EconomicPerspectives

Volume 7 An Electronic Journal of the U.S. Department of State Number 1

January 2002

TRADE IN THE POST-DOHA

GLOBAL ECONOMY

ECONOMIC PERSPECTIVES

Trade in The Post-DohaGlobal Economy

U.S. DEPARTMENT OF STATE ELECTRONIC JOURNAL VOLUME 7, NUMBER 1, JANUARY 2002

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A new global round of trade negotiations, dubbed the “Doha Development Agenda” by trade ministersrepresenting the member countries of the World Trade Organization, has the potential to make life betterfor people in more than 140 participating WTO nations, especially developing countries.

The negotiations, which start in January 2002 and are scheduled to end in 2005, promise to openmarkets on a broad range of goods and services of crucial interest to developing countries, especiallyagriculture. Wealthier countries also have pledged to assist developing countries build capacity toparticipate in trade negotiations and implement commitments they make in these agreements.

Participation by new WTO entrants China and Taiwan is certain to change the dynamics of thenegotiations. Opening its markets further to trade should bolster China’s massive structural economicreforms.

Meanwhile, members from both major political parties of the U.S. Congress have promised to monitorevery step in the WTO negotiations.

This electronic journal brings together the views of key U.S. negotiators, as well as a leading member ofthe U.S. Senate and an academic scholar, to discuss the major issues that will be negotiated over the nextfew years.

Under Secretary of State Alan Larson explores the crucial role played by developing countries inlaunching the new round, particularly in agriculture and intellectual property. Industrial market accessissues and the benefits of lower tariffs for developing countries are the subjects of a contribution byUnder Secretary of Commerce Grant Aldonas. Under Secretary of Agriculture J.B. Penn outlines U.S.agricultural negotiating objectives in three areas — market access, export competition, and domesticsupports. James Zumwalt, economic minister counselor at the U.S. Embassy in Beijing, describes whyChina’s accession to the WTO is good for all parties.

The journal also includes an article by Senator Max Baucus, chairman of the Senate Finance Committee,which is responsible for oversight of the trade negotiations, on the importance of congressionalinvolvement in the new trade round particularly concerning the environment and U.S. antidumping law.

And Jeffrey Schott, senior fellow at the Institute for International Economics, explains why the structureof the current negotiations can be a “win-win” proposition for both industrial and developing countries.

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ECONOMIC PERSPECTIVESAn Electronic Journal of the U.S. Department of State

CONTENTS

TRADE IN THE POST-DOHA GLOBAL ECONOMY

❏ FOCUS

A NEW NEGOTIATING DYNAMIC AT DOHA 6By Alan Larson, U.S. Under Secretary of StateAfter helping build consensus for WTO negotiations, developing countries should benefit from the negotiations in the formof open markets and technical assistance.

DOHA MINISTERIAL: A NEW IMPETUS FOR MULTILATERAL AGRICULTURAL NEGOTIATIONS 9By J.B. Penn, U.S. Under Secretary of AgricultureIn WTO agriculture negotiations the United States seeks to reduce tariffs, eliminate export subsidies, and discipline domesticsupport while providing developing countries with more food security and a sustainable path to development.

OPEN TRADE: GREATER OPPORTUNITIES FOR ALL COUNTRIES 11By Grant Aldonas, U.S. Under Secretary of CommerceDeveloping countries have the most to gain by reducing tariffs on trade with each other. They should come to thenegotiations prepared not only to seek concessions from industrialized countries but also to reduce their own trade barriers.

HOW WTO MEMBERSHIP AFFECTS CHINA 14By James Zumwalt, Economic Minister Counselor, U.S. Embassy BeijingJoining the WTO was good for both China and the world trading system, helping to sustain China’s structural reform whileproviding its trading partners with new challenges and opportunities.

❏ COMMENTARY

DOHA AND BEYOND: THE ROLE OF CONGRESS IN A NEW TRADE ROUND 18By Senator Max Baucus, Senate Finance Committee ChairmanWTO negotiations present opportunities for opening markets and advancing environmental goals. A good outcome inopening agricultural markets is far from certain, however, and the decision to reopen negotiations over antidumping lawdemonstrates Congress’s need to assert more influence in the process.

REFLECTIONS ON THE DOHA MINISTERIAL 21By Jeffrey Schott, Senior Fellow, Institute for International EconomicsThe 2001 WTO meeting in Doha succeeded where the 1999 Seattle meeting failed for a number of reasons, includingimproved U.S.-EU cooperation and better organization. Developing countries need assistance to take advantage of any tradeagreement reached.

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❏ FACTS AND FIGURES

LEADING EXPORTERS AND IMPORTERS IN WORLD MERCHANDISE TRADE 24

U.S. MERCHANDISE TRADE BY REGION 24

U.S. MERCHANDISE TRADE BY ECONOMY 25

U.S. MERCHANDISE TRADE BY PRODUCT 26

❏ INFORMATION RESOURCES

KEY CONTACTS AND INTERNET SITES 27

ADDITIONAL READINGS 28

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Publisher . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Judith SiegelEditor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Jonathan SchafferManaging Editor. . . . . . . . . . . . . . . . . . . . . . . . . . . . Bruce Odessey Associate Editors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Wayne Hall. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Kathleen HugContributing Editors . . . . . . . . . . . . . . . . . . . . . Gretchen Christison. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Eileen Deegan. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Berta Gomez. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Martin Manning

Art Director . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Sylvia ScottEditorial Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .George Clack. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Judith Siegel. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Leonardo Williams

U.S. Department of StateOffice of International Information Programs

January 2002

The Office of International Information Programs of the U.S. Department of State provides products and services that explain U.S. policies, society,and values to foreign audiences. The Office publishes five electronic journals that examine major issues facing the United States and theinternational community. The journals — Economic Perspectives, Global Issues, Issues of Democracy, U.S. Foreign Policy Agenda, and U.S. Society andValues — provide statements of U.S. policy together with analysis, commentary, and background information in their thematic areas.

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ECONOMIC PERSPECTIVESAn Electronic Journal of the U.S. Department of State Volume 7, Number 1, January 2002

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At November’s WTO meeting in Doha, Qatar, developingcountries played a decisive role in achieving consensus fornew trade negotiations, says Alan Larson, under secretary ofstate for economic, business, and agricultural affairs.

Developing countries should benefit from the WTO workprogram ahead, especially in opening agricultural markets,protecting intellectual property while enabling access to drugsfor public health emergencies, and promoting capacitybuilding, he says.

WTO members should assist developing countries toparticipate in the WTO and the broader global economy,Larson says.

The World Trade Organization Ministerial in Dohawitnessed a major shift in the negotiating dynamic of theWTO and in how the organization conducts its business.Both developments will have a profound impact on howthe United States pursues its international economicinterests in this important forum.

First, developing countries created a new negotiatingdynamic at the ministerial by demanding and playing animportant role in shaping its outcome. Second, thedecision to launch a new round of global trade talks —the Doha Development Agenda — represented a tangibleexample of the success that can be achieved throughactivist American diplomacy.

Before and during the ministerial, U.S. TradeRepresentative Robert Zoellick did an outstanding job ofbuilding bridges to all WTO members. He personallyengaged with developing countries and worked with themto address issues of concern and to build consensus for anew round. Secretary of Agriculture Veneman,Commerce Under Secretary Aldonas, and Deputy U.S.Trade Representative Huntsman joined our StateDepartment team in reaching out to developingcountries.

For their part, developing country trade ministers playedvital leadership roles on issues critical to the success of theministerial. Mexican Minister Derbez Bautista, forexample, led the working group that addressed issuesinvolving the Agreement on Trade-Related Aspects ofIntellectual Property Rights (TRIPS). South AfricanMinister Erwin chaired the working group that focusedon WTO rules issues. Singapore’s Minister Yeo led theworking group on agriculture. Chilean Vice MinisterMunoz Valenzuela headed the working group addressingenvironmental issues. Ministers Bello of Nigeria, Biwottof Kenya, and Simba of Tanzania represented theOrganization of African Unity, the African-Caribbean-Pacific Group, and the least-developed countries,respectively.

All of these developing country representatives workedclosely with us and other developed countries to findways forward on many of the most difficult issues.Without their active participation, it is unlikely that theministerial could have succeeded.

At the final session, Ministers Bello, Biwott, and Simbaexpressed satisfaction with both the process and outcomeof the ministerial. Minister Simba coined the nameDoha Development Agenda, and Minister Bellospecifically praised Ambassador Zoellick for his efforts toconsult with, and take into account, the views ofdeveloping countries. Officials from many developingcountries, including South Africa, India, Indonesia,Jamaica, Mexico, and Kuwait, later publicly praised theoutcome at Doha.

HOW DO DEVELOPING COUNTRIES BENEFIT FROM TRADE?

