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The suspension of the Doha Round of World Trade Organization (WTO) talks since July is deeply disappointing. While the rhetoric of commitment to the round remains, in practice there has been a surrender to defensive lobbies clinging to the status quo.
But the status quo is unacceptable. In agriculture, it protects the world’s rich farmers by stifling opportunity for the poor, at a cost of some $280 billion a year to taxpayers and consumers. In manufacturing, it deters poor countries from moving up the value chain as tariffs on their exports increase with the degree of processing.
Barriers among developing countries are also especially high, impeding rapid growth in trade between them. In services, trade barriers stand in the way of improved quality and efficiency, slowing the growth of a sector that could make a huge contribution to competitiveness and employment.
Delaying the conclusion of the Doha Round negotiations carries costs and risks for the entire world economy, rich and poor countries alike.
First, the delay implies a lost opportunity to raise global growth. With risks to the current global expansion increasing, this is the wrong time to let an obvious and sustained source of growth slip away. This is especially crucial for poor countries, where slower global growth means continuing hardship.
Second, the perception of weakness and division in the WTO will make it far harder to resist protectionist pressures worldwide, especially if the global economy slows. We must not forget that the multilateral trading system – along with the Bretton Woods institutions – was originally created to avoid a repeat of the protectionism and competitive devaluations of the 1930’s that plunged the world into depression.
Third, trade reforms can help smooth international macroeconomic fluctuations and contribute to an orderly resolution of global imbalances. A successful Doha Round would thus complement the international collaborative efforts underway, with IMF involvement, to tackle external imbalances among the major economies.
Finally, blockage of the multilateral process will trigger an even more pronounced shift toward bilateral or regional free trade agreements (FTA’s). FTA’s cannot substitute for multilateral liberalization. If properly designed, they can benefit their members, especially if combined with reduced trade barriers for all trading partners. If designed badly, the cost of such agreements – in terms of trade diversion, confusion, and demands on limited administrative capacity – often exceeds the benefits. More broadly, the growth of FTA’s undermines the central principle of the multilateral trading system: trade opportunities should be offered to all countries equally.
The multilateral trading system has faced challenges before, including during the Uruguay Round in the early 1990’s, and has emerged with renewed vigor. We believe that it is still possible for the international community to get a good deal done. But a sense of urgency is needed.
What, concretely, should be done in order to restart the negotiations?
Key countries must find the political will to confront defensive interests and negotiate with flexibility to reach a market-opening deal. The initiative will have to come from the top if the case is to be made within each country for more open markets, and for help to be made available to those facing adjustment. All countries will have to give; no country can be expected to carry the burden alone.
Pro-trade forces can speak up in the political process. For example, it is untenable in rich countries that farm interests accounting for less than 4% of employment are effectively able to block a deal to open new markets for services and manufactures, which account for more than 90% of employment.
In developing countries, pro-trade voices could help turn the debate toward the opportunities of global integration rather than emphasizing exceptions. The bottom line is that trade reforms benefit the country making them. The Doha Round is an opportunity for countries to benefit from others’ reforms as well as their own.
Meanwhile, there should be no backsliding on the progress already made, such as the offer to eliminate agricultural export subsidies by 2013 and to provide duty-free/quota-free access for almost all exports from least developed countries. We encourage donors to follow through on their commitments to increase effective aid for trade – assistance to help developing countries take full advantage of trade opportunities as a lever for growth. For our part, both the World Bank and the IMF are stepping up financial, technical, and analytical trade-related assistance.
Much has already been achieved in the negotiations, and an agreement of significant value is within reach. While the path back to the negotiating table is not an easy one, the obstacles are not insurmountable. All countries, but especially the major players, have a responsibility to honor their commitment to the Doha Round. For the sake of their citizens, the global trading system, and the world’s poor, it is time to get back to business.
Rodrigo de Rato is Managing Director of the International Monetary Fund. Paul Wolfowitz is President of the World Bank.
Copyright: Project Syndicate, 2006.
www.project-syndicate.org
