The paradox of modern trade policy is that it is painfully difficult to stitch together a global trade deal despite economies being ever more densely integrated with another.
The WTO is the premier body of international economic governance. Its mission to free up global trade on the principle of non-discrimination deserves nothing but praise. But the organisation has been drifting for the past eight years – ever since the problems of the Doha Round began to show. As trade ministers now meet in Bali to hopefully seal a mini-mini Doha deal there is yet again an attempt by trade leaders and observers to warn for the consequences of a failed attempt. The WTO, it is said, is now at risk of sliding into irrelevance. But I find it difficult to accept this view. This has been said ahead of several crucial trade summits, but it has not prevented subsequent negotiations.
More importantly, the Doha Round will only push the WTO into obsolescence if WTO members cannot make the distinction between a Round that has failed and an institution that still has a lot to show for.
So, to paraphrase T. S. Eliot, this is the way the Doha Round will end – with a bang or a whimper. Even if a deal is done in Bali, the fate of the Doha Round was decided several years ago. The only way to rejuvenate the WTO as a negotiation mechanism is to wait for the moment when a new larger trade negotiation agenda can be put together and until then help to address the three main structural factors that have been opposing the Doha Round.
First, this is the age of reciprocity and major global trade deals cannot be done by giving developing countries the same type of special and differential treatment they received in the past. More precisely, one country – China – has grown to become consequential for the world economy and for real global competition. Its transition to a market economy is still distant from its goal. Few other larger economies are prepared to eliminate bread-and-butter trade barriers as long as China can maintain its arcane and creeping trade distortions.
Second, several developed countries have problems adjusting to trade deals that would see jobs in the industrial and the agricultural sector be squeezed out. In the post-war era, industrial economies could adjust to competition by moving labour and capital from less competitive industrial sectors to more competitive ones. The adjustment process was intra-sectoral – it took place within the industrial sector. Now it is a different type of adjustment – inter-sectoral. Unemployed labour and capital has to move into other sectors. While the former process only required on-the-job training, the latter one demands a lot more education. Given high unemployment in the West and over-burdened labour markets that otherwise would intermediate a better transfer into new jobs, the perception that significantly more trade competition means more unemployment has taken hold. It has prevented a country like the United States from putting its signature on an agreement that by all accounts would drive growth and jobs in the U.S.
Lastly, but importantly: ideas matter! And in the past ten years there has been a creeping trend against free trade or a myth around what was previously called the Washington Consensus. The Noughties was profoundly different from the Nineties. While the latter era witnessed a number of big trade achievements (the Uruguay Round, Nafta, the Single Market, the ITA, et cetera) riding on the back of a larger trend of liberalisation, the past ten years have rather been a period when economic liberalism has been on the retreat. When the overall political weather conditions are good, all types of liberalisation take place: unilateral, bilateral and multilateral. But when the climate of ideas is souring on economic liberalism, one cannot expect any forum of trade liberalisation to work.
Three things are important for the WTO post the Doha Round.
First, the failure of Doha is not the same thing as a failure of the WTO. They hang together, of course, but the end of Doha is not the end of the WTO. The problem is not the institution or the body of existing trade agreements. The problem is that the Doha Round agenda grew distant from trade realpolitik. A stripped-down agenda could not correct that problem. So: it is important that WTO members don’t throw the baby out with the bath water. It should stick to its existing agreements – and respect rulings from the dispute settlement body.
Second, trade leaders need to resist temptations of diluting existing trade agreements. The only thing that in the future will persuade WTO members to negotiate new trade deals is the economic benefits they are likely to bring. Reversing the role of the WTO, as some want, to become a body of new regulations, or greenlighting increasing attempts by governments to sneak in murky protectionism masquerading as sound regulation, is the real path to obsolescence. But there is plenty of murky protectionism on the books now – and more will come in the form of e.g. environmental, public health, cybersecurity, and financial regulations. The WTO system needs to stand against the current trend of adding discriminatory measures to regulations or use disproportionate measures that predominantly hit foreign exporters rather than domestic producers.
Third, while there is little point going into yet another round of talks about reforming the WTO as an institution, there is plenty more the WTO can offer to actual trade negotiations going on outside the WTO pragmatic assistance. Not only can it assist other countries with analyses and surveillance, it can initiate ideas. It is a member driven organisation, but the secretariat has greater freedom than it thinks to operate outside its traditional territory. To do that, it needs to have trust from Members and taken an interest in many countries efforts to liberalise trade – rich and poor, North and South. Some of these attempts at liberalisation are bilateral or regional, others are plurilateral. Providing judicious thought leadership on such attempts, and show how they should link back to the WTO itself, would not be a bad way of spending time in what is likely to be a long holiday from the large and all-encompassing rounds of the past.