According to the World Bank and InternationalMonetary Fund, trade is the single most importantchannel affecting growth for developing countries. TheWorld Bank estimated that increasing poor countries’access to world export markets could generate anadditional $1.5 trillion in income over 10 years and raisetheir annual gross domestic product growth rates by 0.5

❏ A NEW NEGOTIATING DYNAMIC AT DOHABy Alan Larson, Under Secretary for Economic, Business, and Agricultural Affairs, U.S. Department of State

FOCUS

percent. Trade liberalization can also support growth-oriented economic reforms and aid the transfer oftechnology and expertise.

Developing countries will benefit significantly from thework program agreed to at Doha, especially in the areasof agriculture, TRIPS/public health, and capacitybuilding.

Agriculture. Negotiating reforms to liberalize agriculturaltrade was a top priority for many developing countries.Singapore’s Minister Yeo worked hard to forge acompromise that broke the logjam between the EuropeanUnion (EU) and agricultural exporters. The ministerialdeclaration states that WTO members will negotiatereductions of export subsidies “with a view to phasingthem out.” It commits members to making substantialimprovements in market access and in reducing trade-distorting domestic supports. Leveling the playing fieldwill increase opportunities for farmers in developingcountries to compete more effectively with developedcountries in both domestic and export markets. Tradeliberalization can also help raise agricultural productivityand farm incomes, create employment, and reduce ruralpoverty in developing countries.

TRIPS/Access to Medicines. The public health debatewas another critical issue for the developing countries.The working group was led by Mexican Minister Derbez,who worked with U.S., EU, Brazilian, Indian, andAfrican representatives to reach breakthrough early in theministerial. The final declaration on TRIPS is a strongpolitical statement that reaffirms the commitment of allWTO members to the TRIPS Agreement. It makes clearthat TRIPS is consistent with the public health objectivesof WTO members and gives developing members theconfidence that TRIPS affords them the flexibility toaddress health care crises. Finally, the declarationreaffirms the importance of intellectual propertyprotection and the important role it plays in thedevelopment of new medicines. Ministers also agreed toa U.S. proposal to extend until January 1, 2016, thedeadline by which least-developed WTO members mustimplement their TRIPS obligations.

The United States believes the enormity of the challengeposed by HIV/AIDS and other infectious diseases, suchas malaria and tuberculosis, requires the mobilization ofthe resources of the entire international community. TheUnited States and other countries will establish theGlobal Fund to Fight AIDS, Tuberculosis, and Malaria in

January 2002 to address prevention, care, and treatmentof these diseases, and the development of health careinfrastructure and delivery systems. President GeorgeBush has pledged $200 million to the Global Fund asstart-up money. We are actively engaged in leveragingboth public and private resources to commit furtherresources to the fund.

Capacity-Building Assistance. The ministerialdeclaration recognizes the special needs and interests ofdeveloping countries. It provides for technical assistanceto build trade capacity, both during negotiations and inimplementation of agreements. The United States hasprovided over $1.3 billion in trade capacity assistancethrough various bilateral and multilateral channels todeveloping countries over the past three years. We havecontributed $1.65 million to the WTO’s trust funds fortechnical assistance. Building capacity in developingcountries is a foreign policy priority, and the UnitedStates will continue to lead in this international effort.

Environment. Trade and environmental objectives can,and must, be complementary. However, manydeveloping countries and agricultural exporters fear“green protectionism” and the so-called precautionaryprinciple advanced by the European Union. Under theleadership of Chilean Vice Minister Munoz Valenzuela,and with strong behind-the-scenes support from theUnited States, ministers agreed to a solid environmentalagenda that avoided these risks. Ministers agreed tonegotiations on fish subsidies and market access forenvironmental goods and services. They also agreed tonegotiations on the relationship between the specifictrade obligations set out in multilateral environmentalagreements (MEAs) and existing WTO rules. WTOmembers focused the MEA talks by mandating that theirscope be limited to the applicability of existing WTOrules among parties and instructed that they not prejudicethe WTO rights of any member that is not a party to theMEA in question. Ministers agreed to take into accountthe needs of developing countries while maintaining theopen and nondiscriminatory nature of the multilateraltrading system.

Other Issues. In the group discussing WTO Ruleschaired by South African Minister Erwin, developingcountries were among those that insisted that clarificationof WTO agreements on dispute settlement andantidumping be included in the upcoming negotiations.Developing countries agreed with the United States onthe need to also address in the negotiations the issues of

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8Economic Perspectives • An Electronic Journal of the U.S. Department of State • Vol. 7, No. 1, January 2002

transparency and due process in members’ antidumpinginvestigation procedures and the underlying causes ofunfair trade. WTO committees will give implementationissues, including subsidies and textiles, high priority intheir work programs.

Developing countries also asserted that they currentlylack the capacity to negotiate new obligations in the areasof investment, competition, trade facilitation, andtransparency in government procurement. Therefore,WTO members remanded these issues to WTOcommittees for further discussion. Advocates ofinvestment negotiations must work with developingcountries to enhance their capacity so that countriesbecome comfortable with measures needed to develop aninvestment policy framework that attracts inflows offoreign direct investment. Developing countries shouldremember that having a good investment policyframework provides its own reward by attracting thetechnology, capital, and expertise needed fordevelopment.

CONCLUSION

The WTO Ministerial in Doha showed a new dynamic intrade negotiations as developing countries played anactive and constructive role in forging a consensus tolaunch the Doha Development Agenda. The negotiationshave the potential to improve growth and developmentfor all WTO members. In order to continue progress inglobal trade liberalization, we must be prepared torespond to the critical needs of our developing countrytrading partners. To achieve this, we will have tocontinue capacity-building efforts to help developingcountries increase their ability to participate fully notonly in the WTO, but also in the global economy. ❏

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In WTO agriculture negotiations, the United States seeks toreduce tariffs, with special attention to administration oftariff-rate quotas, to eliminate export subsidies, and todiscipline domestic support measures, says J.B. Penn, undersecretary of agriculture.

Another U.S. goal in the negotiations is to providedeveloping countries with more food security and a moresustainable path to development, he says.

The Doha Ministerial Declaration launched newmultilateral trade negotiations in a number of areas, withagriculture being at the center of these negotiations.

The Doha Declaration on Agriculture reaffirms thecommitment of World Trade Organization (WTO)members to the long-term objective of establishing a fairand market-oriented agricultural trading system. WTOmembers agreed that comprehensive negotiations will aimat substantial improvements in market access, reductionsof export subsidies, and substantial reductions in trade-distorting domestic support.

The declaration recognizes that special and differentialtreatment for developing countries will be an integral partof the negotiations. It also takes note of the non-tradeconcerns raised by a number of countries, includingpolicy objectives such as rural development or animalwelfare, that extend beyond producing and tradingagricultural products.

THE U.S. AGENDA

The United States has an ambitious agenda for thesenegotiations.

Market Access. A recent U.S. Department of Agriculture(USDA) study estimated that the average agriculturaltariff for all WTO members is 62 percent, which greatlyexceeds the average industrial tariff of 4 percent. Thestudy concludes that tariffs contribute the largest share ofthe total economic cost of agricultural protection. Inmany markets, U.S. exports face import tariffs that

exceed 100 percent. This effectively eliminates anymarket access opportunities.

The U.S. objective is to change this situation and toensure effective market access opportunities for allproducts in all markets. Enhanced market access will beachieved through:

• Substantial reduction or elimination of all tariffs,including in-quota duties.

• Substantial reduction or elimination of disparities intariffs among countries.

• Substantial reduction or elimination of tariff escalation(where the tariff on the processed product is higher thanon the raw input product).

• Simplification of complex tariffs (all tariffs to beconverted to an “ad valorem,” or fixed, percentage of thevalue of the product).

We intend to focus our attention on the administrationof tariff-rate quotas (TRQ). This concept, which cameout of the final Uruguay Round Agreement, was intendedto provide market access opportunities in previouslyclosed markets. An initial quota level would have zero orvery low duties, and a considerably higher duty would beapplied to imports above the initial quota levels.

However, improved market access has not always been theresult. We seek to increase the quota amounts themselvesand to reduce or eliminate the in-quota duty. Also, weare prepared to establish disciplines to improve thefunctioning of TRQ administration. We recognize thatno single system of TRQ administration is appropriate forall markets and conditions. However, disciplines basedon the principles of transparency and predictability willensure that market access opportunities are created.

Export Competition. Export subsidies continue to beused by very few WTO members. While the amountsused, in both value and quantity, are within theirrespective Uruguay Round commitments, these subsidiescontinue to distort world trade and distort market signalsfor all producers. The elimination of export subsidies

❏ DOHA MINISTERIAL: A NEW IMPETUS FOR MULTILATERAL AGRICULTURAL NEGOTIATIONSBy J.B. Penn, Under Secretary for Farm and Foreign Agricultural Services, U.S. Department of Agriculture

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remains a priority objective, not just of the United Statesbut also of almost every other WTO member.

The Doha Declaration commits WTO members toreduce, with a view to phasing out, all forms of exportsubsidies. This phrase proved to be the mostcontroversial part of the declaration due to the reluctanceof the European Union (EU) to make this commitment.Including the words “with a view to phasing out” makes apowerful statement, and it will undoubtedly be subject tolong and heated debate in the negotiations.

