A Global Recovery Round for trade negotiations required?

A lot has been written about the Doha impasse and the way forward. How does one move forward? What are the dangers for multilateral trade if the negotiations impasse continues?

The Economist had this to offer in a recent piece titled "Goodbye Doha, hello Bali".

"Instead of allowing the Doha round to be replaced with a patchwork of regional deals, the WTO’s boss, Pascal Lamy, should close it and resurrect the best bits in a “Global Recovery Round”. He should drop the all-or-nothing “single undertaking” rule that helped kill Doha. Instead, talks would be broken up into small chunks and allowed to progress independently of one another. Negotiations would be open, so that any member could leave or join. Some deals, therefore, would not include everyone. But another of the WTO’s guiding principles—the “most-favoured-nation” clause—must apply. This rule means that any deal between a smaller group must be applied to all WTO members, even if they do not reciprocate. WTO-brokered regionalism would thus lower trade barriers for all. 

The Global Recovery Round should focus on manufacturing and services. Manufacturing represents around 55% of total trade. There is much to be gained: tariffs on cars, buses and bicycles are still high. Even low-tariff countries maintain a selection of high ones. In America ski boots attract a zero tariff, but golf shoes can face a 10% rate, and steel-toe-capped boots 37.5%. Services, which account for only 20% of world trade but are more important on a value-added basis, have hardly been liberalised at all."

Calling for a "Global Recovery Round" of multilateral trade talks, the way forward offered is:

1. Abandon the "single-undertaking" rule.

2. Move forward in specific areas independently of reach other and then apply the most-favoured nation principle. (How this would be acceptable to countries is difficult to fathom.)

3. Focus more on manufacturing and services and less on agriculture.

Pascal Lamy recently indicated that there were signs of a renewed interest n breaking the impasse.

"At this juncture, I believe we can and must explore those spaces, areas or topics on which we can make progress. We need to explore any and all options, small as they may be, for incremental progress on the negotiating agenda. Taking small steps now will be crucial for the credibility of the rule-making capacity of the WTO tomorrow. And as we take these small steps, we must also look at the wider picture, at the areas where progress has been more elusive, and start exploring and testing new approaches, including on so-called more intractable issues, to deliver results."

Whether Bali in 2013 would be the forum that where this can be achieved is debatable. A new WTO chief, a Global Recovery Round and lesser protectionism - hopeful prescriptions for 2013?

A mini-package for trade possible?

I had recently blogged about the 'Trade Facilitation Agreement" that could provide a way to conclude the long drawn Doha impasse. WOuld it provide the much needed impetus to the political negotiations and provide the much needed boost and credibility to the multilateral negotiation framework?

Sungjoon Cho seems to think so. In his piece titled "A new trade pact for the 21st century" he reiterates the need to quickly finish this "mini-package" of a trade deal to save the Doha impasse. Though this agreement will not address all the vexed, intractable issues that is keeping the Doha round undecided, it would provide for the much needed reprieve it is badly in need of. Atleast, something would be agreed upon.Trade Facilitation itself has a huge potential to ease restrictions and make trade easier and less cumbersome.

"The trade-facilitation agreement is a timely response to this evolved pattern of trade characterized by global supply chains. Customs procedure paperwork amounts to 10 percent of the value of any trade transaction. According to the Organisation for Economic Co-operation and Development, the pact would cut those costs by half, which is expected to shower global businesses with an amazing $900 billion gain.

Finally, the trade-facilitation deal would be an ideal fit with the Doha Round's underappreciated "development" mandate. As WTO Deputy Director-General Valentine Rugwabiza recently highlighted, "reduced transit and transaction costs would be especially beneficial to small and medium-size enterprises operating in landlocked countries," such as those in Africa."

WiIl the WTO members tread this path of picking the low-hanging fruit or is the impasse so deep that no benefit is foreseeable in negotiations? In the context of my earlier post, I had raised these issues:

1. On a more pessimistic note, does trade facilitation impact developing countries and the developed world equally? It is seen that less developed countries and some developing countries have archaic trade procedures that impact both their exporters and importers. Trade Facilitation will help simplify non-transparent rules and procedures. Is this a way of increasing access of developing countries markets to the developed world? The developed world already has better trade procedures which may not be impacted by the Trade Facilitation Agreement.

2. One area where the Trade Facilitation Agreement will certainly help is capacity building and infrastructure support to improve trading and reducing transaction costs. If it helps a poor exporter from a developing country to access developed markets, the Trade Facilitation Agreement is a welcome relief. However, the impact should not be one sided - improving access to developing countries markets while the developed markets remain a distant reality.

Ofcourse, this Agreement may not be the most ideal solution to take multilateral trade forward. But it seems to be the only way? Can this be the "mini-light" at the end of a long dark tunnel? As Sungjoon Cho states, "Still, it could at least close the longest trade round ever negotiated, restore the WTO's trustworthiness, promote development and ready the WTO for the future."

Doha negotiations - Need to change gears?

The Doha round of multilateral negotiations has been going on for a decade now. When will it come to an end? Will the impasses continue for a few more years? A study by Christoph Moser and Andrew Rose titled "Why do trade negotiations take so long?" have articulated the view that it takes longer to conclude multilateral talks when more countries are involved. This is not good news for the Doha round. Comparing the time taken for different GATT rounds, it is interesting to note that the first three GATT rounds which had 19, 20 and 33 members in total took only 8 months to complete. Contrast that with the Uruguay Round that took 91 months with 125 members involved in the negotiations. While one third of countries in the first three rounds were developing countries, now about two third of the countries belong to the developing world.

