Policy Update 029 RIETI Policy Dialogue Series: Part One

Challenges and Prospects for Resumption of DDA Negotiations

OGAWA Tsunehiro
Director General of the Multilateral Trade System Department of the Ministry of Economy, Trade and Industry (METI)

Professor at the University of Tokyo and RIETI Faculty Fellow

The prospects for successful completion of the Doha Development Agenda (DDA) of the World Trade Organization (WTO) are dimmed with the new round of multilateral trade liberalization talks remaining stalled after five years of negotiations. The DDA negotiations, which began in 2001, hit a snag over the "triangle issues" of agricultural market access, agricultural domestic support, and non-agricultural market access (NAMA). In July 2006, after ministers from the Group of Six (G6) members - the U.S., EU, India, Brazil, Japan, and Australia - failed to break the impasse, WTO Director-General Pascal Lamy declared a "suspension" of the Doha Round negotiations.

At the summit of the Asia-Pacific Economic Cooperation (APEC) forum in November 2006, however, APEC leaders adopted the Hanoi Declaration whereby they defined support for the DDA as a top priority of APEC and pledged efforts toward realizing APEC's goals of free and open trade and investment. Meanwhile, since mid-November 2006, WTO negotiators have been engaged in informal talks under the initiative of the chairs of the negotiation groups.

Against this backdrop, the first part of the RIETI Policy Dialogue Series invites OGAWA Tsunehiro, Director General of the Multilateral Trade System Department of the Ministry of Economy, Trade and Industry (METI), and KOTERA Akira, Professor at the University of Tokyo and RIETI Faculty Fellow, to discuss the challenges and prospects for the DDA negotiations. Mr. Ogawa has been at the forefront of WTO negotiations while Professor Kotera has been undertaking research at RIETI on the "Current Status of and Prospects of the Multilateral Trade System."

(Translated and excerpted from the original Japanese discussion held on December 15, 2006.)

Key points

  1. Reasons behind the suspension of the DDA negotiations
    • WTO negotiations are becoming increasingly complex, with more and more developing countries - hence numerous different interests - coming into play.
    • Even among the developed countries, exporters and importers of agricultural products are quite far apart in their negotiation positions and the same can be said about developing countries, the sum of which makes it extremely difficult to reach any agreement.
  2. Impact of the DDA suspension on the world and Japan
    • Global impact: The suspension of the DDA negotiations negatively impacts the world economy. The impact is particularly serious on the least developed countries (LDCs) which have little chance to have their say in any trade negotiations outside the WTO.
    • Impact on Japan: Japan is one of the countries that benefits most from multilateral trade framework of the WTO. Undermining the credibility of the WTO therefore has a negative impact on Japan.
  3. What Japan can and should do to help revive the DDA
    • Japan's potential role in the resumption of the DDA negotiations is not necessarily large because Japan is not a main cause of the suspension. Once the negotiations are resumed, however, Japan can play a significant role in facilitating the progress of negotiations, as it did in 2005 when it proposed duty- and quota-free access for LDCs as its Development Initiative.
  4. WTO and EPAs
    • The WTO remains at the core of Japan's trade policy.

Reasons behind the suspension of the DDA negotiations

I would like to ask your view on the current state, challenges, and future prospects of the DDA negotiations. What do you think caused the suspension of the negotiations?

Before talking about the reasons and problems that directly caused the suspension, let me briefly explain the mid- to long-term structural aspects of the DDA negotiations. As compared to the Uruguay Round, the ongoing round of negotiations is characterized by the participation of a far greater number of developing countries. This corresponds to the fact that the term "development" is quite rightly in the official name of the round - the Doha Development Agenda. At the time of the Uruguay Round, a relatively small circle of developed countries - the U.S., EU, Japan, Canada, and some others - could set the direction for the negotiations to some extent and they could do so in a substantially broad range of areas. This time around, however, negotiations are far more complicated because a number of developing countries are involved and their interests often conflict with those of developed countries. Moreover, the situation is not simply a confrontation between developed and developing countries. For instance, even among developed countries, interests and concerns are quite different between exporters and importers of agricultural products. Likewise, developing countries' stances differ greatly depending on whether the country is an exporter or an importer. With all these issues in play, the negotiations were suspended.