USDA recognizes that the phrase “all forms of exportsubsidies” can be interpreted by other WTO members toinclude USDA’s Export Credit Guarantee Program. Thisprogram facilitates trade with developing countries byproviding commercial financing support to U.S.agricultural exporters. We have fully participated in theOrganization for Economic Cooperation andDevelopment (OECD) negotiations mandated by theUruguay Round Agreement on Agriculture to worktoward disciplines on export credits, and we are willing tocommit to the current draft OECD agreement. Such acommitment would have a significant impact on thisprogram. Whatever the final outcome of the OECDdiscussion, we intend to be fully engaged in the WTOnegotiations on export credits. Any theoretical subsidyelements of our export credit program pale in comparisonto the thousands of millions of dollars used annually bythe EU on direct export restitutions.

Domestic Support. The U.S. goal is to redefine thedebate on domestic support. The best way to accomplishthis objective is to negotiate and review criteria fordetermining whether a program has any trade-distortingimpact. The challenge for WTO members is to negotiatewhere the line is drawn between trade-distorting andnon-trade-distorting measures. Programs that distorttrade will be subject to reduction commitments. We haveproposed that the final level of support be based on afixed percentage of the total value of agriculturalproduction.

OTHER AREAS OF CONSIDERATION

In addition to the commitments based on the three pillarsfrom the Uruguay Round, the Doha Declaration containstwo other important areas for U.S. agriculture.

Developing Countries. The entire Doha Declaration is acommitment to ensure that developing countries,

especially the least developed countries, secure a share inthe growth of world trade. USDA is committed toworking with other U.S. government agencies andinternational organizations, such as the United NationsFood and Agriculture Organization, to focus attention ontrade capacity-building in developing countries.Agriculture is at the heart of sustainable development forthe majority of the world’s population. With the world’slargest agricultural research network and decades ofexperience, USDA will continue to provide importanttechnical assistance to countries throughout the world.

A number of studies on the impact of the UruguayRound concluded that the level of benefits countriesderive from trade is directly related to the level ofparticipation those countries have in the negotiations.Our objective is to increase developing countries’participation in the negotiations. Developing countriesare different in many ways from each other, from soybeanproduction in Brazil, to subsistence farming in sub-Saharan Africa, to traditional farming practices in smallisland countries. Therefore, one model or approach willnot work. However, in all cases, trade policy can play animportant role in agricultural development, allowingfarmers to receive world price signals and providingconsumers with lower prices and greater choices. Tradepolicies should enhance food security and can be used bydeveloping countries to ensure a stable supply of healthyfoods to their consumers.

Environment. The Doha Declaration committedmembers to negotiations that examine the relationshipbetween existing WTO rules and the specific tradeobligations in multilateral environmental agreements. Itwill be vital to ensure that the science-based nature of theUruguay Round Agreement, in particular the Agreementon Sanitary and Phytosanitary Measures, is maintained.

The Doha Declaration was difficult to negotiate, but wemust remember that it is only the beginning. We have anambitious agenda for these negotiations, and we aresupported by most of the WTO members. The UnitedStates and USDA will continue to play a leadership rolein these negotiations. Further trade liberalization is good,not only for American farmers, ranchers, and consumers,but for farmers and consumers around the world. ❏

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Developing countries have a lot to gain from WTOnegotiations, not only for expanding their entire economy,but also for making available a wider supply of goods to theircitizens at a lower cost, says Grant Aldonas, under secretaryof commerce for international trade.

Developing countries have the most to gain by reducingtariffs among themselves, he says.

They should come to WTO negotiations prepared not only toseek market-opening concessions from industrialized countriesbut also to reduce their own barriers, Aldonas says. Freedomis bolstered by reducing barriers to individuals’ success in theeconomic realm of trade no less than in the political realm,he says.

“We know that giving developing countries greater access to world markets can quickly and dramatically raise investment levels andincomes. We also know that free trade encourages the habits of liberty that sustainfreedom over the long haul.”

— President George W. Bush,to the World Bank, July 17, 2001

At the conclusion of the World Trade Organization(WTO) Ministerial in Qatar, trade ministers from morethan 140 countries agreed to launch the DohaDevelopment Agenda. For the WTO to be effective, allmembers must be involved in the decision-makingprocess. Thus, if we are to have a successful round ofglobal trade talks, developing countries must play acentral role in the process. The Doha DevelopmentAgenda will be more inclusive than past negotiations; asthe Doha Ministerial Declaration states, the “needs andinterests” of developing countries must be at the heart ofthe future WTO work program.

While in Doha, I saw firsthand that the developingcountries want to be engaged in these talks, and theywant to speak for themselves. This should not besurprising to anyone — the developing countries have alot to gain. A study by Joseph Francois of Erasmus

University projects that new global trade negotiationswould generate $90,000 million to $190,000 million ayear in higher incomes for developing nations. It’s nowonder that UN Secretary-General Kofi Annan has said:“The poor are poor not because of too muchglobalization, but because of too little.” The WTOoperates by consensus, which should give developingcountries a strong role in the negotiations themselves and,even more importantly, in the results of the new round.

While trade among advanced economies still accounts forthe majority of international trade, world economicgrowth has been faster in developing economies. With afew exceptions, tariffs and quotas are no longer significantbarriers in industrial economies, but they remain high inmost of the developing world. This is counterproductive.Reductions in market access barriers can promote trade,particularly between developing countries, and improveinvestment flows.

THE BENEFITS OF OPENING MARKETS

All countries stand to gain when they lower their tariffsand open their markets. In the United States, our exportshave contributed more than one-quarter of our economicgrowth in the last decade. From 1970 to 2000, ourexports grew more than 10 percent per year, reaching$1.1 trillion in 2000 — that’s a doubling of U.S. exportsabout every seven years. An estimated 12 millionAmerican jobs depend directly on exports — good jobsthat pay wages 13 to 18 percent higher than the nationalaverage. Benefits from the North American Free TradeAgreement (NAFTA) and the Uruguay Roundnegotiations alone have saved a family of four $1,200 to$2,000 a year by encouraging our markets to makehigher-quality goods available at lower prices. One inthree hectares planted on American farms is seeded withcrops intended for export.

In other words, opening new markets for Americangoods, services, and agriculture is critical to our economicfuture and our strength as a nation. There is no betterpolicy tool for raising the economic prospects for the

❏ OPEN TRADE: GREATER OPPORTUNITIES FOR ALL COUNTRIESBy Grant Aldonas, Under Secretary for International Trade, U.S. Department of Commerce

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United States — and the rest of the world — thanopening markets through trade agreements.

This holds true for developing countries as well. In thefirst five years of the Uruguay Round, developingcountries increased their exports by 41 percent whilehigh-income countries increased their exports by 29percent. Strong growth in exports is a catalyst foreconomic growth. The World Bank’s 2001 report GlobalEconomic Prospects and the Developing Countries concludesthat developing countries that lowered trade barriers overthe last 20 years experienced strong economic growth.For developing countries that reduced trade barriers inthe 1980s, gross domestic product (GDP) per capita grewan average of 3.5 percent a year; for developing countriesthat reduced trade barriers in the 1990s, GDP rose by anaverage of 5 percent.

DEVELOPING COUNTRIES’ POTENTIAL

The potential for developing countries to prosper from amore inclusive role in new trade negotiations issignificant in terms of GDP growth, but even moreimportant in the benefits to be realized by the citizens ofthese countries. A new round of trade negotiationsfocused on reducing tariffs on industrial and agriculturalproducts can deliver more choices and competitive prices,including access to many goods not readily available.Medical equipment, agricultural equipment, andpharmaceuticals historically have been scarce indeveloping countries; reductions in tariffs and the moreeffective protection of intellectual property rights couldprovide the incentive needed for traders and investors toenter developing country markets. Also, restrictions onforeign investment and ownership have hampered growthin service sectors — the fastest growing component of theglobal economy.

Eliminating barriers to entry and new competition andliberalizing restrictions on exports, includingtransportation and construction services, can promotenew market opportunities and attract new foreigninvestment. A new round can also focus attention onenvironmental protection through better access toenvironmental technologies, goods, and services.

Developing countries traditionally have been viewed asoffering limited opportunities for investors. Activeparticipation in the world trading system, includingadherence to global trading rules, fosters a businessclimate that attracts foreign investment. An environment

that includes greater transparency and stability ingovernment and economic transactions can leverage bothgovernment and private investment pools to help expandgrowth and development.

The United States seeks stronger trading relationshipswith developing countries — as evidenced by our work in2000 on the Africa Growth and Opportunity Act andrenewal of the Caribbean Basin Initiative. Currently inthe United States, 62 percent of all imports fromdeveloping countries are free from duties or tariffs.

The U.S. simple average tariff is 4.3 percent — which islow compared to the average tariffs for developingcountries. Many developing country tariffs exceed 15percent across the board, placing high burdens on thosewho can least afford them. Average developed countrytariffs on manufactured goods, including textiles andclothing, now stand at 8 percent while the same tariffs indeveloping countries are 21 percent. Also, developingcountries apply duties on motor vehicles at more thandouble the average rate of advanced economies.

