Copyright © The Author 2007. Published by Oxford University Press.
Multilateral trade cooperation: what next?
* World Bank and CEPR, e-mail: bhoekman{at}worldbank.org
** University of Oxford, Australian National University, and CEPR, e-mail: david.vines{at}economics.oxford.ac.uk
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This paper first briefly describes the role of the WTO and its history. It then lays out a simple bargaining model of international negotiations, which can be used for understanding the Doha Round of talks. Using this, we distil what we regard as the major potential explanations for the difficulties in these talks. We then discuss a number of the systemic questions that confront WTO members. We suggest that the WTO should concentrate on market access, rather than on promoting a development agenda or on further expanding its coverage to deal with regulatory issues or with other domestic policies.
Key Words: market access • global regulatory regimes • bargaining model • international negotiations • development agenda
We are grateful to Dieter Helm and John Odell for valuable comments on an early draft. This paper, as well as many of the other contributions to this issue, has been supported by a UK Department for International Development (DfID) project, Global Trade and Financial Architecture. Other outputs of this project include Zedillo et al. (2005) and the contributions to Evenett and Hoekman (2006) and Hoekman and Olarreaga (2007). The views expressed are personal and should not be attributed to the World Bank.
1 See Newfarmer (2006) and Evenett and Hoekman (2006) for overviews and analyses of the issues that are on the Doha negotiating agenda. The weekly and monthly newsletters of the International Center for Trade and Sustainable Development (Bridges) are an excellent source of timely information on and discussion of developments in the WTO and the Doha Round. See http://www.ictsd.org/index.htm
2 See, for example, Winters (2004) for a survey of the literature on trade liberalization and economic performance.
3 By harnessing the desire of national export interests to get better access to markets of trading partners, resistance by its import-competing interests to liberalization may be overcome. This ‘market-access’ rationale also encompasses the variant that terms-of-trade effects are important in helping a government overcome a domestic political-economy problem. See Bagwell and Staiger (1999).
4 TRIPs is the first example of a WTO agreement that involves a significant element of policy harmonization. Although most economists accept there is an economic logic to IPR protection, both theory and economic history suggest harmonization is unlikely to be an optimal outcome for all countries, in particular poor economies. Whatever the economics may be, TRIPS greatly increased the awareness of many developing countries of the need to scrutinize carefully the likely impacts of agreements that entail regulatory harmonization.
5 The strategy of the so-called ‘Like Minded Group’ of developing countries to insist that industrialized countries address their demands on implementation and special and differential treatment (SDT) on a non-reciprocal basis is analysed by Narlikar and Odell (2006).
6 Odell (2007a) analyses the period between Seattle (1999) and Doha (2001) and documents that the major players were anxious to avoid another failed ministerial meeting.
7 See Narlikar and Tussie (2004) on the role of developing-country coalitions at the Cancún meeting and Lee (2007) on the Africa Group and cotton.
8 The meeting also generated a promise by rich countries to extend duty-free, quota-free access to their markets for at least 97 per cent of exports originating in LDCs. This did little more than reflect the status quo. As argued by many commentators, the exclusion of 3 per cent of tariff lines was enough to permit countries to maintain tariffs on the most competitive LDC exports if they so desired.
9 This is a piece of legislation, previously called ‘Fast Track’, that precludes the US Congress from introducing amendments to a multilaterally negotiated deal, limiting it to either endorsing or rejecting the outcome of negotiations as a whole.
10 See Evenett (2007b) for a succinct analysis of the political calendar and its implications.
11 See, for example, Sell (2007) for a discussion of the negotiations on this topic.
12 The Stolper–Samuelson theorem is a very general demonstration of how liberalization can damage the rewards to one factor of production; there are many other more specific demonstrations of this possibility.
13 These numbers are own trade restrictiveness indices (TRIs). The country aggregations mask significant variations across countries. For example, the TRI for agricultural imports is 30 per cent for middle-income countries, but only 18 per cent for low-income economies (see World Bank, 2007). The methodology and findings are explained in Kee et al. (2006).
