MacroScan (Printable Version) - Do Missed WTO Deadlines Matter?

Another deadline has been missed in the perpetually ''ongoing'' negotiations to further liberalise world trade. The 149 members of the World Trade Organisation were to arrive at agreement on the ''modalities'' for reducing various forms of support to agriculture and increasing market access for non-agricultural commodities by the 30th of April. An end-April mini-ministerial had been announced by Pascal Lamy, the organisation's Director General, which was expected to clinch an agreement. But as deadline day neared, all that came to nought. With no hope of agreement between the US and the EU and the ''leading'' developing countries like Brazil and India unsatisfied, everybody agreed that the deadline was best left unmet. But the process continues. Director General Lamy has declared that, ''from now on, the process to reach modalities will be continuous, Geneva-based, and focused on texts,'' with the aim of finishing this work in a matter of weeks rather than months.

But the disappointment expressed is more symbolic than heartfelt. Nor is there any deadline fatigue visible. Many deadlines have been set and missed in the many rounds of trade negotiations that have contributed to making global trade as liberal as it is today. And in many countries the extent of liberalisation of trade is far more than that mandated by the WTO. Not surprisingly global trade grew in real terms at 9.5 and 6.0 per cent respectively in 2004 and 2005, even while global GDP at constant prices grew by just 3.9 and 3.3 per cent respectively.

The process continues because those pushing for a more open multilateral trade regime have four broad objectives. The first is to use the multilateral trade-liberalisation lever to deliver significant marginal gains in commodities, regions and countries considered unduly protectionist: agriculture in the EU and industry in some of the larger developing countries with a long history of import-substituting industrialisation, for example. This is seen by many governments as necessary to legitimise their support for a multilateral agreement at home. The second is to extend multilaterally agreed liberalisation to relatively new areas, like services, intellectual property rights (IPRs) and investment, not all of which are directly in the realm of international trade. The third is to legally bind countries to an agreed level of liberalisation so as to foreclose any reversal of the liberalisation process. And the fourth, is to use the WTO as an excuse to defend unilaterlal liberalisation at home, on the grounds that it was inevitable within the emerging multilateral regime.

These are medium or long-term goals and nothing would crack if agreement is not reached today, as many advocates tend to argue. Why then are deadlines constantly set, only to be revised? In the world of trade diplomacy these deadlines are clearly seen as catalysts for movement. These catalysts matter for those who are the key players in defining the pace of liberalisation. If, in the view of those key players, initial expectations of the extent of liberalisation are excessive, then ''ambitions'' must be lowered for the sake of progress, however slow. But once lowered, deadlines must be used to pressure countries into submission.

In the case of the Doha Round, the erosion of ambition started early: the acceptance of the continuation of Blue Box (or moderately trade-distorting) support to agriculture, the silence on Green Box (or ostensibly non-trade-distorting) support, the implicit endorsement of the practice of Box shifting and the restriction of dialogue to more trivial issues like export subsidies, import tariffs and so-called trade distorting support. But the erosion of ambition is asymmetric across areas. Nothing illustrates this more than the ''unbracketing'' of the whole of the controversial Annex C (dealing with services) at Hong Kong and the acceptance of plurilateral negotiations in services, which many developing countries had resisted to the very end. From the point of view of the developed countries, this amounted to upping the stakes.

Seen in these terms, there are elements of continuity and change between the Uruguay Round and the current Doha Round. Victory in the race to clinch an agreement that would bring the Uruguay Round to a close was predicated solely on agreement on issues of controversy within the Quad, especially between the US and EU. This was achieved through secretive deals like the infamous Blair House Accord that limited the extent of liberalisation of agriculture. This tendency continues. Failure this time was principally because of lack of agreement on agricultural trade liberalisation between the EU and the US, with EU intransigence presented as the major obstacle by the US and the EU trade commissioner declaring the US the biggest stumbling block to progress because of its unrealisitic demands. But there is an element of change this time. This is widening of the elite club to include some developing countries like Brazil and India, reflected in the role of the group of five (the US, EU, Australia, Brazil and India, named the ''five interested parties'', as if none other was interested) in arriving at the mid-2004 agreement called the July framework. Their unwillingness to give more on NAMA without further concessions from the EU, strengthened the US hand.

The implications of this new alliance at the top are clear from the sequencing argument Lamy used in his effort to meet the April 30 deadline. An end-April mini-Ministerial he held would be confined to resolving "key modalities" which he had defined as those relating to agricultural subsidies, agricultural tariffs and the number of sensitive products, and the NAMA tariff reduction formula. This amounted to a postponement of discussions on issues of interest to poorer countries such as special products and special safeguards in agriculture, special modalities for "Paragraph 6" countries (those with less than 35 per cent tariff bindings) in NAMA, and the problem of preference erosion in both agriculture and NAMA. Not surprisingly poorer countries, those in Africa in particular, objected to the sequencing approach. But they may not have really mattered.

