preferential trade agreements. They are, by definition, discriminatory. Not only do they provide better market access to parties to PTAs but also (and for some countries this is very important) they divert trade to the detriment of other countries (non-parties).
Bystanders
A seminal work by Sussex economists showed other South Asian countries as "innocent bystanders" as a consequence of a likely free trade agreement between the European Union and India.
Contrary to multilateral trade liberalization, PTAs can erode a country's policy space in a much bigger way. This is because PTAs are negotiated at the level of applied tariffs; on the other hand, the Doha Round of negotiations on multilateral trade liberalization are focused on reducing bound tariff levels.
It is true that the higher the bound level the higher will be the actual cut in tariffs, but for countries like India which has consistently maintained a large gap between bound and applied rates, there will not be much erosion of its policy space.
In any case, maintaining bound rates four-five times higher than the average applied rate (as in case of some agricultural commodities in India) does defy economic logic. Furthermore, all new generation PTAs (particularly those with which the EU and the US are engaged) have chapters which are WTO Plus in nature.
For example, the US-Colombia FTA is an interesting case.
A recent study by Kevin Gallagher of Tufts University has proved how detrimental the provisions would be in undermining Colombia's ability to take policy measures for capital control, particularly in times of financial crisis, which Colombia had successfully done while weathering the recent financial crisis.
Thirdly, there are certain disciplines of trade rules to which countries can be bound only through multilateral agreements. This is particularly true in respect to agricultural subsidies. The only way to discipline the scandalous nature of agricultural subsidies as practiced by the US and the EU is the WTO forum.
Multilateralism
The other part of this paradigm lies in the fact that businesses are not pushing for conclusion of the Doha Round. Because, the nature of world trade has changed hugely over the last couple of decades or so.
Governments do not trade, firms do. Today more than 60 per cent of world trade is intra-industry. This is expected to rise steadily as more and more sectors are enjoying increasing returns to scale.
The role of sovereign governments is to facilitate trade by reducing costs. And this can best be done by adhering to three essentials of trade multilateralism.
Taking part in a recent debate on Doha on the CUTS Trade Forum, Bernard Hoekman of the World Bank commented that "It (the Doha Round) would still be a significant achievement if WTO members were to agree to reduce the water in tariff bindings, lower the ceiling on permissible production subsidies, and expand the coverage of services commitments."
Fortunately, a clear landing zone (to conclude the Doha Round) has appeared on the horizon. To date, it was not clear what the US wants emerging economies to do. From the WTO DG's note to the Trade Negotiations Committee of April, 2011 on the current state of negotiations on industrial tariffs it is clear that the US wants substantial market access from emerging economies like India, Brazil and China in seven identified industrial sectors.
And while maintaining their position that engagement in sectoral negotiations should strictly be voluntary, these emerging economies are willing to negotiate five out of those seven - except chemicals, and electrical and electronic products.
The onus is now on Obama to invest his political capital on Doha. Given his new-found popularity, time is ripe for him to do so.
(The author is Secretary General of CUTS International.)
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