The FP Memo: Saving Free Trade

MEMORANDUM:
TO: Pascal Lamy,
Director-General
World Trade Organization

FROM: Bruce Stokes

RE: The Doha Countdown

You have been in office for less than a year, but it must seem like an eternity. Trade negotiators have missed deadline after deadline in the Doha Round of multilateral trade negotiations, launched in 2001 with the goal of removing most of the remaining barriers to free trade. Last December’s meeting in Hong Kong — a gathering of trade ministers from the 149 World Trade Organization (WTO) member nations — was an opportunity to make serious headway. Unfortunately, the trade officials accomplished little. During the six-day meeting, protesters in the street drew many more headlines than the work of the ministers inside.

But at least the negotiations didn’t collapse entirely, and in the smoke-and-mirrors world of international trade, that was enough to call it a success. Efforts in Hong Kong by some developing countries to water down aspects of the draft agreement on the table were rebuffed, and your staff emerged energized by a sense that leading nations are serious about cutting a deal.

You may be the leader to make it happen. Supachai Panitchpakdi, your immediate predecessor, had almost no impact. There’s no reason for you to accept that fate. You are an acknowledged expert when it comes to trade. You understand the Byzantine politics of the European Commission, having served as chief of staff to former commission President Jacques Delors and then as European Union (EU) trade commissioner. And, as an inveterate marathon runner, you have the tireless energy to take on such a monumental task. Here is a road map for the crucial months ahead:

Start a Countdown Clock in the WTO Lobby: The Doha Round lacks a sense of urgency. The United States’ fast-track trade negotiating authority, which allows the president to get a simple up or down vote on trade agreements, expires on July 1, 2007. Without fast track, the U.S. Congress will meddle with the details of a Doha deal and most likely shatter any hard-won international consensus. The expiration of fast-track authority is closer than it appears. Congress must be notified of the content of a Doha agreement by April 2007. Negotiators need at least six months before that date to hammer out the details of new tariff schedules. So the real deadline for striking a deal is October 2006. Set the clock in your lobby to that date. Sure, it’s a publicity stunt. But the media will immediately focus on the countdown, increasing public pressure to bring these four-year-old deliberations to a close once and for all.

Go over Mandelson’s Head: There won’t be an agreement until Europe decides to reduce its huge farm subsidies and open its agricultural markets. The French are keeping Peter Mandelson, the current EU trade minister, on a very short leash, limiting his ability to negotiate any serious cuts when it comes to agriculture. When the previous cycle of trade negotiations faced a similar impasse in the early 1990s, the world trade chief at the time, Peter Sutherland, bypassed squabbling trade ministers and dealt directly with heads of state.

You must use your clout in European circles to make the same move. Do your best to negotiate directly with French President Jacques Chirac, new German Chancellor Angela Merkel, and others. If they need a long transition period to cut farm support or greater flexibility in dealing with import surges to quiet the political backlash, it’s a price worth paying.

Obviously, such personal diplomacy won’t be easy. It is widely known that there is no love lost between you and the Elysée Palace. But Mandelson can’t get this done alone. He will never admit it publicly, but he needs your help.

If Chirac and others still refuse to budge, you will have no choice but to issue your own proposed final text for the Doha agreement. It’s a risky move. You will draw brickbats from all sides, with developing countries claiming you have sold out the poor, while both Europe and the United States will insist the text favors the other. If your proposal is shot down, you will be a lame duck for the last three years of your tenure. But if the Doha Round fails, you have no future in Geneva, anyway. What have you got to lose?

Tell Washington to Walk Its Talk: Developing countries will scuttle an agreement if their concerns are not addressed. At the Hong Kong talks, poor countries focused almost exclusively on food aid, the evil of cotton subsidies, and the need for free market access for their goods. Washington, it turns out, may be in prime position to help you address their concerns and clear the way for other issues.

The Bush administration is correct when it argues that the U.S. market is already much more open than Europe’s or Japan’s for products exported by the least developed economies. It is also true that Washington has pledged more aid for trade than Brussels. But it doesn’t matter: The United States’ cotton subsidies and its closed sugar market have become the poster children for rich-country policies that harm the poorest of the poor.

By appealing to the United States’ need for a public relations victory, you may be able to convince the Bush administration to give the poorest countries access to the U.S. market for all their goods and commodities. By making this preference immediate and not tied to the end of the round, as it now is, development issues can cease being roadblocks to finishing the Doha negotiations. Capitol Hill may balk at such a sweeping deal, but it should be palatable as long as it includes special safeguards against import surges. If the White House includes Bangladesh’s textiles and the Caribbean Islands’ sugar exports, it will powerfully demonstrate U.S. commitment to development — and show up the Europeans.