These high tariffs, along with restrictive market accessbarriers, have stymied trade in all directions. Becausetrade barriers between developing economies aresignificantly higher than between developing andindustrialized countries, developing countries have themost to gain from liberalizing restrictions on trade withone another. Trade between developing countriesaccounts for 40 percent of their overall trade, anddeveloping country trade still accounts for a very smallpercentage of world trade. According to the UnitedNations, in 1999 intra-African trade accounted for 10percent of world trade; intra-South Asian trade, 4percent; Asian-African trade, 1.5 percent; and LatinAmerican-African trade, 1.5 percent.

LIMITATIONS OF HIGH TARIFFS

It is generally believed that developing countries producesimilar goods — primarily raw materials andcommodities. However, the range of products indeveloping countries is actually considerably morediverse. A growing number of developing countries havebecome important producers and exporters ofmanufactured goods, and the decentralization ofproduction has resulted in parts and components beingcombined from many sources. But the high tariffsbetween developing countries limit their ability toproduce final goods to trade because of the added

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expenses involved in importing parts. The barriers thatwere once erected to protect domestic markets andfledgling export industries are now hampering growththroughout the developing world.

The Doha Ministerial Declaration makes it clear thatthere are no a priori exclusions for product coverage inthe industrial market access negotiations. The UnitedStates is willing to look at liberalization in historicallysensitive sectors and to consider reducing restrictions onproducts and services that the developing economiesproduce so long as liberalization results in a genuinelymore open and level playing field in these sectorsworldwide. Similarly, developing counties should beprepared to improve their own situations by liberalizingservices and lowering barriers to import competition —they should come to the negotiating table not only askingfor a reduction in market access barriers to theindustrialized world, but also indicating a willingness toreciprocate and reduce their own barriers to entry.

Lowering tariffs is not the only challenge faced by WTOmembers, of course. Nontariff barriers, such as difficultcustoms procedures and lack of transparency in theenforcement of official rules and regulations, also make itdifficult for developing countries to derive the expectedbenefits from trade. The Doha Development Agendaprovides for these and other issues to be addressed. Thedeveloped WTO countries must, in the new round, bewilling to work with the developing countries to realizethe full benefits of the world trading system. Butliberalization is a two-way street, and developed countryefforts to provide technical and capacity buildingassistance to developing countries will be central tomaking the Doha Development Agenda a success.

CREATING GREATER OPPORTUNITIES

The benefits will be broad for businesses and consumersin developing countries during the next round of tradenegotiations. Greater market access will lead to greatertransparency, more economic stability, and greateravailability of necessary goods. As the noted economist

Mancur Olson observed in Power and Prosperity: “It is noaccident that the developed democracies with the bestestablished individual rights are also the societies with themost sophisticated and extended transactions (such asthose in futures, insurance, and capital markets) forrealizing the gains from trade. They are generally thesocieties with the highest levels of per-capita income.”

The importance of that success is not merely material.Freedom is served when governments tear down barriersto individuals’ success, whether these barriers are political,social, or economic, as in the case of trade. Assuming anincreased role in the global trading system, developingcountries will realize these benefits through their tradeboth with the industrialized countries and with otherdeveloping countries.

The United States provided more than $555 million intrade-related capacity-building assistance to developingcountries in the year 2000 — more than from any othersingle country. This assistance includes significantprograms for the WTO, which are part of an overall U.S.effort to support developing country capacity buildingthrough bilateral assistance and in other internationalorganizations. This underscores our belief that thedeveloping countries must play a central role in theWTO process — to foster greater understanding andcreate greater opportunities for all. ❏

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Joining the WTO was good for China and good for theworld economic system, says James P. Zumwalt, economicminister counselor at the U.S. Embassy in Beijing.

WTO membership should help China sustain economicexpansion as it continues its program of structural reform,Zumwalt says. Asian neighbors should face both morecompetitive challenges from China and more exportopportunities, he says.

Trade disputes between the United States and China arequite likely to increase, Zumwalt says, as China struggles tofulfill its obligations and both parties have access to WTOdispute-settlement procedures.

But the United States and other countries are working tomitigate trade frictions by offering training and othertechnical assistance, he says.

With its accession to the World Trade Organization(WTO) on December 11, 2001, China became one ofthe last major trading nations to join that organization.And the message to the world was clear: China isprepared to become a fully vested player in the globaleconomy. WTO membership will generate tremendousbenefits for China — expanding trade, spearheadingfurther economic reform, attracting even higher levels offoreign investment, and fostering the rule of law.

At home, WTO membership will undoubtedly thrustsignificant responsibilities and challenges on the Chineseleadership and the Chinese people. Abroad, it willfundamentally redefine China’s relations with othercountries, especially with the United States, its mostsignificant export market, not to mention its neighbors inthe Asian region.

One thing is certain: the changes wrought by China’sWTO accession will reach far beyond just the trade-related aspects of its relations with other countries,engendering many benefits as well as challenges. Howbest to bolster the benefits and mitigate the risks remainsa subject of considerable debate among policy planners,business people, and consumers.

China’s explosive economic expansion over the past 20years is a well-known success story. Fueled by vigorousreform efforts, growth rates averaging nearly 10 percentannually have created a vast array of new job andinvestment opportunities, making China moreprosperous. The effect of China’s transformation from aninward-looking, planned economy to a more market-oriented, trading powerhouse has reverberatedthroughout the global economy, influencing everythingfrom consumer choice to investment flows.

Rapid-fire growth has not been cost free, however. Inparticular, it has cast a harsh light on some of thestructural weaknesses of China’s economic system,particularly in agriculture, finance, and state-ownedenterprises. The dilemma for China has been, and willcontinue to be, how best to keep the dual momentum ofeconomic growth and structural reform going. For if onewere to stall, the other might very well stumble,potentially unleashing a whole new set of economicchallenges and difficulties.

WTO IS CHINA’S BEST OPTION

In many respects, WTO membership is China’s bestoption for sustaining the pace of economic growth andreform. As the world economy has become vastly morecomplex and interconnected, China’s participation in it— according to the rules of international trade — hasbecome that much more critical for China, as well as forthe United States, Asia, and the world. As a WTOmember, China will be able to participate in theformulation of rules that govern international trade andinvestment.

Similarly, it will be able to defend its trade interests usingthe WTO dispute-settlement system. Chinese exporterswill benefit from the certainty that their trading partnersmust obey WTO rules. This means, for example, thatWTO members will not be able to discriminate againstChinese products in their home markets. WTOmembership will make China even more attractive toforeign investors. And more money invested in Chinameans more high-paying jobs, more government taxreceipts, and more technology transfers.

❏ HOW WTO MEMBERSHIP AFFECTS CHINABy James P. Zumwalt, Economic Minister Counselor, United States Embassy, Beijing

China’s WTO commitments will facilitate increasedcompetition in every sector of the economy. Chineseconsumers will be the direct beneficiaries as competitionencourages a larger range of choices, lower prices, andhigher quality, not to mention a greater awareness of andappreciation for intellectual property rights and consumerrights. Competition will foster gains in efficiency andproductivity, which will strengthen China’s economy overtime and enhance the ability of Chinese firms to competewith the best multinationals in any market.

China’s economy will benefit from the expanded range ofservices — insurance, finance, distribution — thatforeign companies want to bring into China after itsWTO accession. Competition in this area will, in turn,stimulate China’s homegrown services sector, givingcompanies and consumers an even broader range ofchoices.

Perhaps most importantly, consumers and companiesalike will benefit from an expanded rule of law as Chinaimplements its WTO commitments, particularly thosedesigned to foster the highest degree of transparency andtrade-related nondiscrimination.

CHINA’S RESPONSIBILITIES UNDER THE WTO

While China is poised to benefit greatly from joining theWTO, it is important to keep in mind that WTOmembership conveys not only certain rights but alsospecific responsibilities. China labored through 15 yearsof tough negotiations, particularly with the United Statesand the European Union, to achieve WTO membership.The commitments China has made are extensive. For acomprehensive understanding of them, one could poreover the some 1,000 pages of China’s Protocol, WorkingParty Report, and Schedules of Commitments on Goodsand Services. Short of doing that, we can summarize thekey components of China’s accession package as follows:

Tariff Reductions

• Industrial tariffs of greatest importance to U.S.businesses will be reduced from 25 percent to 7 percent.

• Agricultural tariffs of greatest importance to U.S.farmers will be reduced from 31 percent to 14 percent.

Services Commitments

• Substantial opening of a broad range of service sectors,including important U.S. sectors such as banking,insurance, telecommunications, and professional services.

Systemic Reforms

• Broad reforms in the areas of transparency, notice andcomment, uniform application of laws, and judicialreview will help to address barriers to foreign companiesdoing business in China.