14 In practice, as discussed further by Bown and McCulloch (this issue), some policy-makers appear to want to maintain a significant amount of ‘headroom’ to raise tariffs if they deem this necessary in the future, rather than be forced to use the safeguards instrument that is built into the WTO for that purpose.
15 The legacy of the negotiation of the TRIPS agreement in the Uruguay Round, something that was not at all envisaged as an objective when the Round was launched in 1986, arguably plays an important role in reducing the level of trust developing countries have that outcomes of WTO interactions will benefit them.
16 The Swiss formula is defined as T1 = MT0/(M + T0), where the left-hand side is the new tariff and M is the coefficient—the maximum level of the permitted tariff.
17 Francois et al. (2006) assess the potential impact of preference erosion on beneficiaries and provide references to the recent literature. Most research concludes that erosion impacts are likely to be limited for most countries, but could be significant for a number of economies.
18 Note that the preference erosion problem was self-created: WTO members are paying the price of their heavy reliance on discriminatory trade policy as an instrument to pursue development objectives.
19 The limits of reciprocity and terms-of-trade-driven external enforcement of commitments has long been recognized by members, being one rationale for the creation of the WTO Trade Policy Review Mechanism. If trading partners are unlikely to take action, enforcement requires action by domestic interests that are negatively affected by policies of their government that violate WTO disciplines. This may be facilitated by enhanced surveillance and transparency. However, to leverage better transparency, such groups need to have legal standing and/or mechanisms to bring forward cases and claims, which they often do not have. Hoekman and Mavroidis (2000) and Bown and Hoekman (2007) discuss these questions at greater length.
20 Indonesia announced a 49 per cent foreign ownership cap on companies in sectors such as multimedia, ports, airports, and education. Equity ownership caps were reduced for mobile phone companies (from 95 to 65 per cent). Insurance companies were capped at 80 per cent, hospitals at 65 per cent, and most construction activities at 55 per cent.
21 We are grateful to Will Martin for providing this example.
22 See Kapstein (2006) for an illuminating discussion of fairness in international economic relations.
23 In practice, as noted above, this is very difficult, as the ‘value’ that is placed upon different outcomes of negotiations—in particular rules and disciplines and derogations from rules and disciplines—will depend very much on the beliefs and objective function of actors.
24 Note that this observation is not specific to developing countries. As discussed previously, all WTO members may (and often do) defend positions that economists can show do not maximize national economic welfare.
25 The case for complementing trade liberalization with development assistance was made by a number of observers and groups during the Doha Round—see, for example, Hoekman (2002), Bhagwati (2004), Sutherland et al. (2004), UN (2005), Zedillo et al. (2005), Page (2006), and Prowse (2006). Njinkeu and Cameron (2008) is a recent compilation of papers on this subject.
26 The discussions in the working groups of the Singapore issues during 1997–2003 suggest that one way forward on behind-the-border regulatory policies—which clearly will not cease to be of interest to stakeholders and where there are certainly potential gains from international cooperation—may be ‘softer’ forms of cooperation—outside the WTO—aimed at obtaining a better (common) understanding of the net benefits associated with alternative substantive norms.
27 The terms-of-trade analysis of Bagwell and Staiger (1999, 2002), although important, focuses on the wrong issue in seeking to explain why individual countries choose protectionism. As we have discussed, terms-of-trade motivations for defection are much less important than rent-seeking and similar political-economy reasons. However, terms-of-trade considerations are critical in the operation of the trading system as they have an important impact on the incentives to enforce (implement) trade agreements.
28 Paradoxically, what is happening may also be making unilateral liberalization harder to achieve, as countries hold back from liberalization which could be achieved domestically, in the hope of using promises of it as part of a successful multinational bargaining process.
29 Francois and Martin (2004) is a notable exception.
30 Hoekman et al. (2004); Anderson et al. (2006).
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