Articles / Rubric: Global

Too Soon to Bury the WTO
September 2013 | Global

’The WTO is going through hard times: Under the conditions of economic crisis, many countries are turning to protectionism, and a Doha Round agreement on new principles for liberalization of global trade has not gotten off the ground. Furthermore, economic integration is developing more and more on the basis of bilateral agreements rather than multilaterally within the framework of the WTO. Add to this the recession of the eurozone, the slowdown in world trade, and the lower economic growth of the “Asian tigers,” and the global picture does not look at all rosy. Pessimists are talking about the failure of the WTO, whose future depends on harmonizing the provisions of the Doha Round.

The Doha Deadlock

Since World War II there have been nine rounds of multilateral trade negotiations, but the ninth, the Doha Round, which began in November 2001, is distinguished by the fact that for the first time in the history of the WTO and the GATT before it, it focuses not on the developed, but on the developing countries. The priority of the Doha Round is to provide access for representatives of developing countries to the markets of the rich countries. In addition to trade in industrial goods, agricultural products, and services, the Doha Round deals with many things that are more indirectly related to trade, such as rules governing foreign investment, intellectual property, and antitrust legislation. Also the Doha Round involves restrictions on state subsidies to farmers and fishermen, lowering taxes, and regulatory barriers in the banking and consulting sectors that have an influence on cross-border trade. Experts agree that a successful conclusion of the negotiations and agreement on all provisions of the Doha agenda will have a most favorable impact on world trade. Thus, according to the Peterson Institute for International Economics, the potential benefits of the Doha Round would amount to about $280 billion a year.

However, after almost 12 years of negotiations, it has not been possible to agree on all the provisions under consideration. One stumbling block was issues related to agriculture, notably the agricultural subsidies of developed OECD countries; without agreement on these, the negotiations cannot be concluded. This is due to the principle of a “single package” on which the decision-making mechanism of the WTO is based. It comes down to the rule that “nothing is agreed until everything is agreed.” Thus, if disagreements arise among the parties on one of the points of the Doha agenda, even the points previously agreed upon cannot be adopted. The majority of members of the organization are developing countries, where living standards, despite rapid economic growth, are much lower than in the OECD countries, and this, in turn, determines the differences in approach of these countries on some issues of the Doha agenda. Whereas the average GDP per capita of the OECD countries, according to the World Bank, is $41,225 (but it should be noted that there is a wide range in the OECD countries, from $12,713 in Poland to $107,396 in Luxembourg), it is much lower in developing countries: $12,789 in Brazil, $7,635 in South Africa, $6,075 in China, and $1,592 in India. Given that the WTO now includes 159 countries, it is becoming apparent that it is virtually impossible to unanimously adopt all the provisions of the Doha agenda.

It is quite logical that with a slowdown in the talks and a slowdown in global trade, countries are making independent efforts to get out of the impasse, which most often boil down to a policy of protectionism or increasing bilateral trade relations and participating in regional trade organizations. Regional alternatives to the WTO have significantly increased during the last decade, which is clearly demonstrated by the table below. Protectionist measures, in the opinion of some experts, do not contradict the essence of the WTO. According to Dr. of Economics Tatyana Isachenko, a Russian expert on the WTO, “In the WTO, we have a slightly different interpretation of the freedom of trade. Free trade today is not what Smith and Ricardo meant by it in the 18th century, meaning non-interference by the state in the economy. Today, free trade is the maximum harmonization of rules for the application of protectionist measures. It is clear that in a fiercely competitive environment without protectionism, it is impossible to do without government intervention. If this is inevitable, then the role of the WTO is to establish rules and ensure predictability and transparency as much as possible. And the WTO has coped with this problem.”

