Uncertainty Lies Ahead For WTO - Truth About Trade and Technology

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Monday, 04 August 2008 04:08

Forbes
Original Publish Date: August 1, 2008

In a bold but finally unsuccessful gamble, World Trade Organization Director-General Pascal Lamy last week called an informal meeting of trade ministers from key WTO member countries to seek agreement on the main parameters of an eventual Doha Round agreement.

The collapse of those talks has raised doubts about whether the postwar model of successive, giant multilateral trade negotiations is still viable.

Implications for the WTO. The WTO's reputation as a forum for negotiation will suffer from the Doha breakdown. Immense effort and political commitment have been invested in the Round over a period of nearly 10 years. (Preparations for what was tentatively called the Millennium Round go back to 1999, and include the WTO's disastrous Seattle meeting that year.)

The previous Uruguay Round ended nearly 15 years ago. Its results have long been in force. Governments will inevitably ask whether limits have now been reached on what can be achieved in negotiating on such sensitive issues as agriculture, and whether a more productive method cannot be found to open up world markets, help developing countries' trade and keep trade rules up to date.

Trade disputes. The WTO's role in settling trade disputes will become more important then ever. Negotiation is generally preferable to litigation, since it can open up trade opportunities where none existed. However, if there is no choice, resort to the WTO's binding dispute procedures can show impressive results. There are two current examples:

--China has just suffered its first defeat in a dispute with a ruling that it has treated imported car parts unfairly.

--A Doha Round issue is being pursued in a dispute in which the U.S. is having to defend itself against charges of illegally subsidizing its cotton producers.

In the longer run, WTO rules could become increasingly irrelevant if the trend toward bilateral and regional agreements continues to accelerate. (However, in the U.S. public resistance to trade liberalization of any kind will discourage further such agreements.)

Wider implications. Two wider implications can be drawn from the failure:

--No new liberalization. Even a successful Doha Round would have stimulated trade flows only after 2011. There is little evidence as yet that its failure will further damage public confidence at a difficult time for the world economy. However, business sentiment in exporting countries and government plans for economic development will not be helped by the loss of prospective far-reaching cuts in protective duties and subsidies affecting trade in goods and services.

--Reduced faith in multilateral agreements? Lamy and others have already suggested that failure in the Doha Round may make it harder to reach multilateral agreements on non-trade issues such as global warming. This too seems improbable, though the Doha failure will not help.

Only a slim possibility remains of resurrecting the Doha Round, particularly if the U.S. elections result in a president and Congress doubtful that trade liberalization serves U.S. interests. A long period of stalemate in international trade relations may now lie ahead.

Against a global background of economic difficulty, protectionist pressures are likely to increase. They will make headway more easily in the absence of concerted government efforts to roll back trade barriers and distortions.