Monday, December 15, 2008

WTO drops plans for end-2008 Doha meeting

With the G20 nations caught up in the ailing economy, who will remember the third world countries, countries that the IFIs had pledged to assist?


Source: Reuters

By Jonathan Lynn

World Trade Organisation (WTO) Director-General Pascal Lamy has dropped plans for a meeting of ministers to seek a breakthrough this month in its Doha round.

It is the second setback in six months for the seven-year-old round, after the collapse of a meeting in July.

Below are some possible consequences of the decision:


* Many WTO members have the possibility of unilaterally raising tariffs and subsidies from current lower levels to what was negotiated in the last trade round, signed in 1994, or when they joined the WTO.

* Some have already started to do that and, as jobs come under pressure, more will follow. So even if an all-out trade war is unlikely, a protectionist rise in tariffs is on the cards. Doing nothing now could see the clock turn back 10 or 15 years.

* Global trade flows are already slowing and on some counts shrinking, along with the world economy. They are likely to contract next year, squeezed further by the tariff moves.

* Some countries will seek more bilateral or regional free-trade deals to replace Doha -- but those often divert trade rather than creating new flows.

* Trade contraction is bad news for all economies. For the United States exports have been one of the few bright spots. China and other Asian countries seeking to modernise through export-led growth risk social and political turmoil if their economies slow.

* One response to slowing exports could be competitive devaluations, especially by developing countries.


* A meeting of ministers on Doha has now been put back well into 2009. An idea of next steps should come from the WTO's General Council on Dec. 18-19.

* One option would be for countries to impose a moratorium on tariff and subsidy increases for the duration of the recession as they continue to work on the Doha round.

* But reaching a deal next year will be much harder than now -- the momentum and goodwill that built up around the July meeting will be dissipated, and the state of the world economy will be much less favourable.

* In contrast to July, when there was no blame game, recriminations are likely this time. Since the main stumbling blocks touched on key U.S. interests, the United States can expect to be in the firing line when the finger-pointing begins. That will sour the atmosphere for future talks.

* The new U.S. administration of President-elect Barack Obama taking office on Jan. 20 may take time to get to Doha as it deals with other priorities. And then it may want to revisit what has already been tentatively negotiated.

* A new EU Commission in 2009 and national elections in India in the first half of next year will affect decision-making in two of the biggest trade players.

* More voices will be raised saying the world has changed since the Doha round was launched in the Qatari capital in 2001. They will argue the round should be dropped and new negotiations should start reflecting new priorities such as the economic crisis, food security and the climate change.


* Expect a big increase in trade disputes at the WTO as members turn to litigation from the negotiating table.

* Many of these will turn on "dumping" -- where imports are sold for less than they cost at home. China could be a particular target for the United States and EU members.

* The WTO is also going to have to spend more time ruling on the legality of subsidies, as countries bail out industrial sectors hurt by the crisis

* But the credibility of the body that umpires world trade will suffer. The vast majority of its 153 members wanted a deal, and leaders of the G20 rich and emerging nations had called for an outline agreement by the end of this year


* As a result the G20 has failed the first big test of its ambition to create a new global governance system replacing the G7 rich countries. The WTO decision comes less than a month after the G20 called for a trade deal this year.

* If the United States takes much of the blame for the failure, it will increase pressure on Obama to prove his multilateral credentials.

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