Free Trade in Latin America and Worldwide?

The Doha Round: An Examination of Where the Development Round is Headed, Regarding Free Trade in Latin America and Worldwide

by COHA Research Associate Michaela D'Ambrosio

The World Trade Organization is currently facing an unprecedented challenge in its attempt to galvanize the stagnant Doha Development Round, which has been dragging on since 2001. In light of globalization trends and an increasing inequality gap with the rich getting richer, as many of the poor get poorer, the Doha round contends with some of the most problematic trade talks the global community has ever faced. The round was dubbed a “development round” upon its launch in November 2001 in Doha, Qatar because its main goal, aside from reducing major trade barriers, was to support and encourage developing countries along the path towards becoming upgraded players in the international economy.

In fact, however, Doha’s success has always depended on the willingness of developed and developing countries to compromise, a daunting task given that differing objectives have hindered progress for the past eight years. Developing countries, especially in Latin America, stand to gain a good deal from liberalized trade; at the same time, they undertake great risk in opening up their markets if liberalizing policies are not implemented with care. Agricultural production is a source of both strength and weakness for Latin American markets, presenting one of the largest obstacles to a successful completion of Doha. The demands of developed countries are primarily to open up the markets of developing nations and allow for access to intellectual property rights, while the major fear of developing countries is that they will be forced to comply with free trade standards at the expense of their markets being drowned by a flood of cheap imports. While the future of specific agreements laid out by the Doha round remain uncertain, the talks must be wrapped up soon to reassert the power of multilateral trade in today’s globalized world, in an effort to avoid the slow progression of future trade talks that could subsequently fail to produce a resolution.

Doha’s Ancestors

Previous agreements, which simultaneously have bolstered international trade while neglecting the overall needs of developing nations, must be examined in order to shed some light on Doha’s list of current dilemmas. The predecessor to the WTO, the General Agreements on Tariffs and Trade (GATT), was initiated in 1947 with the intention of bringing order to the disconformities encountered in world trade. There were eight rounds of trade negotiations under GATT, all of which were moderately successful in reducing tariffs and other barriers to trade. The last was the Uruguay Round, which transformed GATT into the WTO and lasted from 1986-1994. This round boasted a number of agreements on non-tariff barriers to trade as its most significant accomplishment. It developed a framework to restrict subsidies, but the complete disposal of such subventions has remained one of the most sought after goals of Doha. The agreements put in place by the Uruguay Round were criticized for ignoring the special needs of developing countries, as well as for endangering policymaking procedures and compliance with human rights observances. Suspiciously, well known people participating in the talks were sensitive to the needs of big businesses, with the round principally catering to the desires of developed nations and large corporations. Doha faces similar challenges in focusing the required attention on the needs of developing countries in order to succeed as an actual “development round.”

Jumpstarting the Doha Round: The Major Complications

This September, Doha negotiators decided to resume the trade discussions in a last ditch attempt at bringing about a resolution. The first gathering of trade ministers, since the failed 2008 summit, took place from September 3-4 in New Delhi, and established little more than a 2010 deadline for the cessation of these talks, ultimately pledging to reconvene in November and December in the hope of generating more concrete progress. The Doha round has continued on the same path as previous negotiations by attempting to lower barriers to trade around the world, mainly in the form of reduced tariffs and subsidies, which systemically prevent the free flow of commodities across borders.
The question remains as to whether trade barriers can be reduced sufficiently enough to bring significant gains in worldwide Gross Domestic Product (GDP), while at the same time, produce positive outcomes for developing countries, whose poor populations are consistently hurt by such trade arrangements.

The Doha deal was at first a simple one: the United States and Europe would open their markets to agricultural trade, and in return receive better access to manufacturers and service providers in markets such as China and India. This “simple” piece of accountancy drastically underplays Western reluctance to dispose of subsidies from their trade arsenal, which have traditionally been used to keep prices down by providing financial assistance to national producers. It also fails to take into account the anxiety of developing countries, which by opening up their markets, risk the unloading of hundreds of millions of dollars in subsidized surplus commodities into their markets, essentially destroying prospects for local farmers and the rural poor.

