The WTO Doha Round (1)

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The WTO Doha Round

This guide provides essential background on the Doha Development Round of the World Trade Organisation (WTO). It is intended as antroduction to the issues for a general development audience, but also provides a selection of further links and reading that might be of intere

a more specialised audience.

What is the Doha Round?The World Trade Organisation (WTO) was launched in 1995, and since then, five Ministerial conferences have been held. The Doha Minis

in 2001 was declared the Development Round, and was marked by a core concern: that the multilateral trading system should benefit thdeveloping countries that constitute over three quarters of WTO members. The Doha declaration pledged to enable developing countries

secure a share in the growth of world trade commensurate with the needs of their economic development through two key routes:

Improving market access to Northern markets for developing countries by reducing import tariffs that prevent increase prices and d

competitiveness

Phasing out domestic and export subsidies, that enable the over-production of goods at very low prices, often leading to the dumpi

these goods at prices that are cheaper than those of locally produced goods

The most strategic area identified for reform at Doha was agriculture, followed by non-agricultural market access (NAMA), trade in servic(GATS), developing country issues (Special and Differential Treatment);aid for trade. Yet, in the intervening period, Northern countries ha

roved unwilling to open up their agricultural markets, without a commitment from developing countries to lower their own barriers in servicenon-agricultural goods. Rich countries also want to limit the scope of Special and Differential Treatment Measures (SDT) measures that wooften the impact of tariff reductions for developing countries. Thus, the promise of Doha as a catalyst for development has largely not been

Recommended reading...More...

The Doha Round and agricultureEven though agricultural trade is marginal in Europe and the USA, the sector is heavily subsidised and protected in both of these industrialtrade giants. At the same time, most developing countries depend on agriculture as a provider of livelihoods. As a result, the poorest group

eveloping countries in the Doha Development Round, the G90, is pushing hard to make sure their interests are recognised. Many countrieslarge and economically significant agricultural sectors, and these are often fiercely protected internationally. However, in the EU, agricultu

contributes only 1.7% to the total value of European income. In the US, this figure is even lower, at around 1%. Despite the marginal econoalue of agriculture, the sector is heavily subsidised and protected in both of these industrialised trade giants. The United States has vowed

wants to remove all trade barriers, but is subject to political pressure from such groups as cotton farmers, who are influential in states that ar

to the republican vote.

Developing countries and agriculture

contrast to the Northern developed countries, the majority of developing countries depend on agriculture as a provider of livelihoods. As a he poorest group of developing countries in the Doha Development Round, the G90, is pushing hard to make sure their interests are recognnd that they are entitled to special and differential treatment to strengthen their handicapped trading positions. However, there is also a groso-called advanced developing countries, such as Brazil, that have large and efficient agricultural systems. This group is thus pushing for m

liberalisation in order to exploit their competitive advantages.n Agricultural negotiations in the Doha Development Round can generally be divided into four core themes: market access, domestic supp

export competition, and development issues:

Market access: this includes import tariff reductions, rules for special and sensitive products, and a safeguard mechanism prote

developing countries from big dips in world prices or surges in imports which could threaten food security

Domestic supports: The subsidy payments to farmers, which the WTO has classifiedinto 3 different coloured boxes, representing different levels of trade-distorting financial supports

Export competition: which include export subsidies, and food aid issues (such as the dumping of Northern agricultural surpluse

developing countries)

Development issues: recognising the reduced agricultural capacity of many developing countries and thus the need for flexibility

special and differential treatment (SDT)

More...

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Doha and developing countries

Of 132 countries in the WTO, 103 are classified as developing or least developed.Special and Differential Treatment (SDT) allows developed countries to treat developing countries more favourably than other WTO members, and for flexibility in the rate at w

developing countries are expected to liberalise. The most significant expression of SDT is non-reciprocal Preferential Trad

Agreements (PTAs). Doha and developing countries

WTO definitions of developing countries

Of 132 countries in the WTO, 103 are classified as developing or least developed. This number is increasing year by year.There are no Wdefinitions of developed and developing countries so members make their own decisions on their status. However, other members ca

challenge the decision of a member to make use of provisions available to developing countries.

Special and differential treatment

pecial and Differential Treatment allows for developed countries to treat developing countries more favourably than other WTO members, aflexibility in the rate at which developing countries are expected to liberalise.

Preferential trade agreements

The most significant expression of SDT is non-reciprocal Preferential Trade Agreements, which allow least developed countries to benefit flowered tariffs on certain products, to boost their access to international markets without the requirement of lowering their own tariffs in retu

One of the aims of Doha has been to erode these PTAs, since they are seen as distorting paths to multilateral trade liberalisation. The rationthat the introduction of duty and quota free access for products from LDCs will erase the necessity for PTAs. The erosion of the PTAs haprompted much discussion. One key area of debate is the EU's plan to replace its non-reciprocal PTAs with ACP countries with Econom

Partnership Agreements that would require the elimination of ACP tariffs.

Aid for trade

To cushion the transition period, alternative forms of support, such as aid for trade, have been proposed. Aid for trade is intended primarilydevelop supply capacity in developing countries, enabling them to have a greater chance of holding their own in the global

More...

Doha myths and misunderstandings

A plethora of terminologies and acronyms mark WTO policy negotiations. Not only are these confusing, but policy-makers often pfrom the lack of clarity, relying on the fact that people may think policy shifts are far more significant than they are in realit

Doha myths and misunderstandings

GATT and GATS

he two acronyms, 'GATT' and 'GATS' are often confused. The General Agreement on Tariffs and Trade (GATT) is the trade agreement agre947 after the failure of the U.S. congress to ratify the International Trade Organisation that had been proposed at Bretton Woods, along witternational Monetary Fund (IMF) and the World Bank.GATS, the General Agreement on Trade in Services, is the agreement within the WT

trade in services. It became part of the WTO in 1995.

Export subsidies and domestic subsidies

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is important to distinguish between domestic subsidies and export subsidies. The former are paid to farmers for producing agricultural prodThe latter help farmers export their products. This may seem obvious, but the EU in particular often refers ambiguously to reductions it has mn subsidies, without specifying that this is not a reference to the market distorting domestic subsidies but to the less significant export subsi

Therefore the claims it makes are often not as dramatic as they appear to be.

Winners and losers

It is important to note that removing all subsidies is not the only answer for improving developing country agricultural opportunities. Manydeveloping countries have preferential access through trade agreements. This often means these countries have built up substantial industagriculture in areas where others countries will have more competitive sectors if all barriers are removed. In any change in trading relations

there are winners and losers, so adjustment policies must be considered.

Percentages

t is important to put percentages and figures into context, as reports can be misleading. For example, although the Doha Ministerial Declaraobliges Developed Countries to provide duty and quota-free access for 97% of Least Developed Country exports as of 2008, the remaining

reservation will account for 330 tariff lines. This could mean depriving some countries of market access for all their key products.

This web page has the following sub-sections:

Meeting fails because US feels developing countries not reciprocating on trade concessions.

Media attention lacking

Failure since the Doha Round started in 2001

Meeting fails because US feels developing countries not reciprocating on

trade concessions.

echnically, the US was blamed for causing the collapse in July 2006, because it felt that developing countries would

pen markets in the same way that it was being asked to open its and so it saw no point in continuing the talks. It wa

what would seem like a fair deal: rich countries open their market, and poor countries do the same in return. Withounderstanding context or history, this sounds just and equal.

However, as discussed throughout this site, global trade has always been unequal, in favor of, dominated by, and

nfluenced by, the rich countries. Hence, this tit for tat reciprocation, would continue the unequal global tradeun

the guise of equality.

The Doha Development Round, as it has been known, was nicknamed that way to show that this round of tradnegotiations were to favor poor countries ability to develop and prosper from global trade, while acknowledging t

unequal nature of global trade, dominated by industrialized countries, at the direct expense of the developing worl

Indias commerce minister, Kamal Nath noted similar things:

This is a Development Round, completing it is extremely important but equally important is the content of the RounThe content has to demonstrate new opportunities for developing countries, primarily market access of developin

countries into markets of developed countries.

