The Doha Trade Round - Essay Example

The Doha Trade Round Introduction The Doha Round also known as the “Doha Development Agenda” was launched in 2001 as the first round of global tradenegotiations held on the initiative of the World Trade Organization (Francois, van Meijl, van Tongeren, 2005). The agenda included the on-going talks, which required negotiations on a set of different issues, including both the so-called Singapore issues (investment, trade and competition, government procurement, trade and the environment, labor market linkages to trade, improvements on trade facilitation) and basic market issues (tariffs and export subsidies) (Nanda, 2008; Francois, van Meijl, van Tongeren, 2005). The market access negotiations were based on the three key categories, including the following: manufactured goods, agriculture and services (Francois, van Meijl, van Tongeren, 2005; Fung & Siu, 2008). The negotiations on cuts in services and agriculture protections and subsidies have been already initiated in early 2000 and were folded into the Doha Round a year later. The Doha Round negotiations devoted to the agricultural sector have illustrated the complexity of the issue in the global scales, where France and other members of the European Union have shown greater willingness to cut subsidies and protection than the members of the G-20 and the USA did (Fung & Siu, 2008). Despite the negotiation efforts undertaken in 2001 in Doha, Qatar the number of critical market issues still remained ambiguous (Francois, van Meijl, van Tongeren, 2005). The Doha Round Impasse The Doha Development Agenda is recognized to be one of the most important events in multilateral trade, which has been initiated during the past decade (Evenett, 2014). However, despite the projected benefits and economic gains, the Agenda has reached an impasse. Failed meeting of WTO members in Seattle in 1999 was followed with a new meeting in November 2001 in Doha, and with a continuation of the meeting in Cancun in 2003. While there have been carried out negotiations in relation to the agricultural subsidies for export and trade liberalization measures, the obligations did not come into force in full extent (Evenett, 2014). Having gained useful experience of operating for several years under the WTO Agreements, developing country Members have shown that results failed to meet their expectations and the benefits received from the package were quite limited (Evenett, 2014). The main reason for the Doha Round impasse is referred to the emerged disagreement between leading players after negotiations have commenced (Evenett, 2014). The Doha Round has reflected the divide of the interests of the major developed countries (including the United States, the European Union, Canada, Australia, and Japan) and the key developing countries (China, India, Brazil, and Indonesia) (Evenett, 2014). Developing countries have shown skepticism towards the willingness of developed countries to reduce or eliminate agricultural subsidies. Even though agriculture is only one of the small parts of the trade in goods, the negotiations on this issue have received significant attention of countries Members (Laborde and Martin 2012). Actually, the area of agricultural trade and liberalization has become one of the potential breakers of the Doha Round negotiations and the proximate cause of the failure of two Ministerial Meetings in 2008 (Evenett, 2014; Laborde and Martin 2012, p. 266). Having gained increased “bargaining power”, some of the developing nations have begun to demand some special conditions. Thus, for example, the Indian government has requested on behalf of the G-33 countries to permit “shield up to 20 percent of its agricultural tariffs on sensitive products allowing the users to increase agricultural tariffs beyond the bound rates” (Evenett, 2014, p. 34). Developed countries Members perceived this measure as a step backward. Another significant factor, which has created a gap in negotiations between the developed and developing countries, was the demand of Brazil, China and India to reduce the level of developed Member agricultural subsidies. The US was ready to reduce its subsidies, however, conditioned on the requirements to China to reduce its import tariffs on wheat, corn, sugar, and rice (Evenett, 2014). China has not accepted this deal, and the US has not agreed to reduce agricultural subsidies by requested percent. In addition to agricultural subsidies the conflict of interests was in manufactured goods tariffs applied by developing countries. When the EU and the USA have demanded to regulate nonagricultural market by tariffs with no more than 15 percent for developing nations and no more 10 percent for developed nations, developing nations have disagreed (Evenett, 2014). With the passage of time, geopolitical circumstances have changed as many economic regions including the Least Developed groups of countries, developing countries such as India and China, as well as the European Union have achieved quicker growth pace of export during the years of the Doha Round prior to 2007 than during the years preceding the Uruguay Round (Evenett, 2014). As substantial majority of the WTO members is comprised of the developing nations, their position had more powerful influence on the outcomes of trade liberalization efforts (Evenett, 2014). In addition to the increased economic power of developing nations in the global trade market, there are recognized some other causes of the Doha Round impasse. These causes include the following: rise in MIC economic power, divergence in developing member objectives and concerns, fear of increased Chinese source imports, lack of political will, lack of strong support from