THE COMMONWEALTH AND THE WTO: STRATEGIES FOR A SUCCESSFUL DOHA ROUND RECOMMENDATIONS OF THE COMMONWEALTH BUSINESS COUNCIL (CBC) The Doha Development Agenda (DDA) presents WTO members with a golden opportunity to liberalise markets worldwide and strengthen multilateral rules. This promises to be of particular benefit to developing countries: multilateral liberalisation of trade, foreign direct investment (FDI) and the cross-border movement of workers forms an essential pillar to support national policies to promote better resource allocation, economic growth and development. However, the DDA has made very little progress to date. Key decisions have to be made at the WTO’s Fifth Ministerial Conference in Cancun, but a Seattle-style disaster looms on the horizon. This would cripple the WTO for some time to come.
WTO members must ensure that Cancun succeeds and puts the DDA back on track towards a successful conclusion. Commonwealth governments have an important role to play. Business within the Commonwealth must also lobby governments to engage fully and constructively in the WTO. The CBC, as a valuable interlocutor between business and governments in the Commonwealth, lends its full support to an open, equitable and rules-based multilateral trading system through its comprehensive programme of government-business roundtables, symposia and policy papers on the DDA (see Annex).
This WTO report, prepared for the Commonwealth Trade Forum 2003 on the eve of Cancun, presents the CBC’s key recommendations for a successful Doha Round.
PRINCIPLES OF POLICY
International economic integration (or economic globalisation) is a positive-sum game, not an engine of marginalisation and exclusion. It delivers all-round material gain, for rich and poor countries alike. Removing restrictions on international transactions – cross-border trade, investment and the movement of workers – allocates resources more efficiently and over time reaps economies of scale, transfers technology and skills, and spurs competition through exposure to world-class practice. This feeds into productivity gains, a rise in real incomes and economic growth.
The moral case for economic globalisation is equally important. The freedom to trade, invest and move across borders expands individual choices and life-chances. Economic liberty – beyond as well as behind the border – enables individuals to lead more varied and interesting lives. By bringing about widespread and peaceful commercial contact among nations, it also helps to reduce insecurity and instability in international politics. Globalisation, therefore, is intimately linked to freedom, prosperity and security for peoples in all corners of the world.
Economic advancement in the developing world, over a broad historical sweep, has occurred in countries and regions that have had the most contact with the outside world, and particularly with the advanced centres of the world economy in the West. Indeed, no country on Earth has delivered a sustained rise in the living standards of its people without being open to the world.
Historical and recent evidence shows clearly that open economies with liberal trade policies grow faster and have more success with poverty reduction than closed economies. According to World Bank figures, a basket of 24 developing countries, with a total population of 3bn, is increasingly integrating into the global economy. These countries have rising absolute and relative shares of manufactures in their total exports; their ratios of trade to national income have doubled since 1980; and the growth of income per head in this group has increased from 1 per cent a year in the 1960s to 5 per cent a year in the 1990s. The bad news, however, is that about 2bn people live in 75 countries with stagnating or declining aggregate growth. This includes virtually all least-developed countries (LDCs). These happen to be countries that have liberalised less, although they suffer too from other intractable problems such as poor climate and geography, rampant disease, civil war and chronically corrupt, predatory governments and ruling elites.
Globalisation, by promoting growth, indirectly promotes poverty reduction. Globalising, higher-growth countries register greater success in raising adult literacy and life expectancy. China is the emblematic example of the link between globalisation, growth and poverty reduction, with over 300 million people lifted out of poverty since 1978.
The liberalisation of trade, investment, and even the movement of workers across borders, cannot be seen in isolation; rather it must be seen in the context of national institutional change. In interaction with political and macroeconomic stability, internal deregulation, pro-competitive regulatory reforms, and institutional upgrading (in enforcing property rights and contracts, and in improving health, education, transport, communications and public administration infrastructures), it promises substantial and replenishing development gains. External openness, therefore, goes hand-in-hand with the Rule of Law and improving governance.
Much remains to be done. A fifth of the world’s population (1.2bn people), largely concentrated in South Asia and sub-Saharan Africa, live in extreme poverty (on less than a dollar a day at purchasing power parity). Another fifth live on less than two dollars a day. They are bunched in countries or regions largely outside the world’s trade and production networks. These countries desperately need to promote liberal trade policies at home, coupled with deep-seated institutional reforms, if they are to drag their most unfortunate and repressed citizens out of poverty and give them decent life-chances. But to do so they also need much freer access for their exports abroad, in developed and other developing countries. Hence the paramount importance of genuine and substantial worldwide trade liberalisation.
THE WTO IN TRADE POLICY
In the first instance, trade liberalisation, as well as liberalisation of FDI and the movement of workers across borders, is a matter for national policy choice “from below”. Especially in functioning democracies, it is therefore imperative that the benefits of liberalisation become manifest and real to the broad mass of people. In addition, bilateral and regional free trade agreements (FTAs) “in between” can be of useful assistance.
