Deep Dive

Doha or Bust

The world's developing economies need to find a way to finish the Doha round -- but maybe not for the reasons you think.

At the time the World Trade Organization's Doha Development round of talks was launched, in 2001, developing countries were largely absent from free trade negotiations, while the United States, the European Union, and Japan ran the show. And as a result, many countries saw few benefits from the global expansion of trade. The share of sub-Saharan African countries in global trade, for example, was actually falling by the turn of the century.

The Doha development round was set up to try and remedy these inequities by including topics of interest to developing countries, like agriculture, and by engaging these former outsiders more directly in the negotiations. But today, after a decade of stagnating debate, it's easy to forget even the basics of what these talks are about, particularly because the various papers coming out of the WTO on the subject bring to life Alan Greenspan's quip: "If you understood what I just said, I must have misspoken." The Doha round has become so bogged down in detail and insider language about Swiss formulae and Blue Boxes that the essentials seem to have been forgotten.

So what exactly do developing countries, the supposed target beneficiaries of the Doha round, want to achieve? 

Before answering, it's worth looking at just how much international trade already penalizes developing countries. The industries that poor countries care about, for example textiles and manufacturing, often face heavy tariffs when entering rich countries that are eager to protect their local jobs. In 2010, for example, the United States collected more tariffs from eight developing countries -- China, Vietnam, Indonesia, India, Bangladesh, Thailand, Cambodia and Pakistan -- than from either Britain or France. China pays about half of all U.S. duties, while accounting for only one-fifth of total U.S. imports. The tariff rates for the other developing countries are even higher, since their export volumes are much smaller than China's. Bangladesh and Cambodia are designated by the United Nations as Least Developed Countries, for example, but they still have to pay high tariffs on their exports of garments to the United States.

For Doha to level the playing field, the solution must start with the large emerging economies -- countries such as Brazil, China, and India. Surprisingly, however, what these new leaders really want is to keep the current status quo when it comes to world trade rules. Their economies have found ways to leverage the global market, under the existing rules, while also growing at record rates -- over 8 percent annually in some cases. They don't need to change the global trade rules and may even be nervous about amending their own domestic trade structures for fear of upsetting the delicate political balance in favor of openness that they have managed to secure. The so-called Swiss Formula for tariff liberalization would compel states with the highest duties to lower their rates most. Despite economists' advice that this will be good for growth, tariff reductions will still be politically painful. Large emerging economies could be justifiably nervous about a flood of cheap imports and job losses in sectors where they are still weak.

As much as they want things to stay the same, however, large emerging economies recognize that they cannot secure the status quo by refusing to ratify any agreement at all. They subscribe to the bicycle theory of trade agreements: If you do not move forward, you can lose balance and fall off. And of course, everyone recognizes that economies the world over could in fact have a lot to gain from freer trade. Numerous studies show that in a truly borderless world, trade volumes might be many multiples higher than their current level.

Emerging economies may be prepared to offer some concessions in order to reach an agreement, but not too many. Which leads us to the major impasse in talks today, on what is called Non-Agricultural Market Access (NAMA). Advanced countries want the major emerging economies to open up their industrial sectors, while those economies are nervous about derailing growth and sparking a backlash against trade at home.

Meanwhile, small developing economies, those who got nothing out of previous global trade rounds, are indifferent to this spat. They are unlikely to be able to compete in the industrial markets in emerging economies any more successfully than they do in advanced economies today. These countries care more about trade barriers in very specific sectors, such as agriculture, textiles, and garments. The Doha round does deal with those sectors, but negotiators aren't making much progress because advanced countries have taken them off the table. Eliminating these rich world trade barriers would hurt relatively poor -- but politically powerful -- sectors of the economy (think French farmers). This debate about sensitive sectors is the second big sticking point in Doha.

From a developing country perspective, completion of the Doha round is far more important than from the perspective of advanced countries. The actual computed static benefits of completing Doha are actually quite small, perhaps yielding an extra one-one thousandth of global GDP each year. But for developing countries, the issues are bigger. If the world were to retreat into protectionism, developing countries would simply not be able to achieve the rapid growth they have enjoyed in the last few years. For low income developing economies, too, Doha is significant. The amount of duties that the United States collects on their products, for example, outstrips the entire U.S. aid funding destined for these countries. Not surprisingly, most developing countries prefer trade access to aid.

For developing countries, it is imperative to salvage something good out of the Doha Development Round. But alas, the prospects are not bright. Although negotiators have shied away from formally declaring the round impossible to complete, the gap between major players might be too wide to bridge. No party seems to have sufficient incentives to compromise, nor is there a sense of urgency to make progress.

Even if the current nothing-is-agreed-until-everything-is-agreed strategy fails to yield progress on bringing fairness to global trade, however, there are still some good options on the table. For example, there is consensus on a program of aid for trade -- investments in key logistics for poor countries that find it too costly to move goods from factory to ship. Although this aid is already being provided in a voluntary fashion, it would be useful to bind it into a treaty obligation through the Doha round. There are other, more small-bore steps that can be taken to reduce distortions in global trade on some specific sectors of interest to the poorest countries, such as agriculture, cotton, textiles, and apparel. While these won't level the playing field entirely, they're better than taking no action at all.

The most important outcome for all developing countries is that Doha send a strong signal that the major advanced countries are still committed to an open trade regime, one that's equitable and fair for everyone. If the Doha round achieves just this much more limited goal, it would still be meaningful.



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