Canada: The WTO Doha Negotiations – Will the Impasse be Broken?

Despite signs of modest progress in recent weeks, the WTO Doha negotiations are facing serious difficulties. Political leaders around the globe, including Canada, have expressed a commitment to an ambitious deal. However, after more than five years of negotiations, major differences remain and there is no sign of a breakthrough. The next few months may decide the success or failure of the Doha Round.

Why has it been so difficult to get a deal? What is at stake if the negotiations succeed or fail? What can we expect in the coming weeks and months?

The difficulties in the Doha Round can be traced to its launching in November 2001 - the ninth such round of trade liberalizing negotiations since the international trading system was founded in 1947. A central goal of the "Doha Development Agenda" is to address the needs of developing countries by promoting economic development and alleviating poverty. The commencement of the Doha Round was also intended to restore confidence in an international economy badly shaken in the immediate aftermath of 9/11.

In a recent interview, former U.S. Trade Representative, Charlene Barshefsky, was forthright in her assessment of the Doha Round, suggesting it was launched under "essentially false pretences". She contends that, but for the desire to show solidarity with the U.S. and the global economy in the aftermath of 9/11, the Round "almost certainly would not have been launched". Moreover, despite the laudable intention of leaders of wealthy nations to make this a Development Round, "their ability to execute has always, in important respects, been absent – something clear from the outset, rhetoric aside"¹.

Like the 1986-1994 Uruguay Round that preceded it, the Doha Round is ambitious in scope, extending well beyond the agricultural trade issues for which it is best known. The core elements of the negotiations include:

• A series of implementation and special and differential treatment issues of concern to developing countries. These issues cover a variety of problems stemming from the Uruguay Round, and the need to strengthen and clarify rights specificallyaccorded to developing countries.

• Reforming the three pillars of agricultural trade regulation – market access, export subsidies and domestic support.
• Opening markets for service industries, including banking, insurance, telecommunications and transportation, particularly in developing countries.
• Lowering tariffs and other measures affecting manufactured goods, again particularly in developing countries.

Other sensitive areas covered in the Doha mandate, to mention just a few, are: intellectual property rights; anti-dumping and subsidy rules, the WTO dispute settlement system and trade-environment issues.

Most of the Doha issues are part of what is known as a "single undertaking", meaning that, in principle, nothing is agreed until everything is agreed. Agricultural trade is the lynchpin of the negotiations, although the importance of other issues, such as new disciplines in the fast growing area of trade in services, cannot be underestimated. Services are estimated to currently account for 60 percent of global production and employment, but only 20 percent of total trade².

The volume of trade in goods and services affected by the negotiations is truly staggering, prompting WTO Director General Pascal Lamy to describe the Doha Round as "the most ambitious attempt that governments have made to open trade multilaterally …and lock-in reform on an unprecedented scale"³.

As an exporting nation, Canada has a greater stake than most countries in the outcome of the Doha negotiations. Over and above the impacts of the Round on agricultural trade, the areas that are of special strategic significance for Canada include:

• Financial services: The Canadian government will be looking for higher ceilings on equity participation and a loosening of limitations on banking and insurance licenses, especially in advanced developed economies and China;
• Other services: Canada is pressing for enhanced market access and non-discrimination guarantees in various other service sectors not currently protected by WTO disciplines in most countries, such as construction and engineering, research and development, transportation and environmental services;
• Autos: High tariffs in fast-growing Asian markets continue to be an irritant to the Canadian auto industry (prompting Canada, along with the U.S. and EU to recently launch a WTO challenge against China);
• Telecommunications: Legislative requirements that carriers providing telecommunications services in Canada be Canadian-owned have been a long-standing trade issue, although the federal government has recently signaled that it may be open to additional foreign investment. Conversely, Canadian companies stand to benefit if telecom investment restrictions in advanced developing countries are eased.