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This Round is not for perpetuating the flaws in global trade especially in agriculture, its not to open markets

developing countries in order for developed countries to have access for their subsidized products to develop

countries.

We say the Round should correct the structural flaws and distortions in the system, and there should be fair trade, n

only free trade. They [US] say we want market access and only if we get it the way we want it can we correct structural flaws. There is no equity in that argument.

Kamal Nath, quoted by Martin Khor,All Doha talks suspended at WTO as G6 Ministerial collapses, Third WorNetwork, July 24, 2006 (Emphasis Added)

rade issues expert, Martin Khor, also added: Asked if the US and EU Ministers were shedding crocodiles tears w

they said they were sorry for developing countries that the talks had failed, Nath said those countries had got the wh

oncept of the Round inverted, they that advocated market access that would displace millions of farmers, and thisa problem of their whole mindset. This is not what the Doha Declaration and the Hong Kong Declaration is about

Media attention lacking

If you lived in places such as the US or UK, you would be forgiven for not knowing that one of the most importan

meetings that affect almost all of the planet failed.

There was hardly a mention in many western mainstream media, certainly not on prime time television news broadc

that such an important meeting was taking place. Only as the meetings ended with dramatic collapse did the medi

ppear to turn attention to this. Yet the headlines were more about the sensational bickering between the EU and US who was to blame for the collapse.

Maybe the media could be excused because of the conflict in Lebanon at the time, so that the media was not watch

proceedings at the WTO talks. But those talks affect almost all of humanity. Do we really believe that the largemainstream media companies do not have resources to cover multiple major issues around the world at least?

ome may ask whether it matters if the media in the western mainstream cover this or not? Democracies are supposebe accountable by an informed citizenry. The mainstream media is supposed to provide a window into issues to do w

humanity and more, and with their vast resources, they are vital for a functioning and accounable democracy.

Furthermore, as explained throughout this site, many of the industrialized nations have dominated global talks to englobal trade is unequal in their favor.

In India for example,IPS News reported that Indias federal agriculture minister Sharad Pawar confirmed in May

between 1993 and 2003, at least 100,000 farmers had killed themselves because of their inability to repay loans

because the countrys agriculture sector was suffering in part due to the unequal nature of global trade. That is anverage of 10,000 deaths each year. Just like bombs in a war or conflict, trade related issues also kill. Except the vict

sometimes far more numerous than a given conflict, die silently. In contrast, the media will report the more sensatio

deaths and suffering caused by natural disasters and conflict, however.

In the same report,IPS News also noted that in India, there was rare unity amongst diverse groups that the decisionIndia to quit the Doha round was a good one, implying that if rich countries are refusing to budge, then developin

countries such as India would lose out by continuing a fruitless development round.

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It may be a reasonable guess to assume that most citizens of these countries actually want their fellow humanbeing

around the world to be treated fairly and justly. If the media does not report what their leaders are doing, how else whey know? Without deeper context, shallow arguments such as requiring poor countries to open their markets even m

because the rich countries are doing it, are made without any scrutiny.

Failure since the Doha Round started in 2001

he failure was not just a sudden one. The history of the Doha round has been filled with double-talk, with rich counften demanding poor countries concede ground in unfair ways, with poor countries occassionally taking a strong st

against these demands, and the EU and US in particular driving for more open markets in poorer countries, sometim

even blaming the poorer countries for failed talks, or calling deals criticized as bad for the poor, as good for the po

Those meetings and the issues raised at that time are covered in more depth in separate articles on this web site:

WTO Meeting in Hong Kong, 2005

December 2005 saw Hong Kong host the 4th World Trade Organization (WTO) Ministerial meeting. This meeting,

of the most important in the world, was to discuss a number of trade-related issues, key for developing and develop

nations, alike. This meeting continues from the earlier Doha round where it was recognized that the global tradiystem was unequal and unfair for most of the world and so the meetings should place development at the fore. Thus

meeting is being billed as a Development Round. However, the concerns as per previous years continued to includ

ack of transparency and democracy in the decision-making processes, and the power that the rich nations have overoor distorting trade in their favor. The previous Ministerial meeting two years earlier collapsed as the developing w

took a strong stance and stood up to the rich nations. Yet, since then, the same kinds of issues have resurfaced as ri

nations appear to have hardly moved on their countless promises, pledges and obligations. As a result, and perhap

predictably, poorer countries were pressured to agree to a deal that did not really work in their favor. Last update

Monday, December 26, 2005.

Read article: WTO Meeting in Hong Kong, 2005

WTO July 2004 Package of Framework Agreements

The World Trade Organization (WTO) July 2004 Package of Agreements Framework meeting was in response to tailure of the Cancun Ministerial Meetings in September 2003. However, these trade talks also resulted in more bull

and arm-twisting tactics from the richer, more powerful countries and regions, such as the EU and US. Last updat

Monday, August 02, 2004.

Read article: WTO July 2004 Package of Framework Agreements

WTO Meeting in Cancun, Mexico, 2003

The 5th WTO Ministerial Conference in Cancun, Mexico was held in mid-September, 2003. Issues similar to tho

raised in Doha were raised again, with the accompanying controversies. The talks collapsed because rich countrie

refused to finish discussion on issues raised in previous meetings. Instead, they wanted to talk about new issues. Po

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countries wanted to finish discussion on the previous issues because it impacts them the most. While the talks failed

as the first time the developing world took a united stance against the rich countries. Last updated Thursday, Septem18, 2003.

Read article:WTO Meeting in Cancun, Mexico, 2003

WTO Meeting in Doha, Qatar, 2001

The 4th WTO Ministerial Conference in Doha, Qatar was held in November 2001. It was to launch a new round of t

talks prioritizing the development of poor countries and was dubbed the development round. But it was marred wontroversy. Qatar was selected as the venue due to its repressive laws about the right to protest. Furthermore, both i

lead up to the meetings, and in the outcomes, developing countries on the whole had actually been marginalized an

ignored, once again. Last updated Sunday, December 22, 2002.

world trade negotiationsappear to be stalemated.Meeting in Hong Kong inDecember 2005, tradeministefrom WorldTrade Organization (WTO) member countrieswere unable to bridge major disagreements in t

Doha Round negotiations, so calledbecause they were launched in Doha, Qatar, in2001. Why are thesenegotiations so difficult?The answers lie mainly in the developing world.A Changing World of TradeT

global trade regime expanded during thepast two decades to encompass most developing countries,ncluding China, which wasoutside the capitalist trading system in earlierrounds of trade talks. Countries

India wereless engaged in earlier rounds, reflectingeconomies that were largely closed at the time.Nowhowever, these fast-growing countrieshave become major players in the globaleconomy and global trad

regime. As they joinglobal trade negotiations, they bring their ownoffensive and defensive concerns. Sowantto liberalize sectors in which they are competitive,such as agriculture, textiles, and apparelthe sa

sectors that are the most protected inwealthy countries, reflecting strong domesticconstituencies resistanchange. Developing countries also have defensive concerns. Manyof them have agricultural sectors tha

employlarge shares of their population but are notcompetitive in global markets. And many wantto maintrade barriers to nurture fledglingdomestic manufacturing and service sectors.The different priorities odeveloped and developing countries make it inevitable that current and future bargaining rounds will b

more complex and difficult than past negotiationsWhat would it take to produce a global trade agreemehat addresses the interests of bothdeveloped and developing countries? Toanalyze the underlying econointerests of the WTOs diverse members and the potentialeffects of the Doha Round negotiations, theTra

Equity, and Development Project of theCarnegie Endowment for International Peacecommissioned a modglobal trade as a toolto estimate the impact of different trade policyscenarios. It is one of the newest in

series ofmodels built to analyze the Doha Round, usingthe latest global trade data. In comparison with otmodels, the Carnegiemodel makes several improvements. Mostnotable are more accurate representationhe way labor markets function in developing countries. Most models assume that all labor,including unsk

labor, is fully employed. Yetthis assumption is far from the reality of developing countries. The Carnegimodel incorporatesactual unemployment rates. Most modelstreat agricultural labor as identical to urba

Overview of the Report

unskilled labor, an inaccurate assumption thatcan produce inaccurate results. The Carnegiemodel treaagricultural labor markets separatelyfrom urban unskilled labor markets indeveloping countries. Theseinnovations makethe Carnegie model more accurate in gaugingthe impact of trade policies on countrie

withlarge unskilled and agricultural labor forces. The Carnegie model was used to simulate arange ofplausible outcomes from the DohaRound. The central scenario anticipates anambitious expansion of mar

access for manufacturedgoods, a more modest expansion foragricultural products, reductions ofdomesticsubsidies and elimination of export subsidiesfor agricultural products. It requires lessermeasuresdeveloping countries and none bythe least developed countries (LDCs), based onguidelines already agreesecond main scenariowas constructed after the Hong Kongmeeting to simulate agreements reachedthere

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his scenario, the same level of tariffcuts is applied to both agriculture and manufacturing.The reductionsset at levels closeto proposals that are now on the negotiatingtable.

