BRUSSELS—The Doha round of global trade talks will perish if not completed this year, warns a new report coauthored by Peter Sutherland, the first-ever director of the World Trade Organization.
"Trade negotiators of major powers need to lead from the front, the 64-year-old Mr. Sutherland, now a nonexecutive chairman at Goldman Sachs, said in an interview. "Heads of government have to do more than simply repeat the rhetoric; they have to finger the issues themselves."
In the end, “the U.S. and China need to push it over the line,”he said, adding that by 2012, the U.S. presidential election will once and for all mean the end of the round.
Launched in November 2001, Doha is the only trade deal under discussion that includes all 153 WTO members. Its original premise was a simple bargain, raised in a post-Sept. 11 spirit of cooperation: rich countries cut farm tariffs and subsidies, and, in exchange, emerging and poor economies open markets for industrial goods and services.
However, the round has floundered time and again, partly because leaders have found compromise too politically risky and partly because global trade has thundered on without a deal, thanks to the rise of China, Brazil and India. In 2001, global exports were worth $6.5 trillion. In 2010, they're projected at over $13 trillion.
Still, Doha remains a dream of many economists and trade officials, because, as Mr. Sutherland's report argues, it would theoretically open the doors for hundreds of billions of dollars annually in extra trade.
In November 2010, four pro-Doha countries—Germany, the U.K., Indonesia and Turkey—commissioned a report on Doha and its future. Mr. Sutherland and Columbia University economist Jagdish Bhagwati were tapped to write it.
For maximum impact, they decided to release their findings, 20 pages long, Friday at the World Economic Forum in Davos, Switzerland. Mr. Sutherland's status as director at the time of the WTO's founding in 1995 guarantees it will generate some buzz and have some influence.
Trade ministers from the world's biggest economic powers, and WTO director Pascal Lamy, are holding informal talks there on Friday and Saturday. Their goal isn't to secure a deal, but to see if there is any hope of concluding one by the end of 2011.
His report lays out four key arguments they should consider:
1. It would be an “insurance policy” against a possible trade war in the aftermath of the financial crisis.
2. It would grant a key incentive to the European Union and U.S. to cut their bloated farm subsidies.
3. It would open markets around the world, for agriculture in the EU and U.S., and industrial goods in Brazil, India and China.
4. It would back up the legitimacy of the WTO’s court-like system for resolving trade disputes among members.
Solving the Doha round will require dropping some of its proposals while getting political leaders to compromise, even at the risk of short-term political loss, the report says.
For example, one of the key stumbling blocks in the round is the idea of creating a tariff-free zone for certain industries, an idea known in trade jargon as“sectorals.”It would allow large multinationals to run their supply chains much more cheaply and efficiently.
Emerging markets, such as China, have been hesitant to agree, since this idea would mostly benefit EU and U.S. firms. Here, Mr. Sutherland advocates flexibility, allowing countries to opt out of sectoral agreements for certain industries they want to protect.
All countries have to give more on services, and, for industrial goods, "the onus is on the emerging economies to demonstrate a willingness to make some contribution to a trading system from which they have been key beneficiaries." Brazil, for example, still has roughly the same levels of import tariffs as 15 years ago.
The world’s 49 poorest countries should get duty-free access to the markets of all the members of the Organization of Economic Cooperation and Development, a rich-country club. That would increase their trade by 44%, or $7 billion a year, the report says. Also, the U.S. will have to cut cotton subsidies.
So why has Doha been so difficult to achieve?
Mr. Sutherland points out that, under the model under which global trade talks were held between the 1960s and 1990s, Western developed countries simply agreed to tariff cuts among themselves.
Poor countries, the rest of the world, were allowed to take advantage of the tariff cuts without having to offer any of their own. After all, they had no significant industries to threaten Europe, America or Japan.
Average tariffs on nonagricultural goods in rich countries are now under 5%, while tariffs elsewhere are still higher. That means for a Doha deal to work, emerging economies have to cut tariffs, and rich countries have to offer something else, namely cuts in farm tariffs and subsidies, and other incentives such as visa rights for foreign workers.
“Emerging markets are now big enough to rule out free riding,”write the report's authors. However, that means countries such as China, India and Brazil have to make concessions of their own, complicating the political picture. And farm lobbies in the West are still mighty, rendering that side of the equation difficult, too.
And in the end, the report states, developed countries have to accept that the outcome will be asymmetrical, even vis-à-vis large and competitive exporters like China and Brazil who remain in development. This makes the Doha round a difficult proposition for some domestic constituencies.”
The EU, for example, has had to accept that the price of the Doha round is the complete renovation of its system of agricultural supports and tariffs with no expectation of proportionate action from developing countries.”
The political difficulties have alienated the business world, Mr. Sutherland said in the interview. "The business community has given up because they've been disappointed in the political system." Trade officials say business lobbies were essential to the success of the last global trade round, Uruguay, signed in 1994.
Messrs. Sutherland and Bhagwati conclude that perfect cannot be allowed to be the enemy of unprecedentedly good.”
Their report is a timely reminder of the huge economic benefits that striking a deal will bring to all corners of the globe as well as the importance of reinforcing the role of the WTO in global trade governance,”said European trade commissioner Karel De Gucht. At the same time, it sends a healthy warning of the risks associated with failure.
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