Trade is the surest way to grow economies – states must make the WTO relevant again

2 September 2015
Maximiliano Mendez-Parra
Comment

The current round of WTO trade talks, the ‘Doha Round’ (DR), faltered because the main trade and development problems of the day seemed, for the most part, to resolve themselves away from the negotiating table.

As the next ministerial meeting approaches, in Nairobi this December, the world has changed and faces new challenges. The WTO must seize this chance to become relevant again.

Equally, developing countries should do their utmost to shape the agreement and benefit from it.

The world after 2001: see-sawing export prices and new regional trade deals

In 2001, developing countries were keen to negotiate out of opportunity – but also urgency: agricultural products – often their main export – were trading at very low prices; negotiations were seen as a chance to eliminate all trade-distorting practices (e.g. high tariffs or domestic support) and put things right.

But from 2005, the price of agricultural (and mineral) commodities rose considerably. In some cases, the higher prices made the main negotiation issues almost irrelevant, such as price distorting support under the amber box.)

Moreover, the bonanza associated with the high export prices seemed to solve many important development issues that the talks expected to address: thanks to higher incomes from their exports, developing countries were able to finance infrastructure development and implement social policies that increased their levels of development.

At the same time, the number of bilateral free trade agreements surged: these were direct competitors to the WTO. These agreements gave many developing countries a faster way to secure duty free access in the markets they were interested in.

This created another complication in seeking a major multilateral agreement: countries feared it could undermine the bilateral deals they had struck.

For richer, developed countries, bilateral (and regional) agreements allowed them to introduce new trade rules to their advantage (e.g. investment and competition policies, or government procurement rules) that were outside the DR because developing countries, as a bloc at the WTO, refused to include them.

In other words, both developed and developing countries found that the multilateral WTO talks had little to offer.

A very different picture today

In the last two years, mineral and agricultural prices have dropped. They are low enough to generate concern in countries that export them.

For that reason, developing countries may now want to secure better market access for other exported products, in order to offset their lost incomes. And this time, multilateral negotiations might offer a way.

The bilateral option is also getting more complicated: the recent failure in the TPP negotiations suggests that these ‘mega-regional’ agreements, although ambitious, present the same type of sticking points to previous regional negotiations in typical areas such as agriculture (e.g. Canadian and Japanese refusals to open up their respective dairy and rice markets).

Moreover, even if developing countries do decide to join these agreements, they would imply the adoption of many trade rules which their institutions do not yet have the capacity to adopt. (Many developed countries are not prepared either, for that matter.)

 

The WTO is changing tack: its new strategy abandons the single undertaking principle and dismantles the Doha package into smaller, easier-to-negotiate bundles such as the Information Technology Agreement (ITA), which I blogged about recently. The Trade Facilitation agreement is another example – and an agreement on services is also very advanced.

This strategy seems to be working. At least, it has woken up the WTO and suggests potential for a greater number of smaller deals – on the elimination of duties and the trade of environmental goods, for example.

Old sticking points – and new players

However this strategy, so far, isn’t addressing the main aspirations of developing countries. For instance, disciplines on agriculture and NAMA (Non-Agriculture Market Access) remain a fraught subject and will require political will from all parties involved.

The risks are also very high. If this strategy prevents a wider and deeper agreement, we might end up with an international trade system that is deeply distorted across countries (depending upon which have signed free trade deals with which) and across goods (covered only by those smaller, sector-specific agreements like the ITA).

Back in 1994, the ‘Uruguay Round’ was finally unlocked because of an agreement between the EU and the US. Nowadays, other heavyweights would need to agree: China, Brazil and India have gained political and economic clout.

Not only does this bring additional interests to the table, it reduces the onus on traditional negotiation leaders (e.g. the EU and the US) to steer the talks to a successful outcome. With more leading players, the political success or failure of the negotiations is shared more widely.

Developed countries must do more if the talks are to succeed – the G20 in particular has done very little so far. But developing countries must also commit to the negotiation.

This may mean revising some previous positions, and adopting others, such as pursuing more market access in large developing countries (e.g. BRICS).

But the rewards could be worth it in the end: after all, multilateral trade talks remain the best option for developing countries to unlock opportunities for economic transformation – and create a fairer system of global trade.

Maximiliano Mendez-Parra, Research Fellow – International Economic Development Group

 

Maximiliano Mendez-Parra