In December, 154 countries of the World Trade Organization agreed they needed “new ideas” to break the stalemate after 10 years of negotiations to lower trade barriers - the ill-starred Doha Development Round. Since presidential election years in the United States and leadership transitions in China are fallow times for new initiatives, 2012 is a good time to think creatively.
Logjam in a Nutshell
The WTO principle that no part of a global trade round is agreed until everything is agreed (the “single undertaking”) gave bargaining leverage to developing countries. This could work as long if there was give and take on all sides. But the agreement to call Doha a “development” round, and a common view that the previous Uruguay Round delivered most of its benefits to advanced nations, led many developing countries to seek the lion’s share of gains from a Doha deal.
This proved a showstopper for the United States, the European Union and Japan. The advanced nationswith slowing economies are simply not willing now to offer unbalanced concessions to rapidly expanding countries such as Brazil, India, China and South Africa, regardless of what they may offer to nations with far fewer prospects for growth.
Grand Bargain Solution
We propose an ambitious idea to break the resulting logjam: a grand bargain that couples an early harvest from the Doha agenda with a blessing by the WTO membership as a whole for the future negotiation of specific plurilateral agreements among willing countries.
The early harvest should start with subjects that create minimal commercial pain for any member but deliver widespread gains, thus minimizing the need for difficult tradeoffs (the underlying rationale for the single undertaking). Three possibilities are trade facilitation, duty-free-quota-free treatment of imports from least developed countries, and reforms to the dispute settlement system.
Trade facilitation is a concept of moving goods through customs faster and more efficiently, generating annual gains of at least $130 billion, with a disproportionate share going to developing countries. Reforms will slash unnecessary documentation requirements that create delay and abet corruption but do nothing for security or revenue collection. Singapore is the world champion for trade facilitation and a model for everyone else: Singapore requires just four documents, clears imported merchandise in five days, on average, at a cost of only $400 per container. Sub-Saharan Africa, with double the number of documents, takes up to 44 days to clear imported merchandise at an average cost of $1,986 per container. The need for improvement is obvious and substantial.
A second area with strong potential and little commercial pain is the duty-free-quota free offer made by industrial countries at the 2005 WTO ministerial. DFQF would allow market access to all goods from theleast developed nations, as defined by the United Nations, unfettered by tariffs or quantitative limits. These countries account for less than 1 percent of world trade. Like any other offer in the prolonged talks, DFQF was conditioned on completion of all other items on the Doha agenda. Nonetheless Brazil and Norway have already implemented DFQF without regard to the single undertaking. There is no good reason why other large players, including the United States, cannot subscribe to DFQF as part of an early harvest and, at the same time, narrow the percentage ofexcludedtariff lines, primarily textiles, apparel and shoes, from 3 percent (the current figure) to 1.5 percent. Precisely by exporting goods now in the excluded categories will the poorest countries - think Bangladesh and Cambodia - have their best chance of lifting themselves out of abject poverty by their own efforts.
Third, there is a soft pitch at hand which the United States can knock out of the ball park: reforms to the “crown jewel” of the WTO, namely the dispute settlement system that enables countries to resolve serious differences more effectively. The changes are not major: faster decisions, more control by countries to settle without going to final judgment, more transparency of hearings and submissions by parties, just to name three on a pending list of 12 revisions.
To seal a grand bargain, the United States, the European Union, Japan and other advanced countries will have to make concessions beyond trade facilitation, DFQF and dispute settlement. At the very least, they will have to implement formula tariff cuts on manufactured goods and pare subsidies and protection applied to agriculture. What will they get in return?
The big payoff could be approval from the WTO membership for like-minded countries to negotiate plurilateral liberalization, akin to the codes adopted in the Tokyo Round of Multilateral Trade Negotiations (1974-79). One plurilateral deal would be zero-for-zero tariffs on trade in key industrial sectors, such as chemicals and electronic products. The concept of tariff elimination in a narrow category of industrial products already has already proven workable for the 73 countries (accounting for 97 percent of world trade in infotech) who have now signed up for the information technology agreement.
Other plurilateral agreements are possible - among willing countries - to cover, for example, services trade, severe currency undervaluation, export controls for the purpose of national food and energy security, and state-owned enterprises. But few if any plurilateral agreements will be possible if benefits must be extended to all WTO members on an unconditional basis. The Government Procurement Agreement, reached in the Uruguay Round, pioneered the sensible idea that no country’s exporters can benefit unless that country opens its own public procurement to competition from other GPA members.
Likewise, the notion must be dropped that a “critical mass” of countries, accounting for upwards of 85 percent of trade, are needed to create a plurilateral agreement under WTO auspices. Some emerging powers will not be willing to sign on to zero-for-zero sector tariffs, services liberalization or WTO rules on currency undervaluation - at least not in the next five years. But their reticence is no reason why other countries should not liberalize their mutual trade - and thereby spark growth in the entire world economy.
Early harvests and plurilateral deals will help open markets for U.S. exports directly and create new consumers abroad with stronger appetites for U.S. goods and services. That means more jobs for American workers. The Obama administration should accompany its initiative to open Asian markets through a Trans-Pacific Partnership with bold actions in the World Trade Organization in pursuit of even larger payoffs from the global reduction of trade barriers.
Sherman Katz is a senior adviser to the Center for the Study of the Presidency and Congress. Gary Hufbauer is a senior fellow at the Peterson Institute for International Economics.