Do missed WTO deadlines matter?

Print edition : May 19, 2006

WTO Director-General Pascal Lamy during the conference on "WTO and the Doha Round: The Way Forward" in New Delhi. -

In a growingly unequal world, the benefits of integration with world trade are small and declining for the majority of people in the developing world.

ANOTHER deadline has been missed in the perpetually "ongoing" negotiations to liberalise world trade further. The 149 members of the World Trade Organisation (WTO) were to arrive at an agreement on the "modalities" for reducing various forms of support to agriculture and increasing market access for non-agricultural commodities by April 30. Pascal Lamy, the organisation's Director-General, announced an end-April mini- ministerial, which was expected to clinch an agreement. However, as deadline day neared, all came to nought. With no hope of agreement between the United States (U.S.) and the European Union (E.U.) and the "leading" developing countries such as Brazil and India unsatisfied, everybody agreed that the deadline was best left unmet. But the process continues. Lamy has declared that, "from now on, the process to reach modalities will be continuous, Geneva-based, and focused on texts", with the aim of finishing this work in a matter of weeks rather than months.

But the disappointment expressed is more symbolic than heartfelt. Nor is any deadline fatigue visible. Many deadlines have been set and missed in the many rounds of trade negotiations that have contributed to making global trade as liberal as it is today. In many countries, the extent of liberalisation of trade is far more than that mandated by the WTO. Not surprisingly, global trade grew in real terms at 9.5 and 6.0 per cent respectively in 2004 and 2005, even while global gross domestic product (GDP) at constant prices grew by just 3.9 and 3.3 per cent.

The process continues because those pushing for a more open multilateral trade regime have four broad objectives. The first is to use the multilateral trade-liberalisation lever to deliver significant marginal gains in commodities, regions and countries considered unduly protectionist - agriculture in the E.U. and industry in some of the larger developing countries with long histories of import-substituting industrialisation, for example. Many governments see this as necessary to legitimise their support for a multilateral agreement at home. The second is to extend multilaterally agreed-upon liberalisation to relatively new areas such as services, intellectual property rights (IPRs) and investment, not all of which are directly in the realm of international trade. The third is to bind countries legally to an agreed level of liberalisation so as to preclude any reversal of the liberalisation process. Finally, use the WTO as an excuse to defend unilateral liberalisation at home, on the grounds that it was inevitable within the emerging multilateral regime.

These are medium or long-term goals, and many advocates agree that nothing would crack if agreement is not reached immediately. In that case, why are deadlines constantly set only to be revised? In the world of trade diplomacy, these deadlines are clearly seen as catalysts for movement. These catalysts matter for the key players in defining the pace of liberalisation. If, in the view of those key players, initial expectations of the extent of liberalisation are excessive, then "ambitions" must be lowered for the sake of progress, however slow. But, once lowered, deadlines must be used to pressure countries into submission.

In the case of the Doha Round, the erosion of ambition started early: the acceptance of the continuation of Blue Box (or moderately trade-distorting) support to agriculture, the silence on Green Box (or ostensibly non-trade-distorting) support, the implicit endorsement of the practice of Box shifting and the restriction of dialogue to more trivial issues such as export subsidies, import tariffs and so-called trade distorting support. But the erosion of ambition is asymmetric across areas. Nothing illustrates this more than the "unbracketing" of the whole of the controversial Annex C (dealing with services) in Hong Kong and the acceptance of plurilateral negotiations in services, which many developing countries had resisted to the very end. From the point of view of the developed countries, this amounted to upping the stakes.

Seen in these terms, there are elements of continuity and change between the Uruguay Round and the current Doha Round. Victory in the race to clinch an agreement that would bring the Uruguay Round to a close was predicated solely on agreement on issues of controversy within the Quad, especially between the U.S. and the E.U. This was achieved through secretive deals like the infamous Blair House Accord that limited the extent of liberalisation of agriculture.

This tendency continues. Failure this time occurred principally because of a lack of agreement on agricultural trade liberalisation between the E.U. and the U.S., with E.U. intransigence presented as the major obstacle by the U.S. and the E.U. Trade Commissioner declaring the U.S. the biggest stumbling block to progress because of its unrealistic demands. But there is an element of change this time. The elite club has widened to include developing countries such as Brazil and India, reflected in the role of the group of five (the U.S, the E.U., Australia, Brazil and India, named the "five interested parties", as if none other was interested) in arriving at the mid-2004 agreement called the July framework. Their unwillingness to give more on non-agricultural market access (NAMA) without further concessions from the E.U. strengthened the U.S. hand.

The implications of this new alliance at the top are clear from the sequencing argument Lamy used in his effort to meet the April 30 deadline. An end-April mini-Ministerial he held would be confined to resolving "key modalities", which he defined as those relating to agricultural subsidies, agricultural tariffs and the number of sensitive products, and the NAMA tariff reduction formula. This amounted to a postponement of discussions on issues of interest to poorer countries such as special products and special safeguards in agriculture, special modalities for "Paragraph 6" countries (those with less than 35 per cent tariff bindings) in NAMA, and the problem of preference erosion in both agriculture and NAMA. Not surprisingly, poorer countries, those in Africa in particular, objected to the sequencing approach. But they may not have really mattered.

The expansion of the decision-makers' club is obviously part of a strategy being adopted by the Quad partly in response to the failures at Seattle and Cancun and the growing loss of credibility of the Uruguay Round. That strategy has many components, including: (i) making governments like those of Brazil and India believe that they can get away with more in agriculture or services if they join the group of five and would lose out if they are not there; (ii) making special proposals like global duty and quota free market access and introducing ambiguous issues like the aid-for-trade programme to "buy out" the low income countries, as economist Jagdish Bhagwati put it; (iii) relying more on Regional Trade Agreements and Bilateral Trade Agreements with Doha-plus and minus elements, especially with regard to Non-Tariff Barriers, investment rules and IPRs; and (iv) declaring and sending out signals that negotiations would collapse or be postponed threatening uncertainty and chaos if agreement is not in sight. The last minute replacement of Rob Portman with Susan Schwab as U.S. trade representative, making it impossible for the U.S. to make any further adjustments in its negotiating stance, was a clear statement from the U.S. that it did not care what happened in Geneva this April.

All this transpires because of a belief among wealth-holders (and those who represent them) in both the developed and developing countries that the only strategy that could ensure wealth expansion in the current global conjuncture is one that involves a substantial increase in integration into the world system. So the further integration goes the better. One factor reflecting this new alliance of the rich is the growing exposure of the world's wealth-holders to dollar denominated assets, making them as concerned as the U.S. government with ensuring the persistence of buoyancy in the U.S. economy. This concern has been compounded by the fact that the U.S. economy is the world's locomotive, with growth elsewhere in the world increasingly based on U.S.-market dependence. In their view, if greater openness elsewhere serves the cause of a tenuous stability in U.S. growth, even at the expense of the majority in those countries, then so be it.

From the point of view of the majority of people in the developing world, however, current trends in global trade and global growth are patently inequalising, both internationally and domestically. Their stake in integration is small and declining. They are, therefore, bound to be happy that the deadline has been missed. But when and how they would be able to reverse trends that are not in their favour is unclear. Till then, division at the top, however temporary, provides a small solace.

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