Foreign Policy: Negotiators have missed the Doha Round’s April 30 deadline. What’s the state of play now?

GCH: They’ve set a new deadline of June 30, which is very typical. You have to ask whether there’s anything different in the political economy now that would bring countries together, beyond the force of WTO Director-General Pascal Lamy’s personality. They will make some progress, but not enough to conclude the round this calendar year. It probably takes a higher level of crisis than what we now see. There just isn’t the energy to do the three or four really big things that are needed. One is to get the bigger and more successful emerging countries, such as Brazil and India, to genuinely liberalize services and reduce their tariffs on manufactured goods. Those countries are not yet prepared to do that, so it’s very difficult to put together coalitions, either in Europe or the United States to support significant cuts in agriculture subsidies and other barriers.

FP: What if we don’t see anything by April 2007, when the U.S. Congress must be notified in order to sign an agreement that would qualify for fast-track authority?

GCH: The April 2007 deadline is critical, and there will probably not be enough in the Doha package by that time to bring an agreement to Congress that can be ratified. Extension of fast-track authority will depend on the November 2006 elections. My judgment is that if the Democrats win fairly big in November, they will be able to call the shots on the duration and the content of trade talks. A plausible scenario is that the Democrats might say, “We want an extension until 2009,” which would mean that the president elected in 2008 would have a big say. That would lead to a pause in negotiations. But Democrats might instead say, “Well, we pretty much know what we want, let’s fish or cut bait by December 2007 or early 2008.” That’s a more plausible scenario. But then the question is whether the Democrats will want more by way of trade adjustment assistance and labor standards than can be negotiated.  These matters are off the table as far as Doha is concerned.

FP: Could some kind of “Doha Lite” consensus emerge from this round?

GCH: I’m afraid so. Although business groups, U.S. and European, have loudly proclaimed that there’s not enough in “Doha Lite” for them, if the alternative is a clear breakdown of the system, there will be some powerful business interests that will say, “Let’s preserve what we have.” And the most powerful voice on that side of the debate would be the financial firms. They are scared to death of anything that looks like a new wave of protectionism. Even though it doesn’t affect them immediately, they see it as very bad for their global interests. And I think the larger multinationals would also lobby fairly hard to maintain the system.

On the other side would be smaller manufacturing firms who have been looking forward to getting better access to markets like Brazil would not be getting much under “Doha Lite”. They would say, “What’s in it for us?” But on the whole, I think, if faced with the choice between a “light” round and nothing, the business community would in fact rally for a light round. And the farm community would do the same, I think. “Lite,” for them, means they’d keep more of their subsidies for a longer period of time.

FP: What will it take for the round to be successful?

GCH: I think it requires a dramatic change of thinking on the part of about six or eight large developing countries, to recognize that they’ve got a big stake in this system, that they cannot hide behind Bangladesh or Chad, or other forlorn developing countries. But so far, the rhetoric has been, “Oh, we developing countries are the all in the same boat.” Nobody really believes that anymore, including the ministers. The key countries are India, China, and Brazil. The next group would be South Africa, Indonesia, and after that, Thailand, Pakistan, and Argentina. Those countries would have to make very significant contributions. And at this stage, they don’t want to. That would be a precursor to getting some change in agricultural sentiment in the U.S. and Europe. Apart from Brazil, virtually all of the countries that I mentioned are quite protectionist on their agriculture. So they have to liberalize that as well.

I think the biggest obstacles tend to be behind-the-border objections to foreign investment in services. After all, most industrial economies are heavily geared toward services. A lot of services may not be prime candidates for globalization, such as restaurants and primary education. But a lot are. Right now, market forces in most of these sectors are very weak, if they exist at all. You saw the Dubai Ports World dispute. The U.S. has been rather open, until this episode. I wouldn’t expected this round, even if wildly successful, to eradicate more than a small portion of service-sector barriers. But we need to make a good start.  In services, we’re about where we were on merchandise in 1947, when tariff barriers on manufactured goods were very high across the board.