Can the WTO Get to the Next Stage of Global Trade?
With the Doha Round stalled and the U.S. turning to bilateral agreements, opportunity to further liberalize markets is at risk.
Three-dimensional chess. That's how Assistant United States Trade Representative Dorothy Dwoskin describes multilateral trade negotiations. And in the current round of World Trade Organization negotiations, Dwoskin and her colleagues at the USTR have struggled mightily to keep the chess match from becoming a draw. This is no ordinary game: it has 148 players, who have coalesced into three main factions: the U.S., Europe and a group of developing nations led by India and Brazil. Now, despite a bold offer by the United States to slash agricultural subsidies—which is what emerging nations insist is the quid pro quo- for free trade to expand to the next level—many analysts are pessimistic that the latest WTO round will result in a major advance for global free trade.
One reason for this pessimism, acting as a kind of `ying' to the WTO `yang,' is another approach to global trade policy being pursued by the United States, particularly under the Bush Administration. In the past two years alone, the U.S. signed eight bilateral trade agreements, including those with Australia, Colombia and Oman. The worry is that these bilateral deals that the United States has rushed to ink as WTO talks have stalled will actually hurt the cause of global trade.
The United States provided the major impetus behind launching the so-called Doha Round (named after its inauguration in Doha, Qatar) of WTO negotiations in late 2001, whose mission was to make substantial progress on such things as agriculture, industrial market access, services, and trade facilitation by the end of 2004. The magnitude of what's at stake can be gauged by a University of Michigan study that estimated that if the Round were successful, global economic gains would total $1.9 trillion. U.S. Trade Representative Rob Portman describes the Round as a “once in a generation opportunity” to increase global economic growth through freer trade.
But, as is evidenced that here we are in 2006 with nothing settled, the Doha Round negotiations quickly bogged down. Trade talks in Cancun, Mexico, in September, 2003, collapsed as developing countries walked out over concerns they were being treated unfairly, particularly because rich nations seemed unwilling to abandon their lavish agricultural subsidies. Still negotiations plodded on; the stakes were too high to give up.
This past October—on the eve of trade talks in Hong Kong—Portman attempted to jump start the moribund Doha negotiations by offering to eliminate all agricultural tariffs within ten years (with most of the reductions coming in the first five years). He also proposed the complete elimination of agricultural export subsidies by 2010 and a 60 percent reduction in trade-distorting domestic agricultural subsidies within five years.
Everybody waited to see whether Europe would make similar concessions. They didn't. Six days of hard bargaining in Hong Kong, including a `round-the-clock final session, failed to produce a major leap forward on agriculture, although developed countries did pledge to eliminate agricultural export subsidies by 2013 and made modest breakthroughs on other fronts.
Now the WTO faces a self-imposed deadline of April 30 to finalize negotiating frameworks both for agriculture and tariff reductions for non-agricultural goods. The U.S. is particularly keen to keep the WTO on schedule in the hopes that the Doha Round can be completed by the end of this year. That will give the U.S. just enough time to submit the new agreement for Congressional approval prior to the expiration of President Bush's `fast track' trade promotion authority (which allows up or down votes on trade agreements without any amendments) in July 2007.
It's a deadline many, including those in the USTR's office, are worried about making. A March meeting in London between the trade ministers from the U.S., the EU, Japan, Brazil, India and Australia failed to produce much progress on the negotiating frameworks. “We're not where we would like to be on agriculture or [non-agricultural market access] but we're not giving up,” Dwoskin told World Trade, before cautioning that “some of these things don't ever get decided until the dark of night, the 11th hour, 59th minute.”
“The sticking point remains agriculture,” Portman recently told a round table of journalists. “The EU has not meaningfully embraced the commitment we all made in July 2004, which was for substantial improvements in market access. The market access proposal that they are willing to live with simply does not provide the market access that we need,” Portman said.
