The Doha Round Impasse: What Can Developing Countries Do? Alan V. Deardorff Robert M. Stern...

The Doha Round Impasse:The Doha Round Impasse:What Can Developing Countries What Can Developing Countries

Do?Do?

Alan V. DeardorffAlan V. Deardorff

Robert M. SternRobert M. Stern

University of MichiganUniversity of Michigan

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The Doha Round ImpasseThe Doha Round Impasse

The RoundThe Round Launched in 2001 as the Doha Development Launched in 2001 as the Doha Development

AgendaAgenda Intended to continue the multilateral trade Intended to continue the multilateral trade

liberalization of 50 years under the GATTliberalization of 50 years under the GATT Promised to give special attention to needs of Promised to give special attention to needs of

developing countriesdeveloping countries

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The ImpasseThe Impasse Negotiations stumbled in Cancun in 2003Negotiations stumbled in Cancun in 2003

Revived in 2004 but barely advanced in Hong Kong in 2005Revived in 2004 but barely advanced in Hong Kong in 2005 Ceased for months in 2006Ceased for months in 2006

Now the leaders of EU, US, WTO are Now the leaders of EU, US, WTO are Pushing to reach enough agreement for the Round to continuePushing to reach enough agreement for the Round to continue Hoping to persuade the US Congress to extend US authority to Hoping to persuade the US Congress to extend US authority to

negotiate (“Fast Track”)negotiate (“Fast Track”)

Prospects are direProspects are dire

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The QuestionsThe Questions What can developing countries doWhat can developing countries do

To help the Round succeed?To help the Round succeed? To achieve their objectives if the Round fails?To achieve their objectives if the Round fails?

How, in any case, should developing countries How, in any case, should developing countries manage their trade policies, with or without manage their trade policies, with or without cooperation from others?cooperation from others?

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OutlineOutline

How we reached this impasseHow we reached this impasse Trade Interests of Developing Countries Trade Interests of Developing Countries Structure of WTO NegotiationsStructure of WTO Negotiations Options for Developing CountriesOptions for Developing Countries ConclusionConclusion

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How we reached this impasseHow we reached this impasse

The Doha RoundThe Doha Round Began at the Ministerial Meeting of the WTO in Began at the Ministerial Meeting of the WTO in

Doha, Qatar, in 2001Doha, Qatar, in 2001 High hopes for real progressHigh hopes for real progress

By developing countriesBy developing countries For developing countriesFor developing countries

Hence, the “Doha Development Agenda”Hence, the “Doha Development Agenda”

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Central Issues of the Doha RoundCentral Issues of the Doha Round Developed country policies that hurt developing Developed country policies that hurt developing

countriescountries Protection on imports of agriculture and non-Protection on imports of agriculture and non-

agricultural labor-intensive exportsagricultural labor-intensive exports Subsidies in agricultureSubsidies in agriculture

Developing country protection in all sectors, Developing country protection in all sectors, including servicesincluding services

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Progress, and lack of itProgress, and lack of it Cancun Ministerial September 2003: Failed to Cancun Ministerial September 2003: Failed to

reach agreement on the framework for a reach agreement on the framework for a negotiating text.negotiating text.

Group of 20 (+ or Group of 20 (+ or −) −) Developing Countries rejected Developing Countries rejected draft proposed by US and EUdraft proposed by US and EU

It gave too little on agricultureIt gave too little on agriculture It asked too much from developing countries, including 4 It asked too much from developing countries, including 4

“Singapore Issues”“Singapore Issues” Cancun meeting ended in failureCancun meeting ended in failure

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Progress, and lack of itProgress, and lack of it Summer 2004: framework text agreed, dropping Summer 2004: framework text agreed, dropping

all but one of the Singapore Issuesall but one of the Singapore Issues Kept “trade facilitation” Kept “trade facilitation”

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Progress, and lack of itProgress, and lack of it December 2005: Hong Kong Ministerial achieved December 2005: Hong Kong Ministerial achieved

“success” but made hardly any progress“success” but made hardly any progress

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Progress, and lack of itProgress, and lack of it July 2006: WTO Director General Pascal Lamy July 2006: WTO Director General Pascal Lamy

Acknowledged lack of progressAcknowledged lack of progress Suspended negotiationsSuspended negotiations

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Progress, and lack of itProgress, and lack of it Today: Negotiators are talking againToday: Negotiators are talking again

Hope is to make some progressHope is to make some progress Then persuade US Congress to extend “Fast Track” (US Then persuade US Congress to extend “Fast Track” (US

trade negotiating authority)trade negotiating authority)

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Importance for developing countriesImportance for developing countries Doha Round was never really about development Doha Round was never really about development

per se, in spite of its nameper se, in spite of its name Reducing trade barriers is helpful, but not sufficient for Reducing trade barriers is helpful, but not sufficient for

developmentdevelopment WTO hasn’t the power or expertise to assist WTO hasn’t the power or expertise to assist

developmentdevelopment

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Importance for developing countriesImportance for developing countries Doha Round was about reducing the trade Doha Round was about reducing the trade

barriers and other policies that hinder barriers and other policies that hinder developmentdevelopment

Both by developed countries against developing-Both by developed countries against developing-country exports and by developing countries country exports and by developing countries themselvesthemselves

All were a residual of the way that “Special and All were a residual of the way that “Special and Differential Treatment” had been granted to Differential Treatment” had been granted to developing countries: developing countries:

They “gave” nothing in previous negotiations, and they They “gave” nothing in previous negotiations, and they got nothing in return.got nothing in return.

