The Stakes of Doha

Carla A. Hills

From Foreign Affairs, December 2005 -- WTO Special Edition

Summary:  Americans should care deeply about the Doha Round, but many do not understand what it means for them and the rest of the world. With the talks barely moving, it is time for supporters of free trade to educate the American people in order to give Washington the backing it needs to break the deadlock.

CARLA A. HILLS, CEO of Hills & Company, was U.S. Trade Representative during the administration of President George H. W. Bush.

In launching the round, trade ministers signed on to the Doha Development Agenda, a document that explicitly recognizes that trade can help poor nations grow their way out of poverty. Today, nearly three billion people, almost half the world's population, live below the international poverty line of $2 per day (at purchasing power parity). According to studies by economist William Cline at the Center for Global Development, removing global trade barriers would yield $200 billion annually in long-term economic benefits for poor countries and lift 500 million people out of such poverty. About half of the benefit would come from opening markets in agricultural goods. U.S. Department of Agriculture studies show that eliminating rich countries' agricultural supports would result in a 24 percent gain in the value of poor countries' farm exports, which account for a quarter of their total exports and represent industries that employ roughly half their population.

Also, the Doha negotiations could remove inequities that distort the international trading system and significantly hinder growth in poor countries. Tariffs are much higher on goods primarily produced by poor countries than on those produced by wealthy countries, in part because most poor countries did not participate in earlier rounds of trade negotiations. Even in the United States, where tariffs average less than two percent, the tariffs on the goods that most poor countries export -- footwear, vegetables, fruit juices, peanuts, and sugar -- range from 40 percent to over 100 percent. The tariffs in other countries are even worse; some levy tariffs of up to 1,000 percent on some farm goods.

And it is not only industrial countries that need to reduce their barriers. World Bank studies point out that more than half of the burden on poor countries' exports results from restrictions imposed by other poor countries. That is because developing countries as a group have higher tariffs than industrial countries, and a substantial number of developing countries mostly trade with other developing countries. These facts underscore the importance of opening markets globally.

Importantly, success in the Doha Round could help strengthen weak and failing states that jeopardize U.S. security. Impoverished states often lack the ability to enforce their laws and secure their borders, making it much more difficult for the U.S. government to deal effectively with transnational problems such as organized crime, narcotics trafficking, money laundering, illegal arms sales, disease pandemics, and environmental degradation. The Cline studies meticulously map global poverty. Three WTO members -- Bangladesh, Indonesia, and Pakistan -- each have roughly 100 million people living below the international poverty line. Six African members -- the Democratic Republic of the Congo, Kenya, Mozambique, Nigeria, Tanzania, and Uganda -- together account for another 200 million people living in poverty. All are located in regions beset by instability. Cline calculates that on average a one percent increase in a country's ratio of trade to output eventually boosts its income by one-half percent, which translates into a one percent reduction in poverty and a concomitant increase in stability.

DOHA STALLED

Despite all that is at stake, progress in these multilateral negotiations has been miserly and slow. A WTO official recently noted the "bizarre disconnect" between the enthusiastic rhetoric on advancing the trade negotiations at July's meeting of the group of eight highly industrialized countries (G-8) and the intransigence of negotiators that has brought the Doha Round almost to a halt. In the four years since the negotiations were launched, trade ministers have repeatedly missed self-imposed deadlines.

The Hong Kong ministerial meeting was initially targeted for concluding the Doha negotiations. However, at the beginning of this year, with negotiations at a standstill, members committed to a revised plan calling for them to agree by August 1, 2005, to a "first approximation" of how liberalization will occur. That schedule was structured to enable them to agree to a final negotiating plan at the Hong Kong ministerial and hopefully complete negotiations over the succeeding 12 to 14 months before the U.S. president's trade negotiating authority expires on June 30, 2007. Ministers are far behind their revised schedule; in November, they had yet to agree on an approximation of how they intend to open the agricultural, industrial, or services sectors.

With respect to agriculture, WTO members agreed in July 2004 to a framework for eliminating export subsidies, cutting domestic support, and increasing market access. But they remain deadlocked on critical issues, such as the time frame for phasing out agricultural export subsidies; the types and quantities of domestic supports to permit; and how to widen market access for farm goods. Of these issues, wider market access has the greatest capacity to reduce poverty. Agricultural tariffs are five times higher than tariffs on industrial goods and account for more distortion in agricultural trade than either export subsidies or domestic supports.

This past October, the United States built on an approach offered three months earlier by the Group of 20 that separates farm tariffs into four descending tiers and makes the largest cuts in the top tier comprising the highest tariffs. [See Footnote #1] Under the U.S. proposal, rich countries would reduce their highest or top-tier tariffs (those of 60 percent and above) by 90 percent over five years and cut their tariffs in the three lower tiers by 55 to 85 percent. The U.S. proposed capping all farm tariffs at 75 percent, but members would be allowed to exempt one percent of tariff lines to protect products deemed sensitive. [See Footnote #2] It also suggested lower cuts and longer phase-in periods for developing countries without specifying percentages or time frames.

In addition, the United States proposed that members such as Japan and the European Union, which under current WTO rules can spend three times more than the United States on trade-distorting domestic farm supports, reduce their spending by roughly 80 percent while the United States would reduce its spending by 60 percent. This would reduce and harmonize the permitted levels of spending on domestic farm supports by industrialized countries.