Achieving a Grand Bargain in the Doha Round

CGD/IIE Brief

December 1, 2005

The Challenge

Time is running out for the Doha “Development Round” of global trade negotiations. US negotiating authority expires in mid-2007. Ideally, the outlines of a deal would have been in place by the December 2005 meeting of trade ministers in Hong Kong, although it now appears that an additional high-level meeting in early 2006 may be necessary for this purpose. The collapse of the ministerial meeting in Cancun in September 2003 showed that developing countries will not settle for a face-saving minimalist agreement, nor should they. The July 2004 Geneva “framework” agreement set the stage for more meaningful liberalization, particularly in agriculture. But the major negotiating countries have not yet made commitments to the deep liberalization necessary to realize the potential of the framework.

The best approach is a “grand bargain” that would include deep cuts in agricultural tariffs and subsidies in industrial countries; major cuts in their tariffs in manufactures including textiles and apparel; a ceiling of 10 percent on all tariffs on manufactures in industrial countries; major cuts in agricultural tariffs of developing countries; major cuts in their tariffs on manufactures albeit using a formula differentiated from that for industrial countries; liberalization of key service sectors in developing countries; and the granting of free or preferential entry to imports from Least Developed Countries (LDCs) into middle-income country markets and complete free entry for these imports into industrial country markets.

The stakes are high. Global free trade in goods could lift 500 million people out of poverty (at the $2 per day level) over 15 years, and convey economic benefits worth $200 billion annually to developing countries. The gains would be even larger including free trade in services, especially if this involved substantial opening to cross-border movement of temporary labor. Half of the developing countries’ gain in goods would arise from elimination of barriers in industrial country markets. This means that through opening their markets to free merchandise trade, industrial countries could provide about twice as much in annual benefits to developing countries as they currently give in development assistance. Moreover, they could do so while granting the benefit of lower consumer prices to domestic households rather than imposing higher tax burdens on them.

No one expects the Doha Round to deliver global free trade. However, everyone has a right to expect the negotiations to achieve a major step in that direction, for example by cutting overall protection by half or more. The developing countries in particular have every right to expect meaningful gains in this Round. In the Uruguay Round concluded in 1995, they did achieve a back-loaded elimination of textile quotas; but textile tariffs remain fairly high, and that round essentially left protection levels unchanged in agriculture, which is the most important export sector for many developing countries.

Moreover, in the declaration launching the current round in Doha, Qatar in late 2001, the industrial countries joined in the pledge to place developing countries’ “needs and interests at the heart” of the new round. A collapse of the round would be a severe setback to the momentum for global development that has begun to take shape through such initiatives as the UN Millennium Development Goals, the increase in international aid levels, and the cancellation of debt for heavily indebted poor countries.

Outlines of a Bargain

It is important to recognize that a successful “Development Round” does not mean that industrial countries should eliminate their protection while developing countries maintain theirs. There are two core reasons. The first is that regardless of political motivations on behalf of advancing global development, the reality is that industrial country interest groups simply will not endorse unilateral trade liberalization, but instead will expect to see some quid pro quo in terms of increased export opportunities in at least the large middle-income countries. Some substantial element of prospective reciprocity will be needed to mobilize export interests in industrial countries sufficiently that they will be prepared to provide the political support necessary to overcome the inevitable resistance of interest groups currently benefiting from import protection. The second reason is that to a large degree, it would be beneficial for most developing countries to reduce their own protection as well. Many developing countries continue to maintain excessive protection that curbs rather than spurs their economic growth. However, they too face domestic interest group obstacles to import liberalization that will be easier to overcome within the context of a multilateral negotiation holding out the prospect for increased market access abroad.

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William R. Cline Senior Research Staff

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