Bridging the Gap in the Doha Talks: A Look at Services Trade

• Author: Rafael Leal-Arcas
• Position: Lecturer in Law & Deputy-Director of Graduate Studies Centre for Commercial Law Studies Queen Mary, University of London
• Pages: 241-249

Key words: Doha Round, services trade, liberalization, WTO, commitments

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1. Introduction

Before the creation of Doha Round in 2001, developing and least-developed countries had been marginalized in the world trading system, which brought with it serious economic implications. In 2001 in Doha (Qatar), developing countries were promised inclusion in the world trading system in order to achieve a higher level of justice and equity in the world.¹ That is why the new round is called the development agenda. ² The argument is that a more open and equitable trading system brings peace to the world and, in this sense, the Doha Development Agenda (DDA), which aims to lower trade barriers around the world, permitting free trade among countries of varying prosperity, should not be approached as a zero-sum game -as many developing countries seem to perceive it- but as a win-win situation. The Doha Round was the result of widespread agreement among delegates at the 4th WTO Ministerial Conference in Doha that it was time to address the imbalances of previous rounds and to offer developing countries the prospect of trade talks which they could see were to their benefit. So a new Round was necessary to include poor countries in the world trading system, and to promote economic development, as well as to alleviate poverty.³

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The initial target was to finalize the Doha Round negotiations by the end of 2005, so that the Agreement could be approved by the U.S. under the fast-track procedure, without having to undergo a lengthy debate within Congress. Although some progress was achieved along the way - notably in Hong Kong in December 2005, where rich nations agreed to eliminate all of their farm export subsidies by 2013 and to allow quota and tariff-free imports from all least developed countries - a final deal remained elusive. Successive deadlines were missed and, at the July 2006 G8 meeting in Saint Petersburg, leaders of the world's biggest economies pledged to give their trade negotiators the flexibility they needed to reach a compromise deal, deciding to hold last ditch talks during the weekends of 23-24 and 28-29 July 2006. The discussion below chronicles the developments of the Doha Round since its suspension in July 2006 up to now.

2. Suspension of the Multilateral Talks

On July 24, 2006, WTO Director-General Pascal Lamy formally announced the suspension of the talks, bringing five years of negotiations to an end. This was due to the refusal of the United States to make bigger cuts to its farm subsidies if the EC and emerging developing countries such as India, China, and Brazil did not reduce their tariffs on agricultural and industrial products respectively.⁴ Major trading powers, including the EC, are blaming the U.S. for the collapse. Trade officials have continued to meet informally since then, especially after a soft relaunch of discussions in November 2006.

This is not the first time that one of the WTO negotiation rounds has broken down. Negotiations are inevitably complex as each WTO member has a veto power over the final deal. The Uruguay round, which began in 1986 and led to the replacement of the GATT by the WTO in 1995, was frozen for over a year in 1990, due to antagonism between the EC and the U.S., although it was never formally suspended.

More recently, after the suspension of the WTO Doha negotiations, the Commission looked ready to refocus its commercial strategy on bilateral free trade agreements so as to catch up with the U.S. and Japan. Officially, concluding the Doha Round remains the European Community's (EC) number-one priority, but, since negotiations were suspended in July 2006⁵ - when last resort talks failed to bring an agreement on reducing farm subsidies and lowering tariffs, leading therefore the WTO chief Pascal Lamy to formally suspend the Doha Round - the EC has been looking for other ways to open up foreign markets and keep up with its main trade rival, the U.S., which is currently leading the race to conclude free trade agreements (FTAs) with high-market-potential countries.⁶ The Commission's decision to launch new bilateral trade negotiations with countries such as India, South Korea, and the ten Association of South-East Asian Nations (ASEAN) states "could further complicate its trade regime, and divert interest from the multilateral trading system",⁷ according to a bi-annual report carried out by the WTO on the EC's trade policies and practices. The Commission also hopes to negotiate more far-reaching agreements than would be possible under the WTO talks, by tackling issues such as investment, competition policy, and public procurement - known as the Singapore issues - which were dropped from the Doha agenda in 2003. This return to a system of bilateral agreements and FTAs will mean that the large WTO members would be able to strong-arm the small members and where the multiplication of trade rules and tariffs would generate higher transaction costs and damage the trading and investment environment.

