Prospects for the Doha Round -Major Challenges in the Multilateral Trading System and their Implications for Japan-

UEDA Hideshi, Director of the Multilateral Trade System Department, Trade Policy Bureau, METI, reported on the current status of and outlook for the negotiations.

The launch of the Doha Round was delayed until November 2001 due to the failure in Seattle in November 1999. The impact of the 9.11 terrorist attacks gave impetus to it. The Doha negotiations have gone through periods of progress and no progress. Thus, we have an impression that the pace of their progress varies significantly from time to time.

An unsuccessful attempt was made to reach a framework agreement at Cancun in September 2003. One of the disputes concerned the Singapore issues covering four new areas of negotiation, including investment and competition policy. There was considerable opposition from developing countries on these issues. A framework agreement was finally reached in July 2004 in the WTO General Council when the developed countries conceded to exclude the Singapore issues, with the exception of trade facilitation.

Thereafter, technical negotiations were quietly pursued for some time. In January 2005, an informal meeting was held in Davos where the following matters were agreed: to aim to conclude the negotiations during 2006; to endeavor to present "first approximations" at the ministerial conference scheduled to be held in Hong Kong in December 2005; and to focus on agriculture, non-agricultural market access (NAMA), services, developing country problems, and antidumping rules. Following the Davos meeting, WTO ministerial meetings were held in March and May.

The intent is to reach a framework agreement on a tariff-cutting formula at the Hong Kong ministerial conference in December 2005. Thereafter, negotiations are to proceed based on this framework agreement, reaching a final agreement under the single-undertaking at the end of 2006. In preparation for the Hong Kong ministerial conference, work is now proceeding on the tariff-cutting formula, determination of modalities for negotiations on services, and preparation of a revised text for negotiations on the revision of antidumping rules.

At this year's Davos meeting, USTR Robert Zoellick proposed the Swiss-based formula with two coefficients (one for developed countries, and a slightly higher one for developing countries) could be adopted for NAMA. The Zoellick proposal was initially criticized by some developed countries on the grounds that concessions were being made at too early a stage. However, this controversy did push the discussion forward, and Japan encouraged the Asian countries to support the Swiss formula. On July 12 and 13, informal ministerial meetings were held in Dailin with the participation of some 30 countries from around the world. This meeting served to confirm that support for the Swiss formula is spreading among African countries and others. On the other hand, Argentina, Brazil and India continue to advocate the adoption of the Girard formula.

In the area of agriculture, negotiations on technical issues are continuing. At the informal ministerial conference held in Paris, agreement was reached on the technical issue of converting specific duties into ad valorem equivalents (AVE). Regarding market access, compromise was seen between exporters and importers of agricultural goods at the Dailin meeting where it was agreed that a midway point would be sought between the Swiss formula and the Uruguay Round formula. It was decided that discussions would continue along these lines through the end of July to find a final agreement on this point. Among the three issues of market access, export competition and domestic support, considerable progress has been made in discussions on export competition. It will be interesting to note the compromises that can be reached concerning market access and domestic support, as this will provide a key to projecting the progress of negotiations in other areas.

Next, KOTERA Akira, RIETI Faculty Fellow/Professor, Graduate School of Arts and Sciences, the University of Tokyo, gave a summarization and posed the following questions.

Our discussions today indicate that a small package may be preferable. That is, it may be desirable to restrict the scope of the Doha negotiations. In the context of the bicycle theory, there has long been the argument that the scope of negotiations should be restricted as found to be expedient. But I think that our discussions today supported a small package for more positive reasons than that. Specifically, Professor Ishikawa discussed the division of functions between FTAs and the WTO: that is, of multilateralism and regionalism. Professor Yamamoto argued that, from the perspective of global governance, the formulation of a subsuming principle was not realistic, and that it was more realistic and desirable to achieve that which is feasible. In addition to the division of functions on matters of principle, another form of division of functions based on who is to decide what is fully possible. The WTO dispute settlement procedures present an example of this. That is, the concentration of dispute settlement in dumping and other specific areas has lead to improved efficiency of dispute settlement in those areas. We have an intuitive tendency to think that high-level and comprehensive liberalization is desirable. However, we must remember that decentralization is an important current in the global arena. In this sense, the question of at what level decisions should be made is a significant element in considering the division of functions.

