The Doha Round Impasse: What Can Developing Countries Do? Alan V. Deardorff Robert M. Stern University of Michigan

2 The Doha Round Impasse The Round The Round Launched in 2001 as the Doha Development Agenda Launched in 2001 as the Doha Development Agenda Intended to continue the multilateral trade liberalization of 50 years under the GATT Intended to continue the multilateral trade liberalization of 50 years under the GATT Promised to give special attention to needs of developing countries Promised to give special attention to needs of developing countries

3 The Doha Round Impasse The Impasse The Impasse Negotiations stumbled in Cancun in 2003 Negotiations stumbled in Cancun in 2003 Revived in 2004 but barely advanced in Hong Kong in 2005 Revived in 2004 but barely advanced in Hong Kong in 2005 Ceased for months in 2006 Ceased for months in 2006 Now the leaders of EU, US, WTO are Now the leaders of EU, US, WTO are Pushing to reach enough agreement for the Round to continue Pushing to reach enough agreement for the Round to continue Hoping to persuade the US Congress to extend US authority to negotiate (“Fast Track”) Hoping to persuade the US Congress to extend US authority to negotiate (“Fast Track”) Prospects are dire Prospects are dire

4 The Doha Round Impasse The Questions The Questions What can developing countries do What can developing countries do To help the Round succeed? To help the Round succeed? To achieve their objectives if the Round fails? To achieve their objectives if the Round fails? How, in any case, should developing countries manage their trade policies, with or without cooperation from others? How, in any case, should developing countries manage their trade policies, with or without cooperation from others?

5 Outline How we reached this impasse How we reached this impasse Trade Interests of Developing Countries Trade Interests of Developing Countries Structure of WTO Negotiations Structure of WTO Negotiations Options for Developing Countries Options for Developing Countries Conclusion Conclusion

6 How we reached this impasse The Doha Round The Doha Round Began at the Ministerial Meeting of the WTO in Doha, Qatar, in 2001 Began at the Ministerial Meeting of the WTO in Doha, Qatar, in 2001 High hopes for real progress High hopes for real progress By developing countries By developing countries For developing countries For developing countries Hence, the “Doha Development Agenda” Hence, the “Doha Development Agenda”

7 How we reached this impasse Central Issues of the Doha Round Central Issues of the Doha Round Developed country policies that hurt developing countries Developed country policies that hurt developing countries Protection on imports of agriculture and non- agricultural labor-intensive exports Protection on imports of agriculture and non- agricultural labor-intensive exports Subsidies in agriculture Subsidies in agriculture Developing country protection in all sectors, including services Developing country protection in all sectors, including services

8 How we reached this impasse Progress, and lack of it Progress, and lack of it Cancun Ministerial September 2003: Failed to reach agreement on the framework for a negotiating text. Cancun Ministerial September 2003: Failed to reach agreement on the framework for a negotiating text. Group of 20 (+ or −) Developing Countries rejected draft proposed by US and EU Group of 20 (+ or −) Developing Countries rejected draft proposed by US and EU It gave too little on agriculture It gave too little on agriculture It asked too much from developing countries, including 4 “Singapore Issues” It asked too much from developing countries, including 4 “Singapore Issues” Cancun meeting ended in failure Cancun meeting ended in failure

9 How we reached this impasse Progress, and lack of it Progress, and lack of it Summer 2004: framework text agreed, dropping all but one of the Singapore Issues Summer 2004: framework text agreed, dropping all but one of the Singapore Issues Kept “trade facilitation” Kept “trade facilitation”

10 How we reached this impasse Progress, and lack of it Progress, and lack of it December 2005: Hong Kong Ministerial achieved “success” but made hardly any progress December 2005: Hong Kong Ministerial achieved “success” but made hardly any progress

11 How we reached this impasse Progress, and lack of it Progress, and lack of it July 2006: WTO Director General Pascal Lamy July 2006: WTO Director General Pascal Lamy Acknowledged lack of progress Acknowledged lack of progress Suspended negotiations Suspended negotiations

12 How we reached this impasse Progress, and lack of it Progress, and lack of it Today: Negotiators are talking again Today: Negotiators are talking again Hope is to make some progress Hope is to make some progress Then persuade US Congress to extend “Fast Track” (US trade negotiating authority) Then persuade US Congress to extend “Fast Track” (US trade negotiating authority)

13 How we reached this impasse Importance for developing countries Importance for developing countries Doha Round was never really about development per se, in spite of its name Doha Round was never really about development per se, in spite of its name Reducing trade barriers is helpful, but not sufficient for development Reducing trade barriers is helpful, but not sufficient for development WTO hasn’t the power or expertise to assist development WTO hasn’t the power or expertise to assist development

14 How we reached this impasse Importance for developing countries Importance for developing countries Doha Round was about reducing the trade barriers and other policies that hinder development Doha Round was about reducing the trade barriers and other policies that hinder development Both by developed countries against developing- country exports and by developing countries themselves Both by developed countries against developing- country exports and by developing countries themselves All were a residual of the way that “Special and Differential Treatment” had been granted to developing countries: All were a residual of the way that “Special and Differential Treatment” had been granted to developing countries: They “gave” nothing in previous negotiations, and they got nothing in return. They “gave” nothing in previous negotiations, and they got nothing in return.

