Why the Doha Round is failing

The usu­al­ly well-informed ITSCD Bridges Newslet­ter tries to explain it with a bit of tabloid allit­er­a­tion: ‘Polit­i­cal Paral­y­sis Poi­sons WTO Agri­cul­ture Talks’. Nah! It’s a polit­i­cal choice to put the talks on life-sup­port and it will be a polit­i­cal choice to pull the tubes. It’s Doha that’s in rig­or, not the pol­lies.

The Doha Round fizzer is an embar­rass­ment. The past six­ty years of GATT and WTO nego­ti­a­tions have seen a lot of rocky moments but talks have nev­er died. Gov­ern­ments dont’t want to dam­age the brand, so they go on res­ur­rect­ing their ‘deter­mi­na­tion’ in press releas­es from the G-8 or the G-20. But they’ve pri­vate­ly cal­cu­lat­ed the Doha plan doesn’t war­rant the polit­i­cal effort and atten­tion required to get it done.

Guess what? They’re right (yes, the politi­cians know their own busi­ness)! Doha has run out of demand.

For­get what the eco­nom­ic mod­ellers say about the big poten­tial of a Doha deal. The prob­lem is not that we can’t imag­ine big returns from a deal, but that traders and gov­ern­ments have to make choic­es (see the Side­bar) about how to improve trade returns and, right now, a trade agree­ment like Doha is not the most attrac­tive option . That’s espe­cial­ly true in agri­cul­tur­al mar­kets, but it’s also true in ser­vices mar­kets.

But where’s the beef?”

The “sur­pris­ing” lack of gov­ern­ment inter­est in Doha has a pret­ty sim­ple expla­na­tion: com­mer­cial demand for a big, com­plex, one-size-fits-all, mul­ti-sec­tor agree­ment is just not there. Traders are not ham­mer­ing on Min­is­ters’ doors; they’re just not that wor­ried about mar­ket access bar­ri­ers (and prob­a­bly weren’t that wor­ried in 2001 when the talks were launched).

This pic­ture (from the IMF) part­ly explains why. The essen­tial, but hard­est, part of the Doha nego­ti­a­tions is about agri­cul­tur­al trade. Trade bar­ri­ers are not, how­ev­er, the biggest prob­lem that importers and exporters face in agri­cul­tur­al mar­kets. Prices on world mar­kets reached record lev­els in the past decade and, even as the effects of the 2008–9 eco­nom­ic reces­sion linger, prices are rebound­ing. Sure there is still a lot of room to cut bar­ri­ers, and; sure pro­duc­tion sub­si­dies in the rich coun­tries are still com­plete­ly crazy. But, when world mar­ket prices are bull­ish, import-depen­dent coun­tries are don’t jack up bar­ri­ers and export-depen­dent pro­duc­ers are wor­ried most about meet­ing demand. A trade agree­ment to open mar­kets is not even on their list, right now.

Nor is there much com­mer­cial enthu­si­asm for a ser­vices deal. Like agri­cul­tur­al mar­kets, ser­vices mar­kets are already much more open than the WTO Mem­bers’ com­mit­ments show. As in agri­cul­ture, you’d have to take-on big addi­tion­al com­mit­ments before you start­ed to cut into actu­al pro­tec­tion, espe­cial­ly in devel­op­ing coun­tries (the chart show­ing the gap between actu­al poli­cies and what’s on offer in Doha is quot­ed in the World Bank mod­ellers’ paper ref­er­enced above).

USGoodsServicesImports2009_tmb.png

In fact, in ser­vices, many mar­kets are open with­out com­mit­ment but there’s no great anx­i­ety that gov­ern­ments are going to change their minds in future and that’s because… Ser­vices trade has proved very resilient dur­ing the recent glob­al reces­sion (the chart show­ing USA 2009 ser­vices imports and exports is from this paper, also by World Bank researchers); some key ser­vices trades grew while goods trade shrunk, and that’s because… Import­ing ser­vices by out­sourc­ing your back-office pro­ce­dures or open­ing the mobile phone mar­ket or allow­ing for­eign retail­ers or engi­neers to com­pete in your mar­ket keeps costs down; pre­cise­ly what firms need when times are hard.

