Thu, 29 May 2003

G-8 leaders must work to prevent collapse of WTO's Doha Round

Ernesto Zedillo, Director, Yale Center for the Study of Globalization, New Haven

The new American doctrine of pre-emption has resulted in two regime changes for the price of one: The first in Iraq, the second in the international order itself. We don't yet have a new international system, but we're witnessing an international disorder. The summit meeting of the leaders of the Group of Eight developed nations in June -- the first since the Iraq war -- will offer them an opportunity to urgently address the task of halting the slide into further disorder.

During the Cold War, the U.S. response to the Soviet Union was to build an international order with two pillars. One pillar -- security -- was based on military deterrence and containment, ideas which were successful in preventing a catastrophic conflict. The other pillar -- prosperity -- was based on multilateral institutions, democracy, and open trade. It was supported by a multilateral system of cooperation and rule-based political and economic institutions that had the UN as its centerpiece. In the past two years, that second pillar has also become shaky. The multilateral trading system, in particular, is in danger of becoming the battleground for unsettled geopolitical disputes, with disastrous consequences.

Both the biggest risk and the biggest opportunity now facing the multilateral economic system is the Doha round of trade liberalization. Failure to push the Doha program forward would seriously undermine confidence in the multilateral system.

The Doha process was heralded with great fanfare as 'the development round'. This was supposed to mean that at last negotiators would seriously address the issues of greatest interest to developing countries. Chief among these were the need to resolve the implementation issues of the Uruguay round, including the question of trade-related aspects of intellectual property rights (TRIPS) and access to essential medicines, the liberalization of agricultural trade, and the removal of remaining barriers in non-agricultural products. Unfortunately, unless urgent steps are taken, talks on all three issues are now in danger of collapsing.

At the WTO Doha meeting in November 2001, all members reaffirmed the right to grant compulsory licenses to generic manufacturers. This helped to clarify the situation of developing countries that have the capacity to manufacture pharmaceuticals, such as Brazil and India. But it left out the poorest countries that lack pharmaceutical industries, such as sub-Saharan African nations. The special Doha Declaration on TRIPS committed WTO members to find a solution for these countries before the end of 2002.

The deadline was missed. A compromise carefully crafted over several months was, in the end, rejected by the United States. And since then, attempts to resolve the gridlock have failed. I suspect that the cost -- an erosion of U.S. leadership by poisoning the Doha process -- will be far higher than any possible benefit to the U.S. Even worse, it is undercutting the diplomatic and humanitarian value of President Bush's proposal to provide an additional US$2 billion a year to fight HIV/AIDS in Africa, a significant example of international cooperation.

On the issue of agricultural protectionism, too, the deadline for reaching a settlement was missed. High subsidies in rich countries have hampered agricultural growth in the developing world (where almost 60 percent of the population lives in rural areas) and have aggravated their poverty problems. Members of the WTO agreed to commit to a framework for agriculture negotiations by last March 31. That framework would have involved the adoption of specific targets for achieving the mandate of the negotiations.

The first bold move to lower agricultural subsidies was made by the United States. In July of 2002, amid acrimony over its farm bill, the U.S. put forward an ambitious proposal for liberalizing agricultural trade. The proposal was opposed from the very beginning by their European counterparts, who saw it as aggressively antagonistic to their Common Agricultural Policy.

Earlier this year, the EU produced a proposal that would bring some progress in reducing tariffs, export subsidies, and domestic support, but it was far shy of the American proposal. The Europeans decided to bet strongly on a "divide and conquer" tactic towards the developing countries. First, they introduced a category of "advanced developing countries", expected to behave in every way as developed countries, so that they would have to grant the same preferences to other developing countries. Then, they offered to enhance preferential treatment to the group of least-developed countries. The message to these countries is very clear: Protect my protection because it is your protection too; or, equivalently, don't ever let your preferential access to my market be eroded by other developing countries.

The bottom line is that the agricultural negotiations became highly polarized. Striking a deal from the two extreme positions presented by the U.S. and the EU is practically impossible. Stuart Harbinson, the chairman of the WTO Committee on Agriculture, made a compromise proposal which sought a good balance among the different positions. Yet nobody wanted to give in. The Harbinson draft was rejected and the March 31 deadline abandoned.

Equally dire are the talks on the third issue: Special and differential (S&D) provisions, which are supposed to give developing countries special rights and enable developed countries to treat them preferentially to other WTO members. It was agreed at Doha that S&D provisions would be reviewed to make them stronger as well as more precise, effective, and operational. Yet the third deadline for these negotiations was missed last Feb. 10, and there is now little or no hope for any significant progress before the next ministerial meeting.

The deadlock in the Doha Round must be broken, not only because its goals are important by themselves (especially in light of the Round's purported development emphasis), but also because failure to move forward now will throw more gasoline on the already fierce fire of trade disputes and flagrant abuse of trade safeguards by both developed and developing countries. But saving the Doha Round will take much more than the hard work of negotiators and ambassadors to the WTO in Geneva. For better or worse, the matter must go the highest political levels. National leaders will have a moment of opportunity to repair the present international disorder at the G-8 summit at Evian in early June.

It is an almost cruel circumstance that the burden to overcome the Doha gridlock lies chiefly with both the United States and France, given the importance and complexity of the agricultural issue. President Chirac can show that his commitment towards multilateralism is unquestionably sincere by abandoning his opposition to Europe's agricultural reform. Similarly, a meaningful step toward restoring "the good kind" of American international leadership would be for Washington to become more open to compromise on the key Doha issues.

The neo-protectionist spiral must be checked immediately. Any later might be too late.

The writer is former President of Mexico.