Can the Doha round be saved? Possibly. To do so, the ministers of key countries need to change their negotiating approach. They need to shift from obstinate posturing to working together as strategic problem-solvers, helped by Pascal Lamy, the able director-general of the World Trade Organisation. Instead of holding back, negotiating with 149 parties across multiple topics requires sharing information, testing creative combinations and assisting one another. The common goal is to open markets and cut subsidies, stretching but not overreaching domestic political support.
Ministers have mutual strategic interests. Lowering barriers will spur global growth, which benefits all. Liberalisation “concessions” will actually make one’s own economy more competitive. An accord should help developing economies integrate, supporting reforms and creating opportunity. Resolving differences through negotiations, instead of solely through litigation, will strengthen the WTO. A healthy international economy can gain from regional and bilateral free-trade agreements that encourage good and innovative policies, enhance integration, spur competition in liberalisation and build support for openness. But these pacts need to be balanced with worldwide market openings to strengthen global interests.
A reinvigorated Doha round would help President George W. Bush in seeking to extend his trade negotiating authority, by showing prospective gains. It is crucial to reform in the next US farm bill. Without a successful round, some US farm programmes might be vulnerable to litigation in the WTO with no offsetting gain.
To untangle the Doha round, the ministers need a package encompassing agriculture, manufactured goods, services and rules to facilitate trade. They first need to agree on formula reductions in agriculture barriers, farm subsidies and tariffs on manufactured goods that create real opportunities to expand trade. It is not sufficient to reduce paper tariffs or subsidies because some countries have permitted (“bound”) levels in excess of those actually in effect (“applied” levels). Also, various exceptions to the formula cuts may enable governments to block imports. To get real openings, countries must be able to explain that all the key players have cut, too.
Consider agricultural tariffs. The formula cut proposed by the Group of 20 developing countries should be a bit larger, but this plan already exceeds reductions in the last agreement, the Uruguay round. The challenge is to be sure the exceptions for “sensitive” or “special” products do not take back the cut. One compromise would be to continue some quota limits but increase them significantly, to open sizeable new export opportunities. India, with 650m rural people, will need flexibility but the protective terms must permit some increase in food imports.
The Doha round’s negotiations on agricultural subsidies have also reached general agreement on cuts deeper than those of the Uruguay round. Export subsidies – payments to buyers – will be eliminated. Yet the goal of real cuts in other trade-distorting subsidies depends on two issues. First, the US proposal of 2005 offered deep cuts in the most sensitive and distorting type of domestic subsidies but would permit the US to expand other subsidies. If others make real cuts in barriers to farm and manufactured products, the US should lower its overall cap by reducing ceilings of trade-distorting subsidies it is not using. The WTO rules permit the US, the European Union and others to add subsidies that do not distort trade.
Second, the EU’s trade-distorting subsidies still exceed US levels by four times or more. Given the changes in the EU’s Common Agricultural Policy, the EU should be able to cut that ratio to under two-to-one, helping offset the EU’s political need for import barriers.
To open markets for manufactured goods, key developing countries will need to step up: the 20 to 30 larger and more competitive ones should be able to accept a formula cut of tariffs that creates real opportunities for higher imports. Higher tariffs should be cut more. The deal also needs to achieve “critical mass” participation among key developed and developing countries to eliminate tariffs in some sectors. With global sourcing networks, bringing tariffs to zero in a sector can give diverse manufacturers and consumers mutual benefits, as we have seen in information technology. The package should sharpen the methodology for services liberalisation, which offers great opportunities for growth and development. It should update rules to facilitate the efficient, timely movement of products across borders.
Brazil seems ready to move if agriculture opens. India seems cautious, but attention to its rural sensitivities should open the way for manufacturing competition because India will be a big beneficiary in the years ahead. China’s WTO accession package already involved real cuts but, given its large trade surplus and interest in a healthy trading system, China should help more. Other rising economies have the same responsibility. The 100 or so poorer developing economies must be part of the solution. Many of these are led by a new generation that wants to create conditions for prosperity, and this agreement should help them. In general, they can be exempted from cuts but should be encouraged to cap tariffs and more effectively apply WTO rules. Special concerns can be met with customised steps.
To restart the process, ministers need to signal to Mr Lamy that they are ready to act if others do. He could offer a few packages that combine the key elements in slightly different ways. The ministers could then stretch, restrain or recombine the Lamy compromises. In piecing together this puzzle, they should lean towards greater ambition. There is a deal on the table for those willing to seize it.
Robert Zoellick, The writer is a former US trade representative and deputy secretary of state. He is vice-chairman, international, at Goldman Sachs Group