COMMENTARY

Spring 2011

by Gary Hufbauer

Ricardo Meléndez-Ortiz and Trineesh Biswas say the Doha Round is torn between three Ps – protectionists (the likes of Brazil, India, and China), perfectionists (led by the United States) and pragmatists (the European Union and a few other sensible countries). The authors suggest that if EU leaders step up their game as honest brokers between protectionists and perfectionists, the Doha Round might yet be salvaged.

This is a hopeful scenario, but for the moment, as the authors are certainly aware but do not acknowledge, European leaders are more preoccupied with their own blundering efforts to arrest the sovereign debt crisis that has engulfed the EU’s southern flank and Ireland. By the end of 2011, Portugal, Spain and Italy may well need thinly-disguised assistance from Germany, the Netherlands and France; and whether Brussels likes it or not, some of its distressed members may join Greece in accepting funds from China as well as the IMF. Faced with these distractions, it’s questionable whether Brussels can mount a leadership role for the flailing Doha Round. But let’s be optimistic and assume that European leaders (unlike a past U.S. president) can walk and chew gum at the same time.

To carry through their pragmatic agenda, Meléndez-Ortiz and Biswas suggest a revival of the terms almost agreed in the fateful WTO ministerial meeting of July 2008, heroically chaired by its Director General, Pascal Lamy. The agreement manqué was based on formula tariff cuts specified in modalities drafted by the chairs of the Doha Round negotiating groups. In Figuring Out the Doha Round, a Peterson Institute monograph published mid-2010, we together with Jeffery Schott estimated the potential gains from liberalisation in agriculture and from non-agricultural market access negotiations (NAMA) that these formula cuts might yield. We calculated that prospective results – what we call gains already “on the table” – are significant, but not sufficient to persuade the U.S. Congress to close the deal, and possibly not enough to win the support of fellow free-traders like Australia, Canada, Chile and Mexico. In the language of the authors, these sceptics make up the perfectionist camp – but it must be recognised that “perfection” in this context is relative, since the July 2008 terms were a far cry from free trade.

Second, the deal was not sufficiently balanced to satisfy the mercantile politics that dominate trade policy. As card-carrying economists, we welcome imports as much as exports; but at a time when OECD countries are beset with exceptionally high unemployment, it’s tough to sell a Doha bargain that conveys outsized export gains to China and slim pickings for the United States. From our calculations, about $93bn in global exports and $87bn in global imports make up the potential total trade gains from “on the table” liberalisations. Most of the export gains are captured by China and EU while most of the import gains are captured by the U.S. and EU. These trade gains translate into around $63bn in GDP gains which translates into 0.1% increases in GDP for most countries with the exception of China at 0.3%.

To correct this striking political imbalance, we proposed “topped up” reforms in services, selected sectors, and trade facilitation. Our score for an ambitious Doha outcome, augmenting “on the table” gains with “topped up” gains, indicates a far more robust outcome. We estimate potential in global export increases of $384bn and import increases of $410bn when “topped up” gains are added to “on the table” gains. These potential gains are a lot higher and are spread more equally. Total GDP gains are $283bn, accounting for 0.5% of world GDP. For developing countries, these gains translate into 1.3% of their collective total GDP – a much more significant increase compared to the 0.2% increase from “on the table” gains.

Perhaps we have travelled too far into the land of perfection. Yet our agenda has elements in common with the proposals put forth for the EU by Meléndez-Ortiz and Biswas – serious liberalisation of services trade, meaningful limits on fisheries subsidies, and rollback of export subsidies. Our agenda for Europe also includes tighter discipline on all farm subsidies, deeper cuts in farm tariffs, and broader commitments to reform trade barriers and investment restrictions in services. The challenge now is to break the current impasse in Geneva – with the G20 Summit to be hosted by France’s President Nicolas Sarkozy in November 2011 looming as the key event where lofty G20 promises to conclude the Round are finally celebrated with a Doha pact featuring significant concessions by each of the G20 countries.

For the United States, we propose tightening its discipline on farm subsidies, bringing its cotton programme into compliance with WTO rules, and topping up its offer on duty-free, quota-free (DFQF) treatment for the least developed countries. Brazil, India, and China should enrich their liberalisation offers on NAMA, services and trade facilitation and limit their resort to special agricultural safeguards

The European Union should take the lead on bringing climate change into the WTO. In 2007, along with the U.S., the EU proposed a two-tier process as part of the Doha agreement by liberalising trade in at least 43 climate-friendly technologies like solar panels and wind turbines and by negotiating a far-reaching Environmental Goods and Services Agreement (EGSA).