However, FTAs are no substitute for a strong, well-functioning WTO “from above”. Non-discriminatory multilateral rules strengthen the hands of governments against protectionist forces at home; guarantee export market access and defence against the arbitrary protection of more powerful players; and bolster domestic reforms. Above all, the WTO is a helpful auxiliary to good governance at home by reinforcing the transparency, coherence and credibility of national trade policy reforms.
Progressive post-war trade liberalisation through the GATT/WTO has delivered growth in world trade, which has in turn stimulated FDI and contributed to economic growth. Since 1950 world trade has grown over twentyfold, about three times the growth of world output. Between 1950 and 2001, the ratio of world trade to world output has increased from 7 to 24 per cent.
The Uruguay Round Agreements take the WTO wider (broader sectoral coverage) and deeper (into domestic trade-related regulation) than the old GATT, underpinned by much stronger dispute settlement. WTO membership has also expanded considerably with the accession of several developing and transitional countries, notably China.
Alarm bells toll on four counts in the WTO: 1) regulatory overload and creeping standards harmonisation (artificially raising developing country standards to developed country norms); 2) excessive legalisation; 3) excessive politicisation, especially a tendency to ineffective UN-style decision-making; 4) bilateralism and regionalisation, which, without a strong WTO, threaten to splice up the world economy into discriminatory trading networks and trading blocks, especially harming poor and weak developing countries.
The WTO needs to rediscover a sensible raison d’être. This demands a clear focus on market access: the progressive liberalisation of trade in goods and services according to non-discriminatory rules, in both developed and developing countries. At the same time, the WTO should avoid regulatory overload and intrusive standards harmonisation. Special and Differential Treatment (SDT), targeted at low-income and especially least-developed countries, should focus on flexible transition periods, increased technical assistance and associated capacity-building measures.
The WTO needs to revive an effective diplomacy-based negotiating mechanism to get out of present drift and deadlock and advance. Political will and full engagement by key developed and developing country players are therefore vital.
Progress depends on: a) effective co-operation between the majors, the US and the EU; b) the active participation of other developed and advanced developing countries; c) increased participation of other developing countries with weaker trade policy capacity, preferably in “common characteristic” coalitions; d) broad and issue-based coalitions between like-minded developed and developing countries. Commonwealth governments, supported by business, have an important role to play.
SCENARIOS FOR CANCUN
The rosy scenario: Key political compromises are made ahead of Cancun, especially with EU concessions on agriculture and US concessions on TRIPS and public health. Cancun is a success and the round is completed by the target-date of end-2004.
The nightmare scenario: Political compromise is elusive. Cancun is mired in disagreement and recrimination, with breakdown à la Seattle. The WTO is crippled and attention shifts quickly to bilateral and regional FTAs.
The halfway-house scenario: WTO members treat Cancun as a stocktaking exercise and a holding operation. There is an “early harvest”: agreement on some implementation issues; on access to generic medicines for countries without domestic production capacity; and on dispute settlement. The round is extended by two years to allow time for key political decisions, especially on agriculture. The Sixth Ministerial Conference in late 2005 will be crucial in driving the round to a successful conclusion.
Market access – the reduction and removal of trade barriers in agriculture, non-agricultural goods and services – is the bread and butter of the DDA. Direct border barriers to trade remain high in both developed and developing countries. Although the EU and the US have low average tariffs, they retain high-to-very high tariffs in agriculture, textiles and clothing, and other labour-intensive goods – the sectors of major export potential for developing countries. Indeed, levels of developed country protection in these two sectors are more than ten times the average on other merchandise. Developed country tariffs on imports from developing countries are four times as high as tariffs on imports from other OECD countries. Similarly, high agricultural subsidies in the OECD continue to massively distort trade. Other non-tariff barriers are also not insignificant, especially in the form of widespread and unreasonably onerous food safety, technical and other standards that have a chilling effect on developing country exports.
Developing countries have noticeably higher tariffs and non-tariff barriers than developed countries, not to mention proliferating anti-dumping actions. Much of this developing country protection is aimed at imports from other developing countries. Rich country protection is psychologically damaging precisely because it provides developing countries with a pretext not to reduce their own trade barriers; it seriously undermines political efforts to accelerate pro-market reforms in the developing world.
The World Bank estimates an annual gain of $2.8 trillion by 2015 from the elimination of trade barriers and trade-related reforms on all goods and services. Developing countries would gain to the tune of $1.5 trillion, which would lift 320m people out of poverty. Two-thirds of the gain from cutting tariffs on industrial goods (about $300bn) would go to developing countries; and they would gain a roughly equivalent amount from the abolition of trade-distorting agricultural subsidies in the OECD. However, the biggest gains by far for developing countries (estimated at about $900bn, two-to-three times the gain from liberalising goods trade), would come from radical services liberalisation in both developed and developing countries.
Hence negotiations on these items are more important for development than other aspects of the DDA. They should, therefore, have top, overriding priority.