U.S. Trade Policy: Is America AWOL?

World Bank President Robert Zoellick got the White House’s attention this weekend, chiding (Washington Post) the Obama administration for “dumbing down” the Doha Round of multilateral trade talks. Rather than exercising its historical leadership and thinking boldly, the United States has allowed the “whole discussion” to “become very defeatist.” To be sure, Zoellick has a dog in this fight. Having launched the now-moribund Doha “development round” nearly ten years ago, he’d clearly like to see it revived. But after so many obituaries, it may be wiser to bury Doha in order to ensure the survival of the World Trade Organization (WTO) itself.

One of the few silver linings in the global financial crisis has been the restraint showed by major trading nations when it comes to protectionism. Thanks to solidarity among Group of Twenty (G20) nations and close monitoring by independent watchdogs like Global Trade Alert, the world avoided what many anxious commentators (including this one) had feared: a descent into 1930s-style, beggar-thy-neighbor trade discrimination. In fact, the global trading system—and the WTO that embodies it—has remained remarkably resilient.

The same cannot be said of the Doha Round. A deadlock between developed countries—including the United States and Europe­—and major emerging market economies (EMEs)—particularly China, India, and Brazil­—has kept the trade talks in a nearly comatose state for the past several years. The fundamental problem, as former U.S. Trade Representative Susan C. Schwab explains (Foreign Affairs), is that the developed versus developing country dichotomy at the heart of the Doha Round obscures the surging global importance of the biggest EMEs. In the past, it might have been enough for Organization for Economic Cooperation and Development (OECD) countries, given their global dominance, to lead global liberalization through asymmetrical concessions to poor countries.

But the rise of the BRICs and other major economies has created a more complicated world. China’s gross domestic product (GDP) now exceeds that of Japan’s—just as India will soon overtake Germany; Brazil, France and the UK; Mexico, Canada; and Indonesia, Australia. And yet the “deal” on the table at Doha in 2008 would have relied overwhelmingly on major concessions from the developed world, while allowing China, India, and other big EMEs ample protection for their agricultural and manufacturing sectors. In other words, as Schwab notes, Doha has failed to “address the central question facing international economic governance today: What are the relative roles and responsibilities of advanced (or developed), emerging, and developing countries?”

Free-trade advocates, wedded to the bicycle theory of trade negotiations (that you either move forward or fall over) are loathe to admit defeat. Some also fear that the demise of Doha will erode global support for the WTO and its dispute settlement mechanism. If the WTO can’t deliver as a negotiation forum in this case, won’t countries ignore its role as standard setter and policeman?

The WTO is certainly vulnerable. Over the past decade—despite the continuation of the Doha Round—the world has witnessed a proliferation of bilateral and regional trade agreements. Such arrangements, which exceed two hundred in number, discriminate against non-parties and skew global commerce. Jagdish Bhagwati of CFR and Columbia University worries that if Doha collapses, the world will be “overtaken by regional trade agreements and other bilateral arrangements, which will be discriminatory.” Certainly, a multilateral round of liberalization would be vastly preferable. But the Doha Round is not up to the task. 

As a team of experts from the Petersen Institute has concluded, salvaging Doha—or at least the agreement that collapsed in 2008—would bring fairly modest gains. Better to rescue a few feasible deals as spin-offs, and then regroup for a greater multilateral push. A package to decrease the price of moving goods internationally could contribute as much as one hundred billion to the global economy, while a nearly finished agricultural-export pillar, and cuts in subsidies to fleets that engage in overfishing, would bring real, short-term gains and be less controversial.

The Obama administration should then spearhead a new effort at a more realistic round of international trade liberalization that reflects the growth of emerging economies. As Leo Hindery Jr. of the New America Foundation documents, the benefits of three pending trade deals with Panama, Colombia, and South Korea would be “negligible in terms of America’s overall trade balance and have little potential to be a driver of exports and job creation.” President Obama will of course need to face the dragons of a protectionist constituency, but such is the price of U.S. leadership, which is necessary to ensure the health of the global economy and to cultivate more burden-sharing by EMEs.