There are better ideas than Doha

by Kevin P. Gallagher[1], guest blogger

Negotiators continue to work desperately to achieve a breakthrough in the World Trade Organization’s Doha Round. Their goal is to get an agreement by the end of 2008. Developing countries should pull the plug on this moribund round until rich countries can agree to a new framework that lives up to Doha’s promise to be a “development round” that favors poorer countries.

As rich country leaders try to rally negotiators for yet another “make-or-break” deadline in what has become the most imminent agreement in history, developing country negotiators should remember why the proposals on the table deserve to be sent back to the drawing board. According to the World Bank and other institutions, the current deal would bring welfare gains to developing nations of just $16 billion or 0.2% of GDP (less than a penny per day per person in 2015), reduce poverty by just 2.5 million people (less than 1%), bring tariff losses of at least $63 billion, worsen developing countries’ terms of trade, and curtail the policy space necessary for developing countries to deploy effective development policies.

The poverty of the current negotiations suggests that it is the moment to take a “time-out” from trade negotiations. During the respite, developed countries should demonstrate their commitment to making the world trading system more fit for development. The following are five steps toward that end.

1. Implement prior WTO rulings – The United States and Europe should agree to honor WTO rulings that have found their subsidies for cotton and sugar to be in violation of existing trade rules under the prior agreement. This would give a tangible boost to farmers in West Africa and Latin America and send a strong signal to developing countries that developed nations are willing to honor the rules of the WTO.

2. Address commodities issues – Rich countries should take seriously the proposal by many African nations to tame global businesses that demand unfair prices for resources used in farm production and reap billions in profits on the sale of final products. African nations have made numerous proposals during the round to this end, specifically to make room for international supply management schemes to raise prices and to curb the oligopolistic behavior of large foreign commodity firms. If the Doha Round is to foster development, such proposals should be at the center of the discussion.

3. Recognize commitment to Special and Differentiated Treatment – Negotiators should recognize the Doha principle of “special and differentiated treatment” for poorer nations. Developed nations should roll back patent laws that impede poorer nations from manufacturing cheaper generic drugs. They should also allow poorer countries to exempt staples of their local economies such as corn, rice, and wheat from deregulation, as part of Doha’s stated commitment to protect “Special Products” important for rural development, food security, and rural livelihoods.

4. Make up tariff losses and adjustment costs – International institutions such as the International Monetary Fund (IMF) and World Bank should step in and help developing nations cover the costs of adjustment such as tariff losses and job retraining until the proper policies can be established. The IMF’s Trade Integration Mechanism is already in place for such purposes, but it leaves little room for incorporating costs of adjustment and the Fund is often criticized for tying further reforms to adjustment policies.

5. Moratorium on North-South regional and bilateral trade agreements – These deals exploit the asymmetric nature of bargaining power between developed and developing nations, divert trade away from nations with true comparative advantage, and curtail the ability of developing countries to deploy effective policies for development.

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[1] Kevin P. Gallagher is a professor of international relations at Boston University and research associate at the Global Development and Environment Institute (GDAE), Tufts University. This guest blog is drawn from a new policy brief by Gallagher and Timothy A. Wise, also from GDAE. For a link to the brief (and citations to all studies mentioned here) see: http://www.ase.tufts.edu/gdae/Pubs/rp/RISPolicyBrief36DohaMay08.pdf

Comments

[pinkerd]

It would be nice to know which countries the professor has in mind.

Does he include Brazil as a "poorer" or a "developing" country? Would he suggest that Brazil bears some responsibility for the difficulty in concluding the current negotiating round?

[Ricardo Hausmann]

I find the proposed list of demands for a new Doha Round either dated or unappealing.
1- Given the current price levels, policies are now shifting towards lowering, not raising food prices.
2- Supply management in a trade agreement sounds weird. I wonder what you have in mind. I do not know how individual countries could commit to a certain international market structure.
3- I agree with more policy space for developing countries, but this is pretty much already there for poor countries. The biggest problems for middle income countries come from concessions they already made, such as the agreement on subsidies and on intellectual property.
4- Adjustment lending is not a contentious issue. The WB is looking for customers to lend money to.
5- A moratorium in bilateral agreements is good for those who already have agreements and bad for those who do not. I am not sure that this is generally good for development.

In sum, if the alternative to Doha is this 5 point list, I would vote for Doha and pocket the 0.2 percent of GDP gain.

[Peter Gallagher]

Although he has a distinguished name, I think the Professor hits only one-and-a-half targets in these five recommendations. I don't think anyone could disagree with (1) but the idea that implementation of their WTO obligations would actually change market conditions for African farmers is naive. (2) is a crock--a zombie from the '70s--and a recipe for making things worse for almost everyone (cf. Rubber, Tin, Cocoa, Grains... ); (3) is not as simple or as helpful as the Prof. seems to think (I've read his RIS report). He should study the WTO's 2007 World Trade Report closely for an expert and sympathetic examination of what S&D is supposed to mean, and is intended to deliver, but doesn't. (5) is a waste of effort and a bit arrogant. N-S RTAs exist because governments, in the South too, want them. People who say that they believe in the autonomy of developing countries in setting development policies have to resist trying to 'run the world' on their behalf with 'moratoriums'. That leaves (4), where the Prof. scores, in my view, by recommending a facility that is already available.

[Gallagher]

Gallagher responds:

I'm glad these ideas sparked some debate. Very honored to get a response from Ricardo Hausmann, arguably one of the most creative thinkers on development today. Here are my responses to some of the comments:

1. Two comments on the response I received regarding my call for the developed countries to honor their WTO commitments. First, the main point is that if the US and EU continue to appeal and not implement previous WTO rulings (such as the Cotton subsidy case) then the legitimacy of the institution is called into question. Why then should Brazil and others negotiate if they think that the developed countries will not honor their commitments? The Farm Bill that passed the US today further calls the extent to which the US is a genuine negotiator.

Equally, dismissing actual AFrican proposals that want to deal with the extreme nature of oligopsony in world agricultural markets is yet another reason to question the legitimacy of developed country negotiating positions.

Secondly, yes the wave now is about lowering prices but price volatility and the overall downward trend in food prices will continue (see IMF World Economic Outlook, 2008).

3. It is questionable whether a moratorium is on bilaterals is good for those who have them and bad for those who don't. Such a statement assumes that the benefits of market access (which are much smaller than the 0.2 percent of GDP increases under Doha and in sometimes negative as in the case of the Colombia agreement) outweigh the costs in terms of lost policy space, terms of trade changes, tariff losses, and de-industrialization.

NAFTA, the largest N-S trade deal, has been far from a ringing success. Per capita incomes have increased just over 1 percent annually, gross fixed capital formation as a percent of GDP is actually lower than during the "lost decade" of the 1990s. What holds the economy up are foreign firms exporting to the US that have little to no linkages to the rest of the economy, and the state-run oil company that supplies 40 percent of the government budget each year (though known reserves of oil in Mexico will only last 5-7 years).

China, Brazil, India, South Africa all lack FTAs with developed countries, have much more policy space under the WTO and are in much better shape than Mexico.

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