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Doha Round - Take it off the life-support system

It is preferable that the Doha Round, which contains the seed of destroying the WTO itself, is allowed to collapse and a new beginning made after a few years.

With diminished prospects and lack of trust in their trade partners as well as in the system to deliver, WTO member-countries have developed a negotiation fatigue. They have begun to flout their intransigence as their bargaining chip. And in such a situation, no meaningful negotiations can take place. So why not pull the plug.

After the collapse of the World Trade Organisation mini-ministerial at Geneva, one can safely conclude that the Doha Round negotiations are on borrowed time. In the run-up to the mini-ministerial in June end, Mr Pascal Lamy, WTO Director-General, put it succinctly: "It is the moment of truth." The moment came and went, exposing the deep chasms among member-countries.

The factors contributing to the current impasse can be summarised as: The failure of the Uruguay Round (UR) to live up to its stated potential trade gains, and the intransigence of the developed countries in the post-UR period.

Factors and impact
There are many factors affecting the negotiations and their impacts are also varied.

The propensity of trade analysts to overstate is well known. For instance, during the public debates on the North American Free Trade Agreement, proponents flogged computer simulations to suggest that NAFTA would create many new jobs for each of the participating countries.

Economist James Stanford examined these models and found them to be sharply at odds with economic reality at the ground level.

He brought out the contradictions of these models through a hypothetical discussion between an autoworker in the US and one of the pro-NAFTA economic modellers to expose the hollowness of their arguments.

The fears of the hypothetical worker in the US were that if NAFTA were to be approved, Ford would move its plant to Mexico where it could hire workers for a tenth of the pay and export cars back to the US.

Since the worker would not relocate to Mexico and with a depressed employment scenario in the US, the worker faced the dim prospect of finding a job with comparable pay in the US.

`Capital is immobile'
The economic modeller allays the worker's fears by stating that he has constructed a computer simulation model, which would demonstrate that the worker would actually benefit from the new jobs created by NAFTA in the US. The modeller's key assumption is that capital is immobile. Therefore, Ford would not move its plant to Mexico. Nor would it want to, because the model assumes the unit labour cost to be the same in both countries and further that Americans have a clear preference for US-made products, even if they are more expensive.

Similarly, various trade hypothesis developed during UR negotiations estimated a significant increase in the share of developing countries in global trade. This was the dominant intellectual argument that persuaded developing countries into accepting the WTO regime.

Analysing in retrospect, a report of the Research and Information System (RIS) for the Non-Aligned and Other Developing Countries states: "The gains from the UR proposals of liberalisation in these areas were estimated to the tune of $213-510 billion rise in the world incomes with the developing countries benefiting to the extent of $86 billion-122 billion." Needless to emphasise, the experiences of the developing countries in the post-UR period, have shown that the trade hypothesis developed during the UR negotiations was highly exaggerated.

Consequently, the faith that the WTO regime by itself would increase global trade substantially has been greatly eroded.

UR's unkept words
Secondly, at the root of the current impasse within the WTO on the Doha Round negotiations is the obstinacy in the denial of market access of farm products' exports from developing countries.

It is in this connection that a startling example is oft-quoted: That the tariffs collected by the US on the $2 billion worth of imports from Bangladesh are higher than those imposed on imports worth $30 billion from France.

The reason for the higher tariffs collected from Bangladesh is primarily because it exports to the US farm products, which attract higher rates of duties than manufactured items that are exported from France.

In effect, the developed countries did not want their farmers to compete with their developing world counterparts.

Another factor that is preventing effective market access to the farm exports of the developing countries is the gigantic domestic subsidy regime of the developed nations the most crucial issue holding up the current negotiations. The subsidies-to-agricultural GDP ratio in the OECD countries is estimated to be in excess of 40 per cent. Over and above these tariff barriers and huge farm subsides, developed nations had a range of non-tariff barriers legitimised through the UR that effectively denied market access to the farm products of the developing nations.

No further trade liberalisation
In contrast to the huge gains to the global trade projected in the UR, the potential gains projected from the current Round seem to be dwindling, even before it is completed. It is interesting to note that a recent World Bank report drastically reduced the original estimates of potential gains from the Doha Round.

The initial projections of $500 billion in 2003 were reduced to a mere $96 billion in 2005, with only $16 billion going to a few developing countries, such as China and Brazil, and the remaining $80 billion to the developed world. Nevertheless, countries with little to sell in world markets are deeply concerned about the potential consequences of opening their own markets to increased imports, in the process losing jobs as well as revenues from lower tariffs rather than obtaining access to developed country markets. What is noticeable is the distinct shift in the negotiating strategy adopted by the member nations from the aggressiveness in the UR to a defensive one in the current negotiations.

Obviously, with diminished prospects and lack of trust in their trade partners as well as in the system to deliver, member-countries have developed a negotiation fatigue. Strange as it may seem, the countries have begun to flout their intransigence as their bargaining chip. And in such a scenario, no meaningful negotiations can take place.

With shuttle diplomacy, Mr Pascal Lamy might try till July end to resurrect the Doha Round so as to complete it by December. With no meeting point in the "negotiating space," the outcome of this exercise is doubtful, indeed remote. Rather, for the WTO to succeed, it is preferable that the Doha Round, which contains the seed of destroying the WTO itself, is allowed to collapse and a new beginning made after a few years.

It is pertinent to note that it has taken approximately 50 years to achieve the current levels of liberalisation in industrial products. To expect the same of liberalisation for the farm products in a few years of negotiations, though laudable, is neither practical nor feasible under the existing set-up. No wonder, negotiators have shown complete disinterest. For these reasons alone, the life-support systems for the Doha Round can well and truly be withdrawn.

Published at :http://www.thehindubusinessline.com/2006/07/18/stories/2006071800041000.htm

Last modified on Friday, 19 July 2013 17:14

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