Fifteen years ago the Doha round of trade negotiations was launched, creating much needed hope that the multilateral trade system carved under the banner of the World Trade Organisation (WTO) would at last be made to work for the benefit of all members.
But those hopes remain dashed. Negotiations have run into the ground, with no progress being made since December 2008. And there are no signs of a resolution. This must rank as a major crisis and a threat to world peace.
The Doha round of trade talks was the ninth since the creation of the General Agreement on Tariffs and Trade (GATT) which was set up in 1947. The GATT, precursor to the WTO, was the brainchild of the US and UK. The Doha round was the first to end in failure.
The GATT arrangement was deficient in many ways. It failed to open the markets of the rich countries to the agriculture and textiles products produced in poor countries. It nevertheless provided the world with a basic framework for the multilateral trading system. It succeeded in preventing trade competition between nations from descending into conflict on the scale of the First and Second World Wars.
Trade tensions between nation states that could lead to conflict are once again beginning to sharpen. This is particularly the case given the multi-polar world that has emerged in the 21st century and the rise of emerging countries, such as China, India and Brazil.
Added to this is the selfish attitude of the European Union and the US which continues to undermine the multilateral system.
The only way to ensure that the world creates a legitimate and secure world trading system is to rebuild the WTO based on fair trade, balanced rules, inclusivity and transparency. The next opportunity to do this will be when trade ministers meet again at the 11th WTO Ministerial Conference at the end of 2017. They should gun to revitalise the Doha round.
But how should we understand this failure? And how can the situation be resolved?
Why the Doha round collapsed
The underlying reason for the collapse of the Doha round has been increased protectionism in both the US and the EU. This has been matched by formidable new alliances between developing country alliances in the WTO which have provided a real countervailing negotiating power to the US and EU.
The US economy has undergone dramatic changes since the launch of Doha. Big business lobbies have emerged to pressure the US on trade, including an increasingly aggressive competitive services sector and increasingly protectionist agriculture and manufacturing sectors. The EU has also seen a marked rise in the power of its agricultural lobby.
A second significant trend of the new millennium has been the increasing share of world trade of developing countries. Three decades of consistent growth propelled by foreign direct investment in Chinese manufacturing turned China into the “the manufacturing workshop of the world”.
China’s participation in world trade took a dramatic turn after its accession to the WTO in 2001. Its share of world exports grew from 2.5% in 1993 to 10.3% in 2010 to make it the largest exporting country in the world ahead of Japan, Germany and the US.
At the same time the US’s share of world exports fell from 13% in 1993 to 8.4% in 2010.
Business lobbies and US strategists began to fear the continuing growth of China’s manufacturing prowess, fuelling protectionist sentiments.
The new trends in the global economy and the interests of US business lobbies led the US negotiators to take a new approach to negotiations, principally by abandoning the understanding that required all the Doha list of issues to be negotiated and concluded at the same time.
At the launch of the Doha round negotiators had agreed to work on the principle that “nothing was agreed until everything is agreed”. The new approach of the US negotiators was to argue in favour of prioritising a “small package of issues”.
In addition, it argued that several major emerging market countries would need to make more concessions if the Doha round was to succeed. These included China, India, Brazil, Argentina, Indonesia and South Africa.
The unravelling of the Doha round began in earnest at the WTO ministerial conference held in Bali, Indonesia in December 2013. There the US persuaded the WTO members to agree to a small package of issues. In addition, it persuaded a group of about 23 out of 164 WTO members to negotiate the further liberalisation of services trade.
By the time of the last WTO ministerial meeting, held in Nairobi in December 2015, the Doha round was effectively “dead”.
Way forward
The Nairobi ministerial meeting ended with some progress on specific issues, including a commitment by developed countries to finally eliminate export subsidies in agriculture. But the ministers were divided on the vexed issue of the future of the Doha round and how to revitalise the multilateral trading system.
The current trajectory of the US and the EU towards mega-regional trade deals, such as the Trans-Pacific Partnership Agreement (TPP), is taking the world down a dangerous and highly risky path. These will further marginalise small and poor countries. In addition they threaten to impose new and burdensome rules on these fledgling economies.
Developing countries have long held that the trade arrangements under GATT/WTO are biased against their interests and that they have created an imbalanced system.
To break the current deadlock, the US and the EU must recognise that the main objective of the multilateral trading system is to provide security and stability in world trade rather than advance the interests of specific business lobbies.
China, India, Brazil and other significant developing countries, such as South Africa, also have to recognise that they need to prioritise the needs of the least developed countries and small and vulnerable economies.
Both groups must commit to working together to prevent the re-emergence of protectionism, and strengthening of the rules based trading system, in a way that is fair, development oriented and inclusive. This is the only basis to resolve the current crisis in the multilateral trading system and create a more secure and peaceful world.
This article was adapted from a presentation made by Professor Faizel Ismail to the United Nations University conference titled: Responding to crisis.