business stakeholders, rise in government industrial policies, increased use of non-tariff barriers, the WTO’s consensus requirement, and reduced prospects for future Single-Undertaking Rounds (Evenett, 2014, pp. 37-46). The potential benefits of the Doha trade round to the global economy The economic impact of a WTO agreement is difficult to judge due to its complexity. Based on the Doha Round Agreement there should be lowered thousands of individual tariffs in each country, which is WTO member. Taking into consideration that there are about 150 countries-members of the WTO, the tariff cutting will have huge effect on the global economy (Francois, van Meijl, van Tongeren, 2005). According to the estimates of a group of economists convened by the World Bank, the WTO and some other organizations, if member-countries/nations reached market access in all manufactured and agricultural goods combined with the reduced agricultural subsidies, the contribution to the world economy would be between $121 billion to $202 billion (David 2013). This contribution would depend on the extent to which Members would reduce market barriers within the boundaries. Agreements supplemented with a “trade facilitation” deal would also reduce the transaction costs of trading for trading partners (David 2013). According to the estimates of the OECD, trade facilitation will lead to reduced worldwide transaction costs, thus generating billions of dollars in worldwide gains (1% reduction would result in $43 billion gains) (David 2013). Developing nations will more likely benefit from this measure, as more than 60% of these gains would be accrued to them (David 2013). The Doha Round is expected to bring greater opportunities for economic growth and global marketplace (Nanda, 2008). Introduction of unilateral tariff adjustments will increase participation in production activities (Arndt, 2007). Lowering of tariff will lead to changes in the prices of goods and shifts of resources among industries and sectors in most countries in the world (Francois, van Meijl, van Tongeren, 2005). Optimistic studies indicate that trade facilitation efforts combined with reasonable improvements in regulatory and customs filed, and reduction of trade barriers to services by 10 percent would generate additionally almost $300 billion to the world output (David 2013). Liberalization of export and domestic subsidies by developed countries (especially the US and the EU) in the agricultural sector would result in increase of the world food prices (Francois, van Meijl, van Tongeren, 2005). Agriculture liberalization will produce significant gains and benefits for rich-nation food exporters and importers, while the gains for developing countries will have uneven distribution (Francois, van Meijl, van Tongeren, 2005). Francois, van Meijl, van Tongeren (2005) have carried out a study, evaluating the effects of the Doha Round on various nations and compared the gains and losses of different nations under various scenarios of agreement. The authors believe that developing countries should take active participation in the process of negotiating the liberalization of their own barriers, otherwise their gains from the Doha Round will be quite modest (Francois, van Meijl, van Tongeren, 2005). In result of the previous WTO Rounds there were lowered manufacturing tariffs for developed countries (except some sectors, such as clothing). However, tariff liberalization did not refer to the developing countries. While the main criticisms related to the little benefit of Uruguay Round negotiations to the developing countries (Nanda, 2008), the Doha Round is recognized to address the needs and concerns of the developing countries. More active involvement of the developing nations in the process of setting the Doha Development Agenda was obvious (Nanda, 2008). Developing countries also would gain from the liberalization in services and from the measures aimed to lower bureaucratic barriers to trade (Francois, van Meijl, van Tongeren, 2005). Among other gains, developing countries should benefit from capacity-building programs and technical assistance (Nanda, 2008). The dangers and risks of not completing multilateral trade agreements In case if the Doha Round of multilateral trade negotiations will not be completed, the experts project severe downside costs. While there is not specified yet the estimates, it is projected that the costs of failure will be greater than the predictions of the benefits of a successfully completion of the agreements (David 2013). In case if multilateral trading system will not be implemented, national governments will try to find other alternatives aimed to resolve investment and trade challenges (Hufbauer, Schott & Wong, 2010). Some countries will be forced to open new trade and investment opportunities through regional and bilateral trade agreements, and others will pursue protective measures (Hufbauer, Schott & Wong, 2010). All these activities will lead to broad scale negligence towards the multilateral trading system and will undermine the WTO’s credibility as a forum for international trade negotiations (Hufbauer, Schott & Wong, 2010). As it is widely recognized that multilateral trade agreements will help to revive global economy from the financial crisis, the failure of completing these agreements will have reverse effect on the global economy. According to the study, carried out by Bouet and Laborde (2008), in case of the tariffs applied by the major economies will go up to the current bound tariff rates, the global trade will decrease almost by 8 percent. Thus, world welfare will be reduced approximately by $ 353 billion. In case of the countries would raise the maximum tariff rates