By Guy de Jonquieres
Is there life after Doha for the WTO?
Last summer’s breakdown of the Doha world trade talks, the latest setback in their troubled seven-year life, has raised renewed questions about the role and future of the World Trade Organization (WTO). Even if the talks can be revived, the pay-off promises to be small: at most, 0.2% of global GDP, a paltry amount compared to the recent impact of higher energy and transport costs on global growth and trade and investment patterns.
What has gone wrong? Even before the fate of the talks is settled, commentators and some top government officials are starting to argue that there must be a better way. Policy experts have suggested a variety of ideas for breaking the logjam. Most focus on streamlining the WTO’s arcane procedures by, for example, replacing omnibus trade rounds with more compact, discrete negotiations among coalitions of self-selecting countries.
Such proposals are based implicitly on two premises: first, that flaws in the institution’s architecture and methods are the main roadblock to progress; second, that enough governments – in the developing as well as the industrialized world – are eager to push ahead with serious multilateral negotiations to create effective “coalitions of the willing”. However, the Doha Round’s chequered record makes both assumptions debatable.
With few exceptions, modest ambitions, inflexibility and unwillingness to compromise have characterized the talks. Many negotiating positions have been primarily defensive, intended more to preserve cherished barriers than to contribute to global market opening. Often, the talks have exposed, rather than narrowed, international divisions. Meanwhile, indifference is setting in among pro-trade business lobbies, whose support is crucial to moving the negotiations forward.
This does not mean the push to free trade has ground to a halt worldwide. However, governments are increasingly choosing to pursue agendas outside, rather than within, the WTO. Growing disaffection with the organization since its disastrous Seattle meeting in 1999 has given impetus to an uncontrolled proliferation of preferential trade agreements, some of which flout the spirit – and possibly the letter – of multilateral rules. About half the world’s trade is now conducted between economies belonging to such arrangements.
The unilateral stance
Meanwhile, many developing countries continue to lower import barriers unilaterally and to implement domestic reforms that buttress freer and more open markets. However, most balk at “binding” such liberalization by enshrining it in legal commitments in the WTO – leaving them free to reverse it at whim. While reasons for their reluctance vary, it hardly amounts to an emphatic vote of confidence in, or commitment to, multilateral rules.
In much of the industrialized world, by contrast, there are worrying signs that enthusiasm for free trade is fading. Protectionist rumblings – though not yet large-scale actions – are growing, and advocates of opening markets face a stiffer fight. In the European Union, the 27 member governments are divided over the merits of the case, a fact underlined by bitter public disagreements between president Nicolas Sarkozy of France and Peter Mandelson, the EU’s liberal-minded trade commissioner.In the US, president George W Bush’s legal authority to negotiate new trade deals lapsed in July 2007. Congress, whose consent is required to renew it, is increasingly sceptical of, even hostile to, trade liberalization of all stripes. While Doha negotiators have been discussing cuts in farm subsidies, US lawmakers have authorized a big rise in spending and are holding up a preferential trade deal with Colombia, a small and unthreatening economy whose government is a staunch US ally.
Western Malaise
The causes of western malaise are complex and often poorly defined. In some cases, they arise from social disruptions genuinely due to trade liberalization. But many reflect a diffuse underlying anxiety about globalization or popular discontent at economic trends, such as the loss of blue-collar jobs and stagnating real incomes, that result less from open trade than from technological change, labour market deficiencies and inappropriate domestic policies.
These developments have combined, at worst, to make the initials WTO a term of abuse in some parts of the world and, at best, to diminish belief in the institution’s relevance to its members’ interests. Unchecked, that could put at risk its credibility, not just as an engine of liberalization but, in the longer term, as guardian and enforcer of the multilateral rules that have underpinned the international economic order for the past 60 years.
Those rules, based on members’ commitments to trade with each other on a non-discriminatory basis, have provided stability and predictability in a fast-changing global economy. They have restrained bullying of weak countries by strong ones and provided a bulwark against protectionism. All would lose if the WTO were marginalized and the primacy of its rules were allowed, through neglect or indifference, to decay.
The road back
How, then, to get the WTO moving again? Many of the answers must be sought in national capitals, not in negotiating rooms in Geneva. Domestic constituencies favourable to both free trade and the multilateral system need to be strengthened or rebuilt. That means taking actions to relieve cases of genuine hardship caused by the opening of markets, pursuing policies that alleviate economic insecurity and explaining to public opinion why the rules-based trade system, though imperfect, is superior to any alternative.
