by Arvind Subramanian, Peterson Institute for International Economics
Op-ed in the Business Standard, New Delhi
July 10, 2007
© Business Standard
It is time to lay the Doha Round to rest and think afresh about trade negotiations.
Burying what is dead is sometimes harder than pretending to resurrect it. So it is with the ongoing Doha Round of multilateral trade negotiations. Following the failed talks at Potsdam, the blame game was underway. The United States and European Union accused developing countries, and India in particular, of unwillingness to cut manufacturing tariffs. In turn, developing countries complained about the modest subsidy cuts in agriculture offered by the United States. What is going on here? Why is Doha dragging on interminably? Can there be a swift and successful conclusion?
Beyond the proximate causes that negotiators at Potsdam were quick to invoke, there is a deeper, structural problem afflicting the Round. Aaditya Mattoo of the World Bank and I argued a few years ago that this Round was unlikely to succeed because of such a problem (see Multilateralism and the Doha Round: A Stock-Taking). The World Trade Organization (WTO) framework is based on reciprocity. In this framework—I open my markets in return for you opening yours—the domestic political pain of liberalizing imports is countervailed by the domestic political benefits of providing greater market opportunities for exporting interests. Thus, liberalization is facilitated by rendering it politically palatable. This reciprocity framework is now, however, in trouble. Consider why.
Market opening bargains between industrial and developing countries are increasingly difficult to strike in the WTO for two reasons. First, exporting interests in industrial countries have less need and hence enthusiasm for the multilateral trade system as a means of achieving their market access objectives. Major unilateral liberalization by developing countries as well as bilateral trade deals have provided improved access for industrial country corporations both in goods and services. With all this happening outside the WTO framework, industrial countries have less incentive to pursue liberalization within it.
Second, it seems unlikely that industrial countries will be able to overcome their own defensive interests to deliver greater access to developing countries where they seek it most. In the European Union, the eastward enlargement of its boundaries and the consequent budgetary pressures have necessitated a reduction in subsidies. In the United States, the dismantling of the clothing quotas under the Uruguay Round has exposed domestic firms to greater competition. In the Doha Round, developing countries want more access—access beyond what the United States and European Union are already obliged to provide for reasons orthogonal to the Round—in these sectors at a time when the United States and European Union are still coping with the political consequences and economic adjustments of previous policy changes. Meeting these demands is not easy for the European Union and United States.
Developing countries have a large stake in labor mobility. But immigration policy in the industrial world has yielded only the most grudging concessions, and the traditional political difficulties have been compounded by a new fear of terrorism. The aborted immigration reform attempts of the Bush administration attest to the difficulties.
Similarly, the growth in outsourcing of services jobs has provoked deep concerns, which have acquired considerable legitimacy from a spectrum of opinion, from Lou Dobbs, the populist TV celebrity, to Alan Blinder, the respected Princeton professor. As a result, the United States will find it difficult to guarantee the security of market access that developing countries such as India want to continue to thrive as efficient global providers of services.
This combination of reduced stake in multilateral liberalization and defensiveness has led to perhaps the most striking feature of the Doha Round—a lack of serious private sector interest in it. Unlike previous rounds, it was first midwifed, and then carried along, essentially by governments rather than an enthused private sector. In the Uruguay Round, for example, companies in the pharmaceutical, chemical, recording and film, and financial and telecommunications sectors in the United States and Europe, among many others, were actively pushing for market opening around the world. In contrast, the corporate demanders—the traditional protagonists of trade negotiations—are conspicuous in the Doha Round by their near-absence.
Developing country attitudes are characterized by a similar defensiveness. India, for example, has little enthusiasm for a Doha outcome that would entail market opening, especially in agriculture. It has been difficult enough implementing reforms whose origins and imperatives are clearly domestic; implementing trade reforms that come with a foreign tag seems inconceivable.
Thus, not many of the major players really want the Round. Yet, nobody wants to be seen as the cause of its failure either. As a result, an elaborate international game of smoke and mirrors carries on, whose objective is less to reach a conclusion than it is to carry on the pretense that success is possible. The day of reckoning is postponed because reckoning will lead to assigning, and having to assume responsibility for, failure.
What responsible behavior requires is a collective recognition that the Doha Round, as currently conceived and at this juncture, is dead, and that it is time to go back to the drawing board to think afresh about structuring future trade negotiations and trade relations in general. The hard questions for the trading system are: Is it possible to reactivate the reciprocity dynamic that brings trade barriers down and keeps them there? Or, is there an alternative organizing principle that can help achieve these ends? And, how can the WTO best serve the poorest countries?
There is, of course, one real danger with burying the Doha Round. A negotiating lull will lead to a sharp increase in trade litigation in the WTO. In many of these disputes, the United States and European Union will be defending their agricultural policies. Some, even a substantial number, of the verdicts may require changes in US policies. The United States Congress will chafe at this infringement of its sovereignty, at US policies being dictated by the “unelected” bureaucrats and judges of Geneva. Attitudes toward trade, especially with a Democratically-controlled Congress and in a general climate of anxieties about globalization, can quickly turn hostile.
But it is often the case that things have to turn really bad before they start to look up. That may be true for the Doha Round too. As Hegel said, “The owl of Minerva spreads its wings only with the falling of the dusk.”