Mahmood AYUB*

This article is based on a speech delivered at the Third International Conference on Business, Management and Economics, organized by Yaşar University, in İzmir on June 14, 2007.

I would like to begin by giving you some brief background on the Doha Round of the WTO, followed by a summary of the key issues on the table and the implications of success or failure of this round.

Background

I am sure most of you know already that the WTO launched the current round of negotiations, called the Doha Development Agenda, or the Doha Round, in Doha, Qatar in November 2001.

The Doha Round was intended to be an ambitious attempt to make globalization more inclusive and help the world’s poor, particularly by slashing barriers and subsidies in agriculture, but also including trade liberalization in manufacturing and services.

According to the plans, the round should have been completed by December 2006. However, the talks have been highly contentious, and agreement has not yet been reached, despite the intense negotiations in Cancun, Mexico in 2003, and in Hong Kong in December 2005. In fact, in July 2006—after another futile gathering of trade ministers in Geneva, WTO’s Director General, Mr. Pascal Lamy, formally suspended the negotiations.

The Doha Round gained new momentum after the meeting in Davos in late January 2007 of trade ministers from 30 countries, on the sidelines of the World Economic Forum. The rising optimism for success was reflected in the statement of Mr Lamy in early February that “ the political conditions are now more favorable for the conclusion of the Round than they have been for a long time”.

More recently, about a month ago the EU hosted ministerial negotiators from G-4 ( US, EU, Brazil and India ). While gaps still remain, there is now some optimism that the Round will be completed by the end of 2007.

A critical date comes up in about two weeks—June 30, 2007. This is when the authority given by US Congress to President Bush for Fast Track Trade Promtion expires. Trade Promotion Authority prevents Congressmen from amending the draft once it comes for Congressional approval. After the expiration date—if the Trade Promotion Authority is not extended—any declaration of the WTO can be subject to amendments, which will clearly reduce the willingness of other countries to participate.

So this is how the situation appears at this moment. After many ups and downs, there are rays of hope that the Round can be completed by December of this year.

Main Issues on the Table

Essentially, there are three main areas of differences, leaving aside the ongoing negotiations on trade in services and anti-dumping subsidies:

• First, agricultural subsidies: Here the ball is very much in the U.S court. At issue is the subsidies provided by the U.S to its farmers, especially in corn, cotton and soybeans. Some progress has been made but probably but not enough to reach an agreement. It is important to highlight here that agreement has been reached in principle—subject of course to the completion of the round—to eliminate by 2013 the most damaging type of subsidies, namely agricultural export subsidies.

On the agricultural subsidies themselves, the EU and developing countries would like to see the US improve its current offer of capping domestic subsidies at $ 22.5 billion. The EU would prefer a cap on US subsidies at $ 15 billion or less. Some of the larger developing countries such as Brazil and India would prefer to retain subsidies on some special agricultural products on which they have legitimate concerns on food security, livelihood and rural development grounds.

• The second area of differences is market access: Here it is mainly the EU and some other countries such as Japan and Korea, which will need to agree on greater cuts in tariffs and enhanced access to their internal markets. The EU has signaled its willingness to cut barriers to foreign agriculture products by an average of 54%. But the US officials are pressing the EU for a bigger cut--closer to 60%.

• The third area is of industrial tariffs: Here the expectation is that large developing countries, among them Brazil, India, Turkey, Argentina, Pakistan, etc would agree to cuts in their import tariffs. Some flexibility would be allowed.

Implications of Failure

What could be some of the consequences of failure in this round?

• First, there is no question that improving trade opportunities for developing countries is critical to higher economic growth and more successful poverty alleviation. Trade restrictions that continue to penalize the exports of developing countries will delay the achievement of the Millennium Development Goals. There may be differences among experts on the magnitude of the gain from trade to the developing countries. But there is no argument that expanded trade opportunities will be beneficial to the developing countries. •

• Second, the Uruguay Round—the predecessor of the Doha Round—began a sustained process of economic integration and falling import prices that was vital for the strong and non-inflationary growth worldwide. Failure of the Doha Round would strip the global economy of its most powerful sources of strength and stability. •

• The third consequence is a political one. The rules-based multilateral trading system is there to help governments deal with the political challenges from critics. Sending out a message that the Doha Round cannot be completed would undermine the system, and weaken the ability of member governments to stand firm against trade protection.

And here, let me say that even though many countries do give priority to bilateral and sub-regional trade arrangements, these deals are not the ideal solution. Bilateral and regional trading arrangements are important in some cases. But:

• By definition, they are discriminatory against those who are not included in these arrangements.

• They do not deal with tough but important issues such as subsidies.

• In some cases they lead to trade diversion rather than trade creation.

• And they complicate the trading environment with a “spaghetti bowl” of different rules.

Let me conclude by trying to answer the question: Where are we headed? What are the chances of success of the Doha Round?

Frankly the short answer is that we still don’t know. The prospects are better than ever before. But stumbling blocks still remain

When you examine the data, the vast majority of both US and world trade is in manufactured goods and services, not in agriculture. Globally less than 7% of world trade is in agricultural products. About 80% is in manufactured goods and services. For the U.S, the weight of agriculture in trade is even smaller—only 4.5%. The claim by some in the U.S that developing country agricultural markets are closed to the U.S exports is simply not supported by facts. Overall, the U.S agricultural exports to developing countries now exceed those to wealthy countries, and are growing rapidly. In 2005, U.S exported three times as much agricultural exports as did Brazil, the next largest exporter.

If the U.S breaks the deadlock on agricultural subsidies, I am convinced that other countries will reciprocate in the Doha talks. The EU has signaled its plan to improve its offer to open its agricultural markets. And the developing countries have offered to cut their tariffs, provided their legitimate concerns on special products are recognized.

I think Mr. Pascal Lamy summarized the situation well by saying that, “at this point the challenge is less technical and more political”. It is now about leadership, and about compromise.

I hope we have success this year in this important area.

* United Nations Resident Coordinator, Ankara, Turkey