Despite the ambitious Doha agenda, from the outset the Round has been plagued with problems. Following a failed ministerial meeting in Cancun Mexico in 2003, trade ministers of member countries met again in Hong Kong in late 2005 to attempt to inject new energy into the flagging negotiations. Some relatively modest commitments were agreed to in Hong Kong, notably, a commitment to eliminate export subsidies by 2013, but all of the more challenging issues were deferred.

Along the way, a number of issues that were part of the initial Doha Declaration have been dropped and some others have been spun out to WTO committees. Notable among the early Doha casualties were the following "Singapore issues" (so named because the issues were placed on the trade agenda at a ministerial meeting in Singapore in 1996):

• Expanded disciplines on the regulation of foreign investment;
• Principles affecting competition laws, including export cartels; and
• Promoting greater transparency in government procurement.

In July 2006, after the main participants failed to bridge differences on key issues, Lamy suspended the negotiations rather than allow them to descend into further acrimony. He referred to a "triangle of issues" as key to breaking the deadlock: a commitment by the U.S. to make further cuts in domestic support to farmers, increased market access by the E.U. to its agricultural markets and lower tariffs on manufactured goods by advanced developing countries such as Brazil and India⁴.

In February of this year, talks formally resumed following informal meetings linked to the World Economic Forum in Davos, Switzerland. However, despite a variety of meetings of senior and mid-level officials, progress has been modest.

Adding to the urgency of the negotiations is the imminent expiry of the U.S. Trade Promotion Authority (TPA) in July. Formerly known as fast-track authority, it allows Congress to approve or reject an international trade agreement, but not to amend it or filibuster the ratification and implementation process. There are a number of obstacles to the renewal of TPA, without which a Doha deal will likely be delayed by a number of months if not years. In addition to the weakened political position of President Bush in the face of a Democrat-controlled Congress, issues such as the record American trade deficit and concerns over the protection of labour rights have complicated the debate. The TPA renewal is also closely tied to the new Farm Bill which is currently before Congress. A breakthrough in Doha would provide the greatest incentive for renewal of TPA in Washington.

To a significant degree, the challenges involved in securing a deal are political, as the situation in the United States illustrates. Of all the major players in the negotiations, the U.S. has come under the most criticism as being unwilling to move significantly off its opening negotiating position. However, the EU faces its own divisions over the prospect of having to open up their agricultural markets to greater imports, as recent statements by outgoing French President Chirac illustrate⁵.

The negotiating context has changed significantly compared to previous rounds. Historically, the EU and U.S. dominated international trade negotiations, framing the main issues and the terms on which those issues would be addressed. The 1992 Blair House Accord between the EU and U.S., which formed the basis of the Uruguay Round agreements, is a case in point.

This strategy – and the brinksmanship that goes with it - is more difficult to pursue in a Round that is stated to be aimed at addressing development issues. The result has been a much more complex negotiating agenda and a more visible role for leading developing countries, notably, Brazil, India, China and South Africa.

Furthermore, developing countries themselves have highly diverse and often contradictory interests. Some, such as Brazil in agriculture and China in manufactured goods have a compelling interest in gaining greater access to markets in both developed and developing countries. Others, such as CARICOM countries, express primarily defensive interests aimed at protecting their markets from imports. India is an example of a country that exhibits both characteristics, as a growing powerhouse in manufacturing that is also compelled to protect its 650 million mostly small-scale farmers from import competition.

Intersecting these issues is the unease of growing segments of civil society with globalization. This trend has increasingly put the WTO and its proponents on the defensive, particularly in respect of trade-development and trade-environment issues.

For many years, through the predecessor to the WTO, the General Agreement on Tariffs and Trade (GATT), considerable trade liberalization was accomplished with minimal public attention. The GATT process for dealing with trade disputes placed a premium on consultation and conciliation over adjudication. Since the creation of the WTO in 1995, stronger disciplines in a number of areas have been accompanied by a much more robust, and legalistic, dispute settlement system. This had led to accusations directed at WTO dispute settlement bodies of judicial activism, gap-filling or expansive interpretations of the often ambiguous language crafted by trade diplomats and negotiators. The more legalistic nature of the system also makes it more difficult for negotiators to bridge differences through what some refer to as "constructive ambiguity".