Adherence to Existing WTO Agreements

• China will take on the obligations of numerous existingWTO agreements covering all aspects of trade, such asagriculture, import licensing, trade-related aspects ofintellectual property rights, technical barriers to trade,and trade-related investment measures.

China-Specific Trade-Liberalizing Provisions

• Right to import from and export to customers in Chinadirectly within three years.

• Right to engage in distribution of all products in Chinawithin three years of accession (except that chemicalfertilizers, crude oil, and refined petroleum can bedistributed at the wholesale level five years after accession,and chemical fertilizers can be sold at the retail level fiveyears after accession).

• Investment and import approvals no longer subject totrade-distorting requirements such as technology transfer,foreign exchange balancing, export performance, andlocal content requirements.

• Right to export to China without establishing aninvestment presence there.

• Phase-out of nontariff measures (NTMs) such as quotasand licenses on hundreds of products, with all WTO-inconsistent NTMs eliminated by January 1, 2005.

• Elimination of state-trading import monopolies foragricultural and industrial products.

• Requirement that state-owned enterprises must makepurchases and sales based solely on commercialconsiderations.

• Elimination of export subsidies on agricultural goodsand elimination of import substitution and exportsubsidies on industrial goods.

Safeguard Mechanisms

• The United States and other WTO members cancontinue to use special nonmarket economy methodologyfor measuring dumping in antidumping cases againstChina for 15 years.

• Under a China-specific safeguard mechanism, theUnited States and other WTO members can restrainincreasing imports from China that disrupt their marketsfor 12 years.

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The time and effort involved in negotiating thesecommitments stand as a testament to China’sdetermination to become a fully integrated player in therules-based global trading regime. Although the battle toachieve the victory of WTO accession was hard fought, inmany respects another equally worthwhile but difficultchallenge confronts the nation. As can be seen from theabove list of commitments, China is making enormouschanges to meet its WTO obligations — restructuringindustries, publishing previously internal laws andregulations, establishing formal procedures to adjudicatedisputes, and leveling the playing field for foreigncompanies. It has agreed to slash tariffs and to eliminateimport quotas, to dismantle export subsidies, and to openservice industries to foreign competition. Some of thesechanges will come immediately; others will be phased inover a period of a few years.

CHINA AND ITS NEIGHBORS

With its 1.3 billion people and an increasingly diverseand growing economy, China’s accession (in conjunctionwith that of Taiwan) inextricably alters the compositionand character of the trade organization, and it will have adirect bearing on China’s relations with other nations,particularly its neighbors. Many Asian nations are facedwith recession and are looking to a growth in exports torevive their economies. In some respects, Chinarepresents both a competitive challenge to these goals andan opportunity to gain from its strong economicperformance.

Between 1995 and 2001, China’s share of global exportsrose from 2.9 percent to 3.9 percent, while exports fromThailand and Indonesia during the same periodstagnated. In the last four years, China has overtakenboth Malaysia and Singapore in electronics exports to theUnited States.

On the other hand, China’s WTO accession also cantranslate into improved growth in gross domestic product(GDP) for countries with high-value exports. Accordingto a recent study by investment bank UBS Warburg,China’s accession will give Taiwan’s economy a boostequivalent to 1.7 percent of Taiwan’s 2000 GDP by 2005.Asia’s other newly industrialized economies are projectedto benefit by 1.1 percent of their 2000 GDPs as China’sdemand for their exports increases.

For most of Southeast Asia, however, the prospects arenot as bright. UBS Warburg estimates that Southeast

Asian economies will lose between the equivalent of 0.1percent and 0.2 percent of their 2000 GDPs by 2005.For India, this figure could be as high as 0.7 percent.This is one of the reasons the Association of SoutheastAsian Nations and China have agreed to try to liberalizetrade between them.

U.S.-CHINA RELATIONS

How well China fulfills its obligations of WTOmembership will directly affect the future direction ofU.S.-China relations. China’s leaders have stated timeand again their determination to implement fully theircountry’s commitments. It is in the interests of both theUnited States and China to avoid a scenario in whichtrade frictions are exacerbated by China’s inability orunwillingness to meet its many WTO commitments.

That said, trade frictions between the United States andChina will not disappear with WTO accession, just asthey have not disappeared between the United States andmany of our trading partners who are longstanding WTOmembers. If anything, there is potential for an increase,at least initially, as the size and scope of our traderelationship grow. China already enjoys a burgeoningtrade surplus with the United States. If Americancompanies discover that promised access to China’smarkets does not materialize as quickly as anticipated, theresult may be an unstable combination of sluggish U.S.export growth, a politically unsustainable Chinesebilateral trade surplus, and heightened trade frictions.

The United States and other WTO members are playinga vital role in trying to avoid just such a scenario byoffering China assistance in meeting its WTOobligations. Our consulate general in Shanghai, forexample, has worked with the U.S.-China BusinessCouncil to put together a video-conferencing program inwhich American trade-law experts speak to Chineseofficials. Similarly, our embassy in Beijing is workingwith Beijing University and a local distance-learninginstitution to provide online WTO training opportunitiesin communities throughout China. Our commercialsection is arranging a series of seminars to expose localofficials to WTO principles. The European Union hasallocated approximately $23 million to bring Chineseofficials up to speed on WTO rules and concepts such asprotection of intellectual property.

Although China is under tremendous pressure to abide byinternational rules and meet fully its WTO

17Economic Perspectives • An Electronic Journal of the U.S. Department of State • Vol. 7, No. 1, January 2002

commitments, it is important to remember that tradedisputes are not a one-way street. China too will haverecourse to WTO mechanisms to address its tradecomplaints against other WTO members.

Despite the challenges that lie ahead for China, there isno question that joining the WTO is the right choice forChina and good for the world economic system. WTOmembership will inextricably link China to the globaleconomic community, eventually bringing with it moreemployment and investment opportunities, and greatersocial stability, as the rule of law takes deeper root ingoverning economic transactions in China. Americanswill benefit from greater export opportunities in China,

more job creation at home, and more diverse options foroverseas investment. As trade and business links betweenour two nations expand, so too will face-to-face contactbetween Chinese and American citizens, exchanges ofideas, and transfers of technology. The growing sense ofinterdependence engendered by the WTO should alsohelp foster a stronger sense of common purpose as Chinaand the United States work more closely together on abroad range of issues relevant to global economic stability,security, and prosperity. ❏

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The WTO round launched in Doha, Qatar, in Novemberpresents opportunities for opening markets, especially inagriculture and services, as well as advancing environmentalgoals, says Senator Max Baucus, the Montana Democrat whochairs the Senate Finance Committee.

Ambiguity in the Doha Declaration on Agriculture makes agood outcome far from certain, though, Baucus says.

And the agreement to reopen negotiations over antidumpingand other unfair-trade laws, opposed by a majority of theSenate, demonstrates a need for Congress to reassert moreinfluence during the course of trade negotiations, he says.

The new round of trade negotiations launched atNovember’s World Trade Organization (WTO)Ministerial represents an important step forward for theglobal trading system. In the wake of the stalemate thatemerged during the Seattle Ministerial, a number ofcommentators expressed concern for the continuedviability of globalization and, specifically, tradeliberalization. The consensus that was struck at Doha,therefore, is a significant blueprint for expanding tradeand creating an integrated global economy.

The substance of this blueprint, however, points to thecontinuing need for the United States Congress to playan active and forward-looking role in developing U.S.trade policy.

The accession of China and Taiwan to membership in theWTO, which took place during the Doha Ministerial,points to just how effectively Congress, in conjunctionwith the president, can work to advance a proactive tradeagenda. The United States was an early proponent ofChina’s and Taiwan’s membership bids and worked hardto gain support for them both domestically andinternationally. This process culminated in a contentiousvote granting permanent normal trade relations to China— a vote that, despite the controversy, turned out to belargely bipartisan.

China’s and Taiwan’s successful membership bids areparticularly significant in light of the fact that U.S. andinternational negotiators were able to reach a consensuson launching a new round of trade negotiations at Doha.Despite a few notable exceptions — such as Russia —this round will be the most inclusive trade negotiationever undertaken.

POSITIVE NEGOTIATING POINTS

The agenda for these talks contains a number ofpromising negotiating points that have the potential tobenefit not only the United States but the rest of theworld as well. At the core of these objectives is increasingmarket access in a number of sectors that havetraditionally been closed to U.S. exporters, such asservices and agriculture.

Increasing market access in the services sector isparticularly important from the United States’perspective. In 2000, the United States was the largestexporter (and one of the largest importers) of services tothe world. Despite this, a number of important marketsremain closed, simply for protectionist reasons. If a levelplaying field is ever to be established, U.S. negotiatorsmust work to open these markets as well as ones in othersignificant sectors.

