WWD.com/business-news/government-trade/weighing-wtos-future-1781980/
government-trade
government-trade

Weighing WTO’s Future

The prestige and clout of the World Trade Organization took a heavy blow this summer with the dramatic collapse of the Doha Round talks.

View Slideshow
Appeared In
Special Issue
WWD Sourcing Horizons issue 09/16/2008

GENEVA — The prestige and clout of the World Trade Organization took a heavy blow this summer with the dramatic collapse — the fourth in seven years — of the Doha Round talks aimed at slashing tariffs, subsidies and other barriers to global commerce.

But veteran diplomats said don’t write off the WTO just yet. They said the 153-country body still plays a vital role setting and enforcing global trade rules. The envoys and experts also said the Doha talks might be blocked, but they are not over.

Alan Wolff, who leads law firm Dewey Ballantine’s international trade practice in Washington, said “the alternative” to Doha is a series of bilateral and regional accords that “create a lot of trade diversion.”

Wolff, a former deputy U.S. Trade Representative, said absent a Doha deal, more bilateral deals would also result in higher costs to implement them and for those countries not included, “which is not good for the structure of trade.”

By all accounts, WTO director-general Pascal Lamy is certainly not prepared to concede defeat, and is determined to salvage the talks and bring them to a successful finale. On Thursday, Lamy told an international meeting of parliamentarians, “It has now become clear that we cannot complete the Doha Round by the end of this year. Let us at least complete modalities in 2008, so as to conclude the round in 2009.”

USTR Susan Schwab, in a phone interview, said, “We have arguably a finite number of issues between us and an agriculture and NAMA [non-agricultural market access] modalities outcome.”

However, Schwab said there’s been a “deterioration” since July and singled out new problems in NAMA.

Lamy said he is apprehensive that “further delays would weaken the multilateral trading system,” and warned “to let the seven-year international effort…collapse would be a calamity.”

Historically, trade has enhanced the purchasing power of the poor, he noted.

“Thanks to open markets, a basic T-shirt that would cost $3 behind a tariff wall can today cost less than half or even a third of that price,” Lamy said.

“Just on agriculture and NAMA current proposals on the table could result in savings of more than $150 billion, with developed countries contributing two-thirds and with two-thirds of the benefits flowing to developing countries,” he said.

Top trade officials admit that besides differences over a special safeguard mechanism for agriculture that triggered the collapse of the talks in July, many unresolved issues are potential “deal-breakers.”

These include cotton, which to the dismay of African nations was not addressed in a substantive way in July; industrial tariff issues, and, in particular, whether large emerging economies such as China, India and Brazil join sectorial negotiations to secure “a critical mass” of deeper industrial tariff reductions in some key manufacturing sectors. There are also unresolved issues of intellectual property and market access for commercial services.

Despite the batch of bilateral and regional free trade accords being initialed around the globe, the WTO with its set of binding trade rules and established dispute-settlement system carries a lot of weight and is still the preferred forum for the world’s major trading powers to resolve contentious, multibillion dollar trade disputes.

It’s also the only institution, diplomats and experts said, that provides a framework of norms that keeps at bay protectionist pressures, especially in periods of turmoil, as witnessed during the Asian financial crisis in 1997 and 1998.

Until major trading powers such as the U.S., European Union, India and China do not enter into bilateral free trade accords, the WTO is likely to remain the main forum for lowering or removing impediments to international commerce.

But renewed efforts to salvage the Doha talks might prove a stormy affair, especially over NAMA issues, which include apparel and textiles. The U.S. is hot under the collar over a report on the July talks by the outgoing NAMA chairman, ambassador Don Stephenson of Canada, circulated on Aug. 12, over how to slash industrial tariffs.

The concerns are over “a number of inaccuracies in Stephenson’s paper that implied consensus where there was none,” Schwab said.

“The paper that came out is erosion from where we were in July,” said the USTR. “We need to be talking more, not less, ambition. What we are looking at, at the end of the day, is the level of ambition in the outcome. The degree of market access that will be generated by the Doha Round and the degree of market access that will contribute to the economic growth and development, and poverty alleviation.”

As a result, it puts at risk the prospects of brokering a deal that ensures major emerging powers such as China, India and Brazil would sign off on a sectorial deal to slash their industrial tariffs in some major industrial sectors, such as chemicals and electrical machinery, deeper than they would under the general NAMA tariff-cutting formula.

“It’s a very significant concern to us,” Schwab said. “There was a knife-edge balance struck in the July deal and that has now tipped over,” referring to a compromise brokered by Lamy on July 25 that met initial acceptance before ultimately being rejected.

“We have to have Brazil, China and India,” said Frank Vargo, vice president at the National Association of Manufacturers. “Without them, there cannot be a critical mass.”

Locking in these big emerging nations on sectorial commitments is seen as the only way to arrive at a balanced deal in manufactures, given that the overall tariff-cutting formula will favor the 30 or so developing nations that in the end will have much higher maximum tariffs, in accordance with the less-than-full-reciprocity principle.

Christopher Wenk, senior director of international policy at the U.S. Chamber of Commerce, said: “We’re not pleased and baffled by the sectorial language.”

Contrary to the U.S. objections and criticisms, senior Indian and Chinese officials view the Stephenson text as an improvement. Schwab underlined there was an understanding, however, that the only sectorial negotiations that are viable “are the ones where you have a critical mass of trade represented.”

Of all the 14 industrial sectors involved, “it narrows it down to ones that are generally acknowledged to have the most interest — chemicals, industrial machinery and gems and jewelry,” she said.

On the politically sensitive cotton subsidy issue, Schwab said, “We recognize cotton has to be part of any Doha outcome and any modalities deal on agriculture.” The logical point to address cotton, she added, “is when you have determined what we’re going to be doing in terms of commodity-specific disciplines.”

View Slideshow