The WTO Doha Development Agenda: What can the Ministerial Conference in HK Achieve? Yun-Wing Sung Professor and Chairman Chinese University of Hong Kong HKCPEC Seminar 2 November, 2005

A Preview Introduction: Debate on pros & cons of free trade/globalization/WTO. Evolution of WTO & its guiding principles. Can small, developing economies thrive under free trade/globalization? Effect of free trade on income distribution internally and internationally. Are WTO rules fair for small developing economies? Abuse of WTO rules is still better than no WTO. Multilateral negotiations & the Doha Round. The HK Ministerial Meeting

Introduction: Pros & cons of free trade/globalization/WTO The HK govt. stresses the benefits of WTO in promoting free trade. Many NGO’s viewed WTO rules/globalization/free trade as unfair for developing countries, especially for the poor. To understand the current debate, we need to cover the evolution of the WTO & its guiding principles.

Evolution of the WTO & its guiding principles During the Great Depression of the 1930s, many nations protect employment by high tariffs. This worsened the depression. After the War, the US-led GATT (General Agreement on Tariffs and Trade) was formed to promote trade. The GATT is the predecessor of the WTO. The guiding principles of the GATT/WTO are liberalism (minimal restrictions), and symmetry (all nations treated the same). Liberalism implies that the use of tariffs & quotas are restricted. However, developing economies are allowed to protect more. Symmetry implies each nation must observe the MFN (Most Favoured Nation) clause. Tariffs & quotas, when allowed, should apply to all.

Can small/developing economies thrive under free trade/globalization/WTO? Both Liberalism & Symmetry are highly beneficial for small/developing economies. Developed economies account for a large part of the world market. Liberalism allows small/developing economies access to the world market. For example, during HK’s export-oriented growth of the 1960s, the US & UK were HK’s largest markets. The US is now China’s largest market. The MFN clause prevents large/powerful nations from discriminating against small players, e.g., without the MFN clause, it would be easy to discriminate against HK. The economic miracles of HK & other East Asian “Dragons” could not occur without the GATT.

Trade, growth and poverty Real Per Capita GDP Growth Source: “Trade, growth, and poverty”, David Dollar and Aart Kraay, World Bank Policy Research Working Paper #2615

Effect of free trade on domestic income distribution Under free trade, there are gainers (consumers & efficient producers) & losers (inefficient producers). It can be shown that the benefits to gainers generally exceed the loss of the losers in money terms. For instance, in the case of HK’s free import of agricultural goods, HK consumers & export industries gain, while farmers in the NT lose. In the case of US import of textiles, US consumers gain while US textile workers lose. It is possible for the gainers to compensate the losers such that everyone is better off. HK farmers did get help from the government, despite HK’s non-interventionist policy. Despite the decline of agriculture in HK, HK’s farmers have adjusted successfully. HK’s economic miracle could not occur with heavy protection of HK agriculture.

Effect of free trade on international income distribution Globalization implies that labour-intensive industries (e.g. textiles) would move from developed economies to developing economies. While this is bad for the unskilled workers in developed economies, it creates jobs in developing economies. It is good for international distribution of income. For instance, in the 1960s, US textile workers lost their jobs due to competition from HK; in the 1990s, HK textile workers lost their jobs due to competition from the Mainland. Due to the relocation of HK manufacturing to the Mainland, HK lost 600,000 manufacturing jobs from 1987 to However, HK employs over 10 million workers in Guangdong, which is great for poverty alleviation in the Mainland. In any case, developed economies should concentrate on skill/technology-intensive industries instead of labour-intensive industries.

Are WTO rules fair? While the principles of GATT/WTO are fair, powerful players have twisted WTO rules to the detriment of small players. For example, from the 1960s to 2004, HK and other developing economies have been pressured to “voluntarily” restrict their textile exports to developed economies. The abuse of WTO rules is still better than a world without the WTO. WTO rules, even when abused, still protect small/developing economies, which would otherwise face the law of the jungle.

Abuse of WTO rules is still better than no WTO, especially for small economies HK example: The pressure on HK to “voluntarily” restrict its textile exports in the 1960s still gave protection to HK, & HK was still able to succeed. 1.Textile quotas still permit export growth (GATT’s principle of liberalism), though at a lower rate. 2.The big players have to give concessions to HK in order for HK to agree to voluntary restrictions (The US cannot unilaterally impose quotas on HK due to the MFN clause). China’s example: Though China accepted unfair terms on anti- dumping and safeguards in its WTO accession due to US pressure, such unfair terms are still better than the law of the jungle, e.g., in 1993, Mexico levied anti-dumping duties averaging 300% (with the highest rate exceeding 1000%!) on China without prior notification. This cannot be done under the WTO.

Multilateral negotiations & the Doha Round (1) The MFN clause implies that a bilateral agreement will have multilateral consequences. The GATT sponsored 8 major rounds of multi-lateral negotiations to liberalize world trade in the post-war period. The Uruguay Round (8th round, 1993) concluded with the biggest package of market concessions ever negotiated. The GATT was replaced by the WTO in While trade barriers on manufactures are very low (Uruguay Round reduced tariffs on manufactures from 5% to 3%), agricultural subsidy remained a serious problem.

The Doha Development Agenda (2) WTO Ministerial Conferences (to be held at least once every two years), is the highest decision body of the WTO. The 9th Round should start with the Seattle WTO Ministerial Conference in 1999, but talks were stalled by major differences, especially on agricultural subsidies. Talks regained momentum in the Doha Ministerial Conference in Nov. 2001, starting the Doha Round or the Doha Development Agenda (DDA) negotiations. However, progress was slow and far from conclusive. The original deadline of 1 January 2005 was moved to the end of 2006.

The HK Ministerial Meeting (13-18 Dec 2005) The HK Ministerial Conference is crucial as there is very little time left. The momentum of multilateralism would dissipate if there is no breakthrough. Bilateralism (e.g., Mainland-HK CEPA, US-Singapore Free Trade Agreement) and Regionalism (e.g., NAFTA, EU expansion, 10+1 China-Asean FTA) would take over. HK needs multilateralism & the WTO. The uniqueness of HK is a bridge linking the Mainland & the world. While the CEPA links HK with the Mainland, it is imperative for HK to maintain & deepen its links with the world. It is difficult for HK to conclude bilaterals with other economies as it is small & already very open. The HK- New Zealand negotiations have not gone anywhere for 5 years. HK needs the WTO more than most economies.