As we all know, Doha collapsed yet again in Geneva end of July. This comes as no surprise. It has become “a ritual”, as the FT highlighted in its editorial comment (subscription required) on the matter. It adds: now the WTO needs to be saved from Doha:
“Doha’s stasis is already eroding the WTO’s credibility, and partial deals are already proliferating. It is no longer a question of getting Doha done to save the WTO; it is, regrettably, now largely a question of saving the WTO from Doha.”
The main stumbling block this time was a relatively minor issue related to special safeguards against import surges in sensitive agricultural products in some developing countries. To follow the whole saga of the latest negotiation push, do have a look at the ICTSD’s Bridges newsletter, which is available online for free. Motivation to have a deal done is not very widespread. The “iron triangle” that blocks Doha – US agricultural subsidies, EU agricultural tariffs and emerging market industrial tariffs (see this post) – is as hard to break as ever. Inferring from Katinka Barysch’s recent post, European motivation weakened by a coalition of countries led by France which oppose further liberalisation in agriculture. Philip Stephens from the FT (walled for nonsubscribers – courtesy of Philippe Legrain) discussed the unwillingness of the old and new powers of this world to take responsibility:
“The collapse of Doha, (…) speaks to the failure of both sides to own up to the world as it is. On the side of the rich countries, particularly the US but no less many European nations, there is a refusal to acknowledge that globalisation no longer belongs to the west. In previous trade rounds, the rich nations set the rules and the rest could take it or leave it. No longer.
Equally, the new powers now give the impression – and you see this as much in India as China – that they want to be free riders. They are happy to profit from the rules, but unwilling to support the architecture of the system. Doha, in this respect, saw both sides in blindfolds.
But now: What next? With this failure, the WTO continues losing its credibility and standing. Doha is undermining the WTO.
One of the Doha Round’s problems is expectations (Fredrik Erixon, Director of ECIPE, has some interesting comments to make on the matter): dubbed the Doha Development Round in 2001, it promised the impossible: namely that it would solve the developing country’s woes. It further opened the door for politicisation of the multilateral negotiations, demands for carve-outs, special treatment, etc. The crisis in the WTO has lead to interminable soul-searching on how to reform the system. The Warwick Commission on the Future of the Multilateral System set up a couple of years ago is one such example, but its final report, so focused on the lowest-common-denominator scholarly consensus (despite brilliant individual Commission members), does not bode well for any change in the system: fundamental disagreements run too deep.
However, a new consensus seems to be emerging on where to move negotiations forward. Big multilateral rounds based on the so-called Single Undertaking (everybody has to sign up to everything) are generally no longer considered feasable. Many scholars, and not least Patrick Low, the WTO’s head of Research himself (see an ECIPE conference write-up), advocate targeted sectoral agreements based on a “critical mass” of countries that form the bulk of trade. Since the most important trading nations would form part of the agreement, the benefits can be granted to all other WTO members (i.e. on a so-called Most-Favoured-Nation basis) without severe free-rider problems, i.e. countries unduly benefiting from the tariff cuts without conceding any themseleves. Other countries can join later voluntarily. Given the unwieldiness of a global multilateral round that deals with a long list of topics and involves 150+ countries with the most diverging interests, this sounds like a very interesting solution.
So far, only one WTO agreement clearly follows that specific model: the Information Technology Agreement, which came into force in 1997. It has now 70 members, and covers more than 90% of trade in IT goods. The Financial Times in the editorial comment already mentioned, explicitly invokes the ITA as a model:
The WTO “could start by gathering together the few countries that dominate world trade in services and hammering out a standalone deal in sectors where it can find convergence. Last weekend’s fruitful services talks were an encouraging sign, especially now that developing countries such as India are powerful service exporters as well as importers. The benefits, on the model of the successful Information Technology Agreement of 1996, would then be extended to all WTO members. Several parts of the Doha deal such as export subsidies and “trade facilitation” (getting goods easily across borders) might also be agreed separately.”
But can this work? There are grounds to believe that this approach, also called “critical mass” approach, has its problems. This is why:
Firstly, what made the ITA work and does not apply as strongly to other sectors and not at all in Doha. Namely:
– Strong business input and initiative. If you believe Friess and Sauve, the ITA was a business-driven inititive. Where is business in Doha?
– A particularly rapidly evolving industry that allowed for strong price drops and productivity gains (see Mann and Liu) – can we say this of the car parts industry, cotton, or even many services?
– Two strong leaders: the US and the EU (see Fliess and Sauve)– where are they today? They are on the side of generlized liberalisation reluctance these days.
Secondly, the ITA has many exceptions and excludes entire parts of the IT sector, not least consumer electronics. It does not tackle non-tariff barriers, it only eliminated tariffs. It is therefore limited in scope. Negotiations to broaden the coverage and include NTBs were built into the agreement. They collapsed, however, in 2001. Since then nothing has moved forward seriously, and ITA negotiations have drowned, along with Doha.
Thirdly, the ITA has a very inflexible “positive list” approach. It specifies individual item per individual item what will be allowed to enter a country duty-free. But technology evolves, and importing countries can play around with the classification of goods at customs to levy tariffs and pursue protectionist policies. This can create significant problems. The US has just launched a legal case against the EU in the WTO, accusing it of violating the ITA by imposing duties on some LCD monitors, set-top-boxes and multifunction printers.
All this to say what…? A “critical mass” approach to move negotiations forward can be interesting to get around insurmountable obstacles in Doha. But you need a few crucial ingredients: support from the relevant constituencies and business, political will and leadership from key countries, and enough generality to avoid agreements to be too narrow. All this is lacking generally in Doha, the WTO, and globally. Furthermore, liberalization tends to be a curse word these days. So, be it Doha or something smaller, it’s going to be tough.