The Lores of Trade – Why Doha was doomed

False premise: Why Doha was doomed to fail . . .

THE Doha Round of global trade talks was doomed to fail because it was launched on two false premises, says Charlene Barshefsky, who as US Trade Representative shepherded China into the World Trade Organisation, opening the doors to enormous domestic growth. Now, she says, trade nationalism is on the rise in Asia, partly in response to a flow of ‘hot’ money . . .

CHINA’s ACCESSION to the global trading club, the Geneva-based World Trade Organisation, was a watershed for its development and that of its neighbours in East Asia.
It took 15 years of negotiating with major trading partners, including the United States, before China finally acceded to the WTO in November 2001. Trade, together with investment, became the key driver for China’s transformation to global economic player.
In 2001, China’s total exports to the world were valued at just US$266 billion. These grew exponentially within a decade to US$1.6 trillion. China overtook Japan in terms of exports in 2004, the United States in 2007, and finally toppled Germany in 2009 to become the world’s largest exporter. In 2012, China’s exports crossed the US$2 trillion mark.
With booming exports and healthy trade surpluses, China chalked up US$3.4 trillion in reserves in April — an unprecedented level for any country.
China’s trading partners, including the US, Japan and the European Union, have at different times charged that Beijing has used its under-valued currency to sharpen its competitive edge — a charge China vehemently denies.
So should China’s WTO accession agreement have covered the issue of currency?
“At the time, currency was not an issue,” says leading American trade lawyer Charlene Barshefsky, who was handed a gruelling task as chief US negotiator for the US-China WTO accession agreement between 1993 and 2001 (she was appointed Deputy US Trade Representative in 1993 and became the USTR and a member of Bill Clinton’s Cabinet in 1996).
No individual country international trade agreement includes currency, Barshefsky told ATI. “The notion of competitive devaluation became an issue particularly during the global financial crisis. It was to be expected that governments would use every means at their disposal to enhance competitiveness .”
Now Chair of the International Trade, Investment and Market Access Practice Group of Washington-based global legal firm, Wilmer Hale, she says: “It is not desirable, but it is a fact of life.”
Complaints about currencies are nothing new. She recalls that when she was in government, the Japanese yen was an enormous issue. Long before she entered government, there were substantial complaints about Japanese manipulation of its currency during the late 1970s and 1980s.
Barshefsky describes the US-China WTO accession agreement, which has held up remarkably well, as “very comprehensive” and highly successful. It is broader than any WTO agreement existing at the time — or recently concluded, she says.
China’s accession has led to extraordinary domestic growth. China consolidated its own unilateral economic reforms with its undertakings for WTO accession. Those reforms were substantially enlarged and deepened, and covered almost all aspects of the Chinese economy. The upshot was that the accession fundamentally altered the nature of the Chinese economy.
On China’s level of regulatory compliance, Barshefsky says it is about what you would expect from most countries — and what you would expect from a country which had to make as many fundamental changes as China has had to make. She adds: “Like other countries, China takes certain liberties with the agreement. No WTO agreement or any trade agreement can rule out discretion on the part of the regulatory agencies doing their job.
“That having been said, I think both the business environment in China and the regulatory environment have become much tougher — not necessarily giving rise to WTO technical violations per se, unless, for example, China engages in discrimination against foreign enterprises.  That would lead to a WTO violation.”
She agrees that nationalism is on the rise in some Asian countries, some of it in response to hot money. Countries which experienced the 1997 Asian Financial Crisis and the 2008 Global Financial Crisis are wary of capital flowing in quickly, and then leaving at the first sign of trouble. The 1997 Asian financial crisis showed a mismatch between long-term obligations created in countries and short-term capital to fund them, she says.
There is also a fear that hot money is going into unproductive sectors, such as real estate, and creating asset bubbles. “These are not productive policies. They are not wealth-generating policies for the long run”.
Intra-Asian trade is very substantial today, and Barshefsky says she would “expect that pattern to continue as the focus of global growth shifts towards Asia”.
With the rise of the emerging economies, and an increase in urbanisation, the middle class and wealth, developing countries will become more represented in global trade, she says.
