So, What Next?

31 December 2008

Yet another do-or-die moment passed in the Doha Round when a highly anticipated ministerial gathering was abandoned in December, leaving all actors perplexed about where to go next.

New negotiating texts released in early December failed to inspire confidence among WTO Members that ministers would succeed in clinching a framework deal on agriculture and industrial market access (see pages 5 and 7). Bowing to the inevitable, WTO Director General Pascal Lamy told the membership on 12 December that his consultations with capitals had not revealed "a readiness to spend the political capital" needed to reach an agreement. The US had particularly little room to manoeuvre after its main farming and manufacturing lobbies, as well as a bi-partisan group of senators, advised against a ministerial meeting. Indian officials also expressed serious doubts over the likelihood of achieving convergence. Traditional grumblings from mercantilist perspectives were promptly heard from many corners on the terms of the market access texts on the table.

Where to Now?

DG Pascal Lamy, in for a new term in office as the sole candidate, believes that the WTO's main goal for 2009 should remain advancing the Doha Round, although he has also suggested stepping up work in monitoring trade measures taken in the wake of the financial crisis, trade finance and Aid for Trade (see page 4).

Many, however, think that the WTO has suffered from its near-exclusive focus on the perpetually faltering talks. Writing in the January issue of Foreign Affairs, trade researchers Aaditya Mattoo and Arvind Subramaniam argued that the issues now at stake in the round were marginal and distracted attention from "other matters of greater significance, such as the consequences for trade of misaligned exchange rates and environmental protection." It was time, they suggested, "to start working on a new agenda that really matters instead of trying to resuscitate an inconsequential enterprise."

Few would disagree that it would be a mistake to abandon the round altogether. Although the economic gains resulting from its conclusion now appear far smaller than what seemed possible when the round was launched seven years ago, a new multilateral trade deal still potentially offers the best bulwark against rising protectionism around the world (see page 2). Talks should continue to keep that possibility alive. Early implementation of available outcomes, such as trade facilitation, and of duty- and quota-free access for least-developed countries and would help keep the WTO relevant and bolster confidence in its ability to deliver development benefits.

Meanwhile, there is an urgent need to devote greater energy to finding responses to new challenges facing the international trading system - ranging from trade-finance linkages to food security to energy policy and, above all, climate change. Any serious move to curb greenhouse gas emissions through domestic regulations will most likely be accompanied by demands to offset the perceived harm to the international competitiveness of domestic industry. Setting up a viable global regulatory framework that makes international co-operation effective, such as the agreements envisaged to emerge from the Copenhagen climate summit next December, will require complementary and well-informed action from the WTO. In this context, it could be helpful to set up a working group, including all interests, to look both into the trade ramifications of climate change policies, and the challenges that climate change itself poses on trade.

Institutional evolution, both within and beyond the WTO, has been relegated to the backburner for too long. The inequities of the dispute settlement system also require greater attention. It may well be time to convene a full Ministerial Conference, the WTO's governing body, to ambitiously re-engage in the review of these and other, broader, issues, as well as to take note of developments on the Doha front (see related comment on page 3).

Suspension, Standstill and Monitoring

Some have proposed suspending formal negotiations for a year to allow time for reflection while new administrations in the US, the EU and India define their positions on international trade. So far, such proposals have not garnered any government endorsements, although outgoing US Trade Representative Susan Schwab suggested in January that Members might "take a step back, review where we are in the Doha Round and to take some time to move it forward."

Most proponents of suspension have also called for a ‘standstill', or a commitment to freeze current market access conditions for 12 months in order to avoid a slide to protectionism. India's WTO Ambassador Ujal Singh Bhatia, however, argued in a letter to the Financial Times that "a standstill on tariffs poses no pain for developed countries but demands significant restraint from developing countries" since the latter apply much lower tariffs than they are allowed to do while developed countries' applied and bound tariffs are close or equal to the their WTO commitments. To be meaningful, he said, any standstill should address all measures that have impacts on trade flows, including anti-dumping duties and subsidies doled out in industrial rescue packages.

Academics Richard Baldwin and Simon Evenett have suggested that WTO Members agree to report weekly on all increases in trade and investment protection, and pledge to wind them down within two years. The main problem of this approach is how to collect the data. WTO Members routinely flout existing notification obligations on controversial policies. Could they accept to monitor such measures through data submitted by exporting governments or companies?

Protectionism on the Rise

Leaders of the world's 20 largest economies gathered in Washington in November to co-ordinate responses to the financial crisis. They underscored the "critical importance of rejecting protectionism and not turning inward in times of financial uncertainty," and pledged to "refrain from raising new barriers to investment or to trade in goods and services, imposing new export restrictions, or implementing WTO-inconsistent measures to stimulate exports" for the next 12 months.

Pious words. While participants may not have WTO-inconsistent measures, they certainly have raised new barriers to trade in goods. In January, the EU reinstated export refunds for dairy products after having scrapped them in 2007. Many have taken action to ward off imports. India, for instance, has raised tariffs on steel, iron and soybeans. Indonesia now requires import licenses to control the influx of clothing, footwear and electronics. All of these measures are perfectly legal under current WTO rules. Meanwhile, there is strong pressure on the US Congress to include Buy American clauses in industry bailouts and the forthcoming massive stimulus package. Other countries could follow suit.

Use Coming Months to Rethink Trade

Political and business leaders will gather in Davos in late January under the theme of Shaping the Post-crisis World. The G-20, this time including President Obama, will meet again in London in April to assess how the pledges made in November have been kept and consider further action. These, and no doubt other, events will provide platforms for thoughtful discussion on the role of trade in the 21st century.

Although trade is not among the first preoccupations of the new Obama administration (see page 21), US engagement will be vital to efforts to ensure that the rules-based trading system continues to function and fulfils the development promises that featured so highly in the rhetoric surrounding the launch of the Doha Round. A WTO ministerial conference, held perhaps in early summer, could give President Obama's economic team an incentive to set multilateral trade policy objectives and reassume US leadership in international co-operation.

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