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Professor Bhagwati and the Doha Round: Well-Intentioned but Naïve?

by | August 1st, 2011 | 04:08 pm
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On July 24, 2011, Jagdish Bhagwati wrote an op ed essay in the New York Times (“The Wrong Way to Free Trade“) that urged President Obama to press for the completion of the Doha Round of multilateral trade negotiations in the World Trade Organization (WTO) “on the basis of what has been negotiated” in the first decade of the talks. The article demonstrates his ardent support for multilateral trade liberalization—and his confusion over how to achieve it. His proposal already has been rejected by the major trading nations involved in the WTO negotiations, and deservedly so. It is well-intentioned but imprecise and politically naïve.

The first problem with the proposal by Bhagwati, a professor of economics at Columbia University, is that no one really knows what “on the basis of what has been negotiated” really means. All offers in the trade talks are conditional on completing reforms in all areas of the Doha agenda; different people have different ideas about what has been achieved to date. But let’s be generous and assume that the deal would include cuts on tariffs and farm subsidies based on the formula developed in the Doha negotiations, with ample exceptions for developing countries’ most import sensitive products. To be sure, such a mini-result would still be worthwhile to bolster the trading system (as Bhagwati argues) and to garner very small but positive trade gains—if it was doable.

The basic flaw in Bhagwati’s proposal is that this limited deal would be rejected not only by the US Congress but other national legislatures as well, resulting in substantial damage to the viability of the WTO. The deal he proposes is too small and the distribution of the gains too imbalanced to garner the requisite political support. For example, China would be the main beneficiary without having to alter significantly its trade regime—which would not sit well in Washington, New Delhi, or Brasilia. In fact, most WTO members would not have to change their current policies or levels of protection because the cuts would reduce only their legal maximum or bound tariffs to levels still above current applied rates. At the same time, however, the United States, European Union, and a few others would have to sharply reduce their tariffs and some farm subsidies. US farm subsidies and barriers to imported sugar and cotton would have to be cut, provoking harsh protests from affected farm lobbies. In the face of those objections, it would be very difficult to find groups to counter the protectionist lobbies and spend political capital to secure Congressional approval of changes in US policies required by the Doha deal.

Simply put, the Doha Round lacks supporters largely because the deal currently on the table is too small. Normally pro-trade business leaders remain on the sidelines because they have little stake in the current deal. That is particularly true for services, where Doha negotiations have barely begun; no wonder that industry leaders, who should be among the strongest backers of a WTO deal, have all but given up on the talks.

Gary Hufbauer, Woan Foong Wong, and I have estimated Doha’s potential trade and GDP gains in our 2010 book, “Figuring Out the Doha Round“, which Bhagwati cited in his article. We found that US export gains from tariff cuts on farm and manufactured products, only a small part of a Doha deal, would be almost $8 billion, a finding that Bhagwati referred to in his article. But we also argued something that Bhagwati omitted—that the overall trade package had to be “topped up” with additional liberalization in agriculture, manufactures, services, and trade facilitation/customs reforms. Such reforms would boost the total value of the Doha Round fourfold, generate about $40 billion in US GDP gains, and propel widespread business support for the deal. To be sure, it would require all the major trading nations, developed and developing, to substantially open their markets to goods and services from all members of the World Trade Organization; some of them, including China, have been reticent about doing so. Bhagwati’s ivory tower advice, similar to that voiced by developing country diplomats at the WTO, actually has provided them cover for their negotiating intransigence.

Unfortunately, despite the Seoul G-20 Summit Declaration last November that in large measure advocated our approach on the Doha Round, efforts to craft such a “topped up” package of agreements have foundered. WTO Director General Pascal Lamy subsequently called for a period of reflection on the Doha Round, just like he did after the debacle at the Cancun WTO ministerial almost eight years ago, but prospects for a Doha revival are bleak. Pundits, including the former US trade envoy Susan Schwab, are already drafting its obituary. I will not do so; instead, I will heed Lamy’s advice and reflect on the challenges facing the WTO talks and hopefully proffer in the coming weeks pragmatic advice on how to advance economic development through a refocused and enhanced WTO negotiating effort. I invite Professor Bhagwati to deploy his intellectual power and erudition to a similar purpose.

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