The Terms of Trade
Don't Give Up on Doha
By T.N. SRINIVASAN
The Wall Street Journal
COMMENTARY
December 13, 2005; Page A12
The sixth Ministerial meeting of the WTO opens in Hong Kong today without an agreed draft of the ministerial declaration. That Pascal Lamy, director general of the WTO, has circulated a draft at his own responsibility lays bare the wide differences among member-states. The chairman of the negotiating group on agriculture has made it clear that "full modalities will not be achieved at Hong Kong." And the U.K.'s trade and industry secretary has deliberately played down the chances of agreement. The perception that the Ministerial is doomed to fail, just as the earlier ones in Cancun and Seattle did, seems to be widely held.
Yet some would disagree. Prof. Jagdish Bhagwati, whose own "historical perspective suggests that panic is not warranted," believes that the "outlines of a deal that would close the Doha round" are clear. I, too, believe that a modest deal is within reach, albeit one that does not quite live up to Doha's billing as a "development round." Reaching it would require concessions: on agriculture, on the part of the European Union, the U.S., Japan and Korea; and on non-agricultural market access, on the part of developing countries, particularly the emerging-market economies. Developing countries will also have to comprehend that a successful conclusion of Doha -- with an agreement to liberalize trade in goods and services as well as freer movement of capital and labor -- will benefit them in the long run.
The tortuous history of the Doha round -- from the Doha Declaration of 2001, through the failed Cancun ministerial in 2003, and the subsequent framework agreement for negotiations in July 2004 -- is well known. Subsequent developments include: (1) proposals on agricultural tariff reductions by the EU and U.S.; (2) steps toward partial liberalization of the EU's sugar policy and banana regime; and (3) a decision to make permanent the August 2003 waiver to the WTO's Agreement on Trade-Related Aspects of Intellectual Property Rights (Trips), that made it easier for poorer countries to obtain cheaper generic versions of patented medicines.
Philosophically, however, the labeling of the Doha round as the "development round" has created an unrealistic expectation that its successful completion would also solve the problem of development. This problem lies, instead, at the center of economic, social and political processes in the countries concerned. These processes are deeply rooted and complex, and vary immensely across the developing world. Certainly, greater access to global markets for goods, services and finance would open up significant opportunities; and if utilized, these would accelerate growth and development. However, domestic political and economic constraints could limit the extent of opportunities availed and benefits realized, thus underscoring the critical importance of domestic reform.
Non-agricultural market access is already mostly liberal, with low tariff barriers in industrialized countries. However, barriers to trade in textiles and apparel are still high, even after the phase-out of the Multifiber Arrangement. Higher barriers in some developing countries affect other developing countries. An agreement -- with industrialized countries committing to eliminating tariff and non-tariff barriers in a reasonable time, and developing countries reducing tariffs -- should be possible to reach.
There is enormous diversity among developed countries on agriculture. An agreement on cotton, critical for sub-Saharan Africa, is almost there. Also, differences on food aid and security can be resolved once it is understood that neither food aid nor trade restrictions are the best policy instruments to address adverse shocks to food supply and to ensure food security. Going beyond cotton and food security, and including credible commitments by rich countries to reform in agriculture more generally, is essential for an agreement to be acceptable to developing countries. Fortunately, with the U.S. and EU having offered to reduce significantly both tariffs and subsidies on agriculture, the prospect is brighter for them to reduce their differences in favor of maximum liberalization, with Japan and Korea following their lead.
Trade negotiations cannot succeed without give-and-take by all parties. The potential for modest success at Hong Kong would, therefore not be realized unless: (1) rich countries commit to serious reform in agriculture; (2) emerging market economies liberalize non-agricultural market access; and (3) other developing countries moderate their demand for Special and Differential Treatment (SDT) -- which, in essence, amounts to their being exempted from the rules and disciplines of the WTO in not having to reciprocate the market-opening actions of developed countries, and in receiving tariff preferences for some of their exports to developed countries' markets. SDT does not help development and the contribution of tariff preferences to development appears very modest. Yet stubborn attachment to them persists.
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Scholars, officials of donor countries and Mr. Lamy have also endorsed the creation of an "aid for trade" fund for poor countries that adopt trade reforms, by assisting them to finance the costs of implementation of trade agreements and to undertake complementary domestic reforms for maximizing the benefits from their trade reforms. There are already IMF and World Bank programs to help countries to undertake trade reforms and, indeed, some prosperous WTO members have also contributed resources to the WTO for this purpose.
Aiding countries to undertake reforms that are in their own best interest can be rationalized if the beneficiaries cannot finance the up-front costs of these reforms by borrowing against their future benefits. Further, in reality, the capacity of developing countries to compensate those who bear the costs of reform by taxing the beneficiaries of reform is limited. This was, indeed, the rationale for the structural adjustments as well as the policy-based lending of the past. The limited success of such lending suggests that grants from the "aid for trade" fund could run into the some of the same problems. These problems are real and should be anticipated and addressed in the design of the fund. |
