- Current political and economic issues succinctly explained.
This publication is now archived.
In July 2006, negotiations at the World Trade Organization’s (WTO) Doha round of trade talks were suspended indefinitely. The stalemate prompted predictions that after five frustrating years, the Doha talks and the sweeping liberalizations they targeted might be dying, once and for all. A group of about thirty ministers tried to revive the talks at the World Economic Forum’s January 2007 meetings in Davos, but no major breakthroughs were made. Should Doha fail, the prospects for significant global progress on trade liberalization seem bleak. There are fears that a new era of trade protectionism could undermine the decade-old WTO and doom the dozens of impoverished nations that hope to gain access to rich-country markets. Experts note that previous trade rounds all experienced eleventh-hour breakthroughs—but add that entrenched attitudes, particularly toward agricultural policy, make a Doha deal increasingly challenging to negotiate.
What is the Doha Round?
The WTO launched this round of negotiations at its November 2001 ministerial conference in Doha, Qatar. The aim is to unlock global trade in areas where many barriers still exist, in sectors such as agriculture, services and manufacturing. The Doha declaration placed particular emphasis on correcting distortions that have effectively barred poor, rural nations from a share in world agricultural markets. Many developing countries have a comparative advantage in delivering farm goods to market, and seek a sharp reduction in rich-country trade barriers on agricultural goods, as well as textile and apparel tariffs.
As part of a grand bargain, rich countries want to increase their access to non-agricultural manufacturing and service sectors in robust developing countries like China, India, and Brazil. They are especially eager to capitalize on their strong financial, transportation, and telecommunications services. A much-cited World Bank study says the abolition of agricultural tariffs and subsidies would increase global exports by nearly $300 billion per year by 2015. These kinds of targeted trade liberalizations could help lift many states out of poverty.
Why is Doha in trouble?
Agriculture is the main stumbling block. Despite some initiatives in the past year—including a U.S. offer to make modest cuts in farm subsidies—there has been little substantive progress. Jagdish Bhagwati, CFR’s senior fellow in international economics, says in this interview with CFR.org that U.S. officials must check the American farm lobby, the influence of which has led to a persistent double standard on trade. “We are minimalists in terms of making concessions in the farm sector, which is the critical one,” Bhagwati says. “At the same time we are maximalists in making demands on others in terms of agriculture.”
“We are minimalists in terms of making concessions in the farm sector, which is the critical one. At the same time we are maximalists in making demands on others in terms of agriculture,” says Jagdish Bhagwati, CFR Senior Fellow for International Economics
The United States and a negotiating bloc of developing states called the Group of Twenty (G-20)—including China, India and Brazil—have criticized proposed European Union (EU) tariff cuts as insufficient; at the same time, some countries are skeptical of the sincerity of the U.S. offer. The EU wants pledges from Brazil and India to cut tariffs on industrial goods before it risks justifying trade concessions to the entrenched EU farm lobby. Particularly in Europe, many farmers would be uncompetitive without high government subsidies.
Leading U.S. congressional figures have said prospects are slim for completing the Doha round before presidential trade-promotion authority expires in July 2007. This authority allows the president to negotiate trade deals without the need for congressional review. Given the rise of protectionist sentiment in general, and particularly since the Democrats retook both houses of Congress in November 2006, some experts say fast track authority is highly unlikely to be renewed. Without it, controversial farm subsidy reforms would need to be passed by both houses of Congress—a tall order.
What are the most divisive issues?
The dispute over agriculture hinges on the active role the United States and the EU take to support their agricultural sectors with subsidies and tariffs. Last fall, the United States offered to cut its agricultural subsidies by an average of more than 50 percent, but conditioned the offer on major market-access proposals from the EU and G-20 states. The EU has offered to cut its tariffs by an average of 40 percent, but it also wants to identify up to 160 of its agricultural products as “sensitive” and preserve tariff protections for them. The Economist says 17 and 54 are the two “magic numbers” to meet if renewed talks this spring are to succeed: the U.S. will need to limit its farm subsidies to $17 billion (its lowest offer thus far is $22 billion), and EU countries must make cuts in their agricultural tariffs in the vicinity of 54 percent. The EU and United States are calling on developing nations like India and Brazil to improve their offer to open up their markets to industrial goods. But an open embrace from the developing world is highly unlikely if the United States refuses to give up its significant farm subsidies, says Bhagwati.
Kimberly Elliott, research fellow at the Institute for International Economics, says that after decades of trade negotiations, most of the rich countries have liberalized a great deal, with tariffs on many goods in the single digits. “What’s left in terms of trade barriers are really tough nuts: agriculture, textiles, footwear in some countries where their political sensitivities are the highest,” Elliott says. “To give those up, they have to get something that looks comparable in political terms—if not in economic terms—in order to sell [it] to their legislatures.”