The failure of agricultural negotiations was definitely the direct cause of the suspension. However, even before reaching that critical point, various difficult problems were hopelessly entangled and I would say that the breakdown of agricultural negotiations dealt a final blow to the already failing situation.

In any country, agriculture is inextricably linked with politics and any step in this area carries considerable political significance. Therefore, agricultural problems that are inherently domestic issues have been brought into trade negotiations. Direct factors that led to the suspension of the negotiations are known as "triangle issues," which refers to 1) agricultural market access, 2) agricultural domestic support, and 3) non-agricultural market access (NAMA). That is, the conflicts of interest among developed and developing countries over these three issues and the sheer complexity involved there led to the suspension.

One big difference between the Uruguay Round and the Doha Round is the situations surrounding the U.S. Back during the time of the Uruguay Round, the U.S. essentially kept to a pro-liberalization stance, finding little need to become defensive in any area, including agriculture. In the current round of negotiations, however, many countries are strongly demanding that the U.S. reduce agricultural domestic support. Given the internal political situation, however, it would be extremely difficult for the U.S. to realize such reductions. Being on the defensive in the problem of agricultural domestic support, the U.S. has been unable to take leadership or present a middle ground to facilitate negotiations.

Negotiations on agricultural tariff reductions, where the EU and Japan from within the developed countries and India within developing countries are on the defensive, are also running into difficulty finding a middle ground with exporting countries. Meanwhile, developing countries have been showing reluctance to lower tariffs on industrial products. As such, each of the three key issues is fraught with the entangled relationship between the offensive and the defensive, preventing the negotiations from moving forward. This is how and why the Doha Round negotiations were suspended.

More recently, however, given such political schedules as the U.S. midterm elections in early November 2006 and the APEC ministerial meetings shortly after that, some key WTO members, including developing countries, began to call for an early resumption of working-level negotiations, instead of completely shutting them down. In response to such calls, informal negotiations have been held since mid-November under the initiative of the chair of each negotiation group.

Prospects for the resumption of official talks

According to media reports, a ministerial meeting will be held in January 2007. Will this meeting set a stage for the resumption of formal talks?

Not necessarily. In order to break the impasse, the U.S. administration needs to sit down and discuss with Congress about revising the Farm Act so as to, at least to some extent, clarify its negotiation position on agricultural domestic support. I suspect that the U.S. position on agricultural domestic support and the related tariff reductions will be adjusted in February or March 2007. The Davos Mini-Ministerial meeting, scheduled for early January in Switzerland, is widely expected to get no further than checking progress made so far and discussing how to proceed further. Although there are many issues that need to be resolved at a ministerial level, there are also many problems that must be untangled at a working level.

Once the formal negotiations are resumed, can we expect to see the whole negotiations proceed quickly to a successful end?

It is hard to say at this moment as we have yet to know how the ministerial meeting will turn out. If significantly detailed developments are made, and if the White House, based on such developments, manages to get an extension of Trade Promotion Authority (TPA), the negotiations will probably go smoothly. An extension of TPA is, by definition, a domestic issue of the U.S. In reality, however, the WTO negotiations cannot be concluded without the extension of TPA in the U.S. We are hoping, and we think it is very important, that by around March or April 2007, the U.S. administration will be able to show legislators that the Doha Round is expected to proceed in certain ways for certain reasons, and thereby receive congressional approval to extend TPA for a given period. However, even when this happens, it is not impossible that TPA will be extended based on the prospect that the ministerial meeting makes headway only on general ideas with details left for future negotiations. In consideration of all these possibilities, it is difficult to predict how things will turn out.

I understand that WTO members were working to conclude the negotiations by the end of December 2006, because such would be considered necessary given these constraints in U.S. domestic law. What do you think will happen if TPA is not extended?

