Though many differences remain among the World Trade Organisation’s biggest members, discontent and frustration among the poorest countries are said to pose the biggest threat to the six-day talks in Hong Kong.
Guy de Jonquières, the FT’s Asia columnist and commentator, answers readers’ questions about the WTO ministerial meeting and the attempt to move the Doha global trade round forward.
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What are the main aims of the Doha “round” of trade liberalisation proposed by the World Trade Organisation?
What progress was made at the meetings in Cancun, Mexico in 2003 and has been made at the Hong Kong meetings in an attempt to implement these plans?
Guy de Jonquières: The Doha round was billed at the outset as a “development” agenda, in an attempt to attract support from poorer countries by persuading them that results would benefit them. However, what the term means in practice has never been clearly defined and remains in dispute, not least among developing countries themselves. In agriculture, for instance, efficient developing-country producers such as Brazil are pressing for radical action to open rich countries’ markets. But a number of poorer countries are unhappy about the idea, because it would rob them of preferential access to the EU and US markets. That would mean they would face stiffer competition.
The specific goals of the Doha round have changed over time, as some issues have been dropped and others added in negotiations. For instance, the EU was forced by developing countries in Cancun to ditch contentious demands for negotiations on issues including investment and competition. But the core subjects are agriculture, industrial goods and services. The first is the dominant theme, with attention focused on dismantling subsidies and market access barriers, principally in the richer countries. Disagreements between WTO members over how deep cuts should be are overshadowing much of the discussion in Hong Kong.
To answer your second question, the Cancun meeting collapsed with agreement, when many poor countries walked out over the EU’s demands for negotiations on investment and competition. Ironically, the EU decided to take these issues off the table shortly before the walkout, but it was too late. The Hong Kong meeting runs until Sunday, so it will not be clear until then what results, if any, it produces.
In your column “Trade rounds a harder sell” you say members take the WTO for granted. But surely this is not the case as far as China is concerned? How much influence do you think China will have in the future and do you think it will mean more trade disputes?
Guy de Jonquières: China does, indeed, take the WTO seriously. Indeed, it agreed in its WTO accession agreement to faster and more far-reaching liberalisation than has been undertaken by any other country in the organisation’s 10-year history. It did so because Beijing regarded membership as an important spur to its economic reform plans. Although the US and EU have criticised China on some details of its implementation of its WTO commitments, notably on enforcement of intellectual property rights, it has generally kept to - and, in some areas gone beyond - them.
In the Doha round, China has kept a fairly low profile, arguing that it already has its hands full putting into effect its membership obligations and should not be expected to do even more. That has not prevented the US putting pressure on Beijing to go further.
China’s importance in the world economy is growing fast and seems certain to continue to do so. It would be surprising if that process did not create some friction with other countries. It already has, as is evident from recent US and EU quotas on Chinese textiles exports.
However, two counterweights are likely to restrain protectionist pressures in the west. First, many western companies have invested in China as a production base from which to export to the rest of the world. They will fight hard against any threat to restrict those exports. Second, as China develops, its domestic market will become increasingly attractive to exporters elsewhere. They will be anxious to avoid serious trade tensions and tit-for-tat retaliation that could jeopardise their sales in China.
Upon reading the recent report by the chairman of the WTO’s agriculture committee, I saw two tables which present proposals for “overall cuts” in domestic support and another which presents proposals for reductions of the “Aggregate Measure of Support” (AMS).
What is the difference between the “overall cuts” and the AMS? Which is the most inclusive concept? Why are they both under discussion under WTO auspices?
Quebec City, Canada
Guy de Jonquières: This requires a slightly technical answer, but I will make it as straightforward as I can. The WTO divides countries’ domestic agricultural support into three categories, known as “boxes”. Amber refers to measures, such as market price supports, that seriously distort production and trade. Blue refers to measures such as programmes tied to acreage or numbers of livestock that are supposedly temporary and intended to pave the way for further reforms. Green covers measures such as direct payments under production-limiting policies that are considered have the least distorting impact.