The above study provides a graphical depiction of the survival rate of Regional Trade Agreements compared to the days of negotiation indicating that it is also inversely proportional to the time taken for their completion as indicated in this figure below:

The reasons for the delay in conclusion of the Doha Round can be attributed to a number of factors:

1. With more than 150 countries participating in the negotiations, there are bound to be divergent interests and hard positions.

2. The developing world is far more active in these negotiations as compared to the earlier rounds leading to increased possibilities of an impasse.

3. The issues themselves are becoming more complex and contentious. While the earlier rounds were more about tariff liberalisation, the present rounds touch on more complex issues of trade, development and access. 

One would have to wait and see if the Doha round of negotiations can break the direct co relation between the length of a negotiation and its poor survival rate.


Pascal Lamy recently highlighted the need to move forward in this regard:

"Those of you who believe that, as time passes, inexorably, the Round might lose all its remaining steam may be right, whether we like it or not. What is clear, in my view, is that not engaging seriously in trying to find solutions to the present impasse will increase the probability of such a disappointing outcome. Credibility lies in the capacity to produce results, not statements. We should all face up to this reality and accept that there is no individual clever escape from this collective responsibility. As we break for the summer, I would urge each of you to reflect on your individual contribution towards collectively breaking the deadlock and allowing for forward movement in our work to fully operationalize the guidance we received at MC8 from our Ministers."

Only time will tell if the gears will be changed in this regard. 

21st Century trade and WTO

The failure of the Doha negotiations has raised many issues about the future of the WTO. Will the WTO continue to remain as an effective multilateral institution playing a relevant role in 21st century trade? I have blogged here about the view that the future of the WTO is bright inspite of the current negotiation impasse. While many believe that the WTO continues to perform many functions like trade monitoring and dispute resolution which remain unaffected by the failure of the negotiations, others acknowledge that there is a dent in the the institution's credibility due to the impasse. To what extent has the failure of the Doha round affected multilateralism?

The WTO website has a public forum inviting comments on this issue titled "Is Multilateralism in Crisis?". Richard Baldwin has a well written piece titled "21st century trade and global trade governance: The WTO’s future" wherein he brings to the fore the emerging trends of 21st century trade comprising of international supply chains. Arguing that the failureof the negotiations does not reflect anti-liberalisation sentiment,  WTO's unpopularity or it's irrelevance, he attributes the failure of the WTO to address issues of 21st century trade that is the main issue.

 He characterises 21st Century trade thus:

"This essay argues that the WTO’s woes stem rather from the emergence of a new type of trade — call it 21st century trade. This new trade is intimately tied to the unbundling of production (global value chains). It has reshaped the geography of global production. And — since joining a supply chain is the fast route to industrialisation — unbundling is also at the heart of emerging market growth, which has in turned reshaped the geography of global demand.

21st century trade requires disciplines that go far beyond those in the WTO’s rulebook. To date, virtually all of the necessary governance has emerged spontaneously in regional trade agreements or via unilateral ‘pro-business’ policy reforms by developing nations. The real threat, therefore, is not failure of the WTO, but rather the erosion of its centricity in the world trade system."

He paints two scenarios for the WTO - one which addresses only 20th century trade and ignores the reality of 21st century trade and the other where the WTO plays a crucial part in shaping and engaging with new trade realities.21st Century trade is characterised by the demands for new rules and disciplines governing the nexus of trade, investment, services, intellectual property, and business mobility which are being formulated outside the WTO in Regional Trade Agreements.

"This line of reasoning suggests the WTO’s future will take one of two forms.

1) The WTO remains relevant for 20th century trade and the basic rules of the road, but irrelevant for 21st century trade; all ‘next generation’ issues are addressed elsewhere.

In the optimistic version of this scenario, which seems to be where the current trajectory is leading us, the WTO remains one of several pillars of world trade governance. This sort of outcome is familiar from the EU’s three-pillar structure, where the first pillar (basically the disciplines agreed in treaties up the 1992 Maastricht Treaty) was supplemented by two new pillars to cover new areas of cooperation.¹ In the pessimistic version of this first scenario, the lack of progress undermines political support and the WTO disciplines start to be widely flouted; the bicycle, so to speak, falls over when forward motion halts.

The second scenario involves a reinvigoration of the WTO’s centricity.

2) The WTO engages in 21st century trade issues both by crafting new multilateral disciplines — or at least general guidelines — on matters such as investment assurances and by multilateralising some of the new disciplines that have arisen in regional trade agreements. 

There are many variants of this future outlook. The engagement could take the form of plurilaterals — following the lead of agreements like the Information Technology Agreement, the Government Procurement Agreement and the like (where only a subset of WTO members sign up to the disciplines). It could also take the form of an expansion of the Doha Round agenda to include some of the new issues that are now routinely considered in regional trade agreements."

Which way will the WTO go? Will it remain an institution of the 21st century addressing trade needs of the 20th century or will it play a more pivotal role in guiding and shaping 21st century trade rules? The pressures on the dispute settlement system with the first approach would be telling. When the rule making does not reflect the new realities of trade, it is left to judicial bodies to interpret and re-interpret existing rules to reflect reality. Will this not lead to new tensions? To what extent can the judicial function reflect realities? What essentially is a political question of negotiation, concession and rule making will fall on the rule based dispute resolution system. The coming years will see the WTO either addressing this dichotomy or facing the dilemma of this dichotomy.