THE RIGHT CHOICES FOR A SUCCESSFUL DOHA ROUND

EU Trade Commissioner Peter Mandelson
National Press Club
Washington, DC
13 September 2005

Global trade agreements are, by nature, hard to achieve.

Their politics are complicated, because opening markets can unleash powerful resistance to change. Many fear they are sacrificing too much – even their jobs – in the name of free trade. The majority of gainers rarely perceive the benefits of faster growth and lower prices, which often benefit the poorest consumers most. That is why on both sides of the Atlantic, fear of trade related job losses is generating calls for protection.

The economics are also complicated, because the international trading system, progressively and harmoniously, has to integrate nations that are at very divergent stages of economic development. A healthy adult can stand up to a bit of vigorous competition. But a weak infant can’t. And we know from our experience of the 1990s that the imposition of open markets on poor countries is not an automatic recipe for growth.

If the politics and economics are difficult, the negotiating mechanics are also complicated. One hundred forty-eight countries have to sign up, and every one of them has an equal vote, and in theory, veto. So we have to achieve trade-offs and craft deals in an atmosphere of brinksmanship. In my experience of any negotiation, any side typically moves only when they feel they have to and when they are confident that others are moving too. But when time is short and the complexity immense, as it is in the case of Doha, this is taking a big risk with the whole enterprise.

There are only a 12 weeks left before the Round’s crucial WTO ministerial conference in Hong Kong in December. At Hong Kong, our aim is to get Heads of Agreement in place. This is essential if further negotiations are to be completed in 2006 before Congress’ negotiating mandate to the Administration expires in mid-2007.

The case for Doha

The rationale for this Round is as strong now as it was at its inception. Arguably, it’s stronger.

Open markets are a precondition for growth, and growth is essential to economic development. Forget the doctrines of those who think poor countries can develop successfully behind protectionist walls. The only credible way forward is progressive liberalisation, domestically and internationally.

Could we obtain the same results by going down a different route of regional and bilateral trade agreements? My answer is: no. Bilateral and regional agreements can supplement the multilateral approach, but they cannot substitute for it. Doha is the big prize for the global economy and for the next big boost of poverty alleviation. For a very simple reason: because the multiplying power of market opening and multilateral disciplining of state aids and subsidies, undertaken by all nations together, cannot be matched any other way.

A successful DDA [Doha Development Agenda] can bring this goal of progressive liberalisation a crucial stage further. I know that some economic operators on both sides of the Atlantic whisper behind their hands that “they don’t really believe there is much in the Doha Round for them.” I disagree. That view is mistaken.

The Uruguay Round created for the first time a truly multilateral process and brought developing countries into the game. But that Round left crucial unfinished business: little liberalisation in the field of services; hugely diverging tariff conditions across the WTO membership, including the persistence of very high duties in middle-income countries; and unacceptable pockets of high tariffs in high-income countries. And, above all, it was clear by Marrakech in 1995, that serious further reforms of the agricultural policies of major trading powers were unavoidable.

So, there is a great deal at stake for both the US and Europe, and a successful Doha Round can still bring a wide range of political and economic benefits, if we can get our respective domestic politics in place to deliver.

First, welfare gains for all. While the developing world would rightly enjoy the largest relative percentage gain, America, Europe, Japan and other rich countries would still be the largest gainers in absolute terms, because of our volume of trade. These gains arise not just from a further opening of the “North” to the “South” – a division that anyway needs re-thinking given the wide divergences that have emerged between developing countries since the Brandt report – but, crucially, from a big boost in South-South trade between developing countries themselves.

Second, a successful conclusion to Doha would take forward the fundamental reshaping of the international division of labour, in which Europe and America can flourish as knowledge-based service and manufacturing economies, with manufacturing success based on leading edge innovation, top of the range products and niche specialisation. This will put behind us the colonial legacy by which developing countries were discouraged from exploiting their comparative advantage in production where their costs were lower.

Of course this adjustment is not simple or painless. The integration of China in the global trading system – with its huge advantages in labour intensive manufacturing – causes problems for Europe and the US, as well as for many developing countries. The “fear of China” factor is felt throughout the whole world - eroding the enthusiasm of many, even more in the “South” than the “North,” for further liberalising international trade.

Last week in China, I set out my own core belief on this. There is no long term future in resisting change by attempting to manage trade. In the long run, this blocks adjustment, innovation and the competitive spirit of firms and nations. The common task for Europe or America is how we organise a process of restructuring and adjustment, which we must admit creates real problems for the low-skilled and semi-skilled who are most at risk. I see our debate in Europe on the sustainability and renewal of our social and welfare structures as of crucial importance in this context.

