The Doha Development Agenda is an opportunity to re-balance trade rules in favour of developing countries while boosting the world economy. The Doha talks reportedly collapsed largely because of disagreements over agriculture, but clearly that is not the whole story. Indeed, some rich countries were not ready to accept larger tariff cuts or bigger reductions in trade-distorting domestic subsidies for farm products. Emerging market countries, meanwhile, offered what some saw as only modest improvements in market access for goods and services.
The present impasse is a lose-lose situation, in which all countries suffer but where the poorest will suffer most. The OECD has estimated at nearly $100 billion the gains in terms of increased economic activity – and hence prosperity – that could be obtained from full tariff liberalisation for industrial and agricultural goods. The benefits from liberalising trade in services – the fastest growing sector of the world economy - could be five times higher, at around $500 billion. A Doha agreement on trade facilitation, by clearing away procedural barriers, could contribute at least $100 billion more. Developing countries are projected to reap as much as two-thirds of these gains.
The failure of Doha would mean that these benefits are lost. More importantly, it risks undermining the multilateral trading system and unleashing a wave of protectionism that reasonable politicians will find hard to counter.
Trade has been a powerful engine of growth in the past 50 years, contributing to lift millions out of poverty. But trade liberalisation causes short-term pain, as some countries and workers face disproportionate adjustment costs. Open markets supported by policies which facilitate adjustment are crucial to ensure that those who suffer short-term losses can also participate in the overall benefits of globalisation.
The multilateral trading system plays an essential function in this regard, defending and promoting the interests of all trading nations. By building on the principles of national treatment and non-discrimination, the WTO provides a forum for negotiating. By providing recourse in cases of violations, it embodies a rules-based system that helps international trade work as an engine of growth and development.
The alternative to a Doha agreement is bleak. There is a danger that the WTO will proceed by litigation instead of legislation, that dispute settlement will take the place of rule making. Existing distortions to trade and economic activity could become entrenched, making it increasingly difficult for developing countries to compete fairly in world markets. Bilateral and regional trade deals would proliferate. Without the disciplines of a strong multilateral trading system, the chance would increase that these deals would introduce strains and inefficiencies: by diverting trade and investment, and through the increased costs imposed on business by the proliferation of rules of origin and product standards. In fact, proposals are already being made for an “APEC only” Free Trade Agreement (FTAAP), given Doha’s impasse.
So how do we move forward? What is the way to avoid failure?
Agriculture accounts for a small share of developed countries’ economies, but is highly sensitive in political terms. It’s time for the developed countries to show leadership and start putting into practice the recommendations that emerge from their own discussions at the OECD. Our analysis shows that agricultural tariffs and price support mechanisms do a poor job of simultaneously providing income support for farm families, protecting the environment and maintaining healthy rural economies. Political sensitivity shouldn’t translate into irrational economic policies.
Combining trade talks with necessary domestic reforms and effective development assistance could easily create the scope for larger tariff and subsidy cuts, closing the gap between the Doha negotiators’ positions in July. Once the agricultural divide is overcome, negotiations can progress in other areas where even greater benefits from more open trade can be reaped and where the more advanced developing countries should be prepared to go further in improving market access.
In developed countries, and in the most advanced developing countries, politicians have a responsibility to start selling the benefits of Doha to voters. The least developed countries, meanwhile, need to be guaranteed support in other areas, for example through development assistance to help them streamline their customs services and build the ports and other infrastructure that they need to export their products.
Enlightened leaders should see the broader picture and realise that what is at stake is mankind’s capacity to deliver a better world. We face major global challenges, including wars, massive financial imbalances, skyrocketing energy prices, investment protectionism, the spread of infectious diseases, ageing populations; and many countries are plagued by political turmoil, poverty and social strife.
In such a complex world, with such seemingly intractable challenges, the Doha Development Agenda is the low hanging fruit of the world’ s multilateral architecture, as well as the low-cost insurance against the revival of protectionism and trade wars. By successfully concluding the Doha Round, we can deliver a boost to the world economy and contribute to a fairer distribution of wealth.
©OECD Observer No 257, October 2006