From Lima to Doha: Assessing the U.S. Trade Agenda

November 12, 2007

The recent approval by the House of the U.S.-Peru free trade agreement is drawing huzzahs from both the White House and Democratic congressional leaders, and in one sense their jubilation is warranted. Support for the pact from nearly half of the House’s Democratic members was a remarkable manifestation of a new bipartisan approach to how trade agreements ought to work.

But in economic terms, the accord itself amounts to very little. Much more significant, both to U.S. interests and the world as a whole, would be a meaningful trade deal on a global level—that is, in the World Trade Organization’s Doha Round of negotiations. On that score, the outlook remains cloudy at best.

Trade has been a bitterly divisive issue between the parties during most of the Bush administration–remember the 2-vote margin by which the Central American free trade deal squeaked through the House in 2005?—so the vote on Peru (285 in favor, 132 against) was especially impressive. As U.S. Trade Representative Susan Schwab noted in a statement issued following the vote, “The conventional wisdom last fall was that the President and Congress could not come together to make progress on a pro-trade agenda” once Democrats had gained a majority on Capitol Hill. Schwab proved the naysayers wrong by working with Reps. Charlie Rangel (D-N.Y.), chairman of the House Ways and Means Committee, and Sandy Levin (D-Mich.), head of the panel’s trade subcommittee. Rangel and Levin insisted that the terms of the pact with Lima be renegotiated to include enforceable protections for worker rights and the environment in Peru—the type of provisions they have been demanding in free-trade agreements, without success, for some time. In his statement following the vote, Levin boasted that “we are setting U.S. trade policy on a completely new course”—a bit of hyperbole, perhaps, but a fair indication of what will be required to secure approval for other deals in the future.

To keep this achievement in perspective, however, consider that U.S. exports to Peru last year were less than $3 billion—so even if those exports were to double overnight as a result of Peru’s elimination of its tariffs and other barriers on U.S. goods, the impact on the $13 trillion (that’s trillion with a “t”) U.S. economy would be minuscule. In this regard, the Peru agreement is all too much like the numerous others that the Bush administration has struck. For all the fierce battling that some of these accords unleash in Congress, and all the resistance to globalization that they arouse, the markets involved are often too small to provide much in the way of new opportunities for American companies, workers and farmers. Add up the exports last year to all the countries with whom the Bush administration has completed free trade agreements, and the sum comes to less than 7 percent of U.S. total exports; throw in the pending deals with Peru, South Korea, Colombia and Panama, and the figure is still only about 11 percent of total exports. And that’s just a sliver of the overall economy; exports accounted for less than 8 percent of U.S. gross domestic product last year.

All of these deals pale in importance with the Doha Round, the negotiations named for the Qatari capital where they were launched at a WTO meeting in 2001. The round was aimed at lowering barriers worldwide, with a top priority of making international trade rules more favorable for the poor; as President Bush put it at the time, the idea was to “give developing countries greater access to world markets, and lift the lives of millions now living in poverty.” But six years later, the lofty ambitions espoused at Doha remain a distant dream. Several times, meetings of key negotiators have broken down in such acrimony as to leave the viability of the round in serious doubt, with politically-explosive farm issues being the main flashpoint. Agriculture is of crucial interest to many developing countries because the majority of the world’s poor live in rural areas, and their farmers are disadvantaged by protective barriers and subsidies in the European Union, the United States and Japan. But rich nations have been loath to cut programs that their powerful farm blocs cherish. At the same time, developing countries are balking at demands from the rich to open their markets more widely to manufactured goods.

With the original 2005 deadline for the Doha Round long passed, the current expectation among many insiders and observers is that the round must await the election of a new U.S. president. Even assuming a deal eventually materializes, the betting is heavily in favor of a a watered-down compromise in which benefits to developing countries would be modest at best, an outcome dubbed “Doha Lite.” Recently, signs have emerged that the Bush administration, with its attention increasingly focused on shoring up its legacy, is eager to complete the round, and a flurry of negotiating activity has sparked optimism that a deal—or at least the major outlines of one—may be hammered out in the next few months. Trade ministers will undoubtedly tout any pact they reach as historic, and it is conceivable they will achieve a result worthy of being considered respectable. But the gap between the outcome and the initial aspirations will surely prompt questions about why so much time and effort was required, and whether negotiations under WTO auspices should ever be undertaken again. The last major global trade negotiation, the Uruguay Round, took eight years, but it was unquestionably sweeping in scope and impact—a claim that may be hard to make, with any credibility, for Doha.

A meaty, ambitious deal among all 151 nations in the WTO could benefit many countries, but its consequences would go well beyond any short-term economic boost. Probably more important is the revitalization such an accord would mean for the WTO, which is a lynchpin of stability in the global economy. Although just a dozen years old, the WTO is the current embodiment of the multilateral trading system that was established after World War II to prevent a reversion to the protectionism and trade blocs of the 1930s. WTO tribunals rule on disputes among members that might otherwise flare into destructive wars of economic retaliation. The WTO is also the guardian of the “most favored nation” principle, which broadly requires member nations to treat the products of all other members alike—a bulwark against exclusive trade groupings.

The WTO’s ability to continue performing these functions would be at serious risk if the Doha Round becomes moribund or ends in “Doha Lite.” Disillusionment over the WTO’s capacity for setting the rules of trade would make the organization appear increasingly irrelevant and ineffectual—the trading system’s version of the League of Nations. Its status as the dominant rule-setting institution has already been battered by the explosion in recent years of bilateral trade deals. A disappointing Doha Round would surely accelerate this trend further, and could gradually erode the WTO’s credibility to the point where its authority to settle disputes would come into question. The WTO has many critics, of course, and some might welcome its downfall. But for all of the organization’s flaws, the prospect of a diminished, sidelined WTO is alarming, and it would be especially detrimental for poor countries, which depend on the WTO to protect them against bullying by the rich.

So let’s hope the conventional wisdom about the prospects for the Doha Round is wrong, just as it was in the case of the U.S.-Peru agreement. Whatever the round’s outcome, the stakes are a lot higher.