There are two possible scenarios. Without TPA, the executive branch of the U.S. government does not have the authority to negotiate trade deals, and other WTO member countries have no choice but to negotiate based on this assumption. Depending on future prospects at that point, WTO negotiations could possibly freeze for two to three years. However, negotiations could also continue, that is, if negotiators can expect Congress to renew TPA in a month or two. Indeed, in the past rounds of trade liberalization talks, there were times when negotiations continued without "fast track," as TPA used to be known. Thus, what happens to the Doha Round negotiations in the absence of TPA will very much depend on the political situation and future prospects at that time.

Impact of the DDA suspension on the world and Japan

What impact do you think the suspension of the DDA round has on the world and Japan?

As to the global and macro-economic impact of the DDA suspension, detailed analysis has been conducted by the World Bank and the Organisation for Economic Co-operation and Development (OECD) as well as by METI in Japan. My understanding is that the continued stagnation of the new round of negotiations will impose substantial economic costs on the global economy. Particularly, for LDCs, which have little chance to seek access to other countries' markets in any trade negotiations outside the WTO, the DDA suspension comes as a huge blow. This is why there have been growing calls from these countries for an early resumption of the DDA negotiations.

If the suspension continues for too long, it is quite possible that WTO member countries will begin to put a greater emphasis on free trade agreements (FTAs) even though they will probably continue to consider the WTO as the best mechanism for promoting trade liberalization. For instance, the EU, in its new trade strategy announced in early October 2006, expressed its intention to seek an economic partnership agreement (EPA) with India, the Association of Southeast Asian Nations (ASEAN), and so on.

Japan, for its part, has been actively promoting EPAs with other countries and regions in Asia. However, Japan is certainly one of the countries that most benefit from the multilateral trade framework of the WTO. Undermining the credibility of the WTO is a matter of grave concern for Japan. Benefits Japan receives from the WTO are just like benefits we receive from the air. That is, as long as it exists, we do not realize its value. However, when it begins to thin out, we begin to have difficulty breathing and eventually fall into a state of oxygen deficiency. At the moment, roughly five months after the suspension of the negotiations, we may not have so much difficulty breathing even though the amount of oxygen is somewhat smaller than it was. However, if the situation continues for another year or two, or three, we may begin to feel suffocated and become oxygen-deprived. Thus, in order to prevent this from happening, we need to get the negotiations resumed as soon as possible.

In the current round of negotiations, the Swiss Formula has been adopted for tariff reductions on industrial products, that is, the higher the current tariff rate, the greater the reduction. Japan's average tariff rate on industrial products is among the lowest in the world. Thus, in theory, Japan will be the one that benefits most from a successful conclusion of the DDA round. We must strongly keep this in mind.

I completely agree with the WTO as air analogy. Now that a substantial number of Japanese companies have been multinationalized, some people are skeptical of the benefits of tariff reductions by other countries. But we definitely need to keep in mind that the WTO is just like the air.

Meanwhile, concerns have been voiced about possible delays in Japan's structural reform as a result of the prolonged DDA suspension. What is your view on this?

Regarding agriculture, the Ministry of Agriculture, Forestry and Fisheries has been vigorously pursuing structural reform of the agricultural sector and suspension of the DDA negotiations would not lessen such efforts. But I believe smooth progress of the WTO negotiations, as an international background, is important in that it provides a basis for accelerating domestic structural reforms.

Japan's role

Unlike in the Uruguay Round, we have nothing like the Quad (the U.S., EU, Japan, and Canada) in the ongoing round. Instead, the Group of Five (G5) was formed by the U.S., EU, Brazil, India, and Australia to play a leading role primarily in agricultural negotiations, leaving little room for Japan to enter into play. However, I understand that from 2005 onward, the Group of Six, which is comprised of the G5 members plus Japan, has been in control of overall negotiations. Also, I have been hearing that Japan played a significant role in obtaining developing countries' support of the DDA by announcing the Development Initiatives prior to the Hong Kong ministerial conference in December 2005.

On the other hand, however, the issues in question are agricultural domestic support in the U.S., EU export subsidies, and industrial tariff reductions in developing countries. Considering this, it seems that Japan's role in the current round is not as big as in the Uruguay Round. What role do you think Japan can and should play in this round of negotiations?