Another important victory for the United States was theimportant role that environmental issues will play in theupcoming negotiations. Increasing access forenvironmental goods, reducing trade-distorting fishsubsidies, and recommitting the WTO to promotingsustainable development are all important additions tothe negotiating agenda that will likely receive strongsupport from both Congress and the American people.But the commitment to explore the linkages betweenMultilateral Environment Agreements (MEAs) and tradeand trade agreements represents a particularly significantstep into the 21st century for the WTO. A number ofdispute-settlement cases have examined potential conflictsbetween commitments countries have made under MEAsand the WTO. Indeed, this has been a particular source

❏ DOHA AND BEYOND: THE ROLE OF CONGRESSIN A NEW TRADE ROUNDBy Senator Max Baucus, Chairman, Senate Finance Committee

COMMENTARY

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of concern in the United States, where the perceptionthat the WTO is undermining domestic environmentalstandards has gained greater currency over the past severalyears.

While the WTO’s work is not guaranteed to lead toconcrete negotiations, it is nevertheless an importantacknowledgment of the linkage between trade and theenvironment. Indeed, any trade agreement that does notexplicitly acknowledge this important connection willmost likely face an extremely difficult time being ratifiedby the Congress. Now the WTO and its members needto take the next important step and begin examining therole labor rights play in liberalizing trade — another stepthat is essential in shaping a negotiating agenda for the21st century.

Agriculture, of course, remains one of the mostconsistently controversial trade issues, both in the UnitedStates and abroad. The negotiating language in theMinisterial Declaration is extremely promising, and U.S.negotiators are to be commended for their work inguaranteeing that export subsidies remain on the agenda.

However, the details of the actual negotiation remainvague, and there is great concern that the final outcomemay not adequately address the issues raised at theministerial. Specifically, there is increasing trepidationthat a clear agenda for eliminating export subsidies,though called for in the Ministerial Declaration, might beblocked, using the vague language of the declaration as awedge. U.S. farmers have been extremely hard hit by thetrade distortions caused by European agriculturalsubsidies over the past decade, and it is essential that aplan for their elimination is developed. Indeed, thesesubsidies are more appropriate for a 19th centurymercantilist system than for today’s open trading system.

NEGATIVE ISSUES

Despite these positive negotiating objectives, severalextremely disturbing items were also included on thefuture negotiating agenda — items that threaten toundermine the support of a number of members ofCongress and a vast majority of the American people forlaunching a new round.

Foremost among these issues is the inclusion of U.S.trade laws, specifically antidumping and countervailingduty laws, on the negotiating agenda. Antidumping andcountervailing duty laws have been part of the

international trading system since its inception in 1948and were renegotiated at the international level during theUruguay Round. Upon completion of the UruguayRound, the United States made a number of revisions toits existing trade laws to bring them into compliance withthe newly established international system.

Further, the trade distortions that make these lawsnecessary continue to plague the U.S. economy.Industries ranging from steel to semiconductors to avariety of agricultural sectors have been victimized bydumped and subsidized exports from a number ofcountries, a problem that grows worse during economicdownturns, when U.S. industries are at their mostvulnerable. The trade laws currently on the books are theonly effective means of addressing these unfair exports.

This issue was deemed so significant that two-thirds ofthe Senate signed a letter to U.S. Trade RepresentativeRobert Zoellick specifically requesting that our trade lawsnot be on the table during a new round of negotiations.Despite this urging, however, the United States’antidumping and countervailing duty laws will bereopened, leading to the possibility that they will need tobe significantly revised yet again.

CONGRESSIONAL OVERSIGHT

The failure of U.S. negotiators to leave this item off theagenda points to the continuing need for Congress totake an aggressive role in shaping U.S. trade policy.Although the fact is often overlooked, the U.S.Constitution grants Congress, not the president or theadministrative branch, the power to regulate trade. Theadministration may do the actual negotiating, butresponsibility for making sure that trade agreementsreflect the broad needs of the American people liesultimately in the hands of the Congress. If negotiationsare to move forward, Congress needs to be assured that itsconcerns are reflected in the U.S. agenda, particularlywhen contentious issues arise.

Along with reopening negotiations on trade laws, thereare a number of issues addressed by the new round thatcould fundamentally affect the laws and regulations of theUnited States. Work on competition policy holds thepotential for reshaping the antitrust system that hasevolved over more than a hundred years. Negotiations onintellectual property could undermine protections thatthe United States has sought to make an integral part ofthe world trading system. Even issues that hold great

20Economic Perspectives • An Electronic Journal of the U.S. Department of State • Vol. 7, No. 1, January 2002

potential for benefiting the United States also hold thepotential to create trade-offs that are simply unacceptable.

These issues remain too important for the Congress tohand them off. The fact that U.S. negotiators ignoredthe express request of a majority of the Senate to keepU.S. trade laws off the table only serves to illustrate justhow significant a role congressional oversight needs toplay in any future negotiation.

The administration has asked Congress to grant it TradePromotion Authority (TPA, formerly known as fasttrack), so that any agreement that emerges from the newround of negotiations is voted on a strict “yes” or “no”basis. A number of commentators, both inside andoutside of government, have argued that, without suchauthority in place, the new round is doomed before itbegins.

In fact, I have always maintained that the presidentshould have such authority. But it is essential that anygrant of TPA be structured so as to maintain the integrityof Congress’s role in regulating trade. In part, this meansthe inclusion of labor and environmental rights in anyfuture trading agreements. These issues have become sopressing that it seems unlikely that any trade agreementcan garner bipartisan support without allowances beingmade for these issues. More importantly, however, ismaking sure that the essential oversight role played byCongress is maintained.

In sum, the launch of a new round offers severalpromising opportunities for expanding U.S. trade andfurther liberalizing the global trading system. But it isessential that the negotiations move forward on termsthat do not compromise the structures needed tomaintain public support for trade. This means that U.S.trade laws need to be strengthened, not undermined, byany negotiation, and that labor and environmentalconcerns need to be taken into consideration. If thepresident is to be granted TPA in the new year, Congressand the administration need to work together to makesure that the negotiations reflect the concerns expressedby a vast majority of Americans by making sure that tradeis both free and fair. ❏

The opinions expressed in this article are those of the author and donot necessarily reflect the views or policies of the U.S. government.

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The 2001 WTO meeting in Doha, Qatar, succeeded wherethe 1999 meeting in Seattle failed for a number of reasons,including improved U.S.-EU cooperation and betterorganization, says Jeffrey Schott, senior fellow at the Institutefor International Economics in Washington.

Failure at Doha could have raised serious doubts aboutglobal economic prospects as well as about continuedinternational cooperation in the war against terrorism, hesays.

Crucially, Schott says, the Doha negotiations will be carriedin a “a single undertaking” — that is, no trade agreementwithout resolution of all issues.

To take advantage of any trade agreement reached,developing countries need assistance in building economicmanagement and infrastructure, he says.

After three years of preparations and five gruelingNovember days in Doha, Qatar, trade ministers from the142 member countries of the World Trade Organization(WTO) finished their marathon by agreeing to cross thestarting line for new multilateral trade negotiations. TheDoha meeting produced three major documents:

• A Ministerial Declaration that sets out the terms ofreference and negotiating objectives for the new tradetalks, as well as directives to guide the work of WTOcommittees and working groups.

• A Declaration of the Trade-Related Aspects ofIntellectual Property Rights Agreement (TRIPS) andPublic Health that confirms that the existing WTOprovisions afford countries flexibility in addressing publichealth problems in general and access to medicines inparticular.

• A decision that addresses problems that have arisen inthe implementation of the 1994 Uruguay Round tradeaccords.

In addition, the Doha Ministerial approved the protocolsof accession for both China and Taiwan, who becameWTO members in mid-December 2001.

This article assesses why the Doha meeting fared betterthan its predecessor in Seattle and then offers generalobservations on the Doha mandate and what it presagesfor the new negotiations.

WHY DOHA WASN’T SEATTLE

There are several reasons why the Doha meeting did notshare the same fate as the previous ministerial in Seattle.

First, the world’s largest traders — the United States andthe European Union (EU) — cooperated moreextensively with each other and were willing to makeconcessions on key issues of priority concern to thedeveloping countries. U.S. Trade Representative RobertZoellick and European Commissioner Pascal Lamyunderstood that neither side could achieve its objectives ifthey worked at cross-purposes.

U.S.-EU cooperation started early in 2001 with thesettlement of the long-running bilateral dispute onbananas and the tacit agreement to avoid new retaliationon issues such as U.S. Foreign Sales Corporation exportsubsidies. These actions demonstrated that transatlantictrade problems could be solved in a pragmatic mannerwithout the acrimony and “winner-take-all” results oftrade litigation. They also established a strong precedentfor working together on the Doha agenda. Each siderecognized that, despite their substantive differences onkey issues such as agriculture and the environment,neither could achieve its overall objectives in new WTOtalks without concessions from the other.

In Doha, the European Union acceded to demands bythe United States and others for a strong mandate toreduce and eventually eliminate agricultural exportsubsidies. In return, U.S. negotiators encouraged othercountries to support European proposals for newnegotiations on environment immediately and oninvestment and competition policy (deferred until the

❏ REFLECTIONS ON THE DOHA MINISTERIAL By Jeffrey J. Schott, Senior Fellow, Institute for International Economics

©Institute for International Economics, 2001. All rights reserved.Printed with permission.

next ministerial in 2003). Without these trade-offs,neither trading superpower could have accepted the DohaDeclaration.

