Failure of Doha More Costly Than Compromise

Posted November 16, 2007 at 3:27pm

The Doha round of world trade talks now is six years old. After a year of incremental advances, they have reached a point where the shape of a final deal is pretty much clear. The gaps to close are political as much as technical or economic. The timetable, as we enter the U.S. presidential election year, is tight. It is time to take a hard look at what is on the table so that we know what failure would mean.

In agriculture, there is an outline package that amounts to the largest liberalization of farm trade in history. At the center of this package is the EU’s willingness to cut its farm tariffs by an average of 50 percent, within a system of bands that ensures that the highest tariffs would be cut the most. Alongside these cuts to border protection, the EU also is proposing to cut its overall trade-distorting farm support by at least 70 percent, and the elimination of all export subsidies if others agree to do the same.

It is easy to forget that while we have been cutting tariffs on trade in industrial goods for 40 years, Doha is the first trade round to treat agriculture seriously. Under those circumstances, a farm package this ambitious, in which the United States matched the EU in making changes to the way it supports its farmers, would be exceptional. It will create new market access for competitive farmers in developing and developed countries and relieve a lot of the burden that trade-distorting farm subsidies in the developed world currently place on more needy farmers.

Industrial goods negotiations have taken a back seat to agriculture for much of the Doha round. Yet here too the outline of a potential package is emerging. Based on the ranges of industrial tariff reductions proposed by the chair of the negotiating group in Geneva, Doha has the potential basically to eliminate all remaining industrial tariff peaks and to eliminate virtually all remaining industrial tariffs in developed markets. A credible package also would see the large emerging economies create new market access for exports to their growing markets.

This package has substantial economic value in its own right, especially when it is coupled with an agreement on services trade. But it also has the potential to inject some much-needed confidence into the global economy and to further integrate the growing emerging economies into the multilateral trading system. With the fright in the credit markets, we have received a timely reminder of the value of a trade deal, both as a confidence builder and as a ratchet in the global economic machine that would stop it from sliding backward under the pressure of recession and protectionism.

The current levels of openness in the global economy are not irreversible. Doha’s great strength lies in its ability to lock in the unilateral opening of the past decade and act as an insurance policy against trade politicking, in the developed world and in the emerging economies. Most trade liberalization over the past decade has resulted not from negotiating pressure but from internal economic rationalization and reform. Unless it is locked in by a World Trade Organization deal, that openness can unfold.

But getting to this Doha deal is now as much a political challenge as a negotiating problem. All sides recognize the middle ground where a deal is possible. All sides need to be ready to show flexibility. All sides are highly sensitive to their domestic politics.

Both the EU and the United States need to be ready to contribute to a final farm trade package with tariff cuts and changes to subsidy regimes. The EU already has gone further than in any previous trade round. Negotiators need greater clarity from the United States on how it is willing to cut its trade-distorting support to farmers. The farm bill currently going through Congress takes farm reform in the wrong direction. The recent WTO cases on cotton and bioethanol show that the United States is vulnerable to further WTO litigation unless reform is agreed to voluntarily. The only way of doing this is through the Doha negotiations.

It certainly makes no sense to make a Doha deal hostage to a few billion dollars of U.S. trade-distorting farm supports. Agriculture makes up 4.5 percent of U.S. exports. Services and manufactures make up 90 percent. Moreover, it is not the case that U.S. and EU farmers have nothing to gain from Doha. EU farmers already are the biggest exporters in the world, with the United States close behind, and Doha will create new — and less distorted — markets for the high-quality food they produce. The general boost to incomes in the developing world that would follow from a trade deal has been shown to have a bigger effect on our farm exports than any reduction in developing world tariffs. When we create consumers in the developed world, we create customers for our produce.

Yet the United States also is understandably unwilling to table such a final move before the large emerging economies like Brazil and India show a clear readiness to cut tariffs for industrial goods. No one is arguing for full reciprocity from such emerging economies, or in any way diminishing the large development challenges they still face. But the emerging economies are export powerhouses, built on the openness of the international trading system. Some contribution that reflects that growing power is not unreasonable.

A trade deal that excludes the emerging economies would exclude new opportunities for trade among developing countries, whose trade is not only the most protected in the global economy but also a potential source of new economic growth for the poorest. Doha is certainly not doable without such a boost for South-South trade.

We all need a Doha deal in the developed and developing worlds. With a wider and more diverse WTO membership than ever before, Doha has been an exercise in political balance and incremental advance. It also is a test of the strength of our commitment to multilateralism and development. If we can’t get Doha done, we should be worried about even bigger multilateral challenges like our response to global warming.

We have arrived at a point where only political leadership and a willingness to make a few more tough choices are needed. Success in Doha comes with a small political price. Failure would cost us much more. No multilateral trade round has ever failed. Can we really afford to allow Doha become the first?

Peter Mandelson is the European Union’s trade commissioner.