Third, and perhaps more immediately, a successful multilateral trade deal can at this moment be the biggest possible injector of much needed confidence in the world economy.

This is no small gain for Europe and America, in the face of uncertainty created by growing global security threats, natural disasters and an oil shock. The relationship between economic prosperity on the one hand and political and religious extremism on the other is a complex one. Poverty obviously can breed resentment, but it is not always the poor who feel resentment most keenly, as the case of Bin Laden shows. What I do believe is that countries that are trading harmoniously with each other generate well being for their peoples and are unlikely to sustain extremist groups that threaten to undermine the economic relationship.

Similarly the oil shock we are witnessing has the largest impact on oil-importing poor countries. Fishing boats are being kept moored because their owners cannot afford diesel. This can outweigh several times over the positive impact of the debt cancellation agreed at the recent G8 Summit. A Doha Round that genuinely boosts growth world wide becomes an ever more important beacon of hope. So Doha in my view should now be seen as an essential test of whether we are determined to maintain international solidarity through economic growth, in face of growing uncertainties. A failure would be a huge setback for international cooperation at a time when it is sorely needed.

The need for ambition

What, then, should our benchmark for success be?

Despite all the difficulties of negotiation – and they are real - we need to aim high, because this is the only way to ensure that the welfare gains for all are big enough to make it worth the effort. And because it is the only way to ensure, politically, that all players find something sufficiently attractive in the basket to bring back home.

The World Bank has sketched out a vision in which, by eliminating all tariffs, halving the impact of non-trade barriers and reducing trade-distorting subsidies, the total benefit to all could be in excess of $250 billion a year. You may believe, as I do, that these assumptions are bold to the point of unrealism. Europe, America and Japan are not going to get rid of all agricultural protection with a single stroke of the pen. But I do believe we can achieve something with a sizeable impact.

The World Bank estimates a feasible outcome for Doha could boost global incomes by $100 billion a year. So let not ambition wither away. In the EU, we are committed to a result in which, simply put, all WTO nations will commit, according to their means and their needs, to offering new, real business opportunities to economic operators from other countries, be it in industry, agriculture, or services.

This is how the Doha Development Round can live up to its development promise.

On the one hand, it is clear that the main gains for development in the Round will flow from classical market access, and therefore from the conventional market access areas we negotiate over – agriculture, industrial tariffs and services. In these areas, flexibility in commitments to lower tariffs should of course be tailored to the conditions of developing countries.

Developing countries, and in particular the low-income and “at risk” countries in the global economy, have specific needs. In the negotiations they have specific requests. These needs and requests must be properly addressed between now and the Hong Kong ministerial meeting, and beyond.

I include here universal duty and quota free access for the poorest countries to all markets that are in a position to offer this undertaking. The last thing I want to do is sound boastful about the EU’s Everything but Arms initiative for LDCs [Lesser-Developed Countries]. But the United States and other rich countries have made “in principle” commitments to follow suit. In the United States, if there is enduring resistance to the implementation of this promise, I do hope it can be overcome.

Opening markets to products from the poorest countries must be matched by a massive injection of capacity-building assistance and infrastructure development to help these countries produce and transport goods into rich markets. The EU, at the G8 Summit in Gleneagles, took a first step by promising to raise the level of its trade-related development assistance to EUR 1 billion a year. The US Government has demonstrated that it recognises this need. But we need a grand plan on this, involving international financial institutions like the World Bank and the IMF to the fullest extent.

We also need decisions on how to address the erosion, as a result of multilateral tariff reductions, of the preferential access to markets from which some poorer countries currently benefit at current tariff levels. We also need immensely difficult decisions on the elimination of trade-distorting subsidies in key commodity products such as cotton and sugar. We need decisions on the exemption from certain WTO disciplines of least developed or particularly vulnerable or marginalised countries. We need decisions on the mechanisms needed to ensure that countries hit by pandemics have access to affordable drugs.

These issues must be addressed, for moral and for political reasons. Inevitably, the focus of the international community, in the effort it has pledged to Africa and to the Millennium Development Goals, has shifted away from the Gleneagles pre-occupations, aid and debt, to the challenge of trade. This is one of the urgent signals that we, trade policy makers, will get from the UN Summit in New York this week. I welcome it, as yet another incentive to maintain our efforts to move the Round forward in Hong Kong.