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Trade Interests of Developing Trade Interests of Developing CountriesCountries

Developing countries have a shared interest in Developing countries have a shared interest in exportingexporting Their greatest interest in the Doha Round is market Their greatest interest in the Doha Round is market

access for their labor-intensive exportsaccess for their labor-intensive exports

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Exceptions to this shared interestExceptions to this shared interest If they export different thingsIf they export different things If they export to each otherIf they export to each other If some already have preferential market access If some already have preferential market access

that would be erodedthat would be eroded

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Competition among developing countries Competition among developing countries does not justify protectiondoes not justify protection Many smaller countries fear competition with Many smaller countries fear competition with

China and IndiaChina and India This fear of competition is the same that This fear of competition is the same that

countries throughout history have used to countries throughout history have used to justify protectionjustify protection

The fear is groundless or at least overblown: The fear is groundless or at least overblown: even small countries have comparative even small countries have comparative advantagesadvantages

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Some developing countries face erosion of Some developing countries face erosion of preferencespreferences This fear is real and not avoidableThis fear is real and not avoidable They are likely to have to switch to sectors They are likely to have to switch to sectors

where they don’t need preferences, and this will where they don’t need preferences, and this will be costlybe costly

Hope is that they’ve used their preferential Hope is that they’ve used their preferential gains productivelygains productively

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Developing countries can gain by Developing countries can gain by cooperatingcooperating Interests are sufficiently common that they can Interests are sufficiently common that they can

and should act togetherand should act together Actions of the G-20 in Cancun were Actions of the G-20 in Cancun were

encouraging, even though they led to the failure encouraging, even though they led to the failure of the meetingof the meeting

Can they act collectively outside the WTO? Can they act collectively outside the WTO? Probably notProbably not

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Structure of the NegotiationsStructure of the Negotiations

Developing countries have played only a small Developing countries have played only a small role in past negotiationsrole in past negotiations In the past deals have been made between US and In the past deals have been made between US and

EU, then sold to othersEU, then sold to others Developing countries did play a small role, with a Developing countries did play a small role, with a

handful included in each particular negotiation (the handful included in each particular negotiation (the “Green Room”)“Green Room”)

But there was never any formal representation in But there was never any formal representation in WTO decision makingWTO decision making

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Structure of the NegotiationsStructure of the Negotiations

The “Development Agenda” should provide The “Development Agenda” should provide assistance to liberalization, not exemption from itassistance to liberalization, not exemption from it

Should the Doha Round include a bias in favor of Should the Doha Round include a bias in favor of developing countries, to correct for the past?developing countries, to correct for the past? No, not if it would be interpreted again as exempting them No, not if it would be interpreted again as exempting them

from making “concessions”from making “concessions” Yes, if it can provide resources to help them liberalizeYes, if it can provide resources to help them liberalize

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Options for Developing CountriesOptions for Developing Countries

Act collectively to reinvigorate the WTOAct collectively to reinvigorate the WTO Can they matter? Clearly yes, since it was their Can they matter? Clearly yes, since it was their

own reluctance that contributed to the impasseown reluctance that contributed to the impasse Major developing countries (the G-20) must Major developing countries (the G-20) must

recognize that trade liberalization is in their recognize that trade liberalization is in their interestinterest

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Act collectively to reinvigorate the WTOAct collectively to reinvigorate the WTO It may help to note that developing countries have It may help to note that developing countries have

the most to gain from liberalization, in the most to gain from liberalization, in relativerelative termsterms, far more than the developed countries, far more than the developed countries

If the Doha Round fails, it is the developing world If the Doha Round fails, it is the developing world that will lose the mostthat will lose the most

The Doha Round is The Doha Round is notnot primarily a rich-country primarily a rich-country gamegame

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Act collectively to reinvigorate the WTOAct collectively to reinvigorate the WTO What they must do:What they must do:

Continue to press hard for removal of tariffs and Continue to press hard for removal of tariffs and subsidies on their products in developed countriessubsidies on their products in developed countries

AndAnd offer meaningful tariff cuts into their own markets offer meaningful tariff cuts into their own markets

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Encourage and cooperate in Aid for Trade Encourage and cooperate in Aid for Trade initiativesinitiatives These initiatives, by the IMF, World Bank and These initiatives, by the IMF, World Bank and

others, would provide financial assistance in others, would provide financial assistance in implementing and dealing with liberalizationimplementing and dealing with liberalization

This is also explicitly called for in the Doha This is also explicitly called for in the Doha Round DeclarationRound Declaration

What is needed are firm commitments, not just What is needed are firm commitments, not just statements of approval.statements of approval.