The backbone of the Doha deal involves breaching developing countries’ markets for mainly farm produce, while at the same time cutting agricultural subsidies in rich countries and having the wealthier of developing nations, such as India and Brazil, lower the industrial tariffs they presently charge. This would ultimately work to lift underdeveloped countries out of poverty by increasing global trade and local access to the world market. The current deal on the table would see average tariffs faced by industrial countries on their farm produce exports decline from 14.9% to 12.1% and on manufactured products from 3% to 2.4%. Tariffs faced by developing countries would fall from 14.2% to 11.5% on agricultural goods and from 2.9% to 2.1% on manufactured goods, compromising significant reductions.

According to the Heritage Foundation, two major obstacles stand in the way of achieving these goals. The first is the “continued disagreement over the special safeguard mechanism used to protect domestic farmers in developing countries from agricultural import surges.” This is exemplified in countries such as Mexico, where the loosening of trade restrictions has often swept away small domestic farmers, inundating local markets with cheap food imports. The second major issue deals with the “voluntary sector specific agreements to make deep cuts in manufacturing tariffs.” This points to the sectoral agreements that developed nations are seeking to reach with developing countries in an effort to reduce tariffs on manufactured goods. These proffered deals affecting specific industries would most likely result in major tariff reductions, but by taking part in sector-specific negotiations, the danger exists that developing countries will commit to agreements before becoming aware of all the underlying factors. Thus, developing countries are well advised to fear commitment to such industry-specific arrangements before precisely understanding what they will gain.

The Agriculture Issue

These impediments point to the broadest and among the most important component of liberalizing trade: the reduction of agricultural trade barriers. Agriculture is arguably the most important issue for the continent; Latin America is not only a huge regional producer but also the fastest growing trade partner of the U.S. Over the past 15 years, the U.S. has signed reciprocal Free Trade Agreements (FTAs) with 11 countries in Latin America and has implemented nine of them. These include FTAs with the Dominican Republic, Chile, and Peru, along with the Central American Free Trade Agreement (CAFTA) and the North American Free Trade Agreement (NAFTA). The U.S. is currently awaiting congressional approval for hard sought agreements with Colombia as well as Panama.

The conclusion of the Doha round is the next step towards integrating the Latin American hemispheric market with the rest of the world, and most importantly with the U.S. and European Union. In crafting agreements to eliminate tariffs and subsidies in developing countries, negotiators must tread lightly and be alert to the specific interests of these nations. The U.S. is pressing for large concessions to be made from developing countries, because, according to Islam Siddiqui, nominee for the position of Chief U.S. Agricultural Negotiator, the significant cuts that the U.S. will have to make in domestic support and export subsidies must be matched by providing “commercially meaningful market access for U.S. agricultural products into the markets of developed and emerging economies.”

However, FTAs in the past have sometimes severely damaged the livelihoods of the rural poor in Central and South America, making them vulnerable to the coming onslaught of cheap imports. If implemented with care, new trade agreements have the potential to allow for increased production and trade revenue in rich countries while also boosting the economies of less developed producer nations. If, on the other hand, new trade agreements are reached without adequate concessions for rural farmers, they could prove devastating to local economic output and prompt illegal labor migration in a desperate search for new sources of income.

In Latin America, agricultural liberalization has both its critics and supporters. The region has gone a long way to reform and liberalize its agricultural trade policies, perhaps more than any other area in the world. However, various policy reformers are calling for Latin American countries to espouse more selective and cautious management of international trade, especially when pertaining to agriculture measures. This stems from the fear that the terms of trade might not be advantageous to the region. Agricultural trade liberalization has provided some Central and South American countries with opportunities to drastically increase exports, but has largely failed to bring substantial economic growth in its wake, especially to the rural areas that need it most. As the Doha round relies on agricultural policy reforms, now is a crucial time to consider how liberalization may either relieve, or contribute to, the food crisis Latin America is currently suffering.

According to Vicki Gass of the Washington Office on Latin America (WOLA), “Unregulated trade liberalization in Latin America’s rural sector is clearly a contributing factor to the current food crisis hitting Latin America…The new administration and Congress will have the opportunity to reconsider U.S. support for trade liberalization policies and move toward financially supporting small producers who supply local and regional markets.” However, this view is contested by the belief that trade liberalization is, in fact, the most important way to combat the hunger crisis, by providing access to the markets and the opportunity for increased profit. The International Food and Agriculture Trade Policy Council (IPC), a multinational agency created to aid GATT in its mission to promote liberalized trade policies for food and agriculture, strongly backs the liberalizing drive behind Doha, trusting that increased market access will mitigate the hunger crisis and support the economic growth of developing countries. Carlo Trojan, Chairman of the IPC, stated, “an open trading system, including improved disciplines on export restrictions, provides more affordable, reliable access to agricultural inputs and food at more stable prices.”