which were applied during the last decade, the decrease of global trade will comprise 3,2 percent or $134 billion (Bouet and Laborde 2008, p. 1). If the Doha Round of multilateral trade agreement will not be completed, the overall potential loss in world trade will be significant - $1,064 billion. Discussion and Conclusions The Doha Development Agenda launched in 2001 and devoted to negotiating some basic market issues has not reached a consensus among the WTO members. The issues related to trade liberalization, liberalization of trade of services, liberalization of manufactured goods, and agricultural liberalization have become the most “hot topics” on the Agenda and lead to greater collapse of the negotiation process. As it has been already discussed, the issue of agricultural trade and liberalization has become one of the potential breakers of the Doha Round negotiations and the proximate cause of the failure of two Ministerial Meetings in 2008. The negotiation process has reached an impasse as the disagreement between leading players representing both developed and developing countries-members have progressed. Significant negotiating power of the developing nations has become more obvious as a result of the weight some of the developing countries have on the international trade arena. Such countries as China, India, Brazil and Indonesia have demonstrated its powerful position during the negotiations thus blocking the initiatives and conditions required on behalf of the major developed countries, including the United States, the European Union, Canada, Australia, and Japan. Having gained increased bargaining power, some of the developing nations have begun to demand some special conditions, thus raising a conflict of interest among other Members. In addition to the increased economic power of developing nations in the global trade market, there were some other factors that contributed to the Doha Round impasse, among which were: divergence in developing member objectives and concerns, fear of increased Chinese source imports, lack of political will, lack of strong support from business stakeholders, rise in government industrial policies, increased use of non-tariff barriers, the WTO’s consensus requirement, and reduced prospects for future Single-Undertaking Rounds (Evenett, 2014, pp. 37-46). Impasse of the Doha trade round prevents the global economy and countries Members from some obvious gains and benefits, even though these gains and benefits are unequal for different economies. While the economic impact of a WTO agreement is difficult to judge due to its complexity, the experts believe that the tariff cutting will have huge effect on the global economy (Francois, van Meijl, van Tongeren, 2005). According to the estimates of a group of economists convened by the World Bank, the WTO and some other organizations, if member-countries/nations reached market access in all manufactured and agricultural goods combined with the reduced agricultural subsidies, the contribution to the world economy would be between $121 billion to $202 billion (David 2013). In case if the Doha Round of multilateral trade negotiations will not be completed, the experts project severe downside costs and other negative outcomes associated with the international trade. The experts projected that the costs of failure will be greater than the predictions of the benefits of a successfully completion of the agreements. If the Doha Round of multilateral trade agreement will not be completed, the overall potential loss in world trade will be significant - $1,064 billion. Moreover, the multilateral trading system will be neglected and the credibility of the WTO’s as a forum for international trade negotiations will be strongly undermined (Hufbauer, Schott & Wong, 2010). However, taking into consideration the strengthening bargaining power of the developing countries in the global economy and international trade arena it might be even more challenging now to reach an agreement with other Members on various aspects of the Doha Round Agenda. Developing countries gain greater control over the negotiation process, and the Doha round negotiations may continue for a long period of time, despite the risks and challenges associated with lack of consensus. References: Arndt, SW 2007, Doha Development Round: Reaching beyond Trade Liberalization, Pacific Economic Review, 12, 3, pp. 381-394. Bouet, A., & Laborde, D 2008, ‘The potential cost of a failed Doha Round’. IFPRI issue, 56. David A., 2013, ‘The Doha Round Failure and the Likely Demise of the “Single Undertaking”. In: Liberalizing International Trade after Doha. pp. 30-49. [Online]. Cambridge International Trade and Economic Law. (No. 15). Cambridge: Cambridge University Press. Available from: Cambridge Books Online Evenett S, 2014, ‘The Doha Round impasse: A graphical account’, The Review of International Organizations, 9, 2, pp. 143-162. Francois, J, van Meijl, H, & van Tongeren, F 2005, Trade liberalization in the Doha Development Round, Economic Policy, 20, 42, pp. 350-391. Fung, K, & Siu, A 2008, Political Economy of Service Trade Liberalization and the Doha Round, Pacific Economic Review, 13, 1, pp. 124-133. Hufbauer, G., Schott, J., & Wong, W 2010, ‘Op-eds Figuring Out the Doha Round’. Peterson Institute for International Economics. Laborde D, and Martin W, 2012, ‘Agricultural Trade: What Matters in the Doha Round?’, Annual Review of Resource Economics, 4, pp. 265-283 (Volume publication date August 2012) Nanda, Ved P 2008, ‘Selected aspects of international trade and the World Trade Organizations Doha round: overview and introduction", Denver Journal of international law and policy (0196-2035), 36 (3-4), p. 255-273. Read More