Tuesday, June 05, 2007

Doha round of WTO talks

Recently I was asked to explain the recent issues relating to Doha Round of WTO talks and how it will affect the global trade.

Well, I excerpt below what the Wikipedia says (interspersed with some of my own observations) about the subject. You will get a thorough background about the Doha round with the information from Wikipedia. Then I follow it up with the latest happenings that have occurred since the notings in Wikipedia. It will be followed by my take on the topic.

What Wikipedia says about them?

The Doha Development Round of World Trade Organization negotiations aims to lower trade barriers around the world, permitting free trade between countries of varying prosperity. As of 2006, talks have stalled over a divide between the developed nations led by the European Union, the United States and Japan and the major developing countries (represented by the G20 developing nations), led and represented mainly by India, Brazil, China and South Africa.

The Doha round began with a ministerial-level meeting in Doha, Qatar in 2001, with subsequent ministerials in CancĂșn, Mexico (2003), and Hong Kong, China (2005). Related negotiations have taken place in: Geneva, Switzerland; Paris, France; and again Geneva.

The Doha round of WTO negotiations began in November 2001. This round was to have begun at the WTO Ministerial Conference of 1999 in Seattle, and was to have been called "The Seattle Round" but some developing countries refused to launch the second round by blocking the 'explicit consensus' needed at the final Heads of Delegation meeting. Severe demonstrations distracted attention from the refusal of developing nations to expand the WTO after having been devastated by the Uruguay Round. The new round could only be launched at a meeting in Doha, Qatar. The new trade agenda of the developed world was dubbed the Doha Development Agenda, and from there all countries were committed to negotiations opening agricultural and manufacturing markets, as well as services negotiations and expanded intellectual property regulation. The intent of the round, according to its proponents, was to make trade rules fairer for developing countries. Opponents charged that the round would expand a system of trade rules that were bad for development and interfered excessively with countries' domestic "policy space".

The round was set to be concluded in four years (December 2006)- after two more Ministerial Conferences had produced a final draft declaration. The WTO pushed back its self imposed deadline to slightly precede the expiration of the US President's Congressional Fast Track Trade Promotion Authority. Any declaration of the WTO must ultimately be confirmed by the US Congress. Trade Promotion Authority prevents Congressmen from amending the draft. It expires on June 30, 2007.

CancĂșn, 2003

The 2003 CancĂșn talks — intended to forge concrete agreement on the Doha round objectives — collapsed after four days during which the members could not agree on farm subsidies and access to markets. Negotiations focused upon four key areas: agriculture, industrial goods, trade in services, and updated customs codes. The collapse seemed like a victory for the developing countries. But unlike Seattle, which prevented the commencement of the second round of negotiations, Cancun resulted in continued negotiating.

South Korean Farmers and Fisheries President Lee Kyung Hai committed suicide on the first day of the conference in protest of the price distorting agricultural subsidies of the EU and US. The North-South divide was most prominent on issues of agriculture. Rich countries’ farm subsidies (both the EU’s Common Agricultural Policy and the U.S. government agro-subsidies) became a major sticking point. The developing countries were seen as finally having the confidence to reject a deal that they viewed as unfavorable. This is reflected by the new trade bloc of developing and industrialized nations: the G20. Since its creation, the G20 has had fluctuating membership, but is spearheaded by the G4 (People's Republic of China, India, Brazil & South Africa) While the G20 presumes to negotiate on behalf of all of the developing world, many of the poorest nations continue to have little influence over the emerging WTO proposals.

The contentious Singapore issues – investment, government procurement and competition policy – were removed from the negotiating table.

Geneva, 2004

The August 2004 Geneva talks achieved a framework agreement on opening global trade. The U.S., EU, Japan and Brazil agreed to end export subsidies, reduce agricultural subsidies and lower tariff barriers. Developing nations agreed to reduce tariffs on manufactured goods, but gain the right to specially protect key industries. The agreement also provides for simplified customs, and stricter rules for rural development aid.

Paris, 2005

Trade negotiators wanted to make tangible progress before the December 2005 WTO meeting in Hong Kong, and hoped to agree to the deal before 2007 when U.S. fast-track legislation expires. Without fast-track, it will be much harder to get a ratification from the U.S. Senate.

Paris talks were hanging over a few issues: France protested moves to cut subsidies to farmers, while the U.S., Australia, the EU, Brazil and India failed to agree on issues relating to chicken, beef and rice. Most of the sticking points were small technical issues, making trade negotiators fear that agreement on large politically risky issues will be substantially harder.

By July-August an agreement was needed in order to finalize negotiations for agreement in Hong Kong. Oxfam charged the EU with "delaying tactics" which have threatened to spoil the round.

Hong Kong, 2005

The Sixth WTO Ministerial Conference took place in Hong Kong, December 13 to 18, 2005.

Trade ministers representing most of the world's governments reached a deal that sets a deadline for eliminating subsidies of agricultural exports by 2013. The final declaration from the talks, which resolved several issues that have stood in the way of a global trade agreement, also requires industrialized countries to open their markets to goods from the world's poorest nations, a goal of the United Nations for many years. The declaration gave fresh impetus for negotiators to try to finish a comprehensive set of global free trade rules by the end of 2006. Pascal Lamy, Director General of the WTO, said, "I now believe it is possible, which I did not a month ago."