Exacerbating these challenges is the limited institutional capacity of the WTO to respond to cases in which dispute settlement decisions are seen as having gone too far, or to adapt to changing global trends. As economist Sylvie Ostry noted, the WTO suffers from "a serious asymmetry between its extremely weak legislative and executive powers, and its extremely strong judicialized dispute system"⁶.

In addition, as a result of demands for greater transparency, the WTO has been subject to far more public scrutiny than in the GATT era. In the process, trade diplomacy is frequently yielding to political grand-standing. Some fear the WTO is drifting toward becoming a UN-style organization that is long on speeches and short on concrete action.

Ironically, globalization is another trend that adds to the challenges facing the WTO. The fast pace of economic changes driven by technology, capital flows and rising economies such as China is outpacing the capability of the WTO to respond. As the experience in the Doha negotiations shows, the WTO is beginning to lose control of the international trade agenda.

Notwithstanding these challenges, the Doha Round is far from being doomed to collapse. The Uruguay Round experienced its share of deadlocks and missed deadlines. In that sense the current Round is not unique. Despite the remaining areas of difference, considerable progress has been made on modalities for further negotiations. Most media reports fail to capture the degree of convergence on a large number of points. With some movement by key players on the "triangle of issues", a deal is still well within reach.

The scope of any deal is another issue. As each month passes it becomes increasingly less likely that will be a comprehensive deal of the type that was contemplated by the 2001 Declaration. If a deal of any kind can be reached, trade ministers are likely to defer a number of other issues for future discussions. The complex area of trade in services is particularly vulnerable to being watered down to a deal specific to limited sectors (notably, telecommunications and financial services). This has prompted lobbying by service sector groups such as the U.S. Coalition of Service Industries and the European Services Forum to insist on maintaining a high level of ambition in the service negotiations⁷.

The negotiations can be expected to heat up in May and June as the U.S. TPA deadline draws near. The EU has its own reasons to press for a breakthrough while the rotating presidency is still held by German Chancellor Andrea Merkel (the term of her EU presidency finishes at the end of June). Developing countries such as India will be leaned on to show movement on services and tariffs on industrialized goods in return for reduced farm subsidies and improved agricultural market access by developed countries.

Even if there is a breakthrough, it will take a considerable amount of time to flesh out the details and formalize the agreements. Pascal Lamy was being optimistic in recently suggesting that if a breakthrough was achieved in the first half of 2007, a new global trade deal could be concluded in early 2008.

If the Doha negotiations fail, the WTO will remain an important international institution, but there will be an unprecedented crisis of confidence in the WTO and the multilateral trading system it oversees. More member countries will resort to trade litigation and the losers in trade battles will be more likely to resist compliance with dispute settlement rulings.

The failure to reach a deal on the Doha agenda will also accelerate the already burgeoning growth of regional trade agreements. To put this trend in perspective, in 1995 some 130 such agreements were notified to the WTO. As of the end of 2005, some 300 regional trade agreements were in operation or under negotiation.

In this regard Canada is playing catch-up, recently announcing its intention to negotiate a Foreign Investment Promotion and Protection Agreement (FIPA) with India, and talking openly about a Plan B – negotiating a free trade agreement - depending on the outcome of the Doha Round. A proposed trading bloc of 21 Asia-Pacific economies is likewise being presented as a fall back solution if the WTO negotiations fail.

The proliferation of regional deals is having a serious impact on the structure and integrity of the WTO and on the international trading system. More regional agreements means more rules, greater detail and a larger number of moving parts. Integrating these deals into the overarching structure of the WTO is proving increasingly difficult and augmenting the potential for conflict. The proliferation of such arrangements creates a complex web of preferential trade rules that weaken the principle of non-discrimination which is at the heart of the rules overseen by the WTO.

In short, the next few months may play a key role in shaping future multilateral trade policies.

Footnotes

www.fasken.com

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.