Before Doha can be adjourned, both sides must make concessions in the agriculture sector. The Geneva WTO session on September 30 addressed the response of the attendees to issues regarding food security, climate change, and the re-launching of the global economy. Ajay Vashee, president of the IFAP and moderator of the session, stated that, “in essence, an Agreement on Agriculture should not block development and it is very clear that if we do not address food security and climate change from a trade perspective, comprehensive progress on these fronts is impossible.” To progress on agricultural issues and ensure that all countries involved are comfortable with the outcome, Doha must guarantee that Latin American governments can protect vulnerable segments of their populations and resources, as well as regulate their own imports and exports. As well, these countries must have the ability to support the development of their national industries and assure protection for farmers’ rights. A package of agricultural trade liberalization measures responding to these concerns could spur development, bringing increased political stability to Latin America-U.S. relations, reducing the impetus for economically-motivated migration and offering alternatives to rural farmers. This is what Doha must strive to achieve as a “development round.”

Bilateralism vs. Multilateralism

The complexities involved in all countries joining together in an agreement on the nature of loosening agricultural restrictions, and the existence of a number of FTAs between the U.S. and Latin America, raise the suspicion that perhaps multilateralism is not the most productive direction for global trade. While the FTA model often has been criticized for allowing the U.S. to control too many aspects of the trade dynamic, “by excluding agricultural subsidies and antidumping policies, and limiting access to key import sensitive products such as sugar and apparel,” both supporters and critics will be able to better question whether bilateralism remains the most productive path to pursue. Supporters of bilateralism argue that, at the very least, bilateral agreements are attainable. As proven by the lack of progress these past eight years, multilateral agreements might not be feasible at this time. On the other hand, critics of bilateralism charge that it is far too complicated and cumbersome to tally the agreements and restrictions decided upon by individual states. Economists assert that bilateral agreements are often a façade used primarily to boost the popularity of local politicians by offering favorable treatment to a few chosen companies at the expense of others.

The Underlying Obstacles

The regression to bilateralism may be one obstacle, among many others, hindering progress on Doha. The breakdown of the round in July 2008 was blamed primarily on the failure of the U.S. and India to make concessions. However, the world community points to the U.S.’s apathetic approach as the key impediment to seeing much needed results. In November, Pascal Lamy, head of the WTO, stated that “we are nearly there, but there remain a few nuts to crack, mostly the U.S.” He stated that the deal is about 80% complete, and the remaining part is achievable with the cooperation of the U.S. However, the current issues facing the Obama administration, including health care reform, the war in Afghanistan, and the economic recession, have taken precedence over the stalled trade talks. According to a senior negotiator at the WTO forum, “right now the U.S. has no trade policy. The consensus among negotiators is that the main obstacle to progress is the lack of engagement by the U.S. which is unwilling to work with the text of the agreements that have been in the mix since 2001, when the Doha round was launched.” Obama’s hesitant approach to free trade policy is exemplified by the “Buy American” clause in the economic stimulus plan, as well as his decision to impose a tariff on tires from China. The world community needs the U.S. to actively participate in the talks, a commitment that most doubt the U.S. is prepared to make. In response to these fears, Washington has reiterated its desire to conduct one-on-one talks with emerging powers such as Brazil, India, and China, to encourage them to further open their markets to U.S. goods and services, and thus proving to Congress the benefits of the Doha round for U.S. trade. According to a senior U.S. trade official, “the biggest mistake we could make is to come back with a Doha agreement that would be rejected politically by the U.S. Congress.”

U.S. officials collectively maintain that current texts in the agreement do not create enough export opportunities in exchange for the difficult subsidy and tariff cuts they would be forced to make. Clearly, the U.S. will not agree to a deal unless other countries generate increased access to their markets . Michael Punke, Obama’s U.S. ambassador to the WTO, argues that “no deal is better than a bad deal.” On the other hand, developing nations stress that the pressure to open their markets to U.S. products and services, as well as give up intellectual property rights, is too much of a sacrifice when they are supposed to be the main beneficiaries of the talks.