I pose the following question to Professor Ishikawa. How can a division of functions between FTAs and the WTO be considered within a more general framework?

I pose the following question to Professor Destler. What relation exists between the size of the package and the level of difficulty in U.S. trade politics? In particular, what relation exists between the size of the package and the possibility of realizing the social compact that you advocate?

I pose the following question to Professor Yamamoto. In the context of nation states and global governance, what role do nation states have to play in global governance?

I will ask Mr. Ueda to comment on the responses of the three professors from his practitioner's perspective.

ISHIKAWA Jota, RIETI Faculty Fellow/Professor, Graduate School of Economics, Hitotsubashi University, responded as follows.

A division of functions between FTAs and the WTO is predicated on the existence of appropriate discipline in FTAs.

Many RTAs contain complex exemptions for agricultural products. To avoid such exceptions, I believe negotiations should be conducted in a multilateral framework.

Where should issues related to investment, competition and intellectual property be handled? This is an extremely difficult question. Even if these were to be handled by RTAs, it would be necessary to create simple and clear rules that can be propagated as de facto standards.

Regarding trade of goods, the process is being carried forward by the WTO, and I believe this should remain in the hands of the WTO.

Finally, there was a question concerning a general standard for the division of functions. Delegating this matter to RTAs is an obvious option. But this would require RTAs to satisfy the condition that they are created to complement the multilateral framework and that the standards created therein are propagated globally as de facto standards.

I.M. DESTLER, Professor, School of Public Policy, University of Maryland, responded as follows to the questions posed to him.

Regarding small package versus large package, in a sense it is very difficult to dispute the claim that it is easier to reach an agreement on a small package. To carry the argument to its extreme, an agreement can immediately be reached if nothing needs to be agreed upon. However, a small package has its costs. Narrowing the scope of the negotiations entails the risk of narrowing the support for the negotiations. For instance, the Japanese business community lost its fervor in the Doha Round after the issue of investment rules was dropped.

I would like to add to Professor Ishikawa's response concerning the division of functions between FTAs and the WTO. One of the reasons why the Free Trade Area of the Americas (FTAA) has not been established is the awareness that it is impossible to handle the agricultural sector in a FTA framework. That is to say, it is unthinkable for the United States to make concessions on agriculture without obtaining major concessions from Europe, Japan and others.

There was a question concerning the social compact. I am not suggesting that this should be synchronized with the schedule of the Doha Round. The realization of a social compact will require many years. However, if some progress can be made toward the creation of a social compact, this could promote greater support and bipartisan cooperation, and could ultimately be helpful to the Doha Round negotiations.

YAMAMOTO Yoshinobu, Professor, School of International Politics, Economics and Business, Aoyama Gakuin University, responded as follows.

First, I will address the question of the general relation between global governance and nation states. If there is a zero-sum relation between global governance and nation states, national sovereignty will diminish as global governance gains force. However, I take the position that global governance is a public good that provides such benefits as stable trade and a liberal system. As these are created, maintained and enjoyed by nations, I believe that global governance and nation states are linked in a relation of co-existence.

Next, what form should the division of functions between nation states and global governance take? The answer will differ significantly from one area to another. For instance, take the issue of development. I believe it is very important for individual governments to devise their own development policies and to implement the policies that they find to be effective. On the other hand, environmental issues require an intermediate or mixed approach. For instance, a climate change regime must be developed and implemented on a global scale. In the case of other environmental issues, the basic approach may require countries to cope individually with the problem. In this sense, the substitutability of policies needs to be considered individually, and it is impossible to expect global governance to solve everything.

Finally, there is the question of how national states should approach the issue of dividing its functions with global governance. In the case of Japan, I believe it is necessary to begin by making efforts domestically. Having done that, the options of taking regional action and global action can be viewed as methods for promoting liberalization within Japan. Therefore, the question of whether action should be taken nationally, regionally or globally allows countries to devise various combinations of the three depending on the objective.