Findings That Defy Conventional

Wisdom about the Doha RoundThe most important finding at the aggregateglobal level is that any of the plausible tradescenarios wil

produce only modest gains, onthe order of a one-time increase in worldincome of $40 to $60 billion.Threpresents anincrease of less than 0.2 percent of currentglobal gross domestic product (GDP). Thelimitenature of the gains from the DohaRound goes far in explaining the lack ofurgency demonstrated by WT

negotiators.Given relatively low gains, the adjustment coststo which countries expose themselves whentchange trade policies may loom largerthan in the past. Losses of existing jobs andfirms are often more

painful politically thanpotential gains in future growth. Major countriesare likely to insist that any agreemmustaccommodate their main defensive interests. Asa result, the Doha Round will probably achieveonmodest changes in any sector.The modest overall gains would have quite differenteconomic effects ondifferent countriesand regions. There are both net winners andnet losers under different scenarios, and

thepoorest countries are among the net losersunder all likely Doha scenarios. At the countrylevel, maximgains or losses are about 1percent of GDP for the most affectedeconomies. The biggest gainer is China

withgains ranging from 0.8 to 1.2 percent of GDPunder different scenarios. The biggest losersare some S

Saharan African countries, whichsee a reduction in income of just under 1percent. Most countries gainsosses rangefrom 0 to 0.5 percent of current GDP.Among developing countries, about 90 percentof the gafrom Doha scenarios would comefrom liberalization of trade in manufacturedgoods. Most developing

countries gain fromliberalization of trade in manufactured goods,with China gaining the most and Asiacountriesgaining more than Latin American andAfrican countries.The benefits of agricultural trade

iberalizationflow overwhelmingly to rich countries, whiledeveloping countries actually suffer slight lossesgroup.There are great differences in theimpact on different developing countries. A fewcountries gain

notably Brazil, Argentina, andThailand, but more suffer small losses from agriculturalliberalization. The loinclude manyof the poorest countries in the world, includingBangladesh and the countries of East Afric

andthe rest of Sub-Saharan Africa. Middle Easternand North African countries, Vietnam, Mexico,and Chialso experience lossesThese results run counter to a commonly heldview about the Doha Round, that

agriculturalliberalization benefits developing countries andwill augment their growth anddevelopment.Instead, agricultural liberalization benefits onlya relatively small subset of developing

countries,whereas manufacturing liberalization ismore important to most developing countries.There aseveral reasons why the developingworld does not gain broadly from agriculturalliberalization. Many pocountries are net foodimporters. Many lose relative advantages theynow enjoy under special preferenc

programs.However, a more fundamental problem arisesfrom the reality that low-productivity, small-scalesubsistence farming makes up a large portion ofagricultural activity in many developing countries.T

products of subsistence farmers aregenerally not competitive on global markets.The pervasiveness ofnoncompetitive, smallscalefarming in many developing countries hasled them to demand special

consideration fortheir agricultural sectors in the Doha Round. Totest the impact on other countries oftakingaccount of these agricultural concerns, we simulateda scenario in which developing countriesar

allowed to shield agricultural products fromtariff liberalization.The results of this scenarioare surprising important. Special treatmentcould be extended with only minor reductionsin other countries gains from

Doha Round,even for countries that are major agriculturalexporters. As for the developing

countriesthemselves, India and Vietnam experienceslightly greater overall income gains under thisscenadespite some loss of efficiency in theireconomies from continued tariffs. Bangladeshand the East Africacountries experiencesmaller losses if these exceptions are allowed.Another striking result from the modethepossibility that the poorest countries may losefrom any agreement unless additional specialmeasurestaken on their behalf. The resultsshow that Bangladesh, East Africa, and the restof Sub-Saharan Africa a

adversely affected inalmost every scenario.Although the Carnegie model was constructedprimarily to assthe impact of the DohaRound on developing countries, interestingresults also emerge for the develope

world.All high-income countries and regions experiencesmall gains from the main scenarios, andthe gaicome mainly from the liberalization ofmanufactured rather than agricultural goods .The United States ga

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more from liberalizationof manufacturing than of agriculture. Forthe fifteen Western and CentralEuropeanmembers of the European Union (EU) and forJapan, manufacturing accounts for most gains,b

agriculture contributes a greater share ofgains than in the United States, as higher levelsof distortions aremoved in the EU and Japan.The gains are not without a cost, however.Income from farmland decline

dramatically, by26 percent in the EU and 23 percent in Japan.World export and import prices for allagriculturalproducts increase under the main scenarios.By contrast, liberalization ofmanufactured good

intensifies competition inseveral manufacturing sectorsincludingapparel, metal products, and motorvehiclesand partsand world prices decline slightly.These price trends are at odds with alongstandinghistorical pattern of declining pricesfor agricultural commodities relative to

manufacturedgoods.Trade liberalization for manufactured goodsincreases demand for unskilled labor imostof the developing world. However, wages donot increase, due to the abundant supply oflabor and t

fact that liberalized trade inlabor-intensive manufactures drives downworld prices for such goods. Under mainscenarios, employment of unskilled laborincreases by about 1 percent in the manufacturingsector

developing countries as agroup, although the gain is unevenly distributedamong countries and acrossmanufacturingsubsectors. Increases in unskilledemployment of 1 percent or more are realizedby China

Indonesia, the other members of theAssociation of Southeast Asian Nations(ASEAN), and India. Once agathe threepoorest countries/regions in the model(Bangladesh, East Africa, and the rest of Sub-Saharan Afr

actually lose unskilled jobs inmanufacturing industries. Income for agriculturallabor and land increases developing countries, except in Mexico, India,Bangladesh, and Vietnam. For developing countries as a gro

agricultural employmentbarely increases (0.17 percent) under the mainscenarios, but is somewhat morobust underthe special scenario for developing countryagriculture (0.3 percent).Global trade models do capture the costsincurred as economies adjust to trade reform,with some labor and capital idled by channtrade patterns. At least in the short term, thiswill subtract from overall income gains and havea potentilarge negative impact on theaffected individuals and households. As a resultof omitting these costs, mod

tend to systematicallyoverstate the gains from trade or understatethe losses. The effects are likely toberelatively greater in developing countries,because they have less diversified economies,with fewer

alternative sources of employmentthan developed countries.From the Perspectivesof Equity and Poverty,

a Complicated Picture EmergesThe overall gains to the world are dividedfairly evenly between the developed anddeveloping worlds. The

winner in thedeveloping world, China, is also home to largenumbers of poor people, with more than200million living on less than $1 per day and anadditional 600 million living on less than $2 perday. A Dopact that lowers tariffs in lowskilledmanufactured products could increaseemployment there and boost t

incomes of the poor. However, in the countries that losefrom the Doha Round, including Bangladeshanmany countries in Sub-Saharan Africa,there are even more desperately poor people(267 million) living o

ess than $1 per day andalmost as many very poor people (486 million)living on less than $2 per day. Moheworlds poor people are concentrated in ruralareas and depend on agriculture or theirincomes. This is

in China, Bangladesh,and Sub-Saharan Africa, as well as in othercountries that have large numbers ofpoorpeople, most notably India. All of these countrieslose from agricultural liberalization.Whether a pacwould help or hurt their poorcitizens on a net basis depends heavily on thedetails of the outcome. For

example, countrieslike India, Indonesia, and Kenya will requireexceptions for the products produced bytheirsubsistence farmers if they are to avoidincreases in poverty.