The global economic downturn represents another large setback to a successful completion of trade talks. At a time when nations worldwide are suffering a noticeable shrinkage in their GDP, rocketing rates of unemployment and sharp debt accumulation, economic planners in the developed world are hesitant to open markets and introduce further risk. Meanwhile, the global recession has triggered a heightened sense of protectionism, and while leaders are adamant about the desire to reach an agreement, they rightfully acknowledge the difficulties involved in selling a deal to political leaders whose main concern is protecting domestic farmers and business.

According to Brazil’s foreign minister Celso Amorim, “at this point of the game, we all have empty pockets…Many of us—and frankly I see no exception—have difficulties to live up to the efforts and reforms that the new commitments will require.” As a result of the financial crisis, world trade has been hard hit and thus has had to retract by a greater degree than was the case during the Great Depression. Doha seeks to alleviate fears that further negative consequences will result with greater trade liberalization. Re-opening markets remains an especially difficult task given rising protectionist sentiment across the globe.

Rejection of the Corporate-Led Globalization Process

Underlying the consecutive failures of the Doha round is the growing rejection of the corporate-led globalization model and the role of the WTO as a reliable international governing body. Many accuse the talks of furthering the WTO’s corporate agenda, maintaining that the actual Doha texts are aimed at broadening the organization’s existing regime and its hold over the developing world. Protestors of the trade talks have made it abundantly clear that they find it necessary to identify the fundamental underlying causes of poverty, hunger and disease that exist alongside soaring corporate profits, in order to begin addressing extreme income disparities. In this light, the creation of new trade deals would only serve to deepen existing problems without tackling the root issues of massive inequality and suffering now afflicting poor regions.

Protestors argue that Doha hardly resembles a discussion centered on “development,” and that by further liberalizing trade, developed countries will have done almost nothing to help poor countries recover from the catastrophic food and economic crises. The Commonwealth of Nations Secretary-General Kamalesh Sharma believes that the talks have been unsuccessful due to a lack of clarification on exactly what concessions and benefits should be made to poor and vulnerable nations. He notes that the round could only be successful if based on the criteria of, “legitimacy, representativeness, balance, fair-mindedness, transparency, effectiveness and equal returns.” Based on these criteria, the round has been, and continues to be, a failure. In order to renew the talks, Sharma has noted that the developmental dimension must clarify exactly what developing states stand to gain.

A Conclusion Must be Reached

Eight years of consecutive failures in completing the Doha talks have led to great uncertainty regarding what will happen if the round never concludes. Some adamantly insist that an agreement must be reached to protect the future of free trade in the global economy. Others argue that the Doha talks, if completed, would still fail to boost the world economy, and that it should be abandoned in favor of new and more modern negotiations. In conjunction with this mindset, it is important to recognize that the projected gains from the Doha round are often overstated.

According to Sandra Polaski in “Winners and Losers: Impact of the Doha Round on Developing Countries,” any of the plausible conclusions to the round would only produce modest gains, about a one time increase in world income of between $40 and $60 billion. This represents an increase of less than 0.2% in current world GDP. Additionally, according to World Bank estimates, the complete elimination of all merchandise trade barriers would boost the income of developing countries by no more than 1%, and even less for developed countries. Moreover, Doha would only reduce these barriers, not eliminate them completely. Given the promise of only modest gains, the hesitancy of developing countries to become fully engaged is reasonable, especially when the adjustment costs of new trade deals will likely exceed any anticipated returns.

However, it is essential that Doha be concluded, if only so that the world can move forward in providing global free trade initiatives, if they deserve to be achieved. If the round is not wrapped up, it will set a dismal precedent for future trade agreements. A satisfactory conclusion will predictably require downsizing by getting rid of items on the agenda that are not crucial to success. It will necessitate bona fide concessions by developed countries to developing nations that ensure the latter’s ability to moderate the regulation of their markets and to establish poverty abatement programs. These conditions are especially important in Latin America, where agricultural liberalization policies will likely have the largest impact. Most importantly, a conclusion will demonstrate the international community’s ability to work together in battling the worldwide economic clump by producing profits that can be shared by all. While few would not argue that the hand is presently stacked against the poorer countries, the Doha round demands the willingness and dedication of the international community to come to a fair-minded agreement, with such a pact spelling out the direction of mutually satisfactory global trade for years to come.

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This analysis was prepared by COHA Research Associate Michaela D'Ambrosio
Posted 18 Nov 2009
Word Count: 3600

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