Yes, but…

Yes…but aren’t there oth­er rea­sons for a trade agree­ment to open mar­kets? Even if traders don’t care right now? What about the bil­lions of poor peo­ple who are only con­sumers of agri­cul­ture? Wouldn’t they be bet­ter-off with low­er bar­ri­ers?

Yes, very like­ly. But the ugly mess of the draft Doha agree­ment is not the way to do that. The cru­cial mar­ket-access parts of the draft have been cor­rupt­ed by the oth­er­wise-noble idea of giv­ing trade pref­er­ences to low-income coun­tries. The pro­posed agree­ment actu­al­ly pre­serves pro­tec­tion in most low-income coun­tries. That’s not going to help the poor.

Yes…but what about an agree­ment to end the sub­si­dies to rich-coun­try farm­ers? Wouldn’t that help the poor?

Yes it would; although not as much as you might think (90% of what they could gain from an agree­ment would come from low­er trade bar­ri­ers) and not as much as it would help bud­get bal­ances in rich coun­tries. But, again, the draft Doha agree­ment doesn’t do that; it doesn’t real­ly make any changes to the plans of the main sus­b­sidis­ers, the USA and the EU.

Yes…but is Doha real­ly dead for­ev­er? Don’t you agree it could come back if mar­kets turn sour in a ‘dou­ble dip’ reces­sion, or Oba­ma wins a sec­ond term, or…?

Com­plete­ly. Noth­ing is forever…except maybe The King.

Sidebar: why trade agreements?

The choice that firms and gov­ern­ments make about mar­ket open­ing strate­gies is implic­it and even uncon­scious; there’s no com­mit­tee or pub­lic enquiry. We have to turn to polit­i­cal the­o­ry for a moment to under­stand it. There are two endur­ing rea­sons to choose trade agree­ments as a means of cut­ting pro­tec­tion. One is often called the ‘terms-of-trade’ argu­ment and the oth­er, the ‘polit­i­cal econ­o­my’ argu­ment.

The terms-of-trade motive oper­ates when trade-exposed pro­duc­ers in an economy—especially a medi­um-sized or small econ­o­my with lit­tle or no lever­age on world prices—decide that their trade accounts would look a lot bet­ter (big­ger rev­enue, low­er input costs) if they could induce poten­tial cus­tomers to cut their import bar­ri­ers. They under­stand that one way to do this is to offer to cut import bar­ri­ers at home. This idea for a rec­i­p­ro­cal bar­gain is the com­mer­cial engine of trade nego­ti­a­tion. Absent an eco­nom­ic cri­sis of some kind, com­mer­cial demand is nec­es­sary for every trade agree­ment; but it’s not suf­fi­cient.

Gov­ern­ments are also dri­ven by the sec­ond cal­cu­la­tion. Min­is­ters know, or learn soon enough, that the econ­o­my will be more pro­duc­tive and grow faster if pro­tect­ed local firm are shak­en up by a bit of import­ed com­mer­cial com­pe­ti­tion. But deal­ing with the oppo­si­tion of the pro­tect­ed sec­tors to this idea is usu­al­ly a big prob­lem and mak­ing the changes stick can be even hard­er. Trade agree­ments help gov­ern­ments deal with this polit­i­cal econ­o­my prob­lem by putting the pro­tec­tion changes in the frame­work of an “inter­na­tion­al oblig­a­tion”. The agree­ments give gov­ern­ments some lever­age on polit­i­cal­ly pow­er­ful inter­est groups that want to cling to the sta­tus quo.

The two moti ves for agree­ments are linked; with­out strong com­mer­cial demand for agree­ments (the terms-of-trade motive)—or, per­haps, an eco­nom­ic cri­sis—gov­ern­ments can always find more com­fort­able ways to spend their time in office than bar­gain­ing about mar­ket access on two fronts (at home and abroad).

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