Resurrecting The Dead

Except for the accession of the Russian Federation, nothing of note has come off on the horizon of the World Trade Organisation (WTO) for quite some time. Notwithstanding the commitment of WTO members, renewed from time to time, to strengthen the multilateral trading system and resist protectionism in all its forms, the Doha round seems to be heading nowhere.
The Doha round of multilateral trade negotiations, which started off in 2001, was originally supposed to complete in 2004. The failure to clinch a deal brings out the disparity between the virtues of freer trade preached by economic theories and the case for protectionism espoused by powerful lobbies. The continuing economic slowdown in both the USA and the European Union (EU), which together account for nearly half of the global trade, has made this disparity even greater.
In order to grasp the causes of the stalemate in the completion of the Doha round, it is important to understand the context in which it was conceived. The Doha Ministerial Conference, which marked the beginning of the Doha round, was the fourth meeting of the WTO apex body. The third ministerial conference in Seattle in 1999 was supposed to launch a new round of trade negotiations. But the Conference ended in fiasco and was unable to adopt a declaration. The major contentious issues pertained to reforms in trade in agriculture, linking trade and labour standards (particularly child labour), and negotiation of a Multilateral Agreement on Investment (MAI). It was also during the Seattle meeting that the presence of developing countries as a force to reckon with was felt.
The outcome of the 2001 Ministerial Conference, commonly called the Doha development agenda, represented a compromise between the positions of developed and developing countries. The developed countries agreed to liberalise trade in agriculture and address special needs of developing countries in non-agricultural market access (Nama) and trade in services without defining the modalities of the reforms as well as the timeframe within which the same were to be given effect.
Countries big or small, developed or developing have highly protected sectors, which they have been reluctant to liberalise with remarkable consistency. Developed countries, for instance, have a highly protected and heavily subsidised agricultural sector. In Switzerland, average applied tariffs on agricultural products are 45 percent and in some cases maximum tariffs exceed 1,000 percent. Japan applies 1,000 percent tariffs on import of rice, while those on dairy products are as high as 600 percent. The EU countries apply tariffs of more than 200 percent on several agricultural products. In case of the USA though average applied tariffs on agricultural products are less than 6 percent, in many cases tariffs are close to or more than 100 percent.
To be sure, developing countries do not lag behind when it comes to protectionism. By and large these countries have highly sensitive industrial sub sectors. Take the two largest and the fastest growing developing economies, namely China and India. In case of China, though average applied tariffs on manufactures are less than 10 percent, tariff peaks exist in several sectors, such as textiles and clothing, leather articles, chemicals, electrical and mechanical appliances and the auto sector. The Chinese economy, which is still largely state controlled, is also highly subsidised, which makes domestic products cheaper than foreign competing products. India applies more than 250 percent tariffs on some textiles products, while in some other sectors, such as clothing, chemicals, fruits and vegetables and beverages, tariffs exceed 100 percent.
WTO members agree that each of them should be allowed to exempt certain number of products – called sensitive products for all countries and special products for only developing countries – from tariff reduction. The big issues are the number of products that a member may designate as special or sensitive products, the level of tariff reduction for them and the number of such products which a member can totally exclude from tariff reduction. These issues are important because allowing a very large number of products as sensitive or special would mean that the products with the highest tariffs and thus most in need of reduction commitments would remain protected.
Since one country’s protected or sensitive sector is of another’s export interest, the Doha round seems to be getting nowhere. The recent economic crisis in the West and the resultant fears of further job losses has only made things more difficult and made further trade liberalisation harder to sell at home.
Then there are some other factors. One, courtesy the emerging economies, such as China, India and Brazil, developing countries can no more be taken for granted. Rather they have come to exercise a much greater influence on the WTO stage than previously and without taking their interests into consideration, no final deal can be struck. The least developed countries (LDCs) have their own concerns. Since the LDCs enjoy duty free access in the markets of most of the developed economies, tariff reduction envisaged by the Doha round will strike at the tariff preferences enjoyed by them – preference erosion as the problem has been called. Since in the WTO decisions are made by consensus, the LDCs can effectively block a final agreement if preference erosion is not addressed to their satisfaction.
Finally, trade negotiations have expanded in to such areas as agriculture and services – both being highly sensitive politically. Since as per the special and differential treatment principle of the WTO, developed countries are required to offer more than they will get in return, the agreed package may be difficult to sell in some of their domestic constituencies. For instance, the European Union (EU) may have to overhaul its agricultural regime, which obviously will give rise to intense opposition of the affected sector.
Such problems have pushed the principle of ‘flexibility’ into the negotiations. The principle allows WTO members to exempt a select number of products, to be called sensitive products, from the general tariff or subsidy reduction commitments. However, the range of flexibilities has itself become an apple of discord, because the products carrying higher tariffs are likely to be shielded from liberalisation.
In addition to political will, there is the need for out-of the-box thinking to bring the Doha round to fruition. One proposal on the table is to discard the single undertaking principle. In WTO, decisions are made on the basis of single undertaking, which means that nothing is agreed unless all is agreed and decisions are made in the form of a comprehensive package which the members should accept or reject in toto.
The positive thing about the single undertaking principle is that it comprehends a give-and-take approach, which is very important for successful negotiations. However, it is not without its drawbacks. For one thing it makes for slow decision making at times leading to stalemate just as in the current Doha round negotiations. Secondly, not all countries are ready to undertake commitments in all areas ranging from reduction of agriculture subsidies to copyright protection simultaneously. The single undertaking approach makes them shy away from undertaking commitments even in areas where they can, because it will make them assume commitments in areas where they are unable to do so. In view of such problems, there is a fairly strong case for discarding the single undertaking approach in favour of liberalising in select areas. The only problem is that doing away with the single undertaking will itself require consensus among the WTO members.