Comparison with Other Trade ModelsThis report compares results from theCarnegie model withseveral other models,including the newest World Bank model. Onsome of the most surprising results,othermodels show similar patterns, although theseresults often are not highlighted in reports onthose

models.

Conclusions and RecommendationsIt is important not to overstate the possiblegains from the Doha Round, as has been doneby many politi

leaders, commentators, andactivists. It has been fashionable to state thattrade can do more thandevelopment aid to liftpeople out of poverty in developing countries.Though this may be theoretically trus clearfrom the Carnegie model and a close study ofmost other recent models that trade is not apanacea

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poverty alleviation or for developmentmore generally. Trade is one factor amongmany that can contributeconomic growthand rising incomes, but its contribution is likelyto be very modest. At the same time,

changesin existing trade policies can also cause economiccontraction and must be deigned andimplemenwith great care. An unrealisticexpectation of gains can lead to pressure forinappropriate policies and cocreate a bandwagoneffect where the very legitimate defensiveconcerns of developing countries areignoto achieve illusory gains. Errors inanalysis can lead to increases in poverty, not thehoped-for reductions,

broad range of developing countries. For the poorest countries,where there is little margin for error, theriare particularly acute.The report concludes with a set of recommendationsmeant to address the interesandproblems of the developing world in the DohaRound. These include:sMany developing countries w

require verylong phase-in periods and a carefulsequencing of sectoral liberalizationmeasures, to takeaccount of the impact oftrade changes on their less diversifiedeconomies.sSpecial treatment for developcountryagricultural sectors will be needed becauseof the high concentrations of employment inthose sec

and the long and difficultprocess of raising productivity levels anddeveloping new skills among thehundredsof millions of subsistence farmers in theworld.sThe Doha Round should include

additionaldevelopment assistance for agriculture indeveloping countries, because the transitionto mormodern sectors will require resourcesbeyond what is domestically available in poorcountries. Major new ommitments bymultilateral development agencies andbilateral donors are needed.sFor the LDCs, additi

measures will beneeded to ensure that they are not net losersfrom the Doha Round. In Hong Kong,develocountries agreed to extend dutyfreeand quota-free market access for mostexports of LDCs; however, th

mostcompetitive products can be excluded. Theagreement should be extended to include allproducts of LDCs by a firm future date. Thefinal plan should

eliminate cumbersomerules of origin that block imports of someproducts from LDCs and reducetheiropportunity to achieve economies of scale.sMiddle-income countries should also extendthis access

the LDCs. China established apositive precedent by offering preferentialaccess to many products of theleastdeveloped ASEAN members as part of aregional free trade agreement, althoughthere are many

exceptions. Preferentialaccess should be extended by other middleincomedeveloping countries and by ChtoLDCs in other regions.sA solution must also be found for the groupof low-income countries that are juabovethe threshold for LDC status, because theymay be made worse off by the effort to helpthe poores

Some access to the specialbenefits should be extended to thesecountries as well.sTrade adjustmentassistance programs forpoor people in low-income countries shouldbe part of a Doha package. This can donethrough multilateral development agencies, such as the World Bank, or through bilateralassistance.

date, such programs have notbeen adopted or even discussed. Theyshould be added to the Doha agendEfforts to liberalize global trade through the World Trade Organization (WTO) have made limited progre

since the current round of negotiations was launched in Doha, Qatar, in 2001. Meeting in Hong Kong inDecember 2005, trade ministers from the 149 WTO member countries resolved only a few issues, whil

postponing the deadline for resolution of the main controversies until April 30, 2006. Despite the presencthe most senior negotiators and the glare of media attention, member countries were unable to breakstalemates that exist in virtually every major area of the negotiations. Why are these negotiations so

difficult? The answers lie mainly in the developing world. Earlier trade rounds primarily involved developcountries and addressed their priorities. During the past twenty years, however, the global trade regime expanded to include most of the developing world, including communist countries such as China, which woutside the capitalist trading system in earlier rounds of trade talks. India and a number of smaller countwere less engaged in earlier rounds, reflecting economies that were largely closed at the time. The relat

weight of these countries in the global economy has grown enormously over the same period, and it wcontinue to expand due to higher rates of growth in these countries compared with mature economies. Adeveloping countries join global trade negotiations, they bring their own offensive and defensive concerOffensively, they want to liberalize sectors in which they are competitive, such as agriculture, textiles, a

apparel. These sectors were liberalized least in earlier trade rounds, due to strong domestic constituenciedeveloped countries. The developing countries also have their own defensive concerns, often involving

agricultural sectors that employ large shares of their population but are not competitive in global marketseven in domestic markets in the absence of tariffs. Many are also concerned defensively about

manufacturing and service sectors, where they hope to nurture domestic industries behind trade barriers

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most developing countries, growing manufacturing and service sectors are seen as essential to absorbgrowing labor forces and large numbers of low-income, low productivity farmers The different priorities

developed and developing countries make it inevitable that current and future bargaining rounds will be emore complex and difficult than past negotiations. At the same time, the size and high growth rates of mdeveloping economies mean that their presence in the global trading system is welcome. In recognitionthe new reality, the current negotiations were named the Doha Development Round and were launch

witha commitment by wealthy countries to payC H A P T E R 1

Introduction: A Changing World of Tradespecial attention to the needs and interests of developing countries. Arguably, without this commitment

redress perceived imbalances in the global trading system that favored rich countries, the launch ofegotiations would not have been possible. After 2001, however, the interests of developing countries did

receive the promised prioritization. The summit of trade ministers held in Cancun, Mexico, in2003 brokdown in acrimony, largely due to these countries perception of their continued marginalization in the

negotiations. At the Hong Kong ministerial, at least some progress was made on the demands of the poocountries, although most of these concessions will take effect only if the talks produce an overall agreem

an achievement that still appears out of reach.1hat would it take to reach a global trade agreement thaaddresses the interests of developing countries and holds the potential to lift their incomes, while at th

same time offering sufficiently expanded opportunities for developed countries to win their assent?Answering this question is not a simple matter Global trade is carried out through myriad toward

relationships between countries that have different sets of assets, capabilities, and vulnerabilities.Differences in the size and skills of workforces, suitability for cultivating different agricultural crops, anamount of capital available for investment mean that a particular trade rule change will affect countrie

ifferently. Finding a mix of trade policy changes that offers opportunities for all, or even for most, is comand difficult. To analyze the underlying economic interests of the WTOs diverse identify

combinationsifycombinations of trade policies that would produce widely distributed benefits, the TradeEquity, and Development Project of the Carnegie Endowment for International Peace commissioned an

applied general equilibrium(AGE) model of global trade.2 AGE models are computer-based simulations of economies work. In the case of global trade models, the entire world economy is modeled, including thmaze of bilateral trade relationships. Once such a model is built, it can be used as laboratory for policy

experiments in which various policies are changed and the results are traced through the model for theimpact on different sectors, different economic actors, and the overall welfare of countries and the glob

economy. The Carnegie model was used to simulate the impact on different countries and regions of vartrade proposals that approximate those under consideration in the Doha Round. Scenarios were construc

that capture plausible outcomes from the round. This report presents the results of these trade policysimulations. The model and a description of how it represents the worlds economies are presented in

hapter 2, with a more detailed specification of the model provided in appendix A and a sensitivity analysAppendix B. In chapter 3, the main results of the trade policy simulations are reported. Chapter 4 provide

overview of several other important models and a comparison of their structures and results. In chapterhe conclusions and implications that can be drawn from the Carnegie model results are discussed and po

recommendations are presented.

