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Asian Development Outlook 2006 : I. Developing Asia and the World
Beyond DohaThe outcome at Doha is uncertain. It is hard to predict at this point whether there will be a successful package that emerges in time for the April 2006 deadline, whether the deadline will be extended and subsequently completed, or whether the negotiations will fail. Moreover, it is unclear what the package will look like. Will it be a comprehensive set of liberalization initiatives or "Doha Light"? In terms of economics, Doha Light could potentially be worse than a failure at Doha. For example, a "flexible" package under NAMA in which many sensitive products are excluded, minimal "value added" in terms of progress in agriculture, and mere rhetoric in services and "rules," with some compensation under "aid for trade," is not an inconceivable outcome. However, it would be regrettable. First, nonuniform tariff cuts could lead to distortions in the value-added chain that could potentially negate any gains from liberalization. Mere patchwork in agriculture would repeat the mistakes of previous GATT/WTO rounds, since it would thwart necessary structural reform in developed and developing countries, and would leave much for future rounds (discussed below). And lack of progress in reforming contingent protection rules would leave fully loaded an important (and increasingly dangerous) protectionist weapon. From a political perspective, Doha Light might be considered preferable to no agreement at all, as it would at least be a "success" and could keep momentum going for the next round, an important consideration given the rise in regionalism. However, this is purported to be a development round; lack of progress in comparative-advantage areas for developing countries would reinforce the impression in some circles that the international trading system is rigged against the poor. Enthusiasm for global trade could wane, and the regionalism trend could actually be reinforced. But a comprehensive Doha package would likely do wonders for the global trading system. What such a package would look like is outlined above: a balanced Swiss formula applied to both NAMA and agriculture with as few excluded sectors as possible; some progress in services, particularly in terms of Mode 3 and Mode 4; fairer and more transparent rules on contingent protection; better definitions and rules on transparency in regional trade agreements, as well as commitments to develop means to ensure that Article XXIV agreements will be consistent with multilateralism; and generous offers in terms of "aid for trade" and "trade facilitation plus." Certainly, this scenario is far more sensitive at the national political level. Perhaps the negotiated outcome will be a combination of these two scenarios. Given the stakes for Asia, the region's WTO member countries should be proactive in molding the negotiations in favor of the latter scenario. Above it is argued that the unique situation of Asia suggests that it has strong leadership potential. Hopefully, the political will to assume such a role will be forthcoming. What will the global trading system need to tackle in future WTO rounds? As the Doha outcome is still unknown, prediction is doubly difficult. However, it is suggested that the following six areas will be important features of the next round: 1. As the Swiss formula under NAMA will likely achieve a good deal of progress, it will be the least controversial area, at least relative to earlier rounds. Average tariffs are already quite low; Doha should reduce them further and create greater symmetry. Mega-tariffs should be a thing of the past. Hence, reductions in tariffs in manufactures will likely be on the agenda but will not be as important as in previous rounds. Could a complete phaseout of tariffs in developed countries be a goal? And perhaps 10% maximum tariffs in developing countries? 2. Regardless of the outcome of current negotiations, agriculture will still be important. How important will depend on progress made at Doha. Export subsidies will be gone, but tariffs will continue to be high and domestic support trade-inhibiting. The next round will seek to lower tariffs and put further constraints on domestic support. This sector will continue to be difficult; reform of the EU's Common Agricultural Policy will be particularly significant in defining the next round's potential. 3. Given the importance of the services sector and the fact that it will likely see modest progress at best at Doha, this will be one of the most important focus areas at the next round. It will require significant preparation, as trade in services is extremely complex. But as a priority, it should receive considerable attention. And its potential to stimulate trade appears to be even greater than that in agriculture and manufactures. 4. Trade and investment issues, trade and competition policy, government procurement, and trade facilitation will also be a high priority on the negotiation agenda. These were known prior to Cancun as the "Singapore issues." However, they proved too controversial for the Doha Development Agenda. Indeed, the failure at Cancun was blamed on them (and lack of progress in agriculture) and they were subsequently dropped, with the exception of trade facilitation. Look for them to be reincorporated, particularly since they continue to be a high priority for developed countries (as is evident by their incorporation in bilateral free trade areas with developing countries). Aid for trade, in particular trade facilitation, will also become a more salient feature of the global talks. 5. Contingent protection will also receive much higher priority in the future. Since there is not much hope that significant progress will be reached in controlling (particularly) antidumping and countervailing duties, countries will no doubt try to use them in order to protect sectors facing significant structural change due to liberalization in agriculture and manufactures. Moreover, by the next round, the PRC's transition period will be over (precluding the imposition of import quotas on its exports of textiles and clothing, recently applied so firmly by, especially, the EU and US) and new, labor-abundant, competitive economies like Viet Nam should be full-fledged members. The trend toward greater usage of contingent protection will surely continue, and its threat to international trade will become increasingly significant. 6. The most important area will probably pertain to regional and bilateral free trade areas. As noted above and more extensively documented in Part 3 of Asian Development Outlook 2006, regionalism has been growing rapidly, with Asia becoming an active and enthusiastic participant. This trend will likely continue for at least another few years. At that time, the trade effects of these agreements will start to be felt, and the costs associated with the "spaghetti bowl" will be increasingly recognized. The need for more effective rules and best-practices will become increasingly evident. To conclude, much is at stake at Doha for Asia and the world. Much is riding on a successful outcome. The negotiators have their hands full, as the issues are complex and controversial in some quarters. But with the right leadership and political will, a successful conclusion to the Doha Development Agenda is certainly feasible. Two final remarks on the strategies of developing Asia in Doha. First, there is no "round for free"; active participation is not an option but a necessary condition to reap the gains from multilateral negotiations. This is because offering to liberalize hitherto protected sectors allows not only for concessions in exchange but also for gains from trade. Countries tend to gain most from their own liberalization. Second, developing member countries of ADB that are not yet members of WTO need to focus on accession. Without WTO membership, they will never fully be able to take advantage of the new trade architecture that is being created. Even if they receive most-favored-nation status or even preferential treatment from key trading partners, they are still outside the system. And one cannot change the system from outside. Moreover, a focus on WTO accession means that negotiating capacities—often limited in the developing member countries—should not be diverted to other areas, for example, in negotiating bilateral and regional trade agreements. The opportunity cost is too high.
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