The expansion of the decision-makers club is obviously part of a strategy being adopted by the Quad, partly in response to the failures at Seattle and Cancun and the growing loss of credibility of the UR. That strategy has many components, including: (i) making governments like those of Brazil and India believe that they can get away with more in agriculture or services, if they join the group of five, and would lose out if they are not there; (ii) making special proposals like global duty and quota free market access and introducing ambiguous issues like the aid-for-trade programme to ''buy out'' the low income countries, as economist Jagdish Bhagwati has put it; (iii) relying more on Regional Trade Agreements and Bilateral Trade Agreements with Doha-plus and minus elements, especially with regard to Non-Tariff Barriers, investment rules and IPRs; and (iv) declaring and sending out signals that negotiations would collapse or be postponed threatening uncertainty and chaos, if agreement is not in sight. The last minute replacement of Rob Portman with Susan Schwab as US trade representative, making it impossible for the US to make any further adjustments in its negotiating stance, was a clear statement from the US that it did not care what happened in Geneva this April.

All this transpires because of a belief among wealthholders (and those who represent them) in both the developed and developing countries that the only strategy which could ensure wealth expansion in the current global conjuncture is one that involves a substantial increase in integration into the world system. So the further integration goes the better. One factor reflecting this new alliance of the rich is the growing exposure of the world's wealthholders to dollar denominated assets, making them as concerned as the US government with ensuring the persistence of buoyancy in the US economy. This concern has been compounded by the fact that the US economy is the world's locomotive, with growth elsewhere in the world increasingly based on US-market dependence. In their view, if greater openness elsewhere, even at the expense of the majority in those countries, serves the cause of a tenuous stability in US growth, then so be it..

From the point of view of the majority in the developing world, however, current trends in global trade and global growth are patently inequalising, both internationally and domestically. Their stake in integration is small and declining. They are, therefore, bound to be happy that the deadline has been missed. But when and how they would be able to reverse trends that are not in their favour is unclear. Till then, division at the top, however temporary, is small solace.



Themes > Current Issues	02.05.2006


Do Missed WTO Deadlines Matter?