So far Congress, which will ultimately have to approve the Doha Round agreement, has been generally supportive of the approach taken by Portman, himself a former Republican congressman from Ohio. Sen. Saxby Chambliss, the powerful chairman of the Senate Agriculture Committee, has praised Portman (but repeatedly expressed concern over the decision to accelerate tariff and subsidy reductions for cotton). “In the end, we cannot accept a one-sided agreement while sacrificing new opportunities to export our agricultural products,” Chambliss said in a statement issued following the Hong Kong talks. Chambliss's remarks have been echoed by other senators, from both sides of the aisle. “At the end of the day, no deal is better than a bad deal,” says Sen. Max Baucus, the ranking Democrat on the Senate Finance Committee.
Portman has attempted to assure Congress that he won't accept a WTO agreement that does not provide for substantial trade liberalization. “'Doha-light' doesn't work,” he has said repeatedly. Dwoskin says that “the United States is really committed to a multilateral system and the health of the multilateral system. And so if you have a situation where you basically just tinker at the margins, that doesn't really advance the cause of real trade liberalization. So from our long-term perspective and our commitment to the multilateral system, that doesn't work.”
But some skeptics expect that `Doha-light' may be exactly what the U.S. will get in the end. Rep. Robert Goodlatte, chairman of the House Agriculture Committee, has said he is “not convinced that a WTO agreement will ever be achieved.” And Jeffrey Frankel, a former member of President Clinton's Council of Economic Advisors and now an economics professor at Harvard's John F. Kennedy School of Government, doubts that the Doha Round will produce major advances. He thinks the Bush administration, despite its assurances to the contrary, will settle for a watered-down agreement because they are eager for anything they can tout as a foreign policy success. “They'll get something and paint it up as a real Round, but it will actually be worse than nothing because if you do a Round that gives negligible benefits, it undermines the process for the future.”
The bilateral alternative
In many ways, the same quest for headline-grabbing success has also motivated the U.S. to pursue an alternate trade strategy: bilateral free trade talks. If multilateral negotiations are three dimensional chess, bilateral talks are akin to a conventional game of checkers. But just as playing checkers does little to improve your chess game, bilateral trade deals, many argue, do little to improve world economic growth while simultaneously harming the chances of getting a major breakthrough in the WTO.
Whereas the Clinton administration had signed only one bilateral deal (with Jordan) and one major regional agreement (NAFTA), the Bush administration has pursued 11 bilateral agreements, with countries ranging from Chile to Oman, and three major regional initiatives, including the Free Trade Area of the Americas.
The USTR defends the bilateral deals as “complementary” to its multilateral negotiating strategy. Dwoskin told World Trade that most U.S. bilateral trade agreements ask countries to provide at least as much, if not more, market access for U.S. products as they would under WTO rules. And, in the absence of better movement on the Doha Round, Dwoskin claims the bilateral deals provide important opportunities for U.S. businesses. “In actual fact it is important to keep the liberalization process moving,” Dwoskin says.
The bilateral deals may help the U.S. in the Doha negotiations in another way too—by increasing the pressure on India and Brazil to compromise. Some believe that U.S., in its bilateral trade talks, has purposefully targeted the countries that neighbor these two big emerging economies. The idea is if all their neighbors are getting better treatment on exports to the U.S., then India and Brazil will feel compelled to even the playing field by agreeing to more concessions in the Doha Round.
And for the countries that sign bilateral agreements with the U.S., there are clear benefits. For instance, Chile expected a 2 percent boost to its GDP from its free trade agreement with the U.S., which it signed in September 2003. And while that may not sound like much, for certain Chilean industries, such as its raspberry farmers, the boost in exports from the deal was expected to be as much as 20 percent. “A lot of people would like to get into the U.S. market,” Dwoskin says.
To be sure, there are often non-economic reasons behind the U.S.' push for bilateral agreements. For instance, the U.S. views its push to get Middle Eastern countries into the WTO and then to sign bilateral deals with them, as it did with Oman and Bahrain, as a key component of winning the war on terrorism. National security is often the logic on the other side of the bargaining table too.
Jeffrey Frankel is unconvinced. He criticizes the number of bilateral free trade agreements that Portman and his predecessor Robert Zoellick have negotiated. Frankel believes that asking Congress to approve these bilateral deals squanders precious political capital on agreements that provide very limited benefit for U.S. or world economic growth.
