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.

These and other new groups generally are more in harmony with the real economic interests of their members than was the case with the somewhat doctrinaire developing-nation groups in the Uruguay Round. Above all, the once-common notion that "the South" is locked in combat with "the North" is now antiquated. The varied interests and perspectives of the WTO's members are now easier to detect than before, and such clarity can only help in reaching a final settlement of the Doha Round.

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That does not mean there are not, among these groups, alliances of political convenience. Why, for instance, are China, India, and Brazil all pretending to similar interests in the G-20? Nor does it mean that the positions represented are well founded. Indeed, no group can be said to represent any overarching truth or fundamental right. WTO gatherings are formed on the basis of members' perceptions of their economic interest, embroidered with notions of solidarity. As in previous rounds, however, there is in the Doha Round a difference between such perceptions of interest and reality. That is especially the case regarding matters of development.

Three issues stand out. First, the talks are based on the (incomplete) assumption that the future exporting success of poor countries lies almost exclusively in their access to the markets of industrial nations. Second, many developing countries are caught in a contradiction between the extent to which they have already liberalized their economies and their unwillingness to commit to reforms in the WTO. Third is the problem of lost trade preferences.

The first assumption flies in the face of much evidence showing that the economic future of many developing countries lies in their trading with other developing countries. According to WTO statistics, trade among developing countries (sometimes referred to as "South-South" trade) reached 12.4 percent of world trade in merchandise in 2004. Between 1990 and 2004, South-South trade expanded significantly faster than did world trade, increasing from $219 billion to $1,100 billion. Whereas in 1990 the dollar value of exchanges among developing countries was equivalent to 41 percent of their exports to industrialized markets, 14 years later the share had risen to 70 percent.

In 2004, more than two-thirds of trade among developing countries was concentrated in Asia. In recent years, however, African and Latin American countries have been growing as much as Asian nations -- both as traders within their regions and as exporters to developing countries beyond them. And although one might have expected China to be a major player in such trade, the exports of Brazil and India to developing countries have grown just as quickly as those of China in the past several years.

Manufactured goods have provided the biggest spur to trade among developing countries in recent years, growing at an average annual rate of 14 percent from 1990 to 2004. Whereas trade in agricultural commodities expanded at 8 percent annually, it has grown at much higher levels in the past two years. Mineral exports (largely of fossil fuels) among developing countries increased by 11 percent per year between 1990 and 2004. The sectors that saw most growth were office and telecom equipment (especially in Asia), automotive products (notably in Latin America), and chemicals.

The potential for more trade among poorer nations has long been recognized, but the WTO has never effectively promoted it. Instead, developing countries have attempted to set up preference schemes at bilateral, regional, and global levels. The initiatives have made little headway. And regional trade agreements among developing countries did little to spur trade, at least in the 1990-2001 period.

Although the expansion of trade among developing countries is hindered by many factors -- expensive financing, high costs of transport and storage, lack of product diversification, and poor marketing and distribution -- tariffs play an important part. As the WTO secretariat has noted, developing countries collected about $83 billion in customs duties on merchandise imports in 2000 -- about 60 percent of total customs duties collected worldwide. This is not conducive to expanding trade among poor countries.

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