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A problem-driven WTO for the 21st Century

Written by Dirk Willem te Velde

Trade ministers will convene in Geneva this week to consider the next steps along the long road of the Doha Round of the World Trade Organization negotiations that were launched in 2001. The mood has been bleak for some time. The Doha Round is moribund. Officials and ministers are trying to salvage what they can: they will admit three new members (Montenegro, Samoa, Russia) and herald an agreement on government procurement, and perhaps some non-binding text on trade facilitation, the Dispute Settlement Mechanism, and the removal of non-tariff barriers to trade. However, amidst the wrecks of failed multilateral negotiations, there is a growing awareness that (i) the WTO as an institution is more important than progress in the Doha Round suggests; that (ii) WTO negotiations need to adapt to the changing 21st Century context; and (iii) that regardless of the state of multilateral trade negotiations, in the new context the role of trade in development will be more important than we realised previously.

The Doha Round began shortly after 9/11 in a promising sign of multilateralism. The Round came close to a conclusion with the July 2008 package, but instead it ended in disagreement mainly between emerging powers and the US. The divide between developed versus emerging powers is manifesting itself in several respects (and not just trade). There are some good responses in the area of trade, but also some bad ones. Amongst the latter is the proposal by the European Commission to reform its Generalised System of Preferences, introducing protectionism against a series of products from middle-income countries. Apart from the standard economic theory that the effects of protectionism are most acutely felt by the country itself (doesn’t the EU need a boost right now?), not even low-income countries are expected to gain from this switch either.

Doha was officially called a development round. A special package has been designed for Least Developed Countries (LDCs) but this has also become bogged down in politics as the EU already provides Duty Free and Quota Free access to the LDCs, whilst most of the other G20 countries cannot do this any time soon. This could have been part of a face-saving deal: conclude this Doha Round with a package for the LDCs, put the rest to bed and move on.

So what does the future of trade negotiations hold?

Without the political momentum behind a single undertaking (concluding agriculture, market access and services negotiations covering all members at the same time) or even the LDC package, ministers can decide to follow up on individual issues or clusters and finalise these plurilaterally – an idea pursued after the Uruguay Round in the mid 1990s. This could include a rules agenda covering bottlenecks in crucial services where behind-the-border and regulatory issues are really important. Ministers will also need to consider how the WTO can best ensure global benefits from the recent proliferation in regional trade agreements. 

The negotiations should change tack with the WTO taking a more active role in co-ordinating discussions and problem-driven negotiations on 21st Century issues. Even though it is a membership-driven organisation, a stronger secretariat would be useful.  The WTO’s ability to act as a constraint on a country’s policy-making and see issues through a trade-policy lens is its real value-added. The WTO should become a problem-driven body working to remove trade constraints when they are binding, rather than remain a body that advocates liberalisation in all possible areas at the same time, which is creating long desirable shopping lists backed up by private sector support that is less than overwhelming. In any case, the narrow agenda of tariff liberalisation was scheduled to benefit developing countries by only a few tenths of a percent of gross domestic product.

What opportunities and problems lie ahead for a 21st Century WTO?

  1. Global economic crises. While it can be a transmitter of crises, trade (and its diversification) is also a way out of crisesCountries that were more diversified geographically (e.g. Uganda) or sectorally (e.g. Mauritius) proved to be more resilient to an economic downturn. Trade and exchange-rate policy during crises and finance for trade during crises are of fundamental importance. This entails a new agenda for the WTO.
  2. Confronting scarcity. Trade is a solution to long-run challenges posed by increasing resource scarcity. Resource endowments vary globally and also within regions, both of which create opportunities in virtual trade of resources (commodities embedding water and land). For example, South Africa is beginning to meet its water limits in certain areas while the Democratic Republic of Congo has abundant water. Egypt used to be the ‘bread basket’ of the world when its population was smaller, but now imports wheat and other commodities that depend on water- and land-intensive production. Tension in water-scarce areas could thus be resolved through trade in virtual water. Trade and natural resources is a new agenda for the WTO.
  3. Promoting innovation.Trade enables countries to reap the returns of innovation and tap into technology networks. China has become a large exporter of solar panels. Bolivia has half the world’s reserves of lithium crucial for green technology. Balancing the protection, promotion and access to innovation requires context specific analysis and solutions inspired by multilateral initiatives. Well governed trade can be good for profits, country and planet.
  4. Food security. For inexplicable reasons, cereal exporters that have a comparative advantage in its production (e.g. Ukraine) employ export restrictions, while the EU without this comparative advantage subsidises its input-intensive farmers. This is a folly. If both were to reduce their distortions, the world would be more food secure for less money.
  5. Aid for Trade and development. Aid can help low-income countries tackle these challenges and remove binding trade constraints. A key question for further work is to establish what types of Aid for Trade work in which context.

Trade is a solution to global challenges. The WTO is more important than we realise as long as it can adapt itself to 21st Century challenges and become more problem-driven.