And Frankel is hardly alone in his concern. Jagdish Bhagwati, a professor of economics and political science at Columbia University and a senior fellow at the Council on Foreign Relations, is no fan of U.S. bilateral deals. Rather than expand the total amount of global trade, he contends that bilateral trade agreements simply tend to displace the flow of goods and services, helping one country or region at the expense of others. Each new bilateral or regional deal adds its own layer of preferences and rules, complicating an already complex global trading system, which Bhagwati compares to a “spaghetti bowl.”
The end game
So these are the alternatives: the bilateral approach promises only small gains for U.S. business. And, while it may lower tariff barriers, it erects other, less visible fences around global trade by forcing companies to navigate a maze of confusing rules and regulations for each country. Meanwhile, the multilateral approach promises to create a more level playing field across the globe: that means an easier life for U.S. business, and more trade globally. But it also takes much longer than the bilateral approach. And time is not on the U.S.' side. And the U.S. does not exercise unilateral control of the process or outcome.
All the signs are that the extraordinarily complicated game of Doha is more likely to end in stalemate than checkmate. And if that is the case, the Bush administration may have to settle for excelling at checkers.
U.S. Trade Representative Rob Portman Combines Politics With Tenacity
U.S. Trade Representative Rob Portman is a politician accustomed to accomplishing things that others think impossible.
During his six terms in the House of Representatives, the Ohio Republican was known for taking on ambitious projects that his fellow Congressmen wouldn't touch. For instance, he launched a crusade to reform the Internal Revenue Service, a bureaucracy many of his colleagues believed beyond repair. Yet Portman succeeded, helping to pass the first comprehensive reform of the tax agency in 50 years. It's the sort of perseverance that will serve Portman well in his role as United States Trade Representative.
This is particularly true as he attempts to broker a major World Trade Organization agreement following more than four years in which global trade talks have gone nowhere fast.
Portman was appointed last April to succeed Robert Zoellick, who President Bush moved over to the State Department to be Condoleezza Rice's deputy. The 50-year old Portman is no stranger to U.S. trade policy. Early in his career, he was a lawyer specializing in international trade at the prestigious Washington law firm Patton Boggs. In the House, he served on the influential House Ways and Means Committee's subcommittee on trade, where he emerged as a vocal supporter of free trade, despite representing a state that has lost thousands of manufacturing jobs to foreign competition.
But Portman's most important qualification for his new job may have been his close ties to President Bush. Portman had been an associate counsel in Bush's father's White House and later served as his chief liaison with Congress. Portman campaigned for Win both 2000 and 2004 (earning the nickname “Robby Bobby” from the president). When he was appointed to the top trade post, Portman told his hometown newspaper, The Cincinnati Enquirer, that he had “a loyalty and allegiance to making [the Bush administration] successful. I have a real commitment to that.”
In the past year, Portman has mostly followed the trade strategy mapped out by his predecessor, Zoellick. He has pursued bilateral trade deals with Thailand, Bahrain, Oman, Egypt, Panama and a dozen other countries, while continuing to press for a breakthrough in the WTO talks. In an attempt to revive those negotiations, he made a major new offer to cut U.S. crop subsidies this October. Portman has also engaged in a number of high profile disputes with the European Union, sparring over everything from European subsidies to aircraft maker Airbus to its continued ban on the import of genetically-modified food from the U.S. And he has pushed China to follow WTO rules, threatening to take Beijing to trade court if it doesn't do more to open its markets and protect intellectual property.
When he was in Congress, Portman was known for his ability to reach across the aisle to garner bipartisan support for bills. That's an important skill in a trade rep whom depends upon Congress to approve the deals he negotiates. And so far, Portman has received high marks from his old buddies on Capitol Hill, including from many Democrats. “I think Ambassador Portman has been very open in the way he has been proceeding,” says Rep. Ben Cardin, a Maryland Democrat who serves on the same trade subcommittee Portman once did. “He's been reaching out to members on both sides of the aisle and making sure there are no surprises. And he's been very open about the challenges we're facing.”
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