In addition, there is a residual category called de minimis which refers to all support that falls below certain thresholds and does not fit clearly into any of the boxes.
Aggregate Measure of Support (AMS) is the value of support provided under Amber Box policies. Overall support is the sum of support provided under the Amber and Blue boxes plus de minimis measures. It is therefore the broader of the two measures.
Things don’t seem to be going too well with the talks if you look at them from a distance, but once you dig a little deeper and look into the current agricultural trade practices there seems to be hope that an agreement is not so far-fetched. What do you think will be the key elements in developing an agreement?
Some examples like Argentina, Ghana, Jamaica have shown that there is a large price to pay to integrate and join the global economy in an attempt for uncertain gains. Yet the idea that joining open capital markets and free trade arrangements offer poor nations a road to growth and prosperity seems to still carry a lot of weight. What are your thoughts on this ideology and do you think this will be assumed by nations in these talks?
Guy de Jonquières: There are three key elements in the agriculture discussions: export subsidies, domestic support and market access. An agreement will hinge principally on whether the gap can be narrowed between the EU and the US and the Group of 20 developing-country agriculture producers led by Brazil. WTO members have agreed in principle to their total elimination of export subsidies, but the EU is still refusing to set a date for doing so.
Negotiations on the last two issues still have a long way to go. The EU has offered to cut tariffs by an average of 46 per cent, but that is far less than the US and Group of 20. The EU also wants to exempt from deep cuts 8 per cent of its tariff lines covering politically sensitive imports, such as beef. Its WTO partners say that is unacceptably high.
Secondly, while some countries have not gained the expected benefits from liberalising trade, plenty of others have done so. In Latin America, Chile and Costa Rica are two examples. Much depends on what other domestic policies their governments follow, as well as on factors such as geographical location and climate. I would question your categorisation of free trade as an ideology. Most countries that have liberalised their markets have done so for extremely practical reasons, such as buttressing domestic reforms and allowing their producers access to cheaper imports. Economies that import very little - or at extremely high prices - export very little, too.
When the WTO took over the charge from GATT there were so many sweet promises for poor countries. But those promises were just broken promises. There is no employment, no better living standards. So my question is do we need WTO?
Guy de Jonquières: Freer trade can help poor countries raise living standards, as is clear from the record of open economies such as Hong Kong and Singapore, which have lifted themselves out of poverty in the past 40 years.
However, trade is only one component in a complex mix of ingredients for economic success. They include sound macro-economic management, effective institutions, freedom from disease, education and access to capital. For that reason, to single out trade for all the blame when things go wrong is simplistic. In truth, all trade liberalisation can do is to create opportunities: it cannot guarantee that they will deliver results. That depends on how countries and producers act.
No country has so far withdrawn from the WTO, for a good reason. However imperfect it is, it is better than the alternative: a world without rules, in which the strong would be free to exploit and bully the weak. WTO rules are designed to limit such behaviour.
We are moving ahead of multilateral business regime era. With an ever increasing number of free trade agreements and the increasing share of the world trade that they cover, is the future of the WTO doomed? A slight extension to this line of thought is the failure of successive rounds of negotiations. However, should we say that the failures are a cause of regional agreements or the result of the same? What is your take?
Guy de Jonquières: The process works both ways, as you suggest. The current wave of bilaterals began soon after the collapse of the WTO’s Seattle meeting in 1999. It was led by Asian countries, principally Japan and Singapore, which had been staunch multilateralists and was inspired partly by their disenchantment with the lack of progress made at the WTO. Many people, including Pascal Lamy, WTO director-general, say the same thing is likely to happen if the Doha round fails, with even more countries joining in.
But bilaterals can also weaken the WTO. There is clear evidence that, in some countries, they have distracted political attention from multilateral negotiations. They also create in-built resistance to multilateral liberalisation, because they involve preferential trade treatment that would be eroded by a global trade deal. Finally, because they are preferential, they are contrary to the WTO’s core principle of non-discrimination and equal treatment of all trade partners.