The 153 members of the World Trade Organization agree on two things: We’re in a hole. And we must keep digging.
The hole is the Doha Development Round, a decade-old negotiation that was billed as the next stage of trade liberalization after the creation of the WTO itself.
After repeated failures to clinch a deal, Doha is on life-support. But nobody is prepared to kill it off.
“There is a Russian proverb that says ‘Don’t chop off the branch you are sitting on,’” WTO director general Pascal Lamy told trade ministers, defending the body at its biennial conference in Geneva Dec. 31.
The ministers had collectively acknowledged that the Doha round was unlikely to be concluded in the near future, but promised to keep working towards it, despite a gulf in opinions — especially between United States and China.
Trade diplomats like to point out that the WTO is more than Doha alone, and failure to complete Doha does not mean the end of the WTO.
But with so much negotiating capital already tied up in Doha, every new proposal to modernize WTO rules is seen as part of a wider wrangle over the trade round, paralyzing discussion.
Risks losing position
And if the WTO does not keep the world’s trade rule book up to date, it risks losing its position as the global arbiter. Recent allegations of protectionism, such as currency manipulation and environmental taxes, are outside the WTO rules, or at best a grey area.
Lamy has blamed the paralysis on a “crisis of multilateralism”: a failure of diplomacy that has also hobbled negotiations on the euro-zone crisis and global climate talks.
“The international system can’t be in good shape because the members of the international system are in bad shape,” he said at a briefing a fortnight before the conference. “They’ve got very little energy left for international compromise.”
Doha was originally meant to help developing economies, but that idea looks out of date now that India, Brazil and most of all China have grown into trading superpowers. For that reason some officials say Doha, launched at the same time that China was accepted into the WTO, was doomed from the start.
And equally, that helps explain why China, India and Brazil are its most vocal champions, determined not to let any new ideas gain traction unless there’s a payoff.
In short, Doha and arguments about Doha are using up all WTO’s oxygen and it has been largely unable to evolve for a decade as a result.
That is not to say global trade governance is not changing at all, and the WTO’s ministerial conference notched up two big successes. But both, in their own way, compound the problem.
One was the decision to grant Russia membership after 18 years of talks, so that at last all the big economies will be inside the club.
The other was a long-awaited reform of the Government Procurement Agreement (GPA), which will open $100 billion of government contracts to foreign competition every year.
Russia has promised to play a positive role once it joins midway through 2012, and it may not even get into Doha negotiations, but having another big and opinionated player at the table will not make it any easier to reach consensus.
The procurement agreement is even more pernicious for Doha, since it is a side-agreement, a voluntary pact that only 42 of the WTO’s 153 members have signed up to.
Many WTO members, including the EU and the United States, are already discussing setting up an agreement on trade in services, which could liberalize rules on accounting firms, doctors or insurance companies working across borders.
Many countries are also interested in the idea of cutting tariffs on parts used in renewable energy. Others want to move quickly to capture some of the “easy” wins from Doha, such as reducing cost and red tape around customs.
But unlike the trade in services, which has an exemption under WTO rules, such side-agreements will only be WTO deals if every WTO member signs up. That is unlikely.
Without the WTO agreeing, what hope for side-deals?
The simple answer is every WTO member has already signed separate deals affecting trade, often in a drive for regional integration, or to establish global rules in areas such as the trade in endangered species.
The WTO says it is unfazed by regional agreements and says they will not distort world trade as long as there are enough of them. If everybody has preferences, nobody has preferences, Lamy says.
But the flowering of regional trade deals has moved up a gear as the big powers — the United States, the EU and Russia — race to build blocs to compete with each other and with China.
The United States is pushing the Trans-Pacific Partnership (TPP), whose members include Australia, Vietnam, Malaysia, Singapore and Chile.
Lamy played down the suggestion that breakaway groups would damage the WTO and said they were nothing new. Fear of “plurilateral” agreements was generated by paranoia and mistrust between governments, he said.
But some of Lamy’s staff are worried and privately blame him for leading the WTO into a dead end by allowing Doha to stifle agreement. Lamy, who is due to step down in September 2013, argues that it is not up to him, but WTO members, and they have consistently chosen the Doha road.