Second, member governments need to make up their minds what the WTO is for. Insofar as they have posed themselves that question, they have come up with no clear or coherent response. Finding one is made increasingly difficult by the growing size and heterogeneity of the organization’s membership; but it is also made increasingly urgent by the emergence of important, though often poorly charted, challenges thrown up by global economic change.
The seven completed world trade rounds have contributed to a massive reduction in border barriers, particularly in industrialized countries. Though that task is still unfinished, there are pressing reasons why the agenda needs to extend well beyond it. One is that, as barriers at borders fall, others tend to spring up in their place. As a result, the beneficial effects of cutting import tariffs and quotas can be frustrated by regulatory measures such as health and safety rules, licensing requirements or technical standards.
Another reason is that technological change is making internationally tradable many activities that were once performed mainly locally. That is particularly true in services, from banking to telecommunications. But although global competition is growing, ensuring open, fair and non-discriminatory access to national services markets requires rule-making. How deeply the WTO needs to or should get into that business remains a highly contentious issue: there is strong resistance in developed as well as developing countries to subjecting to multilateral disciplines what have long been considered sovereign policy prerogatives.
The third key to getting the WTO back on track is developing a new model of leadership. The General Agreement on Tariffs and Trade (GATT), out of which it grew, was essentially the child of benign American hegemony, created and overseen by Washington. But the US no longer has the will or capacity to exercise that role – nor would other countries be ready to accept it.
For many years, the GATT was a small club that played by rich countries’ rules. Rapid expansion has transformed the WTO into a much bigger and more diverse body, four-fifths of whose members are developing nations. Nine rank among the world’s 20 biggest importers, while the growing economic importance of China, India and Brazil, in particular, have given them heavyweight political clout.
Yet the WTO and its members have yet to adjust effectively to this shift in the balance of global economic power. Though the bigger emerging economies have sometimes found points of convergence, with each other and with industrialized countries, more often than not dissonance has been the order of the day, leaving the WTO’s overall direction confused. The Sutherland Commission, chaired by the organization’s first director-general, likened it in late 2004 to “a vehicle with a proliferation of backseat drivers, each seeking a different destination, with no map and no intention of asking the way”.
Collective leadership
If the WTO is to regain momentum and chart a clearer course, it will almost certainly need to evolve towards some form of collective leadership, involving bigger members along, perhaps, with some influential smaller ones. That is unlikely to be achieved by creating formal mechanisms, such as a steering committee or governing council: an attempt to establish such a body in the GATT foundered on bitter complaints by those excluded from it. Instead, it will require patient, painstaking diplomacy and consultation aimed at identifying common ground and building a basis of mutual trust.
Attitudes will also need to change. The US and EU will need to stop thinking of themselves as the only big boys in the WTO (which they no longer are) and start treating developing-country adversaries as equals and partners. The bigger developing countries, particularly China and India, will have to recognize that their growing stake in world trade implies a greater willingness to accept leadership responsibilities, advance constructive agendas and broker compromises than they have exhibited in the past.
Achieving these objectives will require time, skilful diplomacy and large investments of political capital – more, quite possibly, than most governments are currently ready to commit. Whether or not the Doha Round is completed, the temptation in national capitals to turn to other business may prove strong. Frustration with the WTO might then slide into complacency, while enthusiasm for bilateral trade initiatives would increase – even though many such deals have in practice yielded only meagre liberalization.
Legal redress
However, drift might not mean calm. If the Doha Round failed, some countries might seek to obtain through litigation what they had failed to achieve through negotiation. Brazil and some other developing countries have already said that they are considering challenging the legality of US and EU farm subsidies in the WTO. That could place a heavy burden on the institution’s quasi-judicial mechanisms for settling trade disputes.
The mechanisms are the WTO’s one indisputable success story and the bedrock of its authority. They have functioned well so far because enough countries believe that they have a common interest in making them work. However, the procedures are only as strong as the willingness of sovereign governments voluntarily to subject themselves to adjudication. If just one larger member spurned an unfavourable ruling, the credibility of the disputes mechanisms – and of the WTO’s rules – could be gravely impaired.
Yet, perversely, it may take some kind of systemic shock to jolt the WTO’s members into tackling the challenges confronting it. Appetite for economic gains in the Doha Round has not, so far at least, been strong enough to induce governments into making the compromises needed to achieve them. It has sometimes taken crises to unblock past trade negotiations. Might a serious threat to the integrity of the multilateral order be what is needed to galvanize political attention and get things moving again this time?
Guy de Jonquieres is a senior research fellow at Chatham House