The Obama administration is helpfully moving forward on bilateral trade deals with Korea, Colombia and Panama, finally abandoning “don’t ask, don’t tell” as its trade policy. But global trade talks at the Geneva-based World Trade Organization are limping into their 10th year. The WTO’s director general recently likened them to a stuck mule, warning of a “grave risk” of failure. At this point, it is only heads of state and government — leaders, not trade officials — who can get the mule unstuck.
Launched after Sept. 11, 2001, in the capital of Qatar, the Doha Round was supposed to galvanize the global community and promote economic growth, particularly in the developing world. Economists estimate that an ambitious trade deal could increase global gross domestic product by more than $300 billion annually. CEOs and development organizations alike routinely call for completion of the deal. Finance and trade ministers all acknowledge that a successful Doha Round would advance efforts aimed at a global rebalancing that is central to the Group of 20’s recovery and reform agenda. Yet prospects for an agreement are more dismal than ever.
The stalemate results from the stubborn refusal of the major economies — developed and developing — to recognize two game-changing facts.
First, the relative economic weight of the big emerging markets has expanded dramatically. In 2001, China, India and Brazil accounted for only 7.4 percent of global gross domestic product. That figure has doubled, to 15.6 percent, and China is the world’s second-largest national economy. On a per capita basis, they are still developing countries and understandably focused on domestic priorities to better the lives of their people. But their aggregate global footprint demands that they play a leadership role and belies their false solidarity with the rest of the developing world.
Significantly, the share of developing country exports destined for other developing countries now exceeds 50 percent. That share will only increase given that growth rates in emerging economies are more than double those in the developed world. For any trade deal to fulfill the promise of delivering growth, the big emerging economies must open their markets to goods and services and wean their industries from state protection.
Second, the slower recovery in the advanced economies has caused many to question the benefits of globalization, making trade more political than ever. Now it is only government leaders, not ministers, who have the wherewithal to strike a global trade deal. In fact, in early G-20 summits French President Nicolas Sarkozy (the current chair of the G-20) and Britain’s prime minister at the time, Gordon Brown, called for direct leader involvement in the negotiations. Those summits, and all subsequent ones, yielded only the ritualized call for a speedy conclusion but, like the negotiations in Geneva, produced no results.
To be sure, leaders cannot negotiate line-by-line tariff reductions or detailed sector-by-sector liberalization of services. But they can do more than cheer from the sidelines. Just as G-20 leaders reached broad agreement at the Washington, London and Pittsburgh summits on the outlines of global financial reform, leaving the details to ministers and international organizations, they must now dig in on trade. They could, for example, agree that in certain industrial sectors such as chemicals, machinery or electronics, all the major players will agree to the same comprehensive baseline tariff cuts. Similarly on services, they could bind themselves to grant the market access their domestic laws already permit and commit to greater openness in key, economic-driver sectors such as telecommunications, logistics and financial services. Trade ministers, following leader-level agreement, could finish the work on a tightly supervised schedule.
Of course, the United States and Europe would have to confront their farm sectors and eliminate trade-
distorting subsidies. Here again, leader involvement is key because of the outsize political influence of agriculture that, in the United States, accounts for less than 2 percent of GDP but about 98 percent of the leverage in negotiations. Competitive farmers and deficit hawks on both sides of the Atlantic should be willing to trade away subsidies for boosting agricultural exports through better market access abroad.
Before the WTO, world trade was governed by the General Agreement on Tariffs and Trade (GATT). Given the length of negotiations, GATT was known pejoratively as the Gentleman’s Agreement to Talk and Talk. But the time for talk is over. Leaders must be prepared to get their hands dirty and pull the stuck mule out of the mud. President Obama, fresh from bilateral trade success, should get to work now with President Sarkozy and other like-minded G-20 leaders so that they may seal a multilateral deal at the summit in France this fall.
The writer, a lawyer in Washington, was assistant to President George W. Bush for international economic affairs and his personal representative to the G-8 and the G-20.