I think there are two dimensions in which Japan can possibly play a role; namely, the resumption and promotion of the DDA negotiations. First, with regard to the resumption of the round, Japan, not being a main cause of the suspension, can make little impact to help restart talks by compromising or changing its negotiation position. In this sense, Japan cannot make much contribution to the resumption of the DDA. Still, it should be noted that the Japanese business community is keenly interested in resumption of the DDA. From September through October 2006, Nippon Keidanren (Japan Business Federation) and the Japan Chamber of Commerce and Industry (JCCI) sent high-level missions to the other G6 countries, whereby they exchanged views with their counterparts and urged the relevant ministers toward an early resumption of the DDA.

In promotion of the negotiations, Japan has a significant role to play. Indeed, prior to the suspension, Japan was making a substantial contribution to the DDA negotiations in various areas. In the area of development, for instance, Japan proposed duty- and quota-free access for LDCs. Meanwhile, in the area of agriculture, Japan, as a member of the Group of 10 (G10) developed, net importing countries, has been putting forward various constructive proposals from the viewpoint of importers. With regard to the negotiation on industrial products, Japan invited ministers from major East Asian countries for informal talks on NAMA issues. Once the DDA negotiations are formally resumed, we would like to contribute to consensus building within the G6. Also, in rule-making, we intend to put forward constructive proposals particularly in the area of antidumping measures so that we can come up with a fairly good text at the end of the negotiations.

WTO and EPAs

Considering the uncertainty about the future course of the DDA negotiations even after their resumption, Japan should probably exert greater efforts toward concluding more EPAs, though it should stick to the idea of prioritizing the WTO as the basis of its trade policy. How do you position or define the WTO and its relationship with EPAs within the whole picture of Japan's trade policy? Subsequent to the suspension of the DDA or due to the uncertain prospects for successful conclusion of the DDA negotiations, have your ideas changed or do you think you should change the way of thinking?

I think the basic positioning of the WTO for Japan remains unchanged. While continuing our efforts in the WTO negotiations, we have been and will be steadily working on EPAs in view of the business community's needs and the reality of the national economy. For instance, in August 2006, METI proposed a plan to form an East Asia EPA. That is, we have been proceeding with EPAs regardless of the suspension or progress of the WTO negotiations.

Of course, we might slightly shift the way of placing emphasis and we might see the media attention more focused on EPAs. But I would say that our basic stance in trade policy will remain unchanged.

We had a similar situation in the Uruguay Round; negotiations were suspended for a long period of time and the negotiation deadline was extended. Looking back on how things turned out in the previous round, we can see that the U.S., which held the key in the negotiations, was working toward the conclusion of the North American Free Trade Agreement (NAFTA) while proceeding with the Uruguay Round negotiations. I had the impression that the U.S. was using NAFTA and the WTO as leverage to guide both negotiations to a successful end. In this regard, is there any possibility for Japan to use similar tactics, for instance using EPAs to facilitate the WTO negotiations?

An EPA is meant to accelerate negotiations with a specific country that is party to that agreement or to define the positioning of that country within the world, not to accelerate the WTO negotiations.

The WTO negotiations have been receiving substantial media coverage and been the focus of various views and commentary. Do you see any gaps between what you read and hear in the media reports and what you feel at the forefront of negotiations?

Newspapers tend to focus on the agricultural issues and I think it is natural for them to do so from the viewpoint of the media. But the WTO negotiations are not entirely about agriculture. When the negotiations are stalled, not only the agricultural sector but many other aspects of the economy are affected. This is what we want and need to make people understand. However, this is not the problem of the media but the result of insufficient public relations efforts on our side.

Trade policy involves very complex, highly technical issues wherein the terms used are often totally unfamiliar to the general public. In this sense, it is to some extent understandable that the media finds it easier to present trade issues schematically. But I believe that actual trade policy and negotiations are not as schematic as they might be presented in the press. So, I would like to urge you to make efforts to convey to the media and general public the true significance for them and the actual workings of the WTO negotiations.

Certainly. We will definitely be working to improve in that area. Thank you very much for the discussion.

Thank you too. This has been very informative.

*This transcript was compiled by RIETI Editorial staff.

January 4, 2007

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