Rescuing the DohaRoundDecember 2005

Summary: The DohaRound could become the first major multilateral trade talks to fail since the

1930s. To prevent a collapse, policymakers in the G-8 and key developing countries must resolve

global monetary and current account imbalances, counter the backlash against globalization, and find

a way to jolt the talks back to life.

WHAT AILS DOHA?

Virtually all observers concur that the DohaRound of multilateral trade negotiations in the World

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Trade Organization is faltering badly. Agreement may have been reached on the principle (although

not the date) of eliminating export subsidies for agriculture, but very little else has been resolved

since the talks were launched four years ago. Almost nothing of note has been proposed, let alone

settled, in the crucial services sector. Even the necessary procedures for handling integral parts of the

negotiations, including agriculture and nonagricultural market access, have yet to be worked out,

although the target date for finishing the round is only a year away. Deep uncertainty prevails despite

the decision in 2003 to ease the negotiations by removing two critical issues, investment andcompetition policy, from the agenda. Moreover, the round has never even attempted to seriously

address the two largest problems facing today's global trading system: security concerns since the

attacks of September 11, 2001, especially the risk that world trade would seize up in the wake of

another major terrorist attack, and the absence of effective control over the increasing number of

preferential pacts involving many of the world's largest trading nations.

The DohaRound may thus become the first major multilateral trade negotiation to fail since

the 1930s. The collapse could even take place, or be clearly heralded, at the ministerial meeting inHong Kong. Such an outcome could mark a historic reversal in the irregular but steady progress

toward liberalizing world trade over the past sixty years. Since history clearly shows that trade policy

must move forward continuously or risk sliding backward into protectionism and mercantilism

(which at present also means accelerating the tendency toward bilateralism), the consequences of

Page 2Doha's failure for international security as well as economic relations around the world could be

enormous. At this point, the best possible outcome would be a mini-package that would achieve

modest real liberalization; by nature of its small impact, however, it might not sufficiently motivate a

coalition able to overcome entrenched local interests, and so could fail to win ratification in many

countries, including the United States. But even such a modest package is not guaranteed. It is thus

critical to analyze the causes of the Doha malaise and devise a rescue strategy that can be

implemented in time.All major global trade negotiations flirt with collapse and succeed only at the last possible

moment. Doha, however, is much more difficult than its three multilateral predecessors (the

Kennedy, Tokyo, and Uruguay Rounds). The WTO now has many more members (148 at present)

and is constantly expanding. The consensus-decision rule means that all of them must accept theoutcome of discussions, and now a larger and more diverse group of developing nations has veto

power at every stage of the process. The remaining barriers to trade, having resisted liberalization for

a half century, are by definition the hardest to tackle. The proper new focus of much of the talks,

behind-the-border distortions such as subsidies, raise more complex issues than do traditional tariffs

and quotas. The key actors, the United States and the European Union, face even more formidable

domestic obstacles to making essential concessions than they did in the past: fierce congressional

hostility to any relaxation of US antidumping and immigration laws and deep popular unwillingness

to significantly alter the European Union's protective agricultural regime.

The main problems that undermine the prospects for a successful DohaRound, however, lie

outside the negotiations themselves. Three factors stand out: the massive current account imbalances

and currency misalignments pushing trade politics in dangerously protectionist directions in both the

United States and Europe; the strong and growing antiglobalization sentiments that stalematevirtually every trade debate on both sides of the Atlantic and elsewhere; and the absence of a

compelling reason for the political leaders of the chief holdout countries to make the necessary

concessions to reach an agreement. Progress on each front is necessary for the Doha negotiators to

have a chance of succeeding.

CURRENCY IMBALANCES AND PROTECTIONISM

The US current account deficit reached an annual rate of almost $800 billion in the first half of 2005.

At more than 6 percent of GDP, this is almost twice the previous record of the mid-1980s, after

which the dollar fell by about 50 percent in two years. The deficit, moreover, is climbing by about

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$100 billion per year, a pace even more unsustainable than its level. To finance the current account2

Page 3deficit and its own foreign investments, the United States must now borrow $6 billion from the rest

of the world every business day. Its international debt exceeds $3 trillion and will rise to at least 50

percent of GDP, well beyond all traditional danger thresholds, before it could possibly stabilize. The

dollar remains overvalued by a trade-weighted average of at least 25 percent even if the goal is only to

cut the United States' external imbalance to about half its current magnitude.

Most commentary on this well-known imbalance emphasizes its unsustainability in

international financial terms, and this is indeed a severe risk to the US and other economies. But

there is a second unsustainability that relates even more directly to Doha and other trade policy

issues: the situation's domestic political impact. The history of US trade policy amply demonstrates

that dollar overvaluation, and the huge and growing trade deficits that it spawns, are by far the most

accurate predictors of US protectionism. When currency misalignments provide sizable advantages to

their competitors, more industries look for relief from imports. When their goods and services are

priced out of global markets, meanwhile, fewer exporters are credibly able, or even willing, to fight

for liberalization.

The United States has already imposed extensive restraints on Chinese imports in six widely

varying sectors, indicating the breadth and depth of the problem. Despite low unemployment and the

US economy's robust growth, last spring the Senate supported by a two-to-one margin a substantial

across-the-board import surcharge on all Chinese products. In July, the House of Representatives

passed its own anti-China trade bill. The strong congressional opposition to the proposed takeover

of Unocal by the China National Offshore Oil Company (also known as CNOOC) was a startling

indication of the intensity of these sentiments.

It was impossible to even launch the Uruguay Round in the General Agreement on Trade

and Tariffs, Doha's immediate predecessor, until after the imbalances of the mid-1980s had been

corrected by the 1985 Plaza Agreement on exchange rates and the Reagan administration's

simultaneous adoption of tough new trade policies against Japan. Nor could serious negotiations

commence in the 1970s in the Tokyo Round, which preceded Uruguay, until protectionist pressures

in the United States were quieted by several substantial currency realignments, forced by PresidentRichard Nixon's import surcharge and the delinking of the dollar from gold in 1971. In both

instances, large, indeed historic, monetary adjustments were required to clear the decks for global

trade liberalization.

The situation today is distressingly similar. In particular, the politically poisonous (ifeconomically irrelevant) US trade deficit with China now exceeds $200 billion annually. US imports

from China now exceed US exports to China by a ratio of more than six to one, more than twice as3

Page 4large an imbalance as the United States ever experienced with Japan. This means that, just to keep the

imbalance from increasing further, US exports to China must grow more than six times faster than

US imports from Chinasomething unlikely to happen anytime soon.

The protectionist implications of currency misalignments are not limited to the UnitedStates. The euro rose substantially from 2002 through 2004 and is probably near its bilateral

equilibrium against the dollar. Therefore, the undervaluation of the renminbi, and of other Asian

currencies kept artificially undervalued (including the yen and the Indian rupee) because governments

were afraid to let their competitive positions deteriorate against China, pertain almost as much to

Europe as to the United States. Protectionist attitudes are rising rapidly in Italy, France, and even

traditionally liberal Germany.

Fortunately, the DohaRound was launched before the imbalances soared to their present

levels. But major currency realignments are essential, starting with a revaluation of the renminbi by

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20 to 30 percent and sizable upward floats against the dollar and euro throughout Asia. Substantial

monetary corrections will again be required to permit trade negotiations to succeed.

THE BACKLASH AGAINST GLOBALIZATION

The current account imbalances are superimposed on a backlash against globalization in many partsof the world that had already raised formidable hurdles against further trade liberalization. In the

United States, the population is split evenly over the wisdom of further integration into the world

economy: workers who have only a high school education or less (such workers constitute almosthalf of the labor force) fear the adjustments that globalization requires (although just a small

percentage of them are actually dislocated by imports and even fewer experience significant lifetime

losses in earnings). Hence Congress is "voting its constituents" when it divides almost evenly on

trade legislation, as it has on every major trade bill for over a decade. Relatively minor and

straightforward pieces of legislation, such as Trade Promotion Authority in 2002 and the minuscule

Central American Free Trade Agreement last summer, trigger intense political battles and pass by the

thinnest of margins with flagrant bribes used to win the decisive votes.

