30 August 2004
Patchwork of FTAs won’t do - Doha Round crucial
By Razeen Sally
WORLD Trade Organisation (WTO) members have finally established a framework for negotiations to conclude the Doha Round. This is good news. Failure would have crippled or even killed the round, and marginalised the WTO as a negotiating forum.
The Geneva deal thus restores some hope for the future of the multilateral trading system. But it is not the ’historic breakthrough’ advertised. Realistically, it is the midway point in the round, and a holding operation. Nothing substantial is likely to happen until early to the middle of next year, after the next United States administration settles in. The really hard choices lie ahead. Success is far from guaranteed, and the round may be wrapped up only by 2007/2008.
The new negotiating framework has whittled down the pre-Cancun agenda into one that is better focused and more realistic. The headline advance is on rich countries’ agricultural subsidies. Export subsidies are to be abolished (a European Union concession), as are trade-distorting export credit and food aid programmes (a US concession), though a final date has yet to be fixed. Rich countries will also make substantial reductions in trade-distorting domestic farm subsidies. Cuts in subsidies and other trade barriers in cotton - a key demand of several very poor African countries - will be given prominence.
The second big element of the package - another EU concession - is agreement to drop three of the four ’Singapore issues’ (investment, competition, and transparency in government procurement) from negotiations, while retaining them on the back burner of the WTO work programme. There is, however, agreement to launch negotiations on trade facilitation, focused on simplifying customs procedures.
VAGUE, WEAK GUIDELINES
ALL the above is very welcome. But now for the caveats. Guidelines for nitty-gritty market-access negotiations - that is, to liberalise trade in agriculture, non-agricultural goods and services - are vague and weak. Inevitably, tough political decisions have been postponed to next year. The blueprint for cutting agricultural tariffs is general and sketchy, and it is diluted by extra protection for ’sensitive’ products in rich countries and ’special’ products in poor countries.
Guidelines for cutting industrial tariffs are equally skeletal, with agreement still held up due to poor countries’ concerns about their tariff preferences. The services negotiations have a new deadline of next May for the submission of improved offers, but this is more exhortatory than anything else.
What next? The negotiating framework will have to be filled in. Market-access negotiations will have to go beyond generalities and produce credible ’formulas’ - that is, real numbers and deadlines - preferably by the next WTO Ministerial Conference in Hong Kong in December next year. Rich countries must deliver substantial reforms of hugely damaging agricultural policies.
That means abolishing export subsidies and substantial cuts in domestic subsidies as well as tariff barriers. They should make substantial cuts in high tariffs on developing country manufactured exports such as textiles, clothing, footwear and leather goods. They should also allow in more temporary workers from developing countries through relevant commitments in the services negotiations.
In return, advanced developing countries should reduce tariffs on agricultural and industrial goods, and beef up market-access commitments in services. Other developing countries should have generous ’special and differential treatment’.
Least developed countries should not be expected to take on new obligations, and should have tariff and quota-free access to developed and advanced developing country markets. Other weak and vulnerable low-income countries should be expected to make light to minimal commitments.
Targeted aid and technical assistance should be given to help poorer and weaker developing countries adjust to eroding tariff preferences and higher food prices resulting from multilateral cuts in tariffs and subsidies.
It is possible, even probable, that all the above will fall well short of the substantial package of liberalisation and strengthened rules coming out of the Uruguay Round. But that would be a lot better than nothing. It would help contain the harmful effects of proliferating preferential trade agreements (PTAs). Not least, a functioning diplomatic negotiating mechanism would limit attempts to drive policy through litigation. That would take insupportable political pressure off WTO dispute settlement.
In short, a Doha Round conclusion with something to show would help preserve a non-discriminatory, rules-based multilateral trading system. That would be better than the alternative: an undisciplined, messy bilateral and regional PTA patchwork.
Without multilateral liberalisation keeping pace, power relationships would trump fair and balanced rules; there would be increased transaction costs for businesses (especially through complicated rules of origin); and the poorest and weakest developing countries would be marginalised even further.
Making the tough policy choices required in the WTO depends on a clear market-access focus and workable decision-making. Both have been elusive, especially since Seattle. WTO members have been distracted by an expanding agenda with multiple and contradictory objectives, and the hyper-inflation of membership has almost crippled decision-making.
Last month’s negotiating framework goes some way (though not far enough) to giving the Doha Round the market-access focus it lacked before. Restoring practical, business-like decision-making is basically a matter of inter-governmental political will and informal coalition-building, not so much one of changes to formal WTO procedures.
Formally, the WTO operates on the ’consensus principle’: one member, one vote. But that masks uneven and hard-boiled political and economic realities outside Geneva. About 30 countries (counting the EU as one) account for well over 80 per cent of international trade and foreign investment. This comprises the Organisation for Economic Cooperation and Development plus 20 to 25 developing countries that have been globalising rapidly and successfully.
These are the ones with sufficient negotiating capacity and bargaining power. They must take the lead in fashioning the core liberalising and rule-making deals. And they must be at the heart of multi-country coalitions, on particular and across-the-board issues.
Within this core group, vigorous engagement and constructive leadership by the US, EU and the developing country ’big beasts’ (China, India and Brazil) are vital. Poorer and weaker developing countries must be consulted and will exercise influence through the LDC (least-developed countries), ACP (Africa, Caribbean and Pacific) and G90 groupings; but the plain fact is that the lead must be taken by the capable and willing, with the developed and developing country majors in the forefront. Otherwise nothing will move.
ASEAN MUST STAY ENGAGED
FINALLY, what are the implications for our region? South-east Asia depends increasingly on globalisation for its livelihood and prospects. It needs a healthy multilateral trading system: a patchwork of FTAs is simply not enough. Asean countries must not allow FTAs to consume political attention and negotiating resources at the expense of WTO participation.
They must be fully engaged in the Doha Round - at the centre, not at the margins of decision-making.
Doha Round engagement should be part of a broader strategy to improve policy competitiveness to keep the region on the global trade-and-investment radar screen. Further unilateral liberalisation and pro-competitive domestic regulatory reforms are first- order priorities, but they can be buttressed by stepped-up Asean integration, clean, well-focused, comprehensive FTAs with third countries, and effective WTO participation.
Asean countries could hardly do better than emulate China’s coherent multi-track trade strategy. China’s growth engine is its historic unilateral opening to the world economy, coupled with sweeping domestic reforms. This has been locked in by very strong WTO commitments - by far the strongest of any developing country.
Since WTO accession, China has been an exemplary citizen, supporting the Doha Round and the WTO process more generally with pragmatic, nuanced, give-and-take diplomacy. It also has a credible FTA strategy for East Asia, especially in the China-Asean FTA framework.
Following China’s example, and in close cooperation with China, the US and other constructive WTO members, Asean countries should stay engaged in the Doha Round as part of a sensible trade-policy package - for the sake of the region and the multilateral trading system.
The writer is a visiting senior research fellow at the Institute of South-eastAsian Studies.