The next steps

Among the big trading nations in the WTO, who needs to do what? How should we go about fitting the pieces of the puzzle together to make it a success?

Overall, we need to move from stand-off to trade-off in moving the Round forward.

This Round has a big agricultural content, and industrialised nations will use it both to bind and stimulate current or future reforms of their farm sectors. For the EU, we must deliver, by Hong Kong, on the promise of the July 2004 framework and offer substantial new market access in agriculture, leaving no product sector untouched. This means a commitment to lower agricultural tariffs in a way that brings a meaningful real gain in access for exporters in all sectors. My colleague Mariann Fischer Boel and I recognise that the EU has to take the necessary steps on these market access issues.

The United States, for their part, will have to re-shape, through these negotiations, the future of their own farm domestic support programmes, delivering on the promise of reform made by President Bush at Gleneagles.

All of us together will have to put figures on the reduction of distorting subsidies, as well as the elimination or disciplining of export refunds or other export competition mechanisms. That includes putting dates on the phasing out of agricultural export subsidies, and front loading this as much as we can, for the final eliminating end date is far from the whole story. This is an important point for people to take on board.

These agricultural commitments must emerge as a coherent package and be a gateway for others to make their own market opening offers on industrial tariffs and services, notably those from middle income or emerging economy countries. The talks in all areas have to move forward broadly in parallel.

An ambitious deal on agriculture in the so-called “North” is inextricably linked to meaningful market access elsewhere in emerging markets. We all have a clear interest in the Round. For middle income countries, this comes from both the prospect of better exploiting their comparative advantages and further strengthening their industries through domestic markets opening. Their own reform efforts, stimulating competition and innovation, mean that they can look forward to realising these gains with more confidence.

However, for almost half of the WTO membership – the poorest – this fundamental interest in the Round is less clear cut. They can gain from improved access to markets of both rich and emerging economies, but only if they are allowed to be flexible in their own liberalisation efforts and if they get a boost in their infrastructure and capacity to trade. This is why the measures I referred to earlier to assist the poorest countries are literally “make or break” for the success of the Round.

To strike these deals in a multilateral setting in the coming months, and to translate them into a negotiating framework, requires a shift in the way we conduct the talks. All players, except perhaps the most vulnerable, need to identify and put on the negotiating table commitments that will help others to reciprocate, and so help the Round as a whole. We all have to participate in the heavy lifting. This is the only way to go. And it is also the only way for negotiators to demonstrate to their domestic constituencies that difficult concessions are worth the price because these are being matched by others.

US-EU leadership

And here we get to the responsibilities of the EU and US in giving leadership to the Round. In previous rounds, deals were struck in the wings of bilateral EU-US agreements. We still need this joint political leadership in the WTO. But nowadays this collaboration is a necessary, but not sufficient, condition for agreement.

It is a delicate problem. The rest of the membership both demands and distrusts transatlantic deal making of this kind. And the world is more complex, with major emerging trading blocks now having to shoulder a much greater part of the political effort. That is why Rob Portman and I have made a big effort recently to recognise the key role of Brazil, India and others.

But the US and the EU still have a crucial role. The success of Doha is a transatlantic responsibility. Those in the United States who believe that America needs allies for the great tasks it has to fulfil in the world, should recognise that Doha is a key test of our renewed ability to work together.

I do not underestimate the constraints imposed by domestic policies on both sides of the Atlantic but we have a wide set of joint interests in the Doha Round. At the end of the day, we are two very large Continental players with different, but similar economic structures and specialisations. We should not be in the business of pre-cooking and imposing outcomes. But it is essential that we work to build common or coordinated policy platforms. If we cannot agree on basic approaches then nothing will happen. It’s as simple as that.

For example, in addition to agriculture, let’s agree the broad basis on which we seek a worldwide reduction in industrial tariffs. For example, let’s agree on the means by which we propose to inject new momentum into the Doha negotiations in the vital area of services. Let’s identify the changes needed to discipline the spreading use of trade defence instruments.

These platforms can then be brought to the multilateral table. They will not make the deal. They cannot not pre-empt the positions of others. But they will make it easier for that most democratic piece of the international machinery, the WTO, to come together and achieve a result that benefits us all. The alternative, if the US and EU do not work in this way, is to frustrate the Round’s progress, allowing others to sit on their hands, refusing to make the concessions we need for our business communities to prosper.

This is the low road, the one that leads to a low ambition outcome of the Round. The world needs, and can do, better. We need to join together to ensure it does.