There are two remedies to the problem. The more fundamental is to substantially enhance

the skill level of the work force. If the average worker enrolled in school for just two more years,

turning a high school graduate into a community college graduate, the overall population's ability to

benefit from international trade (and thus its propensity to support globalization rather than feel

victimized by it) would be greatly improved. Such a change could, in fact, provide a solid pro-globalization majority over the long run.

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Page 5The shorter-run response is to expand the safety nets that cushion the transitional costs of

trade-related (and other) job dislocation. The Bush administration should implement with far greaterenthusiasm the innovations in trade adjustment assistance that Congress included in the Trade Act of

2002. But it is also essential to pass new legislation to make services workers, including those whose

jobs are outsourced, eligible for assistance; improve the new adjustment program for farmers to

facilitate needed agricultural reforms; greatly increase the benefits under those programs, especially

for worker training; and substantially expand wage insurance that encourages workers to reenter the

labor force quickly. Domestic policy reforms in the United States are essential to a stable foundation

for international trade policy.

The backlash against globalization in Europe is more diffuse and thus more difficult to

counter. The recent votes against the European constitution and the Schrder government in

Germany reveal a split between deep unhappiness with the current economic situation and

opposition to the very reforms that are needed to improve that situation. The specter of "Polish

plumbers" and "cheap Chinese products" limits the negotiating possibilities of the European Union

in the Doha talks. European support for liberalization can probably be restored only through resolute

pursuit of the Lisbon agenda's structural reforms (including of agriculture) by new governments with

enough time left in office to reap the benefits that would ultimately result.

THE PATH TO A SUCCESSFUL DOHA

Steps have been taken to overcome each of these hurdles to a successful completion of the Doha

Round. The US budget deficit has declined significantly over the past year. The dollar fell by about10 percent between 2002 and 2004 and the renminbi rose by 2 percent in July 2005. Educational

reform is advancing in the United States. Congress adopted important improvements in trade

adjustment assistance in 2002. The Schrder government in Germany and its counterparts elsewhere

in Europe initiated some of the reforms that will help restore growth and self-confidence in the

region.

Unfortunately, all of these measures have been very limited. Trade negotiators will need a

great deal of help from elsewhere in their governments if they are to have a fighting chance.

Agriculture ministers are, as usual, central to the equation. To restore at least a modicum of global

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equilibrium, finance ministers and central bank governors must promote an orderly adjustment of the

currency misalignments and the adoption of needed economic policies. Labor ministers must adopt

reforms to help workers adjust more smoothly in the United States and more effectively in Europe.5

Page 6These policy changes are deeply political, however, and so must ultimately be decided and

implemented by heads of government. If the major industrial nations are serious about Doha, they

will have to devote important parts of their domestic policy agendas to these issues over the next few

years. They will also have to use their G-8 summit in 2006 to create an environment within which it

can succeed. The "finance G-7" (comprising finance ministers and central bank governors from the

G-8, usually not including Russia) has repeatedly issued calls for a successful Doha and will now have

to deliver policies that will enable this to happen.

But the G-8 cannot do it all. Key developing countries must participate actively in any

effective effort to bring Doha to a successful conclusion. Already, an informal steering committee

brings together the top trade negotiators from Brazil, the European Union, India, and the United

States (and sometimes Australia). In addition, China and several other Asian countries are central toresolving the global imbalances that are a prerequisite for trade progress. Hence the time has come to

realize the idea, championed by Canadian Prime Minister Paul Martin, of holding ad hoc summits ofthe leaders of key industrial and developing countries to address global problems that can be resolved

only with their personal and collective attention. The G-8 has been inviting the main developing

countries to its annual summits for several years. It should convert next year's conclave into an event

at which this broader group can rescue the DohaRound.

Even if all this were done, completing a successful DohaRound by early 2007 (to enable

implementation before the US president's fast-track negotiating authority expires) would still be a

herculean task. Enacting the requisite policy changes, ranging from agricultural policy to exchange

rates to labor-market reforms, will take time. This strategy will thus probably have to include an

extension of all the deadlines for at least six months (as occurred at the end of the Uruguay Round in

1993), or, more likely, until the end of President Bush's second term.

A TRADE POLICY JOLT

What could galvanize such an admittedly ambitious set of high-level meetings and policy changes?The prospect of the Doha Round's failure might itself be enough. Despite hurdles that seemed

daunting at the time, the major industrial countries did not permit any of the prior multilateral rounds

to collapse. The summits of the G-5, G-7, and G-8 have addressed this issue more consistently and

more successfully than any other over the groups' thirty-year history. There is a widespread

recognition that failure to keep the trading system moving toward further liberalization could trigger

a sharp reversal into protectionism and bilateralism and perhaps erode the WTO itself, causing

substantial problems for the economies and foreign policies of all countries involved. The price could6

Page 7be especially high for those viewed as precipitating the failure, as the United States and European

Union discovered when they were blamed (correctly) for the collapse of the Cancun ministerial

meeting in 2003.More likely, however, a direct and explicit threat to the interests of major holdout countries

(on monetary as well as trade issues) will be needed to spark the wide range of policy changes

required. Passage of sweeping protectionist legislation in the United States, or preemptive steps

similar to those taken by Presidents Nixon and Reagan in 1971 and 1985, would be just such a"policy jolt."

A more constructive precedent can be found in the endgame of the Uruguay Round in 1993.

That round was originally set to conclude in 1990, but the European Union refused to adopt the

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changes needed in its Common Agricultural Policy to put a final package together. The United States

responded with a "shot across the bow" by negotiating the North American Free Trade Agreement

with Canada and Mexico to demonstrate that it was prepared to pursue a regional path to trade

liberalization if the global track were blocked. But that was inadequate to restore impetus to Uruguay,

since the United States and Canada already had a bilateral free trade agreement, and Mexico and

Canada were both US neighbors and relatively modest players in world trade.

The United States then found a more effective weapon when it hosted the first Asia PacificEconomic Cooperation (APEC) summit in Seattle in November 1993. That gathering stunned the

world as Pacific Rim leaders, meeting for the first time, agreed to pursue "free and open trade and

investment in the Asia Pacific region." One month later, the European Union agreed to an

agricultural package that brought the Uruguay Round to a successful conclusion. When asked why

Europe had reversed itself so abruptly, its chief negotiators testified without hesitation that "your

Seattle summit showed us that you had an alternative that we did not." The risk that fully half of

world trade and economic output would go its own preferential way was decisive.

A similar catalyst today would have to motivate not just the European Union but also key

emerging market economies, notably Brazil and India. It would have to be at least as powerful and

persuasive as the APEC strategy in 1993.

The only candidate to make this move is APEC itself. Fortunately, APEC's Business

Advisory Committee is promoting just the sort of action that is needed: a serious study by APECleaders of a Free Trade Area of the Asia Pacific that would fulfill the vision of over a decade ago. A

number of APEC leaders from smaller countries endorsed the idea at last year's summit in Santiago.

If it were launched by late 2006, or even in 2007 (if the Doha timetable were extended), such an

initiative could be the needed impulse to get the round back on track. The three major countries in

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Page 8APEC (China, Japan, and the United States) would have to agree, but this should be feasible once the

international imbalances that must be worked out anyway are resolved. Such trade policy

commitments could in fact be linked with the broader monetary negotiations, as occurred in 197173

and 198587.

Some APEC political leaders and trade ministers have resisted this idea on the grounds that

they would undercut Doha by recommitting to the megaregional course they set over a decade ago.

