While an agreement on the round would offer substantial economic benefits by reducing farm subsidies and opening up new markets, political obstacles inhibit its conclusion.
What it would take
Many observers assign blame to the complexity of 153 members reaching consensus on an agenda with dozens of issues, but the heart of the matter is far simpler. If the US and China step up to the plate with new offers, the momentum for a speedy agreement will be unstoppable.
Currently, political considerations prevent this from happening. President Obama has pushed trade policy to the backburner while he concentrates on healthcare, financial reform, and climate change. Obama needs nearly unanimous support from Congressional Democrats to enact his domestic agenda. Trade agreements are risky business because many Democrats depend on unions who believe that free trade means lost jobs. To counter their arguments, the Administration needs to sell trade agreements as a credible strategy to boost US employment by doubling exports. The Administration also needs strong support from Republicans who are allied with business. Thus far, US firms are lukewarm about the Doha Round, because it seems to offer little new from the large emerging economy markets, especially China.
This is no surprise. China is reluctant to make new concessions having made formidable concessions in the talks that led to accession to the WTO in 2001. Citing these ‘contributions’, it has adopted the I-already-gave-at-the-office stance when asked to contribute more. But US firms long ago pocketed the concessions China made when it acceded, and see no reason to make new concessions and get nothing in return.
In 2001, the Chinese position was eminently reasonable. China had agreed to liberalise its economy to a much greater degree than existing members at its level of economic development. China faced immense challenges to meet its accession obligations. It would have been unreasonable to make additional concessions if the Round had been concluded in January 2005, as originally agreed.
But it is now 2010. China has adapted to the world trading system to a degree that has surpassed all expectations. Its merchandise exports have exploded from US$267 billion in 2001 to an estimated US$1,553 billion in 2010, making China the world’s largest exporter of goods. The rule-based WTO regime is ideally suited to China’s needs today and in the decades ahead. China has a huge responsibility to sustain and nourish the world trading system rather than simply reaping its benefits.
Additional Chinese contributions
In short, given the passage of time, China now needs to put additional offers on the table. Among these offers, China should agree to join the WTO’s Government Procurement Agreement which binds its participants to minimal transparency and fairness in allocating contracts for government purchases. This should apply to the provincial government purchase as well as those of the central government. This would ensure that foreign products enjoy non-discriminatory treatment and it would quiet foreign concerns about China’s controversial ‘indigenous innovation’ programme.
China should also volunteer to join sectoral liberalisation agreements in chemicals, electronics, and environmental goods and services. Finally, China should be at the front of talks to liberalise services, not dragging the rear. These would be widely recognised as new and meaningful concessions.
If China acts as a leader in the trading system it should be recognised as one. In its WTO accession agreement, China reluctantly agreed to be treated as a non-market economy in antidumping duty cases until 2015. Again, as a non-market economy, China agreed that its exports could be subject to special safeguards with a lower trade impact threshold (‘market disruption’) than normal safeguards applied to other WTO members (‘serious injury’). This provision was invoked by President Obama in the tires case last year. Finally, China agreed to annual compliance reviews of its implementation of the accession agreement, something China views as humiliating.
US contributions
In return for Chinese concessions, we propose that the US and other developed countries should grant China recognition as a market economy, with normal remedies in antidumping and safeguard cases, and also put an end to the annual compliance reviews.
If the US and China are on board, other major players will feel enormous pressure to contribute. India, with its great interest in maintaining open markets in information services should join the services talks and sign on to the Government Procurement Agreement. Brazil and other successful developing countries should do likewise and contribute concessions on industrial products.
Our proposals could make the Doha Round a political winner. Major concessions by China and a few other emerging countries would be seen in the US as evidence of greater market access in countries that count. China would not only advance its status as a full participant in the world trading system but also as the leader that delivered the benefits of the Doha Development Agenda to all developing countries.
Gary Hufbauer is Reginald Jones Senior Fellow at the Peterson Institute for International Economics. Robert Z. Lawrence is Senior Fellow, Peter G. Peterson Institute for International Economics, and Professor of International Trade and Investment, John F Kennedy School of Government, Harvard University.
This article was first published here at VoxEU.