Background: The Doha Development Round Outlook

The stalled Doha Round has provided momentum for the pursuit of FTAs in East Asia. It can be safely argued that, whatever the outcome of the Doha Round, the momentum is likely to continue.

2.1 Key Issues in the Doha Round¹

The Doha Round was launched in November 2001 and has since run into trouble. At the December 2005 ministerial meeting in Hong Kong, China, WTO members agreed to undertake liberalization negotiations under four pillars: agriculture, non-agricultural market access (NAMA), services, and rules (including anti-dumping and countervailing duties, and regional trading arrangements [RTAs]). Key areas of the market access negotiations are industrial products, agriculture, and services. The July 2008 Doha Round meeting in Geneva, Switzerland, collapsed because of differences between the US and big emerging countries such as India, over a proposed safeguard to help farmers in poorer countries withstand surges in imports. The next WTO Ministerial Conference is scheduled for 30 November–2 December 2009.

Agriculture: Agriculture has traditionally been one of the most difficult sectors to liberalize due to various politico–economic issues. Agricultural negotiations in the Doha Round are taking place under three pillars: Rules on export subsidies, Rules on domestic support, and Tariff cuts. Complicating the negotiations is the asymmetrical use of the three pillars—while most members of the Organisation for Economic Co-operation and Development use all of them, developing countries primarily use tariff protection. At the ministerial meeting in Hong Kong, China, it was agreed to eliminate farm export subsidies by 2013 (2006 for cotton export subsidies), and in December 2005 it also proposed complicated modalities for tariff cuts, with four ranges of tariffs, each being subjected to a different percentage cut.

Non-agricultural market access: Despite the success of previous rounds in bringing down the tariffs of developed countries, they still remain quite high. There is considerable asymmetry in tariff levels between countries and across sectors within countries. Doha Round negotiators have focused on bound tariffs and have agreed to adopt the Swiss formula for liberalization and harmonization. A compromise would have the developed countries offering more in agriculture, services, and rules, and would include flexible provisions to take account of the special needs and interests of developing countries (such as the possibility of excluding a certain percentage of total import value and/or percentage of tariff lines from the formula cuts).

Trade in services: Negotiations regarding services have been deadlocked for several reasons. The first problem is measurement. For example, how to balance the number of licenses granted to foreign insurance companies with the number of visas obtained for domestic nurses willing to work outside the country. The second is that earlier negotiations were exclusively based on bilateral offers and requests, and this cumbersome procedure has complicated negotiations. The third problem is that substantial services liberalization requires behind the border regulation changes, while the fourth problem is that services negotiations in the past have focused on national treatment for foreign service-providers. To allow for deeper integration in the services, it was decided at the ministerial meeting in Hong Kong, China that countries could pursue service negotiations on a plurilateral rather than the usual bilateral basis, a result that would be extended on a most favored nation (MFN) basis.

Rules: Doha Round discussion on rules focus on several issues. The most important are contingent protection (anti-dumping and countervailing duties), RTAs, special and differential treatment, and aid for trade (including trade facilitation). There has been increased use of contingent protection, especially anti-dumping measures; applications are firm or country specific and enforcement of rules has been relatively lax. RTAs violate the MFN principle, but Article XXIV allows for RTAs provided they meet certain general criteria. The WTO has been discussing the need for more definitive criteria; under Doha, further revisions of the interpretation of Article XXIV were to be part of its single undertaking. There is also intense debate on whether and how developing countries should be granted special and differential treatment. Since the 1970s, special and differential treatment has mainly taken the form of unilateral preferential tariffs by developed countries for selected developing countries under the Generalized System of Preferences scheme. However, with falling MFN tariff rates, the margin of preference has been seriously eroded. At the ministerial meeting in Hong Kong, China, developed countries agreed to end tariffs and quotas on 97% (tariff lines) of exports from the least developed countries by 2008.

Aid for Trade: Aid for trade relates to issues of governance as well as issues of trade facilitation (such as customs and logistics procedures). The Doha Round has a program of negotiations regarding trade facilitation intended to buttress the capacity of developing countries to implement trade liberalization and structural change. It could potentially be extended to all activities involved in the international movement of goods and services, such as building transport infrastructure and facilities, operating trade-related services such as telecommunications, and providing specialized legal and insurance services.

2.2 Uncertain Prospects for the Doha Round

The ongoing global financial and economic crisis has posed a serious challenge for the Doha Round. Governments have been too pre-occupied with responding to the global economic crisis to prevent sinking into deep recession. Although governments continue to make political statements on resisting protectionism in various international and regional fora (such as Group of Twenty [G20] and Asia-Pacific Economic Cooperation [APEC]), there has been a rise of so-called murky protectionism (Baldwin and Evenett 2009) in the form of an increased use of anti-dumping measures, the misuse of technical barriers to trade, and the promotion of buy local provisions in national stimulus packages. The WTO reported that the number of new anti-dumping investigations rose 17% year-on-year in the second half of 2008, but in a report dated 17 November 2008, the number of such investigations was said to have decreased.

Additional difficulties in the Doha Round negotiations are summarized below:

• First, early General Agreement on Tariffs and Trade (GATT) rounds were successful in considerably reducing tariffs on non-sensitive manufactured goods, leaving the most difficult items to be tackled in the Doha Round. These items include agricultural export subsidies, domestic support for agriculture, agricultural tariff reductions, trade in services, anti-dumping duties, and the rules governing RTAs. Also, the non-uniformity of cuts in tariffs and non-tariff barriers to trade (NTBs) resulting from compromises in earlier rounds has been problematic because it can create its own distortions. Hence, the Doha Round has been particularly difficult.
• Second, developing countries are diverse and often have different priorities and interests and insist that the Doha Round delivers on the development agenda.
• Third, the US and other developed countries are looking for voluntary sector-specific agreements to open markets in important advanced developing economies. These voluntary sector-specific deals would include chemicals, electronics, and industrial machinery, and they would result in major tariff reductions in major developing countries such as Argentina, Brazil, PRC, India, and South Africa. At issue is whether by participating in sector-specific negotiations, developing countries are then committed to industry-specific agreements before knowing all the details.
• Fourth, there is disagreement over the special safeguard mechanism used to protect domestic farmers in developing countries from agricultural import surges. WTO members have agreed that developing countries will have a special safeguard mechanism, and more or less agreed on how big the import increase would be to trigger a temporary tariff rise. The WTO members also agreed on how high the rise should be in general. The blockage is about the situation where the special safeguard mechanism raises tariffs above commitments countries made in their MFN bound rates. India has demanded that developing countries be allowed to apply high, temporary tariffs in excess of existing bound rates to stem imports above a threshold level that could harm local producers.
• Fifth, concern over the trade policy direction of the Obama Administration.

According to the Asian Development Outlook 2006 (ADB 2006), a successful, comprehensive Doha package would comprise the following: a balanced Swiss formula applied to both NAMA and agriculture with as few excluded sectors as possible; some progress in services, especially Mode 3 and Mode 4; fairer and more transparent rules on contingent protection; better definitions and rules on RTA transparency, as well as commitments to develop means to ensure the consistency of Article XXIV agreements with multilateralism; and generous offers in terms of aid for trade and trade facilitation plus. Economists and analysts, however, would agree that many of these are unachievable, and if the US pulls back on the 2008 package then disaster looms. However, since a complete failure of the Doha Round is unthinkable, it is likely that the round would be concluded with lightweight results (Doha Lite), leaving the most contentious issues unresolved. Conclusion of the Doha Round would unlikely plug the loopholes in the existing rules regarding protectionism and RTAs and they could remain as major challenges post-Doha.

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