To the contrary, as the Uruguay Round precedent demonstrates, it may be the only tool available to

bring Doha back to life. And if the strategy works, the Free Trade Area of the Asia Pacific might

never need to be implemented. On the other hand, it is extremely difficult to see how Doha can be

put back into serious play, let alone succeed, without a trade policy jolt along these lines. The

performance of APEC itself has been disappointing in recent years, but the organization played a

major role in galvanizing both regional and global trade liberalization during the mid-1990s. It is in a

unique position to do so again.

Failing agreement on such a course among the major APEC countries, the United States

could probably force such an initiative itself. It is already contemplating an early launch of bilateral

negotiations for a free trade agreement with South Korea and at least one more country from the

Association of Southeast Asian Nations in addition to Singapore and Thailand, where free tradeagreements are already in place or under discussion. Japan would almost surely seek equal treatment

with South Korea, for broad foreign policy reasons as well as to avoid substantial trade

discrimination. China might then feel surrounded by US economic initiatives, as it is already being

surrounded by US security initiatives, and opt for an Asia Pacific agreement instead. The strategy of

"competitive liberalization" that has driven US trade policy throughout the Bush administration

would reach its logical culmination: the rest of the world would be forced to take notice and Doha

would be back on track.

GETTING TO THE FINISH LINE

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If these requisite elements can be assembled, success in the DohaRoundsubstantively significant

liberalization in all key areas of the negotiationswill take place not at Hong Kong but over the next

one to three years. In light of the time lags involved from currency changes to trade flows, the

international imbalances need not return to fully sustainable levels but they do need to be headed inthe right direction. The backlash against globalization must be countered by forceful domestic

policies in the United States and Europe, especially with regard to labor markets. A galvanizing

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Page 9incident, such as protectionist actions in Congress or APEC's launching a serious study of a Free

Trade Area of the Asia Pacific, may be essential to round out the package.

Such bold and wide-ranging initiatives will require the attention of heads of government in

the major industrial countries and key emerging market economies. These leaders will probably need

to implement the new strategies through institutionally innovative summit and ministerial meetings

that bring their countries together operationally for the first time. Simply stating these requirements

is enough to show their difficulty. Yet without them, the DohaRound could become the first great

global trade initiative to fail since the 1930s.

Doha Development Agenda (DDA): Chronology - Brussels, 24 July 2006November 2001, Doha, Qatar. The DohaDevelopmentAgenda is launched.

September 2003, Cancun, Mexico. WTO Ministerial collapses without agreement, and

WTO Membership enters into period of reflection. Country groupings such as the G-20

(consisting of middle-income developing countries) and the G-90 (consisting of poorer

developing countries) emerge. Having collapsed, the ministerial fails to address obstacles to

the G-90 countries exports of cotton.

May 2004. The EU in a letter to all WTO members offers to eliminate all agricultural export

subsidies by an agreed date. It further commits itself to a large reduction of all trade

distorting subsidies, and proposes early action on cotton through the elimination of all forms

of export support, creating free and vital access for many developing countries with export

interests. The EU also proposes a Round for Free for Least Developed Countries, leaving

these countries to decide themselves if they wish to open their markets.July 2004. The EU letter of May 2004 triggers intensive talks in Geneva. The result is the

revitalisation of the round and a subsequent agreement in July 2004 on the Framework for

continued negotiations which sets out the ambitions for the DDA, the so-called July

Framework Agreement. The EU calls on the United States to match its offer on export

subsidies and on domestic agricultural support with an equivalent move. The EU also

emphasises the need to increase efforts to open markets for goods and services, noting the

importance of such opening for global growth and development.

January 2005, Davos, Switzerland. Trade ministers meeting on the fringes of the World

Economic Forum agree to inject further momentum into the DDA process.

March 2005, Mombassa, Kenya . At a Mini-Ministerial Meeting in Mombassa, the EU tables

a concrete package of proposals on the Rounds development goals, including flexibility on

market opening for non-agricultural goods (NAMA), reduced tariffs for imports from Least

Developed Countries and the need for wider flexibility in Rules of Origin systems.

May 2005, Paris, France. At a Mini-Ministerial Meeting in Paris agricultural negotiators

conclude difficult negotiations on how to establish a tariff equivalent in cases where the tariff

is not a straightforward percentage (i.e. a formula for establishing Ad Valorem Equivalents).

"The Doha Round is too big to fail. It is not just about trade. It is about maintaining the

credibility of multilateral cooperation; showing that multilateral institutions can find global

answers to global issues; proving that trade can be put at the service ofdevelopment."

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EU Trade Commissioner Peter Mandelson, November 2005

July 2005, Dalian, China. Ministers agree to use as a basis for further negotiations a G20

proposal for agricultural support reductions and widening market access in agriculture. The

EU welcomes the G20 initiative.

October 9 2005, Zurich, Switzerland. More than a year after the signing of the Framework

Agreement the United States offers to cut domestic agricultural subsidies by 60% and phase

out some of its export subsidies. It also tables proposals for agricultural market accesssuggesting cuts of 90% in the highest farm tariffs.

October 9 2005, Zurich Switzerland. The EU proposes that the Hong Kong Ministerial

should adopt a development package. This package must among other things include a

commitment from all developed countries on the granting of duty and quota free access to

Page 2all products from Least Developed Countries; maximum flexibility for Least Developed

Countries in tariff reduction

October 10 2005, Geneva, Switzerland. The G10 and the G20 table proposals on market

access in agriculture.

October 28 2005. As part of a comprehensive offer in all areas of the negotiation, the EU

offers to cut EU trade-distorting domestic farm support by 70% and cut its highest tariffs by60%, and to halve its average agricultural tariff to just 12%. The EU makes this offer

conditional on ambitious moves in NAMA and services from others, agreement on a register

and extension for Geographical Indications. The EU reiterates that dismantling of

agricultural support has to lead to a level playing field also among developed countries, and

again requests commitments from the US on Food Aid, export credits and changes to the

Blue Box criteria and from Canada, Australia and New Zealand on State Trading

Enterprises.

10 November 2005. WTO Director General Pascal Lamy publicly lowers the level of

ambition for the Hong Kong Ministerial, making it clear that the meeting can no longer hope

to achieve agreement on full modalities. The EU calls for the Hong Kong meeting to lock in

the progress made since the 2004 Framework Agreement and serve as a springboard for

advance in 2006.December 2005, Hong Kong. At the December 2005 Hong Kong WTO Ministerial Meeting

negotiators agreed to try to achieve broad agreement on tariff and subsidy reductions foragriculture and tariff reductions for industrial goods by the summer of 2006. This would allow

negotiators to use the remainder of 2006 to agree on other important issues such as trade in

services.

Winter and Spring 2006. Negotiations at Ministerial level have continued in 2006. Following

a mini-ministerial meeting in Davos, Switzerland in January, these have chiefly taken the

form of a series of bilateral and plurilateral meetings between key negotiators. Trade

negotiators from the EU, the US, Brazil, India, Japan and Australia met in London in March

2006 for two days of talks.

Although these meetings have been constructive, the EUs offer of October 2005 remains

the only full offer on the negotiating table and no equivalent moves have so far beenproposed in trade in industrial goods or services to balance the cuts proposed by the EU in

agriculture. For the EU, these balancing moves are essential if the Round is to be

successfully concluded.

In April 2006, European Trade Commissioner Peter Mandelson signalled that the EU was

willing to further enhance its agriculture offer within the limits of its negotiating mandate, if

other made similar concessions. This move was welcomed by, among others, Brazil, China,Kenya, Egypt and Australia.

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In May 2006 negotiations intensified at the working groups in Geneva with focus on

agriculture and NAMA.

In June 2006 EU Trade Commissioner Peter Mandelson outlined a possible deal, echoing

WTO DG Pascal Lamy and many others said: The G20 wants steeper cuts in US farm

subsidies before it is willing to table the required cuts in industrial goods. Washington can

unlock this by stepping forward with a better offer. If this happens the EU will, at the same

time, meet them both with a strengthened offer.

Page 3In St Petersburg in July 2006, G8 Leaders pledged to send their negotiators back to

Geneva with a mandate to show further flexibility.