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Lamy warned, though, that bilateral deals could contribute to weakening the multilateral trading system, in a speech to the European Parliament's International Trade Committee on October 17, 2006.⁸ Moreover, he argued that growing number of bilateral and regional trade talks risked distracting from attempts to clinch a long-elusive global deal. ⁹ He noted that when it came to bilateral talks, some countries appeared to be promising concessions beyond what would be needed to unblock the multilateral negotiations. While the EC will find that it might be able to address some of its specific concerns through bilateral agreements, it will not be able to answer all of them. In addition, the countries that the EC will negotiate with in these bilateral negotiations will want to see some concerns, like subsidies in agriculture, addressed somehow and that will only be through the multilateral, that is, WTO, process.

In the face of globalization, the EC must remain open. It must also ensure that markets abroad are open to its own exports. European businesses often find it difficult to access foreign markets due to high tariff and non- tariff barriers, as well as discriminatory measures applied against foreign companies. Removing such barriers is particularly important in the services sector, which represents around 70% of Europe's jobs and of the EU's gross domestic product (GDP), but which faces higher trade barriers than goods, mostly due to restrictive national regulations, such as technical standards, licensing requirements or national discrimination.

This proposal of bilateral trade agreements as a result of the suspension of the Doha talks is diametrically opposite to the EC's previous trade strategy, in which the focus was strongly on multilateral negotiations within the WTO, and free trade deals were primarily driven by the logic of development or geopolitics rather than economic interests. That said, U.S. businesses in Europe urged European Union (EU) and U.S. leaders to stop neglecting the transatlantic relationship in favour of boosting relations with China and India. They argued that the two transatlantic economies have become so highly interdependent that their future growth and job creation relies not on improving their relations with China and India, nor in completing a successful Doha Round, but in removing existing barriers to trade and investment in order to create a veritable transatlantic single market.

In relation to services trade, an ambitious deal on service liberalization was of key interest to the EC because trade in services makes up around 75% of its economy. Increased trade in services would also contribute to development goals since improved transport, IT and telecommunications, banking, and insurance sectors form the backbone of a growing economy. However, trade in services faces considerable restrictions, mostly based on national regulations, such as technical standards or licensing requirements and procedures. According to a study by Decreux and Fontagne, more could be gained, for developing and developed countries alike, from a 25% cut of the barriers in services than from a 70% tariff cut in agriculture in the North and a 50% cut in the South.¹⁰ A study conducted at the World Bank estimates that developing countries could gain nearly $900 billion in annual income from elimination of their barriers to trade in services.¹¹

Discussions in the WTO focused on establishing disciplines to ensure that domestic regulatory measures do not create unnecessary barriers to trade. Significant progress was made in this area but negotiations on market access stood still as a result of the lack of movement on agricultural and industrial market access. Furthermore, in a speech given by Lord Vallance of the European Services Forum to the EU-India Business Summit on 12 October 2006, he said that developed and developing countries will miss out on enormous potential economic gains because services have once again been taken hostage of agriculture even though the latter represents only 8% of world trade and 2% of developed countries economy.¹²

2.1. Failure of Multilateralism?

But why has multilateralism failed? The talks were suspended on 24 July 2006 after ministers from the EC, the U.S., Australia, Brazil, India, and Japan (the so-called G-6 countries) failed once again to reach a deal on agriculture and industrial goods 'modalities' -- formulae and figures for tariff and subsidy cuts, as well as Page 244 exceptions to them -- primarily due to differences on farm trade. "We have missed a very important opportunity to show that...