Correcting Misperceptions

Peter D. Sutherland

From Foreign Affairs, December 2005 -- WTO Special Edition

Summary:  If trade talks were founded on a rational analysis of economic interests, they would be much easier to conduct and conclude. But most are not, and the Doha Round is no different. The key to ensuring that something worthwhile does emerge from it is to distinguish narrow political agendas from the broader public interest.

PETER D. SUTHERLAND is Chairman of BP p.l.c. and of the Advisory Board on the Future of the World Trade Organization. He was Director-General of the General Agreement on Tariffs and Trade from 1993 to 1995 and the founding Director-General of the WTO.

Many trade watchers in Washington are just as unclear about the way things work in Europe. The European Commission wields significant powers in determining the EU's negotiating strategy, but it still operates within broad mandates set by the ministers of the union's 25 members and takes account of the views of the European Parliament. The trade commissioner must perform a daunting balancing act every time he sets foot inside a WTO meeting. That task has become even more complex with the EU's recent expansion from 15 to 25 members, which has meant that a vastly larger number of relatively poor farmers must be considered in EU budget equations and the Common Agricultural Policy. It is not widely recognized, for example, that until 2012 the EU will have to rely on the same budget to support farmers from 25 nations as the one it has used to support farmers from 15 countries. Nor is it understood that recent reform of the cap, while far from ideal, has already changed the face of farm-support programs in Europe. By funding farmers' income directly, irrespective of their production, the EU will substantially reduce the distortions of global trade that cap critics had rightly condemned in the past. The U.S. Congress moved in the opposite direction with new farm-support programs in the Farm Bill of 2002, but one hopes that it will reverse course in the near future.

In the meantime, one thing is sure: the end of farm-trade bargaining in the Doha Round is nowhere near. Both Washington and Brussels are expected to move further. The Hong Kong meeting should set targets and rules for liberalization for all WTO members. For that to happen, other key negotiating partners must be prepared to contribute as well.

THE NEW WAVE

Enter the new Quad, which has been important in preparing the Hong Kong meeting. Like the old quad it replaces, this group includes the United States and the EU. But instead of two important industrial countries -- Canada and Japan -- it also counts two important developing countries -- Brazil and India. The new quad makes sense given the current geopolitics of WTO negotiations. Brazil and India have been influential in the past: both countries, which send some of their brightest diplomats to negotiate in Geneva, were crucial players in the Uruguay Round of the General Agreement on Tariffs and Trade between 1986 and 1993. They have a much greater stake in the global economy now than they did two decades ago -- and presumably a greater interest in ensuring the success of WTO negotiations. One would hope that by being at the helm of the Doha Round, they now feel a responsibility to find solutions to benefit all developing countries, including those less fortunate in global trade than themselves.

So far, however, advanced developing countries have paid little attention to the poorest countries, which desperately need new market opportunities, even though trade among developing nations is likely to be a major driver of economic growth in the future. Developing countries that already are growing players in global trade, such as Brazil and India, understandably play hardball at the WTO. They know well that the major economies that protect their agricultural sectors to the detriment of the rest of the world -- as well as their own consumers and taxpayers -- will make meaningful concessions only under duress and after seeking, by every device, to create rules and exceptions that insulate them from serious political pain at home. But since the price of intransigence may spell the failure of the Doha Round -- and undermine the multilateral trading system -- countries such as Brazil and India will need to calibrate their strategy carefully. After all, globalization is central to their future, too.

Not, of course, that Brazil, India, and other large developing economies are expected to take on heavy commitments requiring substantial reform in the Doha Round. The negotiations were launched in 2001 under terms that envisaged only limited concessions from developing WTO members and none at all from the poorest countries. (Such conditions may not be in the best interests of the nations concerned, but such was the original bargain.) Yet major economies will take on significant commitments, especially in agriculture, only if they can sell them to their domestic constituencies. This means that countries with growing economies will have to make commitments, too, most likely to reduce barriers to imports of industrial goods and through concessions that favor investment by foreign services firms.

The Quad is not the only new negotiating structure in place. The group is expanded to the five Interested Parties with the addition of Australia to talk about agriculture. As necessary, it is expanded to include either big exporters of agricultural products, such as Argentina and Canada, or countries seeking to maintain heavy farm protection, such as Japan and Switzerland.

The most noteworthy new group may be the G-20, which was established in 2003 and, thanks to some major developing countries in its midst, has extracted big agricultural concessions out of Washington and Brussels. The G-20 is also remarkable for including both China and India, countries with very different farming interests from those of Argentina, Brazil, and South Africa.

China seems to see the G-20 as a convenient shelter for the time being. Having made an enormous effort to qualify for WTO membership in 2001, China was initially unwilling to make significant new commitments in the Doha Round, but now, with the negotiations running years behind schedule, it probably understands that that position has dwindling credibility. At the same time, there is a view in Beijing that China's concessions will ultimately depend on just how badly the country is treated. Multiple safeguard and antidumping measures seeking to undermine the competitiveness of Chinese goods will clearly weigh heavily in the scales.

The G-20 has spurred the establishment of yet other groups, some with more defensive interests. A group of the world's richest nations -- including Japan, Norway, South Korea, and Switzerland -- has formed the G-10 in the hope of minimizing interference with the extremely high protection they provide their farmers. (In doing so, they provide moral support to the EU, several of whose members want the same thing.) The G-33 group of poor WTO members also seeks to protect their agricultural sectors from the impact of a tariff-cutting deal. And then there are the African, Caribbean, and Pacific nations (known as ACP countries), which worry that they may lose some long-standing trade preferences -- notably those provided by the EU -- as general duties on merchandise imported into the countries that have traditionally favored them fall.