15 Trade Interests of Developing Countries Developing countries have a shared interest in exporting Developing countries have a shared interest in exporting Their greatest interest in the Doha Round is market access for their labor-intensive exports Their greatest interest in the Doha Round is market access for their labor-intensive exports

16 Trade Interests of Developing Countries Exceptions to this shared interest Exceptions to this shared interest If they export different things If they export different things If they export to each other If they export to each other If some already have preferential market access that would be eroded If some already have preferential market access that would be eroded

17 Trade Interests of Developing Countries Competition among developing countries does not justify protection Competition among developing countries does not justify protection Many smaller countries fear competition with China and India Many smaller countries fear competition with China and India This fear of competition is the same that countries throughout history have used to justify protection This fear of competition is the same that countries throughout history have used to justify protection The fear is groundless or at least overblown: even small countries have comparative advantages The fear is groundless or at least overblown: even small countries have comparative advantages

18 Trade Interests of Developing Countries Some developing countries face erosion of preferences Some developing countries face erosion of preferences This fear is real and not avoidable This fear is real and not avoidable They are likely to have to switch to sectors where they don’t need preferences, and this will be costly They are likely to have to switch to sectors where they don’t need preferences, and this will be costly Hope is that they’ve used their preferential gains productively Hope is that they’ve used their preferential gains productively

19 Trade Interests of Developing Countries Developing countries can gain by cooperating Developing countries can gain by cooperating Interests are sufficiently common that they can and should act together Interests are sufficiently common that they can and should act together Actions of the G-20 in Cancun were encouraging, even though they led to the failure of the meeting Actions of the G-20 in Cancun were encouraging, even though they led to the failure of the meeting Can they act collectively outside the WTO? Probably not Can they act collectively outside the WTO? Probably not

20 Structure of the Negotiations Developing countries have played only a small role in past negotiations Developing countries have played only a small role in past negotiations In the past deals have been made between US and EU, then sold to others In the past deals have been made between US and EU, then sold to others Developing countries did play a small role, with a handful included in each particular negotiation (the “Green Room”) Developing countries did play a small role, with a handful included in each particular negotiation (the “Green Room”) But there was never any formal representation in WTO decision making But there was never any formal representation in WTO decision making

21 Structure of the Negotiations The “Development Agenda” should provide assistance to liberalization, not exemption from it The “Development Agenda” should provide assistance to liberalization, not exemption from it Should the Doha Round include a bias in favor of developing countries, to correct for the past? No, not if it would be interpreted again as exempting them from making “concessions” No, not if it would be interpreted again as exempting them from making “concessions” Yes, if it can provide resources to help them liberalize Yes, if it can provide resources to help them liberalize

22 Options for Developing Countries Act collectively to reinvigorate the WTO Act collectively to reinvigorate the WTO Can they matter? Clearly yes, since it was their own reluctance that contributed to the impasse Can they matter? Clearly yes, since it was their own reluctance that contributed to the impasse Major developing countries (the G-20) must recognize that trade liberalization is in their interest Major developing countries (the G-20) must recognize that trade liberalization is in their interest

23 Options for Developing Countries Act collectively to reinvigorate the WTO Act collectively to reinvigorate the WTO It may help to note that developing countries have the most to gain from liberalization, in relative terms, far more than the developed countries It may help to note that developing countries have the most to gain from liberalization, in relative terms, far more than the developed countries If the Doha Round fails, it is the developing world that will lose the most If the Doha Round fails, it is the developing world that will lose the most The Doha Round is not primarily a rich-country game The Doha Round is not primarily a rich-country game

24 Options for Developing Countries Act collectively to reinvigorate the WTO Act collectively to reinvigorate the WTO What they must do: What they must do: Continue to press hard for removal of tariffs and subsidies on their products in developed countries Continue to press hard for removal of tariffs and subsidies on their products in developed countries And offer meaningful tariff cuts into their own markets And offer meaningful tariff cuts into their own markets

25 Options for Developing Countries Encourage and cooperate in Aid for Trade initiatives Encourage and cooperate in Aid for Trade initiatives These initiatives, by the IMF, World Bank and others, would provide financial assistance in implementing and dealing with liberalization These initiatives, by the IMF, World Bank and others, would provide financial assistance in implementing and dealing with liberalization This is also explicitly called for in the Doha Round Declaration This is also explicitly called for in the Doha Round Declaration What is needed are firm commitments, not just statements of approval. What is needed are firm commitments, not just statements of approval.