Lean Hard on Brazil and India: These two emerging economic dynamos have the diplomatic clout to make or break the Doha Round. Before the Hong Kong meeting, Brasília and New Delhi indicated a willingness to open up their industrial and service markets in exchange for European liberalization of agriculture. But in Hong Kong they played coy, offering no new proposals. It’s time someone forced Brazil and India to show their cards.

As one of the world’s most efficient commodity producers, Brazil has much to gain from more open markets all over the world. And time is on its side. Whatever market share it does not achieve in this round, Brazil can reasonably expect to attain in the next. But the price it must pay for such long-term benefits is a more open domestic industrial and service market, a liberalization that will have the added benefit of making Brazil a more efficient global competitor. Your job is to convince Brasília that it has a strategic economic interest in locking in market access gains through a Doha deal. Moreover, you need to persuade Brazil to bring others along by appealing to its ambition to be the diplomatic leader of the developing world.

India will be a tougher sell. Its recent economic reforms have generated great returns: The country’s economy grew 7.1 percent in 2005. Multilateral liberalization could provide the country additional rewards, but not without some costs. India fears that a premature opening of its domestic market could swamp its budding manufacturing sector with Chinese-made goods, ending all hope of creating the millions of new factory jobs needed to absorb its rural poor. The cost of making a deal with New Delhi will probably be special safeguards to protect its underdeveloped manufacturing and agricultural sectors from import surges. But the Indians need to be reminded that they have resisted economic liberalization at every turn in their recent history — only to reap benefits once they took the plunge.

Convene Hong Kong II in Geneva: As you know all too well, the WTO is often immobilized by what you once termed its "medieval" decision-making process. Tough decisions can only be made by politically responsible trade ministers. But, as the Hong Kong ministerial demonstrated, those ministers can only take action once choices have been teed up by their trade technicians negotiating in Geneva, a process that has produced little in the past few years. To accelerate matters, you have recently convened small meetings of trade ministers from Brazil, India, the EU, and the United States to advance the agenda. Increase the frequency of these meetings and supplement them with regional meetings of trade ministers in Africa, Asia, and Latin America to ensure that they’re up to speed. When a deal is ready, call trade ministers to Geneva for a one-day session to bless the results. If you give them any more time, the accord will unravel.

Persuade the U.S. Congress to Extend Fast Track: If this strategy hasn’t produced results by early summer, you’ll have to start working on a Plan B: asking the Bush administration to extend fast track. Conventional wisdom in Washington holds that an extension is politically impossible. (Fast track was, after all, approved by a single vote in 2001). To secure a congressional majority for fast track, you must make sure that the U.S. business lobby convinces Capitol Hill to grant you more time.

A critical mass of WTO members may be willing to eliminate all tariffs in individual sectors of the economy, such as chemicals or electronic products. Powerful U.S. industries have much to gain from such an initiative, but only if the Doha negotiations can be completed. Similarly, WTO members have agreed to permit like-minded countries to free up trade in key services sectors, such as air express, insurance, and software. Help the U.S. Congress understand that these potential benefits would disappear if fast track expires.

If All Else Fails, Declare Victory: If fast-track extension is impossible, harvest what trade liberalization you can, declare victory, and end the Doha Round. In principle, the agreement reached in Hong Kong to end farm export subsidies is a meaningful accomplishment, even if the details aren’t worked out.

You could combine that pledge with an agreement to lower the ceiling on tariffs. Most major countries, after all, already apply tariffs that are much lower than those international agreements permit. Brazil’s legally bound tariff rate for manufactured goods is 30.8 percent, for example. But it only charges a 12.7 percent tariff. Get these countries to agree formally to what they already do in practice. That would be a perfectly respectable — if hardly revolutionary — outcome.

These results would be a far cry from the initial lofty ambitions for the Doha Round. But some of your predecessors’ biggest mistakes were promising more than they could deliver. There is no reason to believe that one, three, or five more years of negotiating will turn this lemon into lemonade, particularly if the United States’ fast-track authority expires. A Doha deal will not end poverty in our time, nor will it eliminate all protectionism and trade-distorting practices. That is the task for the next round. But salvaging something out of Doha is still worth the effort. Just don’t promise too much.