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.


Deep Dive

Interview: Ronald Kirk

FP speaks with the Obama administration's trade representative about this year's big three trade deals, their prospects on Capitol Hill – and why even Democrats should get in on the act.

Over the next few months, U.S. free-trade agreements with Colombia, Panama, and South Korea are set to come before Congress. The deals, first negotiated under George W. Bush, have been the subject of endless controversy: Colombia over concerns over labor laws and killings of labor unionists; Korea over auto sales and health fears about U.S. beef; Panama over allegedly lax banking regulations.

If the agreements finally pass this year, it will be thanks to an unlikely supporter: U.S. President Barack Obama. After talking tough on trade on the campaign trail, Obama has since gotten behind the bilateral deals. Foreign Policy's editor, Susan Glasser, sat down with U.S. Trade Representative Ronald Kirk, Obama's point man on the agreements, to get the inside story on the Obama trade policy and where the administration is looking next for America's free trade future. The edited excerpts of their conversation follow.

Foreign Policy: Trade is back on the very top of the Washington agenda. So what is your assessment of what's going to happen and when, on these free-trade agreements with Colombia, Panama, and South Korea, on Capitol Hill?

Ron Kirk: Let me push back a little back a little bit: You said trade is back! Trade never left. It has always been critically important to our economy and this administration. But I do believe we can make a compelling case that what differentiates the Obama administration approach to trade from previous administrations is that we took office with the strong supposition that as part of our effort to get this economy going, grow our economy into the future, and maintain our competiveness, you just cannot escape the reality that the United States is going to have to find a way to sell more of what we make, create, innovate, grow, raise to the rest of the world... For us to be relevant and competitive in the future, we have to be a part of trade.

What I admire about this president is that I think he was more honestly willing to give voice to and confront the reality that most Americans now look at trade and say, "You know, that sounds good. We get the cheaper electronics and T-shirts. But if trade is going to manifest itself in us just buying stuff from the rest of the world -- as they get to make it and they get the jobs --we're not sure if we want to be a part of this." We decided we had to do trade differently. We couldn't just spend our time with those who define fidelity to trade in terms of, "When are you going to sign a new agreement?" We had to spend an equal amount of time listening to those who said, you know, I'm either concerned or I've got challenges.

Within the near term, we believe we're in a better position now to have a conversation and work with Congress to approve the trade agreements that we've structured with Korea, with Panama, and with Colombia. Equally important, it will also help Congress understand, in this broader strategy that we're trying to implement, that equally important to passing agreements, let's also make sure we demonstrate to America's workers that we believe the promise of Trade Adjustment Assistance and we're going to honestly have a program that helps them.

FP: Still, President Obama is not exactly in the same place that he was during the campaign in how he talks about trade. Do you think you have persuaded the president's political coalition on the Hill to vote for these trade agreements now?

RK: I don't know that I am that far away from where the president was, but campaigns are what they are, and there's no point in me revisiting that.

I don't suffer any illusion that the conversation among some parts of the Democratic community is going to change radically because of Barack Obama and Ron Kirk. But I can make a credible case to the president that we've done what you've asked us to do, in that we created a new strategy, we've paid attention to the critics as much as we have those that want us to go forward, we are utilizing all our tools to hold our partners accountable, and we are more close to having a trade policy that's fair.

FP: I know you're not in the crystal ball business but what is your strategy for moving the current trade agreements forward?

RK: We have sent a letter on behalf of the administration to the Ways and Means and Senate Finance Committees: We are ready to begin discussions with you on how you want to do the mock hearings and look at reviewing [these FTAs]. There are a number of things we have to do before we finally send it up. [But] because of the action plan that we were able to successfully conclude with Colombia [on April 7], we'll be in a position to start that process very quickly. That's a discussion we'll sit down and have with Congress when they return from recess.

FP: So, you think by the end of the summer that it's possible that you would have these approved?

RK: I will say it's possible.

FP: What's likely?

RK: I amuse myself to some degree, because there are a lot of suppositions out there that, with the new Congress, you can pass everything, but I'm still of the mind that everything that's seen as easy can become a challenge given the nature of the political debate in this town. We think that we've put ourselves in a position to make a very credible case to the American public and Congress as to why these agreements ought to be approved. We're hopeful, with as much positive embracement as each of these agreements have received from Democrats and Republicans, that we should be able to move them through Congress.                                                                             

FP: Are the fates of these agreements three agreements linked to each other at this point? Or is Colombia looked at differently than South Korea, for example?

RK: I think each is going to stand on its own; this notion of one vote on all three -- we don't know of any mechanism, legally, by which you would have an "omnibus trade vote." That's one of the conversations we'll have with Congress. But I will tell you, sitting where I am right now, we are more confident than not that we've got good enough agreements and we've addressed the outstanding concerns in a way that we should be able to build a winning coalition for each.

FP: These specific agreements have been in the works a long time and predate the Obama administration. Do you anticipate pursuing further free-trade agreements?

RK: I didn't see my responsibility to just come in here and pick up free-trade agreements and get them passed. I wanted to be a part of building a more rational, thoughtful approach to trade that didn't just get these agreements passed but allowed us to slowly begin to dissolve some of the cynicism of the American public about trade in general. That way, when we come to [voters] with what I think is really the next biggest opportunity in terms of what we're negotiating, the Trans-Pacific Partnership, then you really have the opportunity to move the needle. If all we wanted to do was just pass trade agreements we could have sent them up and passed them. If you want to create a template that begins to credential trade among the American public as a critical component of how we put America back to work, keep our economic vitality, and create jobs, then you have to do other things. For us, this was never about these three FTAs; it was about the broader imperative.