Second, the Doha Ministerial was better prepared andbetter organized than Seattle. Extensive consultationsthroughout the year engaged all WTO members.Developing countries participated actively through theirown south-south caucuses, north-south caucuses (such asthe Cairns Group of agricultural exporters), informalministerials in the months preceding the Doha meeting,and frequent bilateral consultations with the UnitedStates and the European Union. This network ofconsultations benefited from the efforts and guidance ofWTO Director-General Mike Moore and WTO CouncilChairman Stuart Harbinson, who directed WTOpreparations for Doha.

In 1999, WTO talks failed to bridge differences betweendelegations and produced a worthless and unworkabledocument for ministerial action. In 2001, the WTOpreparatory process yielded more constructive results.Moore and Harbinson prepared draft declarations thatwere considered balanced and objective and that resolvedmost subsidiary disputes over agenda items. Whereagreement by Geneva diplomats was not possible, theyframed options for a limited number of politicallysensitive issues so that ministers could put together a setof compromises that allowed each one to take home“trophies” for his or her political constituencies. In thatregard, U.S. concessions made early in the Doha meetingon sensitive issues like antidumping and the declarationon TRIPS and Public Health, as well as the EUconcession on agriculture, proved invaluable in ensuring aresult that balanced the interests of developed anddeveloping countries.

Third, the costs of failure in Doha were greater than inSeattle. Amid deepening economic slumps in the UnitedStates, Europe, and Japan, a failure to launch new tradetalks would have sent a signal that countries were lesslikely to resist protectionist demands from their domesticlobbies, triggering a bearish reaction in financial markets.Furthermore, after the Seattle experience, another debaclewould have raised doubts about the efficacy of the newtrade institution and the willingness of major tradingnations to use the WTO, rather than new bilateral andregional initiatives, to advance their trade objectives.Trade is not like baseball; usually, it’s two strikes andyou’re out.

Finally, and perhaps most importantly, failure in Dohawould have reflected badly on the international alliance ofWestern and Islamic nations working together toconfront the scourge of global terrorist networks. Thetragic events of September 11, 2001, brought togethermany countries that had previously differed on importanttrade and foreign policy matters. Indeed, the countriesthat had been the most reluctant to engage in new WTOtalks had become key allies in the war on terrorism andhad received substantial economic assistance from theindustrialized countries in recognition of theircontributions. Failure in Doha would have raised doubtsabout the staying power of this new alliance.

THE DOHA MANDATE: GENERALOBSERVATIONS

First, the Doha Ministerial Declaration is an agreementto negotiate. With the exception of a fewimplementation decisions, it only sets negotiatingobjectives; it does not require that those objectives bemet, in whole or part, in the eventual agreements. Eachparticipating country will determine the maximum levelof obligation that it will undertake in each area and theminimum level of obligation by other countries that itdeems sufficient to produce a reciprocal package ofagreements.

Second, the declaration establishes a broad-based agendathat encompasses ongoing negotiations on agriculture andservices, both traditional General Agreement on Tariffsand Trade (GATT)/WTO subjects, new issues likeinvestment, competition policy, and environment, and alimited array of institutional issues (primarily dispute-settlement reform). The declaration establishes a two-stage process in which new negotiations on the so-calledSingapore issues such as investment and competitionpolicy will not begin until after the next WTOministerial, probably in fall 2003, based on modalities tobe agreed at that time. Developing countries, whichoriginally were reluctant to expand the WTO agenda tothese new issues, wanted to ensure that the focus of theinitial talks was on the traditional market access issuesand that failure to make progress in those areas wouldimperil talks on the new issues.

The negotiating agenda is not cast in stone. In the past,other subjects have been added to the talks that were notmentioned in the ministerial declaration that launchedthe round (for example, commercial counterfeiting in theTokyo Round and the WTO itself in the Uruguay

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23Economic Perspectives • An Electronic Journal of the U.S. Department of State • Vol. 7, No. 1, January 2002

Round). In the new negotiations, it would not besurprising if the Agreement on Safeguards is revisited inlight of the discussions that evolve on GATT Article VI(antidumping) and the balance-of-payments provisions ofGATT Article XVIII. However, subjects that areexcluded from the original agenda are very difficult toretrieve. In the Doha Declaration, “trade and labor” wasthe only subject explicitly excluded from the negotiations.

Third, countries agreed that the Doha negotiations wouldbe a single undertaking. It is difficult to overstate theimportance of this commitment. Given the WTO’sconsensus rule, the all-or-nothing requirement means thatsufficient progress has to be made on all of the key issuesor nothing gets done — and all the new issues areincluded in the single undertaking. The singleundertaking thus provides an insurance policy for theEuropean Union that India and other countries will notblock the start of negotiations on investment andcompetition policy by refusing to agree on modalities forthose talks. If India or any country attempted to blockthose talks, it would elicit reciprocal actions to stallongoing talks on other issues of priority for the blockingcountry. The entire WTO negotiation would quicklyfounder, and India would be implicated in the crime justas it would have been if it unilaterally blocked the launchof the talks at Doha.

Finally, the Doha Declaration recognizes the basic factthat trade accords create opportunities but do notguarantee sales. If developing countries are to be able totake advantage of the prospective new accords, they willneed help in strengthening their macroeconomicmanagement, economic infrastructure, and administrativecapabilities. Much of the required effort lies outside thecompetence of the WTO. But trade ministers committedat Doha to provide the necessary technical assistance andcapacity building to developing countries so that they canfully participate and benefit from the Doha round. Suchsupport can make the new WTO negotiations a “win-win” proposition for developed and developing countriesalike. ❏

The opinions expressed in this article are those of the author and donot necessarily reflect the views or policies of the U.S. government.

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Leading Exporters and Importers in World Merchandise Trade, 2000(value in billions of dollars and shares as percentage)

Exporters Value Share Importers Value Share

United States 781.1 12.3 United States 1257.6 18.9Germany 551.5 8.7 Germany 502.8 7.5Japan 479.2 7.5 Japan 379.5 5.7France 298.1 4.7 United Kingdom 337.0 5.1United Kingdom 284.1 4.5 France 305.4 4.6Canada 276.6 4.3 Canada 244.8 3.7China 249.3 3.9 Italy 236.5 3.5Italy 237.8 3.7 China 225.1 3.4Netherlands 212.5 3.3 Hong Kong 214.2 3.2Hong Kong 202.4 3.2 Netherlands 198.0 3.0

Source: World Trade Organization, International Trade Statistics 2001.

U.S Merchandise Trade by Region(value in billions of dollars and shares as percentage)

Exports 2000 Imports 2000Destination Origin

Value Share Value Share

World 781.8 100.0 World 1257.6 100.0

Asia 214.6 27.4 Asia 469.3 37.3W. Europe 181.4 23.2 W. Europe 248.5 19.8N. America 179.4 22.9 N. America 238.4 19.0Latin America 170.0 21.7 Latin America 216.0 17.2Middle East 19.2 2.5 Middle East 40.3 3.2Africa 11.0 1.4 Africa 28.5 2.3C./E. Europe/ C./E. Europe/

Baltic States/CIS 5.9 0.8 Baltic States/CIS 16.6 1.3

Source: World Trade Organization, International Trade Statistics 2001.

❏ U.S. AND GLOBAL MERCHANDISE TRADE

FACTS AND FIGURES

25

U.S. Merchandise Trade by Economy(value in billions of dollars and shares as percentage)

Exports 2000 Imports 2000Destination Origin

Value Share Value Share

Canada 178.9 22.9 Canada 238.3 19.0European Union 165.2 21.1 European Union 227.2 18.1Mexico 111.3 14.2 Japan 151.3 12.0Japan 64.9 8.3 Mexico 140.4 11.2Korea, Rep. of 27.8 3.6 China 103.3 8.2Top 5 548.2 70.1 Top 5 860.4 68.4

Taiwan 24.4 3.1 Taiwan 41.8 3.3Singapore 17.8 2.3 Korea, Rep. of 41.6 3.3China 16.2 2.1 Malaysia 26.4 2.1Brazil 15.3 2.0 Singapore 19.8 1.6Hong Kong 14.6 1.9 Venezuela 19.2 1.5Australia 12.5 1.6 Thailand 16.9 1.3Malaysia 10.9 1.4 Saudi Arabia 14.8 1.2Switzerland 10.0 1.3 Philippines 14.4 1.1Philippines 8.8 1.1 Brazil 14.3 1.1Israel 7.7 1.0 Israel 13.4 1.1Thailand 6.6 0.8 Hong Kong 11.8 0.9Saudi Arabia 6.2 0.8 India 11.0 0.9Venezuela 5.5 0.7 Nigeria 10.9 0.9Argentina 4.7 0.6 Switzerland 10.8 0.9Dominican Rep. 4.5 0.6 Indonesia 10.7 0.9Turkey 3.7 0.5 Russia 7.9 0.6Colombia 3.7 0.5 Colombia 7.2 0.6India 3.7 0.5 Australia 6.6 0.5Chile 3.5 0.4 Iraq 6.3 0.5Egypt 3.3 0.4 Norway 5.9 0.5South Africa 3.1 0.4 Dominican Rep. 4.5 0.4Honduras 2.6 0.3 South Africa 4.3 0.3Costa Rica 2.5 0.3 Angola 3.7 0.3Indonesia 2.4 0.3 Costa Rica 3.7 0.3United Arab Emirates 2.3 0.3 Chile 3.4 0.3Top 30 744.7 95.3 Top 30 1191.8 94.8

Source: World Trade Organization, International Trade Statistics 2001.