On 23 July in Geneva the US indicated that it would not do so. WTO DG Lamy suspended

negotiations. EU Trade Commissioner Peter Mandelson said: This is neither desirable norinevitable. It could so easily have been avoided. What stands between us and the

modalities of an agreement are not vast numbers or enormous sumsthe United States

was unwilling to accept, or indeed to acknowledge, the flexibility being shown by others in

the room and, as a result, felt unable to show any flexibility on the issue of farm

subsidiesActions have consequences and this action has led to the Round being

suspended

Facts on Global ReformOffice of the United States Trade Representative

www.ustr.gov

Doha Development Agenda Policy Brief July 2006

DDA Fact Sheet July 24, 2006President Bush remains committed to a successful and ambitious outcome to the

Doha Development Agenda (DDA)

While Europe has not put forward meaningful proposals to generate real market access,

the United States will not give up

The President has instructed his trade representative to continue engagement with ourtrading partners to achieve the development and economic growth objectives that

launched the Doha Round

FACTS:

The United States Has Been the Leader in Seeking to Promote Development

Through the Doha Round of Trade Negotiations

o At the G-8 Summit in Gleneagles, President Bush said: Its very important for

the world to hear very clearly the position of the United States and that is

we want to work with the EU to rid our respective countries of agricultural

subsidies.(July 2005)

o He reaffirmed this message at the United Nations General Assembly: The

United States is ready to eliminate all tariffs, subsidies and other barriers tofree flow of goods and services as other nations do the same. This is key to

overcoming poverty in the world's poorest nations.(September 2005)

o At his speech to the Initiative for Global Development National Summit, he

reiterated: Were ready to make the move on agriculture, and services, and

manufacturingnow is the time for the world to come together and make

this a free trading world, not only for the benefit of our own economies but

as an important part of the strategy to reduce poverty around the world.

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(June 2006)

A Key to Development through Trade is Agriculture

o The World Bank has estimated that 63% of goods trade gains for developing

countries comes from agriculture and 93% of that benefit derives from greatermarket access.

The United States Has Lower Agricultural Tariffs than the EU or Advanced

Developing Economies

o US average bound tariff = 12%

o EU average bound tariff = 23%

o Global average bound tariff = 62%o Indias average bound tariff = 114%

. This Trade Progress Report updates the Board on progress in the WTO negotiations

under the DohaDevelopmentAgenda in the run-up to the Hong Kong SAR Ministerial in

December, and presents proposals on aid for trade to be submitted to the Development

Committee and International Monetary and Finance Committee in September as requested

during the spring meetings.

2. The discussion of the DohaDevelopmentAgenda below represents the views of the

staffs of the Bank and the Fund, based on their ongoing research and analysis of trade issues

from a development perspective, and does not purport to represent those of Ministers at the

Development Committee, nor of the Development Committee as a whole.

I. THE

DOHA

DEVELOPMENT

AGENDA (DDA): STATE OFPLAY

3. 2005 is a critical year for the Doha Round. After the failure of the WTO Ministerialin Cancun, Mexico, in September 2003, the August 1, 2004 WTO General Council

decisionsthe July Framework Agreementhelped to put the DDA back on track. The

negotiating framework on agriculture, which included a provision to eliminate export

subsidies by a date certain as an outcome of the negotiations, plus the decision on the

Singapore Issues (i.e., to take up only trade facilitation and drop investment, competition,

and transparency in government procurement from the negotiating agenda) were important

steps in the right direction. Since then, however, progress has been limited and considerable

work remains to be done if the DDA is to deliver on the promise of its name in a timely

fashion.

4. At the WTO Ministerial meeting to be held in Hong Kong SAR on December 1318,

2005, WTO members will need to reach agreement on negotiating modalities (i.e., reduction

formulas and liberalization targets) for agriculture and manufactured products, and to make

concrete progress on negotiations on services, rules, trade facilitation and on the

development dimension of the round. To this end, first approximations of the modalities in

the key areas of agriculture and non-agricultural market access (NAMA) were expected by

the end of July 2005.

5. At the WTO General Council meeting of July 27 and 29, 2005, however, negotiators

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recognized that no consensus had been reached on first approximations. Moreover, several

other targets (e.g., with respect to services and special and differential treatment) were also

missed, further endangering the prospects for substantive results in Hong Kong SAR.

Progress at the 6th WTO Ministerial, however, remains critical if the round is to be

completed by the end of 2006.

6. Achieving an ambitious outcome from the Doha Round thus requires a renewedcommitment and sense of urgency from all WTO members. The state-of-play in the main

areas of negotiations is briefly reviewed in what follows.

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A. Agriculture

7. A round that does not begin to remove barriers in agriculture will not be a development

round. While it is important to make progress on all three pillars of the agricultural

negotiations, including market access, domestic support and export competition, empirical

studies suggest that improved market access would offer by far the largest development pay-

off.8. There has been some progress on market access, with negotiators reaching agreement on

the threshold technical issue of the tariff base on which to negotiate tariff reductions in May.1

However, the difficulty in resolving this technical issue suggests that agreement on negotiating

modalities for Hong Kong SAR will be a significant challenge. With average bound tariff rates

(the basis for WTO negotiations) often well above currently applied ratesaround double in

developed (27 percent versus 14 percent) and developing countries (48 percent versus

21 percent), and six times higher (78 percent versus 13 percent) in least-developed countries

(LDCs)meaningful increases in market access will require large cuts in bound rates.

9. The key points of contention at this stage are the formula for tariff cuts and the

flexibilities allowed, particularly with respect to the treatment of sensitive and specialproducts.

2

Most recently, discussions have concentrated on the proposal on market access

presented by the G20 at the recent informal Ministerial meeting in Dalian, China (July 1213,

2005).3

Although seen by many as an important step toward achieving consensus in this

pillar, important points of contention remain with respect to the approach for tariff cuts

proposed by the G20, the treatment of sensitive products and the adoption of tariff caps.

10. Wide gaps between bound and applied levels of domestic support also mean that

large cuts in currently bound levels are needed to generate reductions in actual support. The

extent of this gap is illustrated by Bank research indicating that even a cut as large as

75 percent would reduce domestic support in only four economies (including the United

States and the European Union). More-modest cuts would have little impact in terms of

expanding markets for developing countries that are competitive agricultural exporters.

Disciplines on the Blue Box4

also need to be clarified if this box is going to serve the1

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The issue in this instance was how best to calculate ad valorem equivalents of specific duties.2

Bank research has explored the impact of 2 percent of bound agricultural tariff lines covering the most

protected heavily traded products being deemed sensitive and subject to smaller cuts of around 15 percent.

The study concluded that this would sharply reduce the benefits of the package and that, unless the agreed list

of exceptions were quite limited and the cuts in tariffs or expansion in their tariff rate quotas substantial, the

new opportunities provided by the round would be minimal.3

The G-20 encompasses 21 members: Argentina, Bolivia, Brazil, Chile, China, Cuba, Egypt, Guatemala, India,

Indonesia, Mexico, Nigeria, Pakistan, Paraguay, Philippines, South Africa, Thailand, Tanzania, Uruguay,

Venezuela, and Zimbabwe.4

The Blue Box covers payments based on fixed area and yields, number of head for livestock and base level of

production. Blue Box support is aimed at constraining production and was not subject to reduction

commitments in the Uruguay Round.

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purpose of facilitating movement by countries away from more distorting practices, rather

than resulting in box-shifting without significant liberalization effects.

11. While export subsidies are the smallest component of protection in dollar terms, they

are highly distorting and the decision in the July Framework Agreement to eliminate themwithin an agreed timeframe as a part of the outcome of the Doha Round is welcome. The

actual development impact of this decision will depend critically on the transition period for

the elimination of the subsidies and other details still to be negotiated over the coming

months. Issues of parallelism (i.e., the treatment of export credits, exporting state trading

enterprises, and food aid) are also important and further elaboration appears necessary for

the deal on the pillar of export c