C.P. Chandrasekhar

Another deadline has been missed in the perpetually ''ongoing'' negotiations to further liberalise world trade. The 149 members of the World Trade Organisation were to arrive at agreement on the ''modalities'' for reducing various forms of support to agriculture and increasing market access for non-agricultural commodities by the 30th of April. An end-April mini-ministerial had been announced by Pascal Lamy, the organisation's Director General, which was expected to clinch an agreement. But as deadline day neared, all that came to nought. With no hope of agreement between the US and the EU and the ''leading'' developing countries like Brazil and India unsatisfied, everybody agreed that the deadline was best left unmet. But the process continues. Director General Lamy has declared that, ''from now on, the process to reach modalities will be continuous, Geneva-based, and focused on texts,'' with the aim of finishing this work in a matter of weeks rather than months. But the disappointment expressed is more symbolic than heartfelt. Nor is there any deadline fatigue visible. Many deadlines have been set and missed in the many rounds of trade negotiations that have contributed to making global trade as liberal as it is today. And in many countries the extent of liberalisation of trade is far more than that mandated by the WTO. Not surprisingly global trade grew in real terms at 9.5 and 6.0 per cent respectively in 2004 and 2005, even while global GDP at constant prices grew by just 3.9 and 3.3 per cent respectively. The process continues because those pushing for a more open multilateral trade regime have four broad objectives. The first is to use the multilateral trade-liberalisation lever to deliver significant marginal gains in commodities, regions and countries considered unduly protectionist: agriculture in the EU and industry in some of the larger developing countries with a long history of import-substituting industrialisation, for example. This is seen by many governments as necessary to legitimise their support for a multilateral agreement at home. The second is to extend multilaterally agreed liberalisation to relatively new areas, like services, intellectual property rights (IPRs) and investment, not all of which are directly in the realm of international trade. The third is to legally bind countries to an agreed level of liberalisation so as to foreclose any reversal of the liberalisation process. And the fourth, is to use the WTO as an excuse to defend unilaterlal liberalisation at home, on the grounds that it was inevitable within the emerging multilateral regime. These are medium or long-term goals and nothing would crack if agreement is not reached today, as many advocates tend to argue. Why then are deadlines constantly set, only to be revised? In the world of trade diplomacy these deadlines are clearly seen as catalysts for movement. These catalysts matter for those who are the key players in defining the pace of liberalisation. If, in the view of those key players, initial expectations of the extent of liberalisation are excessive, then ''ambitions'' must be lowered for the sake of progress, however slow. But once lowered, deadlines must be used to pressure countries into submission. In the case of the Doha Round, the erosion of ambition started early: the acceptance of the continuation of Blue Box (or moderately trade-distorting) support to agriculture, the silence on Green Box (or ostensibly non-trade-distorting) support, the implicit endorsement of the practice of Box shifting and the restriction of dialogue to more trivial issues like export subsidies, import tariffs and so-called trade distorting support. But the erosion of ambition is asymmetric across areas. Nothing illustrates this more than the ''unbracketing'' of the whole of the controversial Annex C (dealing with services) at Hong Kong and the acceptance of plurilateral negotiations in services, which many developing countries had resisted to the very end. From the point of view of the developed countries, this amounted to upping the stakes. Seen in these terms, there are elements of continuity and change between the Uruguay Round and the current Doha Round. Victory in the race to clinch an agreement that would bring the Uruguay Round to a close was predicated solely on agreement on issues of controversy within the Quad, especially between the US and EU. This was achieved through secretive deals like the infamous Blair House Accord that limited the extent of liberalisation of agriculture. This tendency continues. Failure this time was principally because of lack of agreement on agricultural trade liberalisation between the EU and the US, with EU intransigence presented as the major obstacle by the US and the EU trade commissioner declaring the US the biggest stumbling block to progress because of its unrealisitic demands. But there is an element of change this time. This is widening of the elite club to include some developing countries like Brazil and India, reflected in the role of the group of five (the US, EU, Australia, Brazil and India, named the ''five interested parties'', as if none other was interested) in arriving at the mid-2004 agreement called the July framework. Their unwillingness to give more on NAMA without further concessions from the EU, strengthened the US hand. The implications of this new alliance at the top are clear from the sequencing argument Lamy used in his effort to meet the April 30 deadline. An end-April mini-Ministerial he held would be confined to resolving "key modalities" which he had defined as those relating to agricultural subsidies, agricultural tariffs and the number of sensitive products, and the NAMA tariff reduction formula. This amounted to a postponement of discussions on issues of interest to poorer countries such as special products and special safeguards in agriculture, special modalities for "Paragraph 6" countries (those with less than 35 per cent tariff bindings) in NAMA, and the problem of preference erosion in both agriculture and NAMA. Not surprisingly poorer countries, those in Africa in particular, objected to the sequencing approach. But they may not have really mattered. The expansion of the decision-makers club is obviously part of a strategy being adopted by the Quad, partly in response to the failures at Seattle and Cancun and the growing loss of credibility of the UR. That strategy has many components, including: (i) making governments like those of Brazil and India believe that they can get away with more in agriculture or services, if they join the group of five, and would lose out if they are not there; (ii) making special proposals like global duty and quota free market access and introducing ambiguous issues like the aid-for-trade programme to ''buy out'' the low income countries, as economist Jagdish Bhagwati has put it; (iii) relying more on Regional Trade Agreements and Bilateral Trade Agreements with Doha-plus and minus elements, especially with regard to Non-Tariff Barriers, investment rules and IPRs; and (iv) declaring and sending out signals that negotiations would collapse or be postponed threatening uncertainty and chaos, if agreement is not in sight. The last minute replacement of Rob Portman with Susan Schwab as US trade representative, making it impossible for the US to make any further adjustments in its negotiating stance, was a clear statement from the US that it did not care what happened in Geneva this April. All this transpires because of a belief among wealthholders (and those who represent them) in both the developed and developing countries that the only strategy which could ensure wealth expansion in the current global conjuncture is one that involves a substantial increase in integration into the world system. So the further integration goes the better. One factor reflecting this new alliance of the rich is the growing exposure of the world's wealthholders to dollar denominated assets, making them as concerned as the US government with ensuring the persistence of buoyancy in the US economy. This concern has been compounded by the fact that the US economy is the world's locomotive, with growth elsewhere in the world increasingly based on US-market dependence. In their view, if greater openness elsewhere, even at the expense of the majority in those countries, serves the cause of a tenuous stability in US growth, then so be it.. From the point of view of the majority in the developing world, however, current trends in global trade and global growth are patently inequalising, both internationally and domestically. Their stake in integration is small and declining. They are, therefore, bound to be happy that the deadline has been missed. But when and how they would be able to reverse trends that are not in their favour is unclear. Till then, division at the top, however temporary, is small solace.



© MACROSCAN 2006