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Taking the development round seriously

The Doha Development Round between wishful thinking and political reality

The "development round" myth

Trade and environmental policy need to support each other


8-9/2003
  

Quo Vadis, WTO?

The Doha Development Round between wishful thinking and political reality

By Klaus Liebig

The present round of WTO talks, of which Cancún will be a first stock-take, was supposed to be geared particularly to the needs and interests of the developing countries. In all probability, that objective will not be met. Everyone knows what it would take, Klaus Liebig says, but it is not politically feasible: the industrialised countries have other interests.


Those in favour of a new world trade round – most of all the European Union – had promised the developing countries it would be a "development round". The lessons had been learnt from Seattle, it was claimed; the liberalisation this time would primarily benefit the developing countries. But what kind of reform of world trade is envisaged by those talking of a development round? As I see it, there are astonishing overlaps in the views of normative economists, NGOs and development policy-makers on what is desired to meet developmental needs. The development round was supposed to provide the developing countries with better market access for their goods and services, more trade-related capacity building and no new obligations with regard to internal regulation. The stumbling block is the political feasibility of these demands in the industrialised countries. If development ministers cannot carry the vote in the face of competing economic interests in their own governments, the only way to push forward the necessary WTO reforms is to empower the developing countries in the world trade system.


The present situation in the WTO

There is relatively widespread agreement today that an open trade regime offers great opportunities for developing countries. Beyond the caricatures of (neo)liberal economists who want to introduce free trade overnight and globalisation critics who allegedly reject international trade, productive discussions are going on about the best form of international trade policy developing countries can adopt. This is because the successes of Asian “tiger” countries have shown that liberalisation of foreign trade can give major boosts to development if it is adjusted to meet a country's particular needs and embedded in a comprehensive economic development strategy.

What role does the WTO play in all this? Each country could lower its trade barriers unilaterally, of course, but the advantages derived from that can be realized better if trading partners reciprocate by opening their borders too. Increased imports can then be financed by exports. The WTO's role is that of a regulator, monitoring the implementation of the multilaterally agreed rules.

In the General Agreement on Tariffs and Trade (GATT), the first pillar of the WTO established in 1947, those rules related mainly to border measures (customs tariffs and non-tariff trade barriers). The member states exchanged promises to open markets with their most important trading partners and those commitments were automatically extended to all other member states (Most-Favoured-Nation clause). Developing countries participated in the negotiations as onlookers, rarely made pledges to open markets themselves but profited automatically from the lowering of tariffs by the industrialised countries. Owing to the passive role played by the developing countries, however, there was hardly any improvement in market access for the products they could export. On the whole, one could say that in particular the products produced by poor people in developing countries are the ones that need to overcome the highest import hurdles.

With the foundation of the WTO in 1995, a second pillar was added to the world trade system: the General Agreement on Trade in Services (GATS). So far, not much progress has been made in liberalising international trade in services. Especially in the few areas where comparative advantages are perceived for developing countries (provision of cross-border services in construction, assembly etc.), the industrialised countries have so far been unwilling to commit themselves to liberalisation. The asymmetrical market access seen in goods trade is replicated here.

The WTO today also regulates various areas of internal politics, which is a particularly controversial issue. The TRIPs agreement – the third pillar of the WTO – obliges all member states to introduce and implement high standards of protection for intellectual property. The two agreements on subsidies and trade-related investment measures limit the scope for industrial policy by governments. The agreements on technical and sanitary barriers to trade make it harder for governments to introduce related standards for imports which could impede trade.

The logic behind the introduction of such agreements under the umbrella of the WTO is that international trade today is impeded by more than just classic border measures ("back-door protectionism"). Indeed, a great many things impact on trade. Because of this, however, decisions need to be made to prioritise competing political objectives. What is more, the economic rationale for most agreements is much weaker than that for lowering tariffs. For in view of the widely differing starting-points of WTO member countries, there are strong arguments for those countries to pursue different economic policies. Forced harmonisation of policies could well be counterproductive.

The WTO today has 146 members, more than a hundred of them developing countries. Apart from a group of larger and more advanced developing countries, most of them are not in a position to defend their interests effectively in the WTO. Although the WTO's principles –"one country one vote", for example, or that of free access to the dispute settlement mechanism – are slanted in favour of developing countries' interests, the countries' ability to make use of the opportunities presented is limited by shortages of human and financial resources. Despite official equality, the international power imbalances are clearly reflected in WTO procedures.


Developmentally desirable reforms

From a development policy viewpoint, the world trade system is in need of reform. When one looks at what various organisations claim is needed to create an effective "development round", one finds that, behind the rhetoric, there are astonishing areas in which they agree. The ultra-liberal Cato Institute in Washington trumpets the same clarion call as NGOs, rejecting any extension of the WTO's agenda to other issues. The WTO, it says, should re-focus on its core competence (reduction of trade barriers at borders) and not aim at harmonising regulatory standards. The TRIPs agreement is a "fall from virtue", harbouring the risk of transforming the WTO into a rabidly regulatory globalisation agency.

Two more central demands are echoed by many organisations, e.g. the World Bank and Oxfam : any development round worthy of the name needs to significantly improve market access in the industrialised countries for agricultural and manufactured goods from developing countries. In addition, the developing countries need to be given considerably more trade-related capacity-building assistance to enable them to defend their interests effectively in the WTO, overcome domestic supply-side constraints to participation in international trade and transpose WTO commitments into national legislation.