26 Options for Developing Countries Regional and/or bilateral arrangements Regional and/or bilateral arrangements These are usually Free Trade Agreements (FTAs), often with the US, EU or other developed country These are usually Free Trade Agreements (FTAs), often with the US, EU or other developed country The current surge of FTAs started when the previous GATT round foundered in the 1980s, stimulating the US-Canada FTA and later NAFTA The current surge of FTAs started when the previous GATT round foundered in the 1980s, stimulating the US-Canada FTA and later NAFTA Today there are almost 300 of them Today there are almost 300 of them

27 Options for Developing Countries Regional and/or bilateral arrangements Regional and/or bilateral arrangements These are These are Inferior to multilateral free trade Inferior to multilateral free trade Potentially distinctly harmful Potentially distinctly harmful But in practice most have been beneficial to the world But in practice most have been beneficial to the world

28 Welfare Effects of Bilateral Negotiating Options US and… Japan and… Australia23.1Chile3.5 Central Amer & Carib 15.7Indonesia11.1 Chile7.9Korea19.7 Morocco7.5Malaysia10.1 Singapore22.5Mexico10.6 Southern Africa 11.8Philippines3.0 Thailand21.9Singapore6.7 Units: $billions Source: Brown, Kiyota, and Stern (2006)

29 Options for Developing Countries Regional and/or bilateral arrangements Regional and/or bilateral arrangements Choice of partners Choice of partners Neighbors – most likely Neighbors – most likely Other developing countries – little to gain Other developing countries – little to gain Developed countries Developed countries Most to gain Most to gain Danger of asymmetric power: May be pressed to give more than they wish Danger of asymmetric power: May be pressed to give more than they wish

30 Options for Developing Countries Regional and/or bilateral arrangements Regional and/or bilateral arrangements Structure of FTAs Structure of FTAs Should approach and approximate multilateral free trade Should approach and approximate multilateral free trade If FTAs are formed between A&C and B&C, then A&B should also form FTA If FTAs are formed between A&C and B&C, then A&B should also form FTA Rules of origin should then encompass all three Rules of origin should then encompass all three Might as well then enlarge to a single FTA of AB&C Might as well then enlarge to a single FTA of AB&C All FTAs should permit new entrants easily All FTAs should permit new entrants easily

31 Options for Developing Countries Focused initiatives in sub areas Focused initiatives in sub areas Industry agreements have been successfully negotiated among developed countries Industry agreements have been successfully negotiated among developed countries These are unlikely to work among only developing countries These are unlikely to work among only developing countries Between developed and developing countries there are dangers, as the trade tends to go only one direction; concessions are one-way only Between developed and developing countries there are dangers, as the trade tends to go only one direction; concessions are one-way only

32 Options for Developing Countries Unilateral liberalization Unilateral liberalization If tariffs are high and/or the developing country is small, and if the Doha Round is failing, don’t wait! Liberalize unilaterally If tariffs are high and/or the developing country is small, and if the Doha Round is failing, don’t wait! Liberalize unilaterally The tariffs are damaging the country and undermining development The tariffs are damaging the country and undermining development

33 Options for Developing Countries Unilateral liberalization Unilateral liberalization But if tariffs are already low and the country is large enough for its markets to matter to others, then further unilateral liberalization is probably unwise But if tariffs are already low and the country is large enough for its markets to matter to others, then further unilateral liberalization is probably unwise Keep them as “bargaining chips” for future negotiations Keep them as “bargaining chips” for future negotiations Potential market access abroad may gain more than reducing low own tariffs; worth waiting for Potential market access abroad may gain more than reducing low own tariffs; worth waiting for

34 Conclusions What is best for developing countries? What is best for developing countries? That’s easy: Success in the Doha Round That’s easy: Success in the Doha Round That success, as well as the full benefits of success to developing countries, requires that they offer to reduce their tariffs That success, as well as the full benefits of success to developing countries, requires that they offer to reduce their tariffs Developing countries must recognize that tariff reductions are in their interests Developing countries must recognize that tariff reductions are in their interests For the traditional gains from trade For the traditional gains from trade For “buying” market access for their exports For “buying” market access for their exports

35 Conclusions If the Doha Round fails, then the best remaining options are If the Doha Round fails, then the best remaining options are Aid for trade Aid for trade Bilateral/regional FTAs Bilateral/regional FTAs Unilateral liberalization in most, but not all, cases Unilateral liberalization in most, but not all, cases