Reanimating the Doha Round

For the successful implementation of the Doha agenda, it is absolutely necessary to abandon the principle of decision-making “as a package.” If negotiations were conducted on specific issues independently, success could be achieved much faster. Ms. Isachenko believes that for the WTO to be successful, it “should clearly identify the main issues, separate agriculture from industrial questions, as well as take into account the special characteristics of developing countries, which have not been addressed before. And if a new strategy could be worked out for each of these issues, then there is a real chance to solve all the problems in the next decade. But this is quite a long process and one should not expect that all the disputed issues can be resolved even by the next ministerial conference. We are now talking not about the Round itself, but the agenda, and probably whatever we cannot agree upon now would be best postponed, in order to accomplish something more important.”

The fact that the negotiation process is frozen at this stage does not mean, however, that the WTO has lost its meaning. “The WTO has advantages compared to other economic institutions, such as a dispute resolution mechanism,” said Alexey Portansky, professor in the Department of Trade Policy at Russia’s Higher School of Economics, National Research University). “No other international economic institution has anything comparable. And at least because of this mechanism, which continues to operate successfully, the credibility of the WTO remains fairly high. Naturally the Organization still has to survive these times of crisis, but it is of course not serious to talk about the `death of the WTO,’ The IMF has just as many problems as the WTO, but for some reason people don’t talk about that as much.”

New Director General

In September, Roberto Azevedo of Brazil takes over as the new head of the WTO, and many have high hopes that he will be able to get the negotiations on the Doha agenda moving again. However, the experts interviewed by WEJ agree that, despite his wealth of diplomatic experience, Mr. Azevedo is unlikely to unblock the negotiations and achieve meaningful results in the near future.

“The election of a new Director General of the WTO, of course, gives rise to hopes of a way out of the deadlock of the Doha Round,” commented Mr. Portansky. “But the situation has become so complex that it is impossible, of course, to get beyond the impasse in the talks with just one proposal or idea. A whole complex of measures will have to be worked out. But Azevedo does have some of the prerequisites for improving the situation. He is a representative of the developing countries, and the majority of members of the WTO are developing countries. Obviously, he will be respected among them, and his initiatives will be perceived positively. However this does not mean we can forget that the WTO is an organization that is controlled by its members, and the Director General has more of a technical function and to some extent also an organizing one. The authority of the WTO Director is limited, so we should not hope for rapid progress in the current round of negotiations.”

The experts also believe that the election of Azevedo will play into the hands of the developing countries, especially members of the BRICS.

“Even without Azevedo, the BRICS countries would have to take a common position, but certainly it is good for the BRICS countries that they will have a representative in the leadership of the WTO,” says Tatyana Isachenko. “Although in reality Azevedo, who is just one person, cannot solve all the problems of the WTO. The problems run deep, and if they all just involved some incorrect decisions by the Director General, it would be much easier. But the problems are, unfortunately, on a deeper level, and we can only wish that Azevedo will look for new approaches.”

Alejandro Jara, Deputy Director General of the WTO, told World Economic Journal about the prospects for new countries, such as the likely entry into the organization of Kazakhstan.

What are the advantages for both sides of Kazakhstan’s accession to the WTO?
The World Trade Organization is an association whose main goal is to become truly global and unite all countries. So it is certainly beneficial to us for as many countries as possible to join the organization. This increases opportunities for trade and raises the number of potential investors. Therefore being a member of the organization benefits both the countries and the organization itself. It would be beneficial to Kazakhstan to join the WTO, because it will shift the country to a new level of trade, as well as correcting some of its laws in accordance with international standards. Today Kazakhstan does not have many opportunities to express its point of view, because not much attention is paid to it. But when it enters the WTO, its position will carry more weight.

What does Kazakhstan need to do to become a member of the WTO?
First it needs to adapt its laws and adopt international standards. But changes are needed in almost all spheres of national life.

Kazakhstan is also part of the Customs Union and the Common Economic Space. Will that somehow interfere with its WTO membership?
No, it will not affect Kazakhstan’s accession to the WTO. It is beneficial for a country to have several such alliances with other countries, and now they are being created everywhere: Countries join together in such unions so as to be useful to one another. The purpose of the WTO is to make the cooperation of all countries useful and fruitful. 

Text: Olga Irisova

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