Which countries are the stumbling blocks?
Experts say blame can be widely distributed. EU Trade Commissioner Peter Mandelson is under pressure by states such as France to stick more closely to a mandate set by EU governments. He says he cannot offer increased concessions unless he sees a more attractive offer from Brazil, India and other developing countries on non-agricultural goods. But Daniel Ikenson, a trade policy analyst at the Cato Institute, a libertarian policy institute, says the United States and Europe are failing to provide a proper example to developing nations considering a drop in barriers. These countries, he says, are very worried about an influx of cheap manufactured goods from China if they open up their markets, and are watching U.S.-EU policy toward China with interest. “Both the United States and Europe are actively considering or pursuing trade restraints against China on one product to the next. That, to me, is the main reason why developing countries don’t want to give ground on NAMA [non-agricultural market access],” says Ikenson.
“This has always been an issue of U.S.and European leadership on lowering barriers to world trade, and now you need some push from other places,” says Douglas Holtz-Eakin, former director, CFR’s Maurice R. Greenberg Centerfor Geoeconomic Studies
Douglas Holtz-Eakin, the former director of CFR’s Maurice R. Greenberg Center for Geoeconomic Studies, says the G-20, now a major actor in the trade talks, needs to provide more leadership. “Why can’t these countries in a united way agree to move forward and make them all better off?” Holtz-Eakin says. “This has always been an issue of U.S. and European leadership on lowering barriers to world trade, and now you need some push from other places.” Aurore Wanlin, a research fellow at the Center for European reform, says China should be more engaged in the talks rather than contenting itself to benefit from what the EU and United States gain through negotiations. “[China] is particularly reluctant to open up its highly protected services markets, such as telecoms and banking,” writes Wanlin in a recent briefing note (PDF).
Which issues have been agreed on in the round?
The WTO’s Hong Kong ministerial meeting in December 2005 produced an agreement by wealthy nations to end export subsidies in agriculture by 2013. That date is conditioned on agreements being reached to avoid hidden export subsidies in credit, food aid, and the sales of exporting state enterprises. There are also agreements calling for developed countries to eliminate all forms of export subsidies for cotton as early as the end of 2006. Another important commitment made during the round is the introduction of duty and quota-free access for most exports from the thirty-two least-developed countries by 2008. Bhagwati considers these accomplishments as a “clearing of the decks” necessary before the main parties could focus on the most controversial issues at hand. “We were cleaning out all peripheral things,” he says. “Now it’s a game between four major groups: the EU, the United States, India, and Brazil.”
What happens if Doha fails?
The Doha talks are seen as a major test for the 149-member WTO. Elliott worries countries like the United States will turn their back on WTO multilateral trade talks and focus instead on bilateral agreements with stronger developing states. This poses problems to businesses worried about a “spaghetti bowl” [when multiple bilateral agreements overlap, causing complex and un-integrated regulatory requirements], but Elliott says it has even more serious implications for poor nations. “If you get to where the whole system starts to erode, then the developed countries go back to the Hobbesian world of power relationships and developing countries lose out,” she says. Other experts say the round’s failure would be a setback to global poverty-reduction efforts such as the UN Millennium Development goals, the World Bank’s move to cancel debt for very poor countries, and increasing efforts to improve foreign aid.
But trade experts often point out that previous trade rounds in the post-World War II period have often gone down to the wire, emerging nonetheless with agreements that have steadily liberalized world trade. Moreover, Bhagwati says the doomsday scenarios about what might happen if Doha fails should be taken with a grain of salt. “Of course some [potential] gains from trade will be lost,” he says. “But it’s not as if the sky will fall. All this means is, you won’t be able to move forward, but that doesn’t mean you will slide back. I see no reason why protectionism would break out because Doha is not moving ahead.”
What are the consequences for United States?
A failed Doha round would be a missed opportunity to open up prime markets for U.S. services, says Ikenson. “We have a huge competitive advantage in many of those [service] industries, but it’s going to be difficult for Americans to compete in these markets without a new deal lowering barriers,” he says. Trade experts also say a successful Doha round could impress the U.S. Congress with newly opened export markets, as well as turn back hostility from lawmakers worried about huge U.S. trade deficits and frustrated at the impression that the country’s trade partners are cheating.
[EDITOR’S NOTE: This is an update to a backgrounder originally published April 28, 2006 under the title "World Trade Talks in Peril."]