Mr. Ueda commented as follows on these responses.

Professor Kotera referred to the preferability of the small package. Judging from past experience, it seems the expectations that each member country has for the Doha Round are beginning to converge. Thus, as Professor Destler pointed out, any further narrowing of the Doha objectives carries the risk of rendering the business community apathetic. Needless to say, decisions involving 148 countries are extremely difficult to arrive at. To effectively advance the negotiations, I believe it is necessary to create steering groups consisting of a small number of countries.

Regarding the relation between FTAs and the WTO, I think both can compete in making improvements in the area of market access. For instance, observing the negotiations between Mercosur and the EU or between Mercosur and FTAA, we see that FTA negotiations are also very costly.

What is of ultimate importance to the WTO is its dispute settlement mechanism. The issue of nation states and global governance was brought up. I feel that the WTO provides the sole reliable dispute settlement mechanism in the contemporary global community. For this reason, I subscribe to the bicycle theory, which says that we must ensure the success of the Doha Round so that the member countries will maintain mutual political interaction.

The following question was received from the floor.

Professor Ishikawa argued that de facto standards for investment, intellectual property and competition could be established through the expansion of regional agreements and that these de facto standards could eventually be integrated into the WTO. In the area of competition, Brazil and Israel are the only developing countries with which the United States has concluded mutual antitrust assistance agreements. Do you not think that greater effort should be made to reach agreements on these Singapore issues in the WTO?

Professor Ishikawa responded as follows to this question.

I only argued that the development of de facto standards through RTAs was an option since WTO negotiations were extremely difficult. These issues are particularly difficult for the WTO to handle because the WTO has traditionally concerned itself with border measures, whereas such issues as competition and intellectual property require involvement in matters of domestic policy.

The following question was received from the floor.

Professor Kotera stated that a small package was preferable. The process in which individual countries strive to include matters of economic importance to themselves in the agenda and to exclude matters of less importance is in itself the process of negotiation. In this connection, I find it very regrettable for Japan that the issue of investment rules has been excluded from this round.

Professor Kotera responded as follows to this question.

In a sense, I was playing devil's advocate in stating that a small package was preferable, and I was looking forward to receiving some counter-arguments. Efforts were made to generate greater incentive for Japan by expanding the scope of the negotiations from the built-in agenda that focused on agriculture and services. The idea was to raise the level of Doha's potential benefits to Japan. I believe this was the right thing to do. The important thing to remember is that this is not the final and only round. I am hopeful that the issue of investment rules that was excluded from this round will eventually reach fruition through the experiences that we have had in this round.

The following question was received from the floor.

Professor Yamamoto referred to the three axes in the process of global governance. As one of these, he pointed to the problem of diversification of methods. How can the concept of legalization be positioned in this framework?

Professor Yamamoto, Professor Destler, and Professor Kotera individually responded as follows to this question.

Professor Yamamoto: I believe the WTO dispute settlement process has an extremely strong positive value for the following reasons: it has served to keep U.S. unilateralism in check, and it has given a very high level of predictability to the WTO system. Problems arise when issues other than free trade require resolution, such as development problems requiring a broad range of policy measures. Therefore, I believe that more flexible mechanisms need to be installed to cope with problems that are not purely trade related.

Professor Destler: The WTO suffers an imbalance that combines an extremely efficient judicial process with an inefficient legislative process. This imbalance generates certain structural dangers, such as a tendency for the judicial process to intrude upon non-trade policy areas, and a tendency to define trade in ways that exceed the compliance capabilities of member countries.

Professor Kotera: The important thing is to keep an eye on whether dispute settlement rulings are being observed or not. With this precondition in mind, we need to consider how to contain and reduce the dangers. By the same token, both the Panel and Appellate Body will have to properly handle the cases before them.

The following question was received from the floor.

Do you not have a clearer message to convey concerning the theme of this discussion, which is "What should Japan do?"

Professor Ishikawa and Professor Kotera individually responded as follows to this question.

