T S Vishwanath: Firming up free trade

A high-level expert group will provide recommendations on boosting global business through trade liberalisation

The United Kingdom, Germany, Indonesia and Turkey have set up a group of eminent trade experts to provide analyses and recommendations in support of trade liberalisation and revitalise the struggling Doha Round of WTO (World Trade Organisation) negotiations.

The high-level group, co-chaired by Professor Jagdish Bhagwati of Columbia University and Peter Sutherland, former head of the General Agreement on Tariffs and Trade (GATT), will include experts from advanced and developing economies. This group will present a report in early 2011, with specific recommendations for boosting global trade in the short and medium term through tackling tariff, regulatory, administrative and physical barriers to trade.

The four sponsor countries of this group may be of the view that with the Doha negotiations moving towards a possible conclusion next year, it is important to understand the possible impact of trade liberalisation that will emerge from the WTO agreement.

Interestingly, in a recently concluded seminar at Geneva, trade experts from the World Bank, the WTO and think tank ICTSD (International Centre for Trade and Sustainable Development) pondered on the possible impact of trade liberalisation following a successful conclusion to the Doha Round.

Most experts averred that the Doha Round would help lock the gains from liberalisation that has already been undertaken by various member countries of the WTO over the last many years. That would help make the Round a success since it would lead to more transparency for countries that are members of the multilateral trading system.

Given this background, it will be interesting to ponder on the possible areas of focus for the expert group. The expectations from the report will be high since the two leading experts on global trade are co-chairing this group. It will be important for the group to provide some workable solutions to the problems in concluding the Doha Round that would benefit WTO members.

One important area could be tariff liberalisation. Without doubt, if the Doha Round succeeds in binding country tariffs at current applied levels, the possibility of increasing tariffs to pander to domestic concerns of raising applied tariffs to higher bound levels would disappear, thereby blunting the impact of tariffs as a barrier to free flow of goods across countries.

But as Aaditya Mattoo of the World Bank pointed out at the Geneva seminar, countries have refrained from increasing tariffs even during the recent economic crisis. This means that the probability of countries increasing their applied tariffs to address domestic concerns seems nearly improbable in the future as well.

Therefore, for any real gains in the Doha Round through tariff liberalisation, there has to be binding of tariffs that are lower than the current applied levels. This would certainly fall foul of the objective of keeping the Doha negotiations as a Development Round. Therefore, in terms of tariff liberalisation the experts group may have to look at innovative ways of ensuring that developing countries are in a position to liberalise while addressing sensitivities in the economy.

The problem of suggesting measures to bind agricultural tariffs would be even greater than in the case of industrial tariffs. For many developed and developing nations agricultural tariffs are sensitive. Therefore, it will be important to note how the expert group would tackle this ticklish issue.

The second area of challenge would be cutting agricultural subsidies in developed nations. This is an important topic since it will have a major positive impact on several least developed countries that are today hurt by the subsidies in the developed nations. Cotton is one example but several other products can also be added to the list.

The third big area that needs to be addressed is disciplining rules. This has not been addressed as part of many studies on the fallout of multilateral liberalisation. However, it is clear that transparent and ambitious negotiations in this area can help improve trade across countries.

The expert group has its job cut out and expectations will be high. However, it will be important that the report provides a realistic assessment of what is possible in the Round and the benefits that will accrue. The fear is that it should not end up as another academic exercise that does not really benefit WTO member countries.

The author is principal adviser APJ-SLG Law Offices