Op-ed in Foreign Affairs
August 17, 2010
© Council on Foreign Relations
Originally scheduled to conclude in 2005, the Doha Round trade negotiations have dragged into their ninth year with no end in sight. The Doha Round was launched in November 2001 with the ambitious goal of liberalizing world trade and lifting living standards around the globe, especially in the least developed nations of the world. An agreement on the round would offer universal economic benefits by reducing farm subsidies, opening up new markets, and spurring investment. Yet without a final consensus on Doha, the WTO continues to lose its preeminence in the global trading system, as its members increasingly pursue trade interests, if at all, through bilateral agreements.
Many of the obstacles facing the Doha negotiations are political. The resolution that came out of the G-20 meeting in Toronto earlier this year was especially vapid: The best the G-20 member states could muster was to reiterate support for coming to an agreement and for direct negotiators to "report on progress at our next meeting in Seoul," where the G-20 "will discuss the way forward." In other words, nothing is expected to happen.
But what are the world's largest economies, as well as everyone else, missing out on in the meantime? A recent book published by the Peterson Institute for International Economics, Figuring Out the Doha Round, examines the prospective economic benefits of an agreement for the 22 major Doha participants (7 developed and 15 developing countries). Together, these nations account for roughly three-quarters of all global imports and exports and nearly 90 percent of global GDP.
If the Doha players simply implemented the deal currently under discussion on agriculture and nonagricultural market access (or NAMA, which basically means manufactured goods), they would see an increase in their exports of $68 billion annually. And if they included in a future deal a modest 10 percent cut in the sky-high barriers to the trade in services, exports would increase by another $55 billion. Including initiatives to liberalize trade in chemicals, information technology hardware, and environmental goods would deliver another $71 billion in new exports. Finally, if the WTO members made serious commitments to trade facilitation—standardized electronic customs forms and a crackdown on corruption at the border—they would enlarge exports by another $86 billion. Put simply, with renewed negotiating energy, the total payoff to the 22 Doha countries could reach $280 billion each year.
Trade gains of this magnitude would enlarge GDP of the 22 Doha participants by about half a percent annually. Equally important, a deal would greatly boost the confidence of private-sector business leaders and traders in the competence of G-20 leaders in overseeing the world trading system, which, over the last 60 years, has improved the living standards of billions of people across the world. Moreover, the trading system underpins a vast network of foreign direct investment, as multinational companies rely on global supply chains to extend their operations to all corners of the globe.
As the world emerges from the economic turmoil of the last two years and enters a long era of financial consolidation—in which both households and governments of the Organization for Economic Cooperation and Development strive to repair their debt-burdened balance sheets—a sustained push of private investment will be needed to augment demand and ensure future growth. In an ideal scenario, this investment will create financial assets to replace household mortgages and government bonds, while generating millions of jobs and providing capital for future growth.
But such a burst of private investment requires a much higher level of business confidence than exists today. Among the most constructive steps that governments can take to bolster such confidence is to conclude the Doha Round. Yet, as everyone knows, the negotiations have been stalled for two years and show only faint hopes of revival in 2011.
Many observers blame the complexity involved in getting 153 WTO members to reach consensus on an agenda with dozens of issues, but in fact the matter is far simpler. If China and the United States produced the sort of new offers described below, the momentum for a speedy agreement would be unstoppable.
Yet it appears that political considerations will prevent this from happening. US President Barack Obama pushed trade policy to the back burner while he concentrated on health care and financial reform. He needed nearly unanimous support from Democrats in Congress to enact his domestic agenda; trade agreements, meanwhile, are risky for Democratic politicians because many depend on unions, which wrongly believe that free trade means lost jobs. To counter such arguments, the Obama administration must demonstrate that trade agreements would boost US employment by doubling exports. The White House also needs strong support from Republicans, who tend to be allied with business. So far, US firms are lukewarm about the Doha Round because it seems to offer little from the large emerging economies, especially China.
This is no surprise. China is reluctant to make new concessions, arguing that in advance of its accession to the WTO in 2001 it liberalized its economy to a much greater degree than other states at the same level of economic development had done when they acceded to the General Agreement on Tariffs and Trade (GATT). For a while, the Chinese position was eminently reasonable: It would have been unfair to demand additional concessions from Beijing if the Doha Round had been concluded in January 2005 as originally planned.
But it is now 2010. China has adapted to the world trading system with much greater success than many anticipated. Between 2001 and 2010, Chinese merchandise exports exploded from $267 billion to an estimated $1.5 trillion, making China the world's largest exporter of goods. Twenty-first century China has an interest in sustaining and nourishing the world trading system rather than simply reaping its benefits. This means that the rule-based WTO regime is ideally suited to China's needs today and in the decades ahead.
For starters, China should agree to join the WTO's Government Procurement Agreement (GPA), which ensures public agencies open procurement to companies from other GPA signatories. Furthermore, it should bind its provincial administrations as well as the central government in Beijing to its rules. Such steps would guarantee that foreign products enjoy nondiscriminatory treatment and would quiet concerns over Beijing's "indigenous innovation" program, which strongly favors Chinese firms. At the same time, China should join sector liberalization agreements in chemicals, information technology hardware, and environmental goods. Finally, China should be at the front of talks to liberalize services—not dragging the rear, as it is now.
If China acts as a leader in the trading system, it should be recognized as one. In its WTO accession agreement, China reluctantly agreed to be treated as a nonmarket economy in antidumping cases until 2015, which meant that its exports could be subject to safeguards with a lower trade impact threshold ("market disruption") than normal safeguards applied to other WTO members ("serious injury"). This provision was invoked by Obama last year, when the United States slapped high duties on inexpensive car tires made in China and imported by Walmart and other budget retailers. China also agreed in advance of its WTO accession to submit to annual compliance reviews, which Beijing considers humiliating. In return for concessions on government procurement and services, the United States and other developed countries should grant China recognition as a market economy—with normal remedies in antidumping and safeguard cases—and also put an end to annual compliance reviews.
Meanwhile, the United States should phase out cotton subsidies—which were ruled illegal by the WTO two years ago—and put a cap of about $9 billion annually on all its agricultural subsidies. Washington should also agree to extend duty-free, quota-free treatment to virtually all the exports of the least developed countries and allow duty-free imports on all manner of environmental goods, including ethanol. Such a gesture would give substance to the development promise of the Doha Round and, in a modest way, put the United States on the right side of the climate agenda.
If China and the United States are on board, other major players will feel enormous pressure to contribute. India, with its demonstrated interest in maintaining open markets in information services, would likely join the services talks and sign on to the GPA. Brazil and other successful developing countries would do the same and contribute concessions on industrial products.
These proposals could make the Doha Round a political winner: Major concessions by China and a few other emerging countries would be seen in the United States as evidence of greater access in markets that count. And China would advance its status as a full participant in the world trading system, while also positioning itself as the leader that delivered the benefits of the Doha agenda to all developing countries. The world would recover that much faster from the hangover of the Great Recession.
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