Seven Questions: Can the Doha Round Rebound?

Foreign Policy: Negotiators have missed the Doha Rounds April 30 deadline. Whats the state of play now?

GCH: Theyve set a new deadline of June 30, which is very typical. You have to ask whether theres anything different in the political economy now that would bring countries together, beyond the force of WTO Director-General Pascal Lamys personality. They will make some progress, but not enough to conclude the round this calendar year. It probably takes a higher level of crisis than what we now see. There just isnt the energy to do the three or four really big things that are needed. One is to get the bigger and more successful emerging countries, such as Brazil and India, to genuinely liberalize services and reduce their tariffs on manufactured goods. Those countries are not yet prepared to do that, so its very difficult to put together coalitions, either in Europe or the United States to support significant cuts in agriculture subsidies and other barriers.

FP: What if we dont see anything by April 2007, when the U.S. Congress must be notified in order to sign an agreement that would qualify for fast-track authority?

GCH: The April 2007 deadline is critical, and there will probably not be enough in the Doha package by that time to bring an agreement to Congress that can be ratified. Extension of fast-track authority will depend on the November 2006 elections. My judgment is that if the Democrats win fairly big in November, they will be able to call the shots on the duration and the content of trade talks. A plausible scenario is that the Democrats might say, We want an extension until 2009, which would mean that the president elected in 2008 would have a big say. That would lead to a pause in negotiations. But Democrats might instead say, Well, we pretty much know what we want, lets fish or cut bait by December 2007 or early 2008. Thats a more plausible scenario. But then the question is whether the Democrats will want more by way of trade adjustment assistance and labor standards than can be negotiated. These matters are off the table as far as Doha is concerned.

FP: Could some kind of Doha Lite consensus emerge from this round?

GCH: Im afraid so. Although business groups, U.S. and European, have loudly proclaimed that theres not enough in Doha Lite for them, if the alternative is a clear breakdown of the system, there will be some powerful business interests that will say, Lets preserve what we have. And the most powerful voice on that side of the debate would be the financial firms. They are scared to death of anything that looks like a new wave of protectionism. Even though it doesnt affect them immediately, they see it as very bad for their global interests. And I think the larger multinationals would also lobby fairly hard to maintain the system.

On the other side would be smaller manufacturing firms who have been looking forward to getting better access to markets like Brazil would not be getting much under Doha Lite. They would say, Whats in it for us? But on the whole, I think, if faced with the choice between a light round and nothing, the business community would in fact rally for a light round. And the farm community would do the same, I think. Lite, for them, means theyd keep more of their subsidies for a longer period of time.

FP: What will it take for the round to be successful?

GCH: I think it requires a dramatic change of thinking on the part of about six or eight large developing countries, to recognize that theyve got a big stake in this system, that they cannot hide behind Bangladesh or Chad, or other forlorn developing countries. But so far, the rhetoric has been, Oh, we developing countries are the all in the same boat. Nobody really believes that anymore, including the ministers. The key countries are India, China, and Brazil. The next group would be South Africa, Indonesia, and after that, Thailand, Pakistan, and Argentina. Those countries would have to make very significant contributions. And at this stage, they dont want to. That would be a precursor to getting some change in agricultural sentiment in the U.S. and Europe. Apart from Brazil, virtually all of the countries that I mentioned are quite protectionist on their agriculture. So they have to liberalize that as well.

I think the biggest obstacles tend to be behind-the-border objections to foreign investment in services. After all, most industrial economies are heavily geared toward services. A lot of services may not be prime candidates for globalization, such as restaurants and primary education. But a lot are. Right now, market forces in most of these sectors are very weak, if they exist at all. You saw the Dubai Ports World dispute. The U.S. has been rather open, until this episode. I wouldnt expected this round, even if wildly successful, to eradicate more than a small portion of service-sector barriers. But we need to make a good start. In services, were about where we were on merchandise in 1947, when tariff barriers on manufactured goods were very high across the board.

FP: Susan Schwab has been nominated to succeed Rob Portman as the U.S. trade representative. What does her appointment mean for the round?

GCH: I dont think it will mean a lot for the final agreement, but it triggered a deflation of expectations abroad in April 2006. I must have talked to 15 or 20 journalists around the world, and I dont recall one who thought the change at the top was a positive sign. The main issue is not her qualifications, which are really strong. If she had been named back when Portman was named, in fact, there would be no issue, because she would have brought more skills to the table on day one than Portman, or almost any other ambassador has done except Charlene Barshefsky. But, negotiating trade agreements is largely a getting-to-know-you game. At the end of the day, in terms of the U.S. contribution, Doha really depends on whether President Bush can do his part by making a big and meaningful cut in agricultural subsidies. And thats a tough one. But thats a President Bush issue. Portman couldnt do it without President Bush, and neither can Schwab. It has to be a very high presidential priority, because the forces lined up in the farm committees to renew the 2002 Farm Act and to keep it rolling forward are very strong. If the United States does that, well, that pretty much says goodbye to the round.

FP: How have developing countries shifted the tenor of the debate on global trade during this round?

GCH: Their focus on development is a good thing, because the evidence is that appropriate trade policies are very pro-development. But the most harmful thing they have done is generate phrases like policy space and fiscal space and other spaces, which I believe are very anti-development. The translation of these phrases into plain English is that developing countries say they dont have to lower barriers, but that OECD countries have to lower their barriers unilaterally. Thats not going to happen. But its become the rhetorical cry of some NGOs, and many developing countries. From all the evidence we have, countries that lower their own import barriers gain a lot. They reduce corruption a lot, they increase competition a lot, they really get the motor of economic growth going.

FP: When trade and economic experts look back at the Doha Round in 10 or 20 years, what will they say?

GCH: My guess right now is that they will assess Doha as a shallow, interim round. It will compare unfavorably with the prior mega-rounds: Kennedy, Tokyo and Uruguay. It will be seen as a holding action, perhaps a resting period that then leads to greater things. More pessimistically, this could mark the end of the WTOs 50-year run as the engine of trade liberalization. The WTO will not cease to exist, but as the leading forum for trade liberalization, it may very well cease to function.

Gary Clyde Hufbauer is Reginald Jones senior fellow at the Institute for International Economics.