26Economic Perspectives • An Electronic Journal of the U.S. Department of State • Vol. 7, No. 1, January 2002

Agricultural Mining Manufactures TextilesProducts Products

exports imports exports imports exports imports exports imports

North America 11.46 21.71 7.15 42.68 155.30 156.36 2.85 1.97

LatinAmerica 12.62 17.68 8.38 46.55 141.34 142.45 5.19 2.01

W. Europe 11.28 11.78 5.03 17.62 153.64 204.75 1.39 3.28

C/E. Europe/Baltics/CIS 1.10 0.71 0.11 6.02 4.35 9.62 0.05 0.19

Africa 2.53 1.12 0.46 23.25 7.28 3.78 0.07 0.17

MiddleEast 2.57 0.21 0.36 23.97 15.04 15.01 0.14 0.41

Asia 29.01 13.49 6.31 7.52 173.20 437.12 1.27 7.68

Canada 11.38 21.68 7.13 42.68 155.03 156.35 2.84 1.97

EU (a) 10.02 10.81 4.71 12.68 142.90 190.50 1.32 2.73

Mexico 7.61 6.52 6.09 14.64 92.64 113.12 3.78 1.60

Japan 14.74 0.67 2.20 1.04 46.35 145.36 0.28 0.62

China 2.37 1.50 1.03 1.30 12.56 99.28 0.12 1.89

Korea,Rep. of 3.53 0.38 1.12 0.87 22.55 39.66 0.15 0.95

World 70.87 66.70 27.80 167.61 650.16 969.11 10.95 15.71

(a) EU members: Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Netherlands,Portugal, Spain, Sweden, UK.

Source: World Trade Organization, International Trade Statistics. 2001

❏ U.S. MERCHANDISE TRADE BY PRODUCT, REGIONAND MAJOR TRADING PARTNER, 2000

(Value in billions of dollars)

27Economic Perspectives • An Electronic Journal of the U.S. Department of State • Vol. 7, No. 1, January 2002 27

INFORMATION RESOURCES

KEY CONTACTS AND INTERNET SITES

NON-U.S. GOVERNMENT

UNITED STATES GOVERNMENT

Office of the U.S. Trade Representative600 17th Street, N.W.Washington, D.C. 20508 U.S.A.Phone: 1-888-473-8787http://www.ustr.gov/wto/index.shtml

U.S. Department of AgricultureForeign Agricultural Service1400 Independence Avenue, S.W.Washington, D.C. 20250 U.S.A.Phone: (202) 720-1727http://www.fas.usda.gov

U.S. Department of CommerceInternational Trade Administration14th Street and Constitution Avenue, N.W.Washington, D.C. 20230 U.S.A. Phone: (202) 482-5767http://www.ita.doc.gov

U.S. Department of State2201 C Street, N.W. Washington, D.C. 20520 U.S.A. Bureau of Economic and Business Affairs Phone: (202) 647-7971http://www.state.gov/e/eb/ Office of International Information Programshttp://usinfo.state.gov/wto/homepage.htm

U.S. Environmental Protection AgencyOffice of Pesticide Programs - Trade Issues1200 Pennsylvania Avenue N.W.Washington, DC 20460Phone: (202) 260-2090http://www.epa.gov/oppfead1/international/trade.html

Advisory Centre on WTO Lawhttp://www.acwl.ch

American Federation of Labor-Congress of IndustrialOrganizations (AFL-CIO)http://www.aflcio.org/globaleconomy/

Canada — Department of Foreign Affairs andInternational Tradehttp://www.dfait.gc.ca/tna-nac/WTO-MCD-e.asp

European Unionhttp://europa.eu.int/comm/trade/

Food and Agriculture Organization of the UnitedNationsTrade in Agriculture, Fisheries and Forestryhttp://www.fao.org/trade/index.asp?lang+en

International Food Policy Research Institutehttp://www.ifpri.cgiar.org

International Agricultural Trade Research Consortiumhttp://iatrcweb.org

National Association of Manufacturershttp://www.nam.org/

Organization for Economic Cooperation andDevelopmenthttp://www.oecd.org

Public Citizenhttp://www.citizen.org/trade/wto/index.cfm

U.S. Chamber of Commercehttp://www.uschamber.org/international.default.htm

World Trade Organizationhttp://www.wto.org/Doha Organizing Committeehttp://www.wtodoha.org

28Economic Perspectives • An Electronic Journal of the U.S. Department of State • Vol. 7, No. 1, January 2002

ADDITIONAL READINGS ON INTERNATIONALTRADE AND THE WTO

Aaronson, Susan Ariel. Taking Trade to the Streets: TheLost History of Public Efforts to Shape Globalization. AnnArbor, Michigan: The University of Michigan Press,2001.

Audley, John and Ann M. Florini. Overhauling the WTO:Opportunity at Doha and Beyond. Policy Brief No. 6.Washington, D.C.: Carnegie Endowment forInternational Peace, 2001.http://www.ceip.org/files/pdf/pb6-AudleyFlorini.pdf

Bagwell, Kyle and Robert W. Staiger. “The WTO As aMechanism for Securing Market Access Property Rights:Implications for Global Labor and Environmental Issues.”Journal of Economic Perspectives, vol. 15, no. 3, Summer2001, pp. 69-88.

Barfield, Claude E. Free Trade, Sovereignty, Democracy:The Future of the World Trade Organization. Washington,D.C.: AEI Press, 2001.

Beginning the Journey: China, the United States, and theWTO. Report of an Independent Task Force Sponsoredby the Council on Foreign Relations, Robert D.Hormats, Chair. New York: Council on ForeignRelations, Inc., 2001.http://www.cfr.org/Public/pdf/ChinaTF.pdf

Brown, Drusilla, Alan V. Deardorff, and Robert M. Stern.CGE Modeling and Analysis of Multilateral and RegionalNegotiating Options. Discussion Paper No. 468. AnnArbor, Michigan: The University of Michigan School ofPublic Policy, 2001.http://www.fordschool.umich.edu/rsie/workingpapers/papers451-475/r468.pdf

Cooper, William H. The WTO Doha Ministerial: Resultsand Agenda for a New Round of Negotiations. CRS Reportfor Congress. Washington, D.C.: Congressional ResearchService, December 4, 2001.

Dollar, David and Aart Kraay. Trade, Growth and Poverty.World Bank Policy Research Department Working PaperNo. 2615. Washington, D.C.: The World Bank, 2001.http://www.worldbank.org/research/growth/Trade5.htm

Dunkley, Graham. The Free Trade Adventure: The WTO,the Uruguay Round and Globalism - A Critique. London& New York: Zed Books, 2000.

Esty, Daniel C. “Bridging the Trade-EnvironmentDivide.” Journal of Economic Perspectives, vol. 15, no. 3,Summer 2001, pp. 113-130.

Hanrahan, Charles E. Agriculture in WTO Negotiations.CRS Report for Congress. Washington, D.C.:Congressional Research Service, December 7, 2001.

Organization for Economic Cooperation andDevelopment. Towards More Liberal Agricultural Trade.OECD Policy Brief, November 2001.http://www.oecd.org/pdf/M00022000/M00022532.pdf

Schott, Jeffrey (ed.). The WTO After Seattle.Washington, D.C.: Institute for International Economics,2000.

United States General Accounting Office. World TradeOrganization: Issues in Dispute Settlement. ReportGAO/NSIAD-00-210. Washington, D.C.: GAO, 2000.http://www.gao.gov

Weinstein, Michael M. and Steve Charnovitz. “TheGreening of the WTO.” Foreign Affairs, vol. 80, no. 6,November/December 2001, pp. 147-156.

World Bank. Global Economic Prospects and the DevelopingCountries, 2002: Making Trade Work for the World’s Poor.Washington, D.C.: The World Bank, 2001.http://www.worldbank.org/prospects/gep2002/full.htm

World Trade Organization. Ministerial Declaration:Adopted on 14 November 2001. DocumentWT/MIN(01)/DEC/1. Ministerial Conference, FourthSession, Doha, 9 - 14 November 2001.http://www.wto.org/english/thewto_e/minist_e/min01_e/mindecl_e.htm

EconomicPerspectives

Volume 7 An Electronic Journal of the U.S. Department of State Number 1

TRADE IN THE POST-DOHA

GLOBAL ECONOMY

January 2002