Professor Ishikawa: My message is quite clear. Japan depends on international trade and has much to gain from the success of the round. What Japan must do for this purpose is very obvious. Japan must make concessions in the area of agriculture. From the perspective of economic theory, subsidies should be used if agriculture is to be protected. There is no need to levy tariffs of 490 % and 990 % on rice and konnyaku bulbs, respectively. Japanese farmers are unaware of how much they are being protected by tariffs, and there is a need to educate them on this matter.

Professor Kotera: In principle, there is an absolute need to promote trade liberalization, and the current round must be concluded successfully. Regarding agriculture, the most seriously disputed problems pertain to export subsidies and domestic support. Because these subsides are almost non-existent in Japan, Japan is able to maintain a neutral position on these matters. Under these conditions, I believe the most desirable approach would be to lead the negotiations to success by using the high tariffs on rice and konnyaku bulbs as bargaining chips.

The following questions were received from the floor.

Does Japan need the "new social compact" advocated by Professor Destler? If so, what form of social compact would be desirable?

Professor Yamamoto argued that instead of the United Nations' leadership role, it is more desirable for certain functions to be assigned to the WTO, the World Bank and other organizations. How should economics-related functions be allocated between the United Nations and other institutions, and how should the relation between the United Nations Conference on Trade and Development (UNCTAD) and the WTO be changed?

This symposium has left me with the impression that there is a very bright outlook for achieving a breakthrough in the Doha round. On the other hand, when we take a careful look at Japanese politics in general or the international political arena, we get the feeling that such a breakthrough will not be easy to achieve. Similarly, there are numerous obstacles that must be surmounted. I would like to ask Professor Yamamoto to comment on this from his perspective as a political scientist.

Mr. Ueda said that it is probably necessary to create steering groups to push the negotiations forward. As a practical matter, how are such steering groups formed, or how should they be formed?

Professor Destler, Professor Yamamoto, and Mr. Ueda individually responded as follows to these questions.

Professor Destler: If empirical studies show that liberalization of agriculture has a negative impact on income distribution, then Japan would also need some sort of solution as the "new social compact." If there is no negative impact, a "new social compact" would be unnecessary.

Professor Yamamoto: I will address the question of the relation between the UN and international institutions such as GATT, the IMF, and the World Bank. Originally during the early 1990s, the concept of global governance was that problems related to development and the environment should be referred to a strong UN. But in reality, UNCTAD and the Group of 77 retained a great deal of power. The General System of Preferences and other measures were adopted in the 1970s when this power was brought to bear on GATT. However, today we see that the power of UNCTAD has been reduced, and UNCTAD countries are primarily engaged in creating coalitions of developing countries within the WTO to promote their own demands. In my understanding, these activities are being pursued with little or no connection with the UN. In considering the direction of the new round, it is true that NGOs promoting such norms as fairness have become extremely important and that their influence is growing. However, under current conditions, priority will be given to any firm agreements that are concluded among governments. Therefore, I think that the new round will reach a successful conclusion if a relatively strong agreement exists among the member countries.

Mr. Ueda: Regarding the issues of development, G8 discussions and Doha Round discussions lead me to think that there is a shared awareness of the importance of trade liberalization for the development of the developing countries. Regarding steering groups, the Five Interested Parties (FIPS) group was created around July 2004. This group consists of Australia, the EU, Brazil, the United States and India, and concerns itself with the issues of agriculture. The FIPS group was originally an informal group, but in fact became engaged in negotiations as it became the focus of public attention. Various criticisms and concerns have been voiced about the group. Are the FIPS countries involved in Non-agricultural Market Access (NAMA) negotiations? Does the FIPS group have adequate breadth to consider comprehensive packages? With only the EU and others participating, is the group equipped to defend the interests of importing countries? For these reasons, there is an ongoing discussion to increase the number of participating countries in the FIPS group to include Japan and some others. Countries that display no interest in compromise and are not willing to seek a middle ground run the risk of being excluded from the negotiations. In this respect, there is an active element of competition at work in this process.