When business and political leaders met in Davos, Switzerland for the World Economic Forum, trade and the Doha Round of trade policy negotiations were part of the official agenda and side meetings. Over 20 WTO member trade ministers and Director General Pascal Lamy met informally and agreed to complete the round by the end of the year. Among the background analyses for the meetings was The Doha Round: Setting a Deadline, Defining a Final Deal that argues a deal can be achieved and would provide for the greatest expansion of trade of any agreement.

 

The report was written by a nine member “expert group” appointed by the government leaders of Germany, Great Britain, Indonesia and Turkey and co-chaired by Peter Sutherland, Director General of the General Agreement on Tariff and Trade (GATT) in 1994 when it became the WTO and now non-executive Chairman of Goldman Sachs International, and Jagdish Bhagwati, Professor of Economics at Columbia University and supporter of more open trade. The group called for setting December 31, 2011 as an absolute deadline for completing an agreement or publically declaring the talks a failure.

The expert group attributed the slow progress of the talks to a fundamental shift in WTO membership. Beginning in the 1960s, the majority of members of the GATT were developing countries, but most of the negotiating was done by “self-identified liberalizers” from developed countries. Developing countries were not asked to reduce tariffs and benefited from expanded market access in developed countries. Advanced developing countries like Brazil, China, India and South Korea are now too big to not make substantial tariff reductions. Developed countries will still need to accept some asymmetrical outcomes with developing country competitors. The flexibilities allowed developing countries will create ambiguities as to the level of tariff reductions, yet all tariffs will be reduced with the highest reduced the most.

Four reasons are suggested for completing the Doha Round. First, the agreement would be an insurance policy against future protectionism because the unilateral tariff reductions since 1994 would be bound under the new agreement. The gap between bound rates and applied rates would be reduced by lowering the bound rates. Second, the reductions in subsidies in agriculture would become irreversible and constrain increased spending in the U.S. and EU when market prices may decline in future years. Third, while market access would still be limited, the agreement would provide for the greatest expansion of trade ever in a multilateral agreement. Fourth, it would reinforce the WTO system of dispute resolution which can only survive within a wider forum of trade policy negotiations.

The report points out that “The most dynamic part of 21st century trade comes from the internationalization of supply chains.” A gap has developed between 20th century trade policy and 21st century trade reality. As each country writes its own rules for this gap in WTO policies, the risk increases for trade policy to revert back to a 19th century-style “Great Powers” trading system rather than the current multilateral WTO system. That old trade framework would make it more difficult to work cooperatively on other issues like the environment and peace-keeping.

Agricultural negotiations, which were not included before the Uruguay Round Agreement completed in 1994, have added to the challenges. Increased market access would benefit developed and developing countries and the disciplines on agricultural subsidies of developed countries should benefit developing countries. The tariff reductions in highly protected developed countries would provide real market access because the tariff ceilings would push down on applied rates. Only 4 percent of tariff lines could be labeled “sensitive” and subject to smaller reductions. As compensation for those smaller reductions tariff rate quotas of 4 percent of consumption would be provided and subject to low tariffs. U.S. exporters would see tariffs paid decline by $2.2 billion per year, while importers to the U.S. would save $1.5 billion. Reductions in cotton subsidies have not been worked out.

For industrial goods, developed countries, who account for two-thirds of trade, would have no tariff above 6 percent. Advanced developing countries have a role to play in the negotiations. China has average import tariffs of 5.6 percent; Brazil is at 8.5 percent and India at 12.9 percent. China would reduce tariffs by an average of 22 percent, but countries importing its products would reduce tariffs by 36 percent. Brazil and India would each reduce tariffs by 8 percent and still have average tariffs considerable above the 6 percent of developed countries. India has generally lowered tariffs since 1995, but Brazil has not. EU and U.S. exporters would face 22 percent lower tariffs in their markets, but most of that change would be in developed countries, not developing ones. The EU and U.S. would reduce industrial goods tariffs in the range of 40 percent to 50 percent and large advanced developing countries must make a commensurate commitment.

The experts also note that political leaders must be willing to explain the value of more open trade not just in terms of new market access for exports but in terms of the value of imports to widen consumer choice and competition and drive productivity and growth. Reducing imports tariffs is not simply a “concession”- it’s a way to reduce production costs for some items and increases the purchasing power of consumers. They explain, “Without this willingness, the politics of open trade will always be hobbled and incompletely honest. Only this explicit political leadership will create the context in which negotiators feel able to move from defensive positions to deal-making.”

The report concludes that the current Doha package is substantial, but incomplete. Agriculture and trade facilitation chapters are rated as advanced. On industrial goods a core agreement is there, but it needs work. Language on trade in services is much less advanced and additional work would increase the value of an agreement. The agreement looks much like it did in 2008. The analysis is encouraging because it highlights the work already done and gaps that need to be filled. What is needed is the political will to carry the deal to completion before the end of the year and start the approval process in each country.