As many as 2000 protesters demonstrated outside the Hong Kong Convention and Exhibition Centre, the location of the talks. Clashes with the police left at least 116 people injured, including 56 officers, although there were no critical injuries according to the authorities.

Geneva, 2006

The July 2006 talks in Geneva failed to reach an agreement about reducing farming subsidies and lowering import taxes, and continuation of the negotiations will take months to resume. A successful outcome of the Doha round has become increasingly unlikely, because the broad trade authority granted under the Trade Act of 2002 to U.S. president George W. Bush expires in 2007. Any trade pact will then have to be approved by the U.S. Congress with the possibility of amendments, which creates an additional burden on the U.S. negotiators and decreases the willingness of other countries to participate.

Hong Kong offered to mediate the collapsed trade liberalisation talks. Director-General of Trade and Industry, Raymond Young, says the territory, which hosted the last round of Doha negotiations, has a "moral high-ground" on free trade that allows it to play the role of "honest broker".

Subsequent developments: Unofficial plurilateral talks

These talks were conducted during May 2007 to narrow their differences. The major participants of the talks were US, India, Brazil and the EU.

Talks were stuck over issues such as

  1. Levels of reduction of agriculture subsidies;
  2. Paring of industrial and farm tariffs; and
  3. Movement of workers between countries.

The main bone of contention is about agriculture subsidies being extended by the US and the EU to their farmers. These subsidies are highly trade distorting in nature, as is perceived by the developing world. The other two issues appear to be capable of being resolved. How do these subsidies hurt? These subsidies hurt the developing country farmers because they lead to higher output in developed countries – and lower global prices. When subsidies lead to increase in production with little increase in consumption, as is typical with agricultural commodities, higher output translates directly into higher exports, which translate directly into lower prices for producers, lower income for farmers, and more poverty in the Third World.

The US tried its best to let the world know that its President’s fast track authority is expiring by June 2007 and that unless an agreement is reached before June 30th, any agreements reached in the negotiations will not have any assured chance of approval by the US Congress. Under this fast track authority, any trade deal struck in the Doha Development Round does not run the risk of being amended by the US Congress. Though the EU appeared to be in favour of reaching a deal before the fast track authority expires, the developing world led by India and Brazil did not appear to be too enamoured of this.

One recent development that cannot be ignored is the capitulation of the US administration to the long-standing demand by the US labour lobbies that future US trade deals required adherence to the five basic ‘internationally recognized’ labour principles, as stated in the 1998 ILO Declaration on Fundamental Principles and Rights at Work. Violations that harm the US trade or investment interests are to be punished by fines or trade sanctions. The developing countries have been opposed to the inclusion of labour standards in trade agreements ever since they began negotiating such agreements. The developing countries see the capitulation of the US administration to its labour unions as a case of raising labour costs abroad via higher labour standards, when it itself cannot control them within its borders.

What needs to be kept in mind is the fact that America and the developed world are the real losers in the demise of the Doha round. Examine the following statements made by a renowned Economist:

1. Had the Bush administration fulfilled its commitments, American taxpayers would have benefited from the elimination of huge agricultural subsidies – a real boon in this era of yawning budget deficits.

2. Americans would have been better off as consumers too, with increased access to a variety of low cost goods from poor countries.

3. Migration pressure would have reduced, because it is the huge disparity in incomes more than anything else that leads people to leave their homes and families to migrate to the US.

4. A more prosperous globe is in the interest of the rich developed world – as a less poor world would lead to less despair and thereby less political instability across the world.

Because the US played only a lip service to free market principles, favouring Washington lobbyists and campaign contributors who demand just the opposite, the Bush administration doubled the level of agricultural subsidies in the US. It is this which led to the failure of the Doha round.

How will the failure affect the world?

While I do not disagree with the assessment give above, what I see clearly emerging is that failure or success, whatever may the outcome, it is for certain that the World will keep seeing more of regional FTA (Free Trade Area) agreements taking shape. More and more regional blocks will start getting formed and they will start gaining more negotiating power than what is available with them at present. Their presence also will acquire a kind of institutional status within the WTO framework. Remember the EU? How it has become the sole representative or arbitrator of European interests! A similar thing will happen in the years to come for all regional trade blocks that are going to become more powerful.

Secondly, it is no longer possible for anybody to ignore the BRIC or IBSA countries. These developing countries are gaining a faster mind share, in the public consciousness of the policy makers in the developed countries. As long as that is so, and that is bound to be so for years to come, the developing countries’ interests are going to be articulated reasonably well by these five countries. But how far they will be able to hold their ground and not yield to undue pressure from the developed world, will always be open to question.

Lastly, a weekening dollar may pose unforeseen situations before the world. My take on that is, the emerging economies may no longer be interested in financing the current account deficits of a consuming economy. They may instead start pumping their surpluses into regional development. Look at the way the Chinese are wooing the African countries! They may finance the African deficits in return for a greater share of natural resources of Africa and/or for their markets – be it consumption driven markets or defence driven markets. The emerging economies also need mind-boggling amounts of investments into their own infrastructure. If their surpluses start flowing into these projects, unimaginable consequences may follow in the US economy. Its primacy may dwindle in unforeseen ways. Nobody could have believed the kind of soft-power that India is today. The next two to three decade timeframe would be very interesting to watch on this count. We may well see the rules of the world trade being totally re-written.

1 Comment:

Pawan Jain said...

I was looking for something like this ,Thank you for posting the great content……I found it quiet interesting, hopefully you will keep posting such blogs…

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