FP: Do you think that the the World Trade Organization is at risk of becoming less relevant as this network of global regional free trade agreements is structured?

RK: Absolutely not. In fact, I would say that the proliferation of bilateral and regional configurations in some ways makes the WTO's work that much more relevant and necessary. Someone has to be the traffic cop of this spaghetti bowl of trade agreements.

When I went through Senate confirmation I said something that a lot of people either didn't understand or took offense to -- that I didn't have deal fever. I think one of the reasons the American public and a lot of trade skeptics around the world have sat on trade is that they couldn't just understand why we were doing it. I was worried that we only measure the value of our system by whether or not we're doing deals. In reality, part of us wanting to bring other economies into the WTO -- whether it's China or Russia -- is to have a vehicle by which they begin to reform their economies, open them up, and conform to a rules-based trading system.

There is as much market access to be gained by getting trading partners to adhere to the agreements that they've made and truly open their economies sometimes than opening up a new deal. For example, we have a constant engagement with China to get them to fully open up their economy, to meet the commitments they made under the WTO. For example, to truly implement a strong intellectual property rights regime, take on a more robust fight against piracy, and join and implement its commitments under the Government Procurement Act. That would be as economically compelling as everything we would do through Korea, Colombia, and Panama.

For the Obama administration, for that reason, we still have a very strong bias for doing things on a multilateral stage rather than bilateral, just because you don't have all these overlapping systems. But we've seen, not just in Doha and the Uruguay Round, that it's just brutally difficult to get consensus among 153 economies. You see it at the G-20, you see it in trade, you see it in climate talks. Still, we have a strong bias for multilateral consensus where we can get it.

FP: In his article for FP's special Deep Dive section on trade, WTO director-general Pascal Lamy described the WTO and the world trade architecture as a mule and he said the good news is that it doesn't go backwards, but it's also true that it's very, very hard sometimes to make it go forwards. Which I thought was something...

RK: Well, that's curious in the sense that he works for the WTO. I don't know if I would describe my boss as a mule.... I mean, sure, these are difficult decisions to make but we just have to be willing to confront the realities of what the world looks like now. In the case of Doha that is what the United States has argued, to at least try to get us to confront the reality that what we had been doing hadn't produced a result in '06, '07, '08, so it's pretty hard to argue it's going to be any different in '09. So let's negotiate across all of the sectors, and let's honestly look at where some of the barriers are for the poorer countries to further trade liberalization.

FP: Some people would say that after 10 years of negotiating the so-far incomplete Doha Round maybe you need to say do we need to start all over again?

RK: I don't think we need to start all over because first a lot of good work has been done. These are very difficult. They took, I forget, 8 or 9 years to get the Uruguay Round done. These things are not going to happen overnight. We have never advocated to scrap everything and start over. But we were a little bit blunt to say well let's get going. Now, there's no question, I don't want to sound like I'm whistling in the dark, we aren't there.

FP: Is this finally going to be the year that Russia accedes to the WTO?

RK: It is ultimately in Russia's hands. President Obama has made it clear that his administration thinks it is not only in Russia' long-term interest to liberalize, modernize, and build a more sustainable economy; it's also in our interests. Russia is the largest economy in the G-20 not a part of the WTO. We think all of us would benefit getting them into a rules-based system. With that, President Obama challenged us, in particular last summer when he met with President [Dmitry] Medvedev, to expedite our work on our bilateral issues. We're very comfortable in what we've done and believe with Russia following through on those we can be supportive of efforts through the working group. Should we get to a point that Russia is ready to gain entrance to the WTO, we've been very honest in putting Congress on notice that we're going to have to have some resolution of Jackson-Vanik, [a 1974 law that prohibits countries that restrict emigration, such as the then-Soviet Union, from gaining most-favored nation status], so that U.S. exporters and workers aren't the only ones who don't benefit from that accession. It will be a robust debate.

FP: If we were to pursue another set of free-trade deals, where should we be looking?

RK: There's an old joke about the bank robber Willie Sutton, who in addition to being prolific at robbing banks was also prolific at getting caught. The lore has it that the third or fourth time he was up in front of some judge, he says, "Willy why do you keep robbing banks?" And Willy says, "Judge, that's where the money is."

Obviously the BRIC countries are growing. China, India, Brazil, South Africa, and Russia all have ambitions to move hundreds of millions of people from poverty to some level of a more sustainable lifestyle with purchasing power for much of what we create, grow, and manufacture in the United States. That's a great market for us. When you look at almost any economic model, you also have to pay attention to the extraordinary evolution of the economic engines that rim the Pacific Ocean. That's part of the rationale behind our making the decision to get in at an early stage in the development of what we hope will be a free trade agreement for the APEC economies through our Trans-Pacific Partnership.

Believe it or not, there are less than 300,000 American businesses that export. The overwhelming majority, over 95 percent of them, are what we define as small businesses. If your focus is how you grow exports and create jobs, a great place to start is by looking at how we build on that base of small business, knowing that exporters today represent less than 1 percent of all small businesses in the United States. So first, we will look at markets: We'll look at the BRIC countries, we'll look at allies, we'll use enforcement to get market access in places we've been denied. And then we're particularly going to use the Export Initiative to help build up our own competitive base here in the United States.