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Regional and/or bilateral arrangementsRegional and/or bilateral arrangements These are usually Free Trade Agreements These are usually Free Trade Agreements

(FTAs), often with the US, EU or other (FTAs), often with the US, EU or other developed countrydeveloped country

The current surge of FTAs started when the The current surge of FTAs started when the previous GATT round foundered in the 1980s, previous GATT round foundered in the 1980s, stimulating the US-Canada FTA and later stimulating the US-Canada FTA and later NAFTANAFTA

Today there are almost 300 of themToday there are almost 300 of them

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Regional and/or bilateral arrangementsRegional and/or bilateral arrangements These are These are

Inferior to multilateral free tradeInferior to multilateral free trade Potentially distinctly harmfulPotentially distinctly harmful But in practice most have been beneficial to the But in practice most have been beneficial to the

worldworld

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Welfare Effects of Bilateral Negotiating OptionsWelfare Effects of Bilateral Negotiating Options

US and…US and… Japan and…Japan and…

AustraliaAustralia 23.123.1 ChileChile 3.53.5

Central Amer & CaribCentral Amer & Carib 15.715.7 IndonesiaIndonesia 11.111.1

ChileChile 7.97.9 KoreaKorea 19.719.7

MoroccoMorocco 7.57.5 MalaysiaMalaysia 10.110.1

SingaporeSingapore 22.522.5 MexicoMexico 10.610.6

Southern AfricaSouthern Africa 11.811.8 PhilippinesPhilippines 3.03.0

ThailandThailand 21.921.9 SingaporeSingapore 6.76.7

Units: $billions

Source: Brown, Kiyota, and Stern (2006)

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Regional and/or bilateral arrangementsRegional and/or bilateral arrangements Choice of partnersChoice of partners

Neighbors – most likelyNeighbors – most likely Other developing countries – little to gainOther developing countries – little to gain Developed countriesDeveloped countries

Most to gainMost to gain Danger of asymmetric power: May be pressed to give Danger of asymmetric power: May be pressed to give

more than they wishmore than they wish

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Regional and/or bilateral arrangementsRegional and/or bilateral arrangements Structure of FTAsStructure of FTAs

Should approach and approximate multilateral free Should approach and approximate multilateral free tradetrade

If FTAs are formed between A&C and B&C, then If FTAs are formed between A&C and B&C, then A&B should also form FTAA&B should also form FTA

Rules of origin should then encompass all threeRules of origin should then encompass all three Might as well then enlarge to a single FTA of AB&CMight as well then enlarge to a single FTA of AB&C

All FTAs should permit new entrants easilyAll FTAs should permit new entrants easily

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Focused initiatives in sub areasFocused initiatives in sub areas Industry agreements have been successfully Industry agreements have been successfully

negotiated among developed countriesnegotiated among developed countries These are unlikely to work among only These are unlikely to work among only

developing countriesdeveloping countries Between developed and developing countries Between developed and developing countries

there are dangers, as the trade tends to go only there are dangers, as the trade tends to go only one direction; concessions are one-way onlyone direction; concessions are one-way only

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Unilateral liberalizationUnilateral liberalization If tariffs are high and/or the developing country If tariffs are high and/or the developing country

is small, and if the Doha Round is failing, don’t is small, and if the Doha Round is failing, don’t wait! Liberalize unilaterallywait! Liberalize unilaterally

The tariffs are damaging the country and The tariffs are damaging the country and undermining developmentundermining development

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Unilateral liberalizationUnilateral liberalization But if tariffs are already low and the country is But if tariffs are already low and the country is

large enough for its markets to matter to others, large enough for its markets to matter to others, then further unilateral liberalization is probably then further unilateral liberalization is probably unwiseunwise

Keep them as “bargaining chips” for future Keep them as “bargaining chips” for future negotiationsnegotiations

Potential market access abroad may gain more than Potential market access abroad may gain more than reducing low own tariffs; worth waiting forreducing low own tariffs; worth waiting for

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ConclusionsConclusions

What is best for developing countries?What is best for developing countries? That’s easy: Success in the Doha RoundThat’s easy: Success in the Doha Round

That success, as well as the full benefits of success That success, as well as the full benefits of success to developing countries, requires that they to developing countries, requires that they offer to offer to reduce their tariffsreduce their tariffs

Developing countries must recognize that tariff Developing countries must recognize that tariff reductions are in their interestsreductions are in their interests

For the traditional gains from tradeFor the traditional gains from trade For “buying” market access for their exportsFor “buying” market access for their exports

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ConclusionsConclusions

If the Doha Round fails, then the best If the Doha Round fails, then the best remaining options areremaining options are Aid for tradeAid for trade Bilateral/regional FTAsBilateral/regional FTAs Unilateral liberalization in most, but not all, casesUnilateral liberalization in most, but not all, cases

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