This brief review makes no attempt, however, to paint a false picture of harmony in trade politics. There are major differences in viewpoints, of course, especially on the issue of how fast and how far the developing countries themselves should agree to open their markets. What is more, similar demands are often voiced for different (political) reasons. Nevertheless, the WTO would reap fairly widespread applause if the development round met the following three requirements:
– better market access in industrial countries for goods and services from developing countries;
–more trade-related capacity building;
– no new obligations regarding internal regulation

So the main obstacle to progress at present is not the fact that the demands for a development round differ; it is the political feasibility of implementing it.

Political deadlock in the run–up to Cancún

At the WTO ministerial conference in Doha, the member states agreed to a schedule for the new round. Cancún marks the half-way point. Thus far, however, the deadlines set in practically every area of negotiation have come and gone with no agreement being reached on contentious issues. The EU, the United States and the developing countries are currently blocking one another on matters central to the round in a variety of issue-specific coalitions.

The EU's role in the talks is an ambivalent one. As mentioned at the beginning of this article, it wanted to be seen by the developing countries as a champion of their interests. So prior to the ministerial conference in Doha, it came across as fairly flexible and open to discussing a number of topics placed on the agenda by the developing countries. Unfortunately, that openness primarily relates to peripheral issues (technology transfer, access to medicines, special and differential treatment) or to preferential market access for LDCs (Everything But Arms Initiative). Laudable though this openness may be in those particular areas of negotiation, it distracts from the fact that the EU does not represent the interests of the developing countries on two central points: it remains a major brake-puller in the liberalisation of market access in agriculture and services, which are associated with temporary migrations of labour, and it is calling for the introduction of new rules on investment, competition policy and public procurement under the umbrella of the WTO (the so-called "Singapore issues").

The United States, in contrast, adopts a tough attitude towards almost every attempt by the developing countries to reform existing rules. The US government sees itself, for example, as an extended arm of its pharmaceutical industry and antagonises the developing countries with uncompromising stances on patent protection. On the other hand, the US agenda on trade coincides more with some developing countries' interests than that of the EU (focus on opening markets). The aversion of the "unilateralists" in the Bush administration to multilateral rules which the United States would also have to respect chimes with many developing countries' resistance to the Singapore issues.

The developing countries respond differently to the proposals of the industrial countries' negotiators. Because of diverse trade interests, they present a united front on only a few issues. Where they are united is in the general call for up-front concessions by the industrialised countries (action to resolve the so-called implementation issues) before the end of the new round. This involves addressing nearly a hundred development-relevant problems caused by the results of the Uruguay round. Among the things the developing countries want to achieve, for example, is faster progress towards open markets in the textile sector and a revision of the TRIPs agreement to take better account of their interests. Most of these demands are certainly justified. At the same time, however, they are politically illusionary and consequently contribute to the deadlocked situation in the WTO.

As the EU and the United States are locked in some politically delicate conflicts at present (e.g. the dispute over GM crops), there are no effective coalitions to table compromise proposals for the end of the Doha round. On the whole, the industrialised countries have so far shown no real readiness to embrace the reforms that are needed to make the Doha round a development round. Instead, they are trying to achieve their trade policy objectives outside the WTO in bilateral and regional trade agreements. This strategy may be rational in the short term but it weakens the multilateral trade system.


Scope for development policy action

The WTO prevents neither development nor poverty reduction but the existing rules offer developing countries fewer opportunities than they might or should. The question is how can the situation be rectified. Doing away with the rules would not make things better for the developing countries because international trade would then be governed even more by bilateral and regional agreements. In trade agreements with individual developing countries, the industrialised nations can assert their own interests much more easily because of the existing imbalance of power. So for all its imperfections, the WTO offers the less powerful developing countries a certain amount of protection against bilateral pressure.

In view of these alternatives, a reformed WTO is the best option. For a number of years, the German development ministry BMZ has had little success in representing developing countries' trade-related interests in the federal government. Because trade politics is governed by tangible economic interests, however, this is not surprising. Even with the BMZ agenda geared to helping shape global governance, nothing much has changed in this respect. Nevertheless, the approach is correct and could in the medium term – boosted by the growing influence of NGOs – mobilise the necessary political support.

At the same time, development cooperation should also provide trade-related capacity-building support to help developing countries identify their trade interests and incorporate them more fully in multilateral (and bilateral) negotiations. Happily, the BMZ has increased funding in this area and thus fulfilled an obligation set out in the Doha Declaration. Conventional development cooperation tools can be used more or less independent of a country's own trade policy interests. Having said that, evaluations have shown that trade-related capacity building can also be misused (e.g. for introducing intellectual property rights based on industrialised countries' own models with no allowance for country-specific circumstances). So in dealings with other government departments, the BMZ should insist on the autonomy of its project and programme concept in this politically sensitive area.

So far, German development policy has played a relatively insignificant role in the multilateral trade policy debates. The UK development ministry DFID, for example, provides massive support for the newly created trade policy unit of the World Bank. The expertise which is accumulated there crucially shapes the trade policy debate. Together with the British and the Dutch, the World Bank also plays a central role in the Integrated Framework for Trade-Related Technical Assistance to LDCs. Another worthwhile starting point for German development cooperation could be the current debate on why the shaping of trade policy has not played a major part in the formulation of Poverty Reduction Strategy Papers (PRSPs) and in what form that should happen in the future. Through targeted funding, the BMZ should cooperate in strategically important multilateral programmes to link the bilateral trade-related advice it provides to its longer-range political goals.



Klaus Liebig is a researcher with the German Development Institute (GDI) specialising in global trade policy. /p> klaus.liebig@die-gdi.de