“That is a very positive development, because the world needs a variety of engines of growth. For many decades, the engine of growth was the US — and that is not a stable solution for global growth because of the concentration risk. The consequence of the world’s “extraordinary” dependence on the US consumer for growth was reflected during the global financial meltdown.
“The US will remain a critical and in some ways dominant feature on the global trade landscape. We may, in 15 years’ time, see China as a larger economy in the aggregate, but certainly not per capita — that will take generations.
“I don’t see any other countries stepping up to the global leadership challenges that exist. I don’t think China wants to (take on that role). It is too busy, and I don’t think Europe has the capability.” However, the US will continue, not alone necessarily, to have a major role and, in many instances, the decisive role in trade.
Others would argue that it is precisely because of a lack of leadership — on the part of the US and others — that the Doha Development Agenda has floundered. Barshefsky disagrees, saying that Doha was doomed to fail because it was launched on two false premises.
First, it was launched, she says, eight weeks after the 9/11 terrorist attacks on New York and Washington because countries wanted to demonstrate solidarity against terrorism — and to show that there was a functioning global system. “The Round was launched not because the countries actually wanted to liberalise — many were still burdened by Uruguay Round liberalisation,” she says.
Second, the fact that the Round was called a ‘development round’ was a problem in itself, Barshefsky says.
“It implied that the developed countries would forego agricultural subsidies of all types. There might be agricultural subsidy reform in Europe and the United States, Japan, Korea and so on. But the notion that all subsidies would be abandoned is not politically possible in any of those countries, and never has been.
“This is why there was never a meeting of the minds. The lack of a coherent vision has impeded progress in the talks ever since. And we still see that today.”
She says: “So Doha is effectively dead. (But) I don’t think there is a need to formally declare it dead. Instead, the WTO should simply revert to sectoral negotiations. That has already been proposed in the case of services talks, and that is a positive development.” Barshefsky says this approach will work. It has a precedent in the liberalisation of the global telecommunications market, financial services, information technology products, and Internet tariffs concluded during the Clinton Administration.
These sectoral agreements, particularly telecoms and financial services, dwarfed in size the entirety of the Uruguay Round. She suggests that a small number of willing countries who are significant in trade in a particular sector of interest should get together on an agreement. Other countries would be able to join after the core group has set out the parameters.
Starting with a coalition of the willing, she says, will become a more productive way to proceed. That is why bilateral free trade and regional FTAs have become so common. It is far easier to deal with like-minded partners.
Asked for her comments on the US-led Trans-Pacific Partnership (TPP) and East Asia’s response, the Regional Comprehensive Economic Partnership (RCEP), she says they, too, have started with a willing group of countries.
“These kinds of agreements have become important largely because of the foreign policy aims and alliance building needs of countries around the world, along with trade,” she says.
“These kinds of agreements are the way a country projects power, projects influence and is able to pick partners on the basis of broader national needs than just trade alone. It is extremely attractive to many countries to be dealing with a smaller group of like-mindeds.
“You are dealing with partners whose alliances you either want to enhance or to encourage. The fact that Doha has failed certainly leaves countries saying: ‘We really need to pursue this route. It is the best route for liberalisation for now’.” She adds that even if Doha had been successful, these kinds of agreements would continue to proliferate because of their foreign policy and alliance-building purposes.
Barshefsky does not believe they will diminish the role of the World Trade Organisation. “The WTO will absolutely have a role in future.”
But she agrees with critics of bilateral or regional FTAs that these agreements are often trade-diverting more than trade-creating. “That is to say, the locus of trade may really shift to countries which have entered into these agreements, and away from countries that have not.”
She believes globalisation is largely irreversible, and that the pace of globalisation will accelerate further.
Global capital flows and technology are two underlying factors that will continue to drive globalisation, she says. “Globalisation has lifted aggregate global growth ... and will continue to do so in the future.”