Resurrecting the dead

Robust optimism aside, there is no gainsaying the fact that the Doha round of multilateral trade negotiations being conducted under the auspices of the World Trade Organisation (WTO) has all but collapsed.
The round, which started in November 2001 on the heels of the infamous 9-11 incident, represented an ambitious attempt by diplomats to use trade as an instrument of development, also among the objectives of the WTO as enshrined in the preamble to the Marrakesh Agreement that created the organisation. After more than five years, the attempt remains largely futile.
The Doha Declaration, which set forth the agenda of the round, provided for negotiations on the three most important aspects of international trade, viz agriculture, non agricultural market access (Nama) and services.
Due to its emphasis on the role of trade in contributing to development and poverty alleviation, the agenda has come to be called the Doha Development Agenda (DDA). Cynics however insist that in view of the "over-emphasis" on agriculture in subsequent negotiations, the DDA should better be called DAA (Doha Agricultural Agenda).
The Doha Declaration provided for negotiations aimed at substantial improvements in three areas in trade in agriculture: market access; reductions of, with a view to phasing out, all forms of export subsidies; and substantial reductions in trade-distorting domestic support.
The declaration also provided for negotiations on Nama to reduce or eliminate tariffs, including tariff peaks and tariff escalation, particularly on products of export interest to developing countries. Full account was to be taken of the special needs and interests of developing countries and LDCs including through less than full reciprocity in reduction commitments.
Regarding services, negotiations were to be conducted with a view to promoting the economic growth of all trading partners and the development of developing and least developed countries (LDCs).
In order to grasp the causes of the stalemate in the implementation of the DDA, it is important to understand the context in which the Doha Declaration was made at the end of the Ministerial Conference in Doha in November 2001. The Ministerial Conference is the WTO's apex body and meets biennially.
The Doha Ministerial Conference, which marked the beginning of the Doha round, was the fourth meeting of the 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 growing influence of developing countries on the multilateral forum was felt. Developed countries came to realise that unlike in the past, developing countries, particularly the bigger ones, could not be taken for a ride.
The Doha declaration represented a compromise between the positions of developed and developing countries. The developed countries agreed on liberalisation of trade in agriculture and for addressing special needs of developing countries in Nama and trade in services without defining the modalities of the reforms as well as the timeframe within which the same were to be carried out. Whatever commitment they undertook was couched in vague, non-committal terms.
Take reforms in agriculture. Though, the members agreed to improve market access and substantially reduce domestic support or subsidies, the terms "substantial improvement" and "substantially reduce' were left undefined.
Does 10 per cent reduction in tariffs represent substantial improvement in market access for agricultural products? To date all WTO members agree on the need to enhance market access for agricultural products and reduce domestic subsidies. What they disagree about is the extent of reduction.
For instance, in the area of market access, the USA has proposed that the top tier of bound tariffs be cut by 90 per cent, with average cuts of 75 percent. The EU is of the view that the highest bound tariffs may be reduced by 60 per cent, with average reduction of 46 percent. The G-20, including China, Brazil, India, Pakistan and other developing countries, wants average tariff cuts of 54 per cent.
The EU, which has a highly protected, inefficient agricultural sector, also wants that countries may be allowed to designate up to 8 percent of agricultural products as "sensitive" and exempt them from the bulk of the cuts.
The problem with such a proposal is that allowing a number of products as sensitive would mean that the products with the highest tariffs and thus most in need of liberalisation would remain exempted from reduction.
For reasons political as well as economic, trade in agriculture has remained subject to a very high level of protectionism. Developed countries, which have gradually reduced tariffs on industrial products, have been reluctant to shed off protectionism from agricultural products.
For instance, while the maximum tariffs applied by the USA on industrial products are 48 per cent, the country's maximum applied tariffs in case of agricultural products come to 350 per cent.
Similarly, in case of the European Union (EU), maximum applied tariffs on industrial and agricultural products are 26 and 75 per cent respectively. Importantly, products which are of special interest to developing countries carry higher tariffs. A related instrument of protection is tariff rate quotas (TRQs), which represent a combination of tariffs and quantitative trade restrictions or quotas.
TRQS WORK LIKE THIS: For a specified amount of the import of a product, lower tariff is charged. But as the quantity of import increases, tariff also goes up. By charging higher tariffs on higher quantity of imports, TRQs restrict trade.
This is not to say that developing countries do not have high tariffs on agricultural products. For instance, in case of India, China, and Brazil maximum applied tariffs on agricultural products are 182, 65, and 55 per cent respectively. Another notable thing about India is the wide difference between bound and applied tariffs.
India's average bound and applied tariffs on agricultural products are 114.5 and 37.4 per cent respectively. And the country's maximum bound tariffs on agricultural products are 300%.
Vague commitments are easy to evade as in case of developed countries. For this they blame either each other or developing countries of their failure to reciprocate by liberalising trade in services and trade in non-agricultural products on their part.
The EU on several occasions has accused the US of being "too ambitious" and lack of flexibility. The US, on its turn, has castigated the Common Agricultural Policy (CAP) of the EU, which eats up nearly half of EU budget.
In a major breakthrough, during the last WTO Ministerial Conference in Hong Kong in December 2005 developed countries agreed to eliminate their export subsidies by 2013. But the issues of market access and domestic support are still on the table.
Since multilateral trade negotiations are based on the principle of reciprocity, the demand of developed countries that developing countries provide greater market access on industrial products is not illogical. Negotiators are answerable to their respective parliaments and through them to the electorate.
Therefore, it is difficult for them to strike a deal in which they-developed countries-have to make all concessions and the other partly-developing countries-does not have to make any concessions at all.
The WTO system is based on the principle of single undertaking. Nothing is agreed until everything is agreed. If there is no progress on agriculture, it will be difficult to make progress in other areas like services and Nama. This is what has brought the negotiations to a halt. The only way to break the impasse is to shift the emphasis from "agriculture only" to "agriculture plus Nama".
Developing countries have higher stakes in the continuation of the multilateral trading system than developed countries. The alternative to multilateralism is bilateralism. While developing countries can successfully take on developed countries on multilateral level, it will be difficult for them to do so on bilateral level.
Hence, not surprisingly, in many recently concluded bilateral trading arrangements, such as those between the USA and some Central American countries, developing countries have been forced to undertake many "WTO-plus" commitments, which they might well have refused to undertake on multilateral level.
Of great significance for multilateralism is the expiry date for the fast track or trade promotion authority of the US President. Under the US constitution, Congress can amend or veto trade deals struck by the executive. However, to fast track trade negotiations, Congress in the past had decided that it must approve or reject a trade deal as a whole without making amendments to the same.
However, that provision will lapse at the end of June 2007; thereafter, Congress would again be empowered to amend trade deals. Given the huge trade deficit of the USA, after the lapse of the fast track authority, Congress may make sweeping amendments to any trade deal struck by the executive. And needless to stay any trade deal minus the world's largest economy and the trading nation will be of little significance.