Supplementary memorandum by Mr Guy de
Jonquières, Senior Fellow, Chatham House
What is your assessment of the likelihood of completing
the Doha Round?
Global crises can sometimes help advance multilateral
trade negotiations. The Doha Round would probably not have been
launched when it was—or even at all—without the shock
of the 9/11 terrorist attacks. It is possible that the shock of
the credit crisis and growing fears of a deep recession will jolt
governments into completing it. However, the chances of that happening
within the next few months do not appear very promising.
First, the political obstacles to a deal remain
considerable. President Bush's chronic political weakness leaves
him poorly placed to win backing from an unsympathetic Congress
for further US trade "concessions", while neither of
the candidates to succeed him has accorded a high priority to
Doha. Peter Mandelson's early departure from Brussels leaves the
European Union without an experienced top trade negotiator, while
next May's deadline for Indian elections will further restrict
New Delhi's willingness to compromise in the WTO. Like India,
China currently appears too preoccupied at present with economic
challenges at home to be ready to commit much time or effort to
the round.
Second, government responses to the credit crisis
in the US and Europe—large-scale bank nationalisation and
state intervention in the sector—go against the grain of
market liberalisation. In addition, some EU government leaders
are now invoking the crisis to argue for heavy public subsidies
to protect other European industries from international competition.
Even if such proposals are not implemented, this suggests that
in Europe, at least, supporters of liberal trade policies may
face growing resistance.
In any case, the tangible benefits from completing
the round would almost certainly be modest. Agreement could reduce
the scope for protectionist backsliding by "binding"
tariffs nearer to the lower levels at which they are applied in
many, particularly developing countries. However, it seems unlikely
that an agreement would yield much more than the paltry welfare
gains—estimated at 0.1-0.2 per cent of global GDP—offered
by what is now on the table. Nor would anything in the current
Doha agenda tackle two of the biggest problems recently besetting
world trade: a drying-up of trade credit and the impact of sharp
increases in transportation costs since 2000, due mainly to high
oil prices.
Will further significant delay to, or a complete
failure to complete, the Doha Round wound the WTO?
The troubled history of the Doha round to date
is as much a symptom as a cause of the WTO's problems. The organisation
is beset with challenges on two fronts. First, rapid enlargement
of its membership and the growing weight of emerging economies
such as China, India and Brazil have made decision-making much
more unwieldy. The result is not a simple north-south split: there
are clear divisions between the developing countries that dominate
the WTO's membership numerically over the desirability of liberalising
market access in agriculture, one of the central issues in the
round. WTO members are also far from agreement on how far its
mandate should extend into tackling "behind the border"
barriers and regulation of domestic markets. Resolving such issues
is increasingly vital to keeping existing market-opening commitments
effective and to prospects for further multilateral liberalisation
efforts, particularly in services.
Second, political commitment to the organisation
and to the multilateral system appears to have weakened significantly.
There has been a rush since 1999 into preferential trade agreements,
many of which appear inconsistent with the spirit, if not indeed
the letter, of non-discriminatory principles at the heart of global
trade rules. Both industrialised and developing countries have
exhibited only modest liberalisation ambitions in the round and
many have adopted defensive positions aimed at preserving their
existing barriers. Meanwhile, business interest in the round—an
important force in pushing for agreements—has steadily dwindled.
A collapse of the round would clearly damage
further the WTO's credibility. But completion, on the terms currently
envisaged, might not do that much to restore it.
Can the rule making and dispute settlement functions
of the WTO remain relevant and effective if the liberalising function
fails?
Nobody knows for sure. So far, the disputes
settlement procedures have operated effectively, despite often
slow progress and fractious disagreements in the Doha negotiations.
However, members' willingness to respect the system may be due
to its not having not been seriously tested yet. The global economy
and international trade have proven remarkably resilient during
the past 15 years, repeatedly recovering from shocks and upheavals
without suffering any serious outbreaks of protectionism. That
might not remain the case if much of the world economy underwent
a prolonged recession.
A collapse of the Doha round could lead some
WTO members to seek through litigation what they could not obtain
through negotiation. Brazil and others have already hinted that
they may consider action against US and EU farm subsidies. A torrent
of disputes cases would risk overloading the system and placing
the WTO's quasi-judicial tribunals in the invidious—and
ultimately, perhaps, unsustainable—position of being called
on to adjudicate on highly-charged conflicts that have arisen
because politics and diplomacy have failed.
What does the present situation in financial markets,
and the possibility of a deep global recession, mean for the future
of the WTO?
This is a difficult question to answer while
the outlook for the global financial system and the world economy
remain so unclear. If international efforts to restore order,
stability and confidence to financial markets succeed—and
are followed by effective measures to bolster domestic demand
in major economies—the risks of serious disruption of international
trade and a lurch into protectionism should be reduced.
However, it is far from clear that recovery
from the current crisis would unleash a meaningful drive to reinvigorate
the WTO. Indeed, it is possible that exhaustion induced by financial
and economic fire-fighting would engender political complacency
and indifference towards the organisation, provided that the progress
of international trade faced no obvious serious threats.
On the other hand, continued financial instability,
a plunge into deep recession or worse and widespread outbreaks
of protectionism might, perversely, heighten political awareness
of why multilateral rules matter and of what would be lost if
they were undermined. The question then would be whether governments,
while dealing with so many other problems, could muster the time
and energy needed to strengthen the multilateral system and the
WTO.
17 October 2008
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