If there’s anything that the torturous World Trade Organization (WTO) negotiations have taught us, it is this: After decades of growth in global commerce made possible by a long series of multinational treaties, the concept of mutual benefit through free trade still hasn’t really taken root.
The current series of on-again, mostly off-again WTO talks, known as the Doha Round, began in 2001 and still isn’t near completion. As nations around the world busily create their own free-trade agreements (FTAs) with one another—the United States has 12 such FTAs now in place, and Canada has three—and as regional agreements such as the European Union, North American Free Trade Agreement and the Central America Free Trade Agreement come into being, the logical question is whether the WTO and its underlying agreements have outlived their usefulness.
|Illustration by James Steinberg|
Seasoned global trade observers say the Doha Round is most notable for what it shows about the international political impact of the rapid pace of globalization and the emergence of new economic heavyweights such as China, India and Brazil. It used to be that the industrialized nations, led by the U.S. and the European Union, could dictate most of the terms of updated trade agreements. What we now know is that those days are certainly over.
The policymakers who instigated the Doha Round did not anticipate the sudden power shift and challenges to the interests of developed countries, even though developing countries made their impatience with the status quo apparent at such forums as the failed Seattle trade summit two years earlier.
Veteran diplomats view recent developments in the WTO as just the beginning of a broader global power struggle that also is being played out in other forums such as the United Nations. At stake in the Doha Round are the future of globalization, the stability of an international economy under stress from the weight of global structural imbalances and the geo-political ramifications that would occur if the talks fail. The WTO, which was formed in 1995 as the successor to the post-war General Agreement on Tariffs and Trade (GATT), provides the regulatory framework for international trade for 150 nations.
The trading systems of GATT and the WTO have emerged through eight sets of global negotiations—the “rounds” such as the current Doha Round—that have led to lower trade barriers for goods and services, protections for intellectual property, a system to resolve trade disputes, and periodic reviews of the trade policies of WTO member countries.
Failure to conclude the Doha Round, say senior WTO diplomats, would not necessarily end the global agency’s importance. It still remains the main forum that governs trade rules among the major powers such as the U.S., the EU, China and Japan. But if these same powers were to enter into major bilateral free-trade agreements, the WTO would become less relevant, these diplomats note. Preferential arrangements among members aligned in their own respective blocs—from rules of origin to standards, tariff treatment and customs clearance—would put non-members at a disadvantage.
“A major concern is that if Doha does not end successfully, regional trade agreements could divide the world,” says Alan Wolff, partner of the trade practice of Dewey, Ballantine, in Washington, D.C.
Steel, meanwhile, as a subcategory of manufactured goods, has been relegated to the sidelines, says Ian Christmas, secretary-general at the Brussels-based International Iron and Steel Institute (IISI). “The Doha Round is dominated by non-steel issues, in particular agriculture and the continued massive subsidies in industrialized countries, which distort the whole pattern of trade,” he says.
It will take concessions on all sides to break the previous roadblocks, says Pascal Lamy, director-general of the WTO. “When you look at the bigger elements, whether they’re economic or political, clearly the value of the insurance policy against protectionism, which the WTO represents, is huge and probably even more necessary than a few years ago,” he says. “Completing the round will require quite a move from the big players—the EU, the U.S., Japan, India and Brazil—from their  positions. They will have to agree to give more and ask for less. That’s the key to the completion of the round.”
When the formal talks broke down last July over major agricultural exporters’ refusal to make deeper cuts in domestic farm subsidies, it signaled the systemic risk of failure and possible corrosion of the WTO, with a corresponding negative impact on the global economy.
How Did We Get Here?
Since the General Agreement on Tariffs and Trade launched the first round of global trade talks six decades ago, missed deadlines, stalemates and political crises have become part and parcel of global negotiations to lower barriers to trade.
In the previous trade rounds, including the historic Uruguay Round (1986–1994) that led to formation of the WTO, the U.S. and the then-European Economic Community dictated the terms and parameters of the trade deals, which were offered to the other participants on a take-it-or-leave-it basis.
Those days are over. “That doesn’t work,” says Lamy, a former EU trade commissioner. “The geo-politics have changed.”
The rich nations still have the pull created by richer consumers and cash markets, but emerging nations with growing populations and markets can now push harder. At best, the U.S. and the EU are trying to ensure their influence erodes no further.
In 2003, through Brazil’s savvy diplomatic footwork, the creation of a broad alliance of 20 nations, the G20, was undoubtedly the watershed event that shifted the power equation. Formed two years after China’s entry as a full-fledged member of the WTO, the G20 created a new paradigm in which the developing countries became major stakeholders in their own right. As a result, the richer nationals are now challenged by up and comers such as China, India, Argentina, Brazil and Indonesia.
That changed dynamic has resulted in some sectors of the global economy, including trade in manufactured goods (valued in 2005 at $7.3 trillion, of which $318 billion is iron and steel trade), being held hostage to an outcome on farm trade, which totaled $852 billion.
“I would say [the creation of the G20] was a big, big change in the power structure within the WTO as compared to when it was GATT in the trade negotiations,” Celso Amorim, Brazil’s foreign minister said in an interview before the December 2005 WTO Summit in Hong Kong. “I think the main thing that we were able to do was unite the developing countries. Now, we are on the offensive. We want change, and we want change on what is the most distorting [agriculture].”
Artificial supports for farmers have held up structural change in developed countries for decades. Developing nations, especially Brazil, India and some African nations, want to export agricultural products but are blocked by an entrenched system of price supports, import rules and tariffs in the U.S. and the EU. France in particular has been intent on keeping out multinationals and protecting a pastoral way of life.
Now, in return for freer trade in manufactured goods—granting metals companies, for example, better access to the world’s fastest-growing markets—developed countries will have to dismantle complex agricultural supports. The rational argument for open markets is being held up by the emotional battle over food.
Metals in the Doha Round
U.S. trade officials say the key issue for the metals industry in the Doha Round is securing across-the-board cuts in industrial tariffs. In the Uruguay Round, signatories including the U.S., the EU, Canada, Japan, Korea and Australia, agreed to eliminate steel tariffs. But most of the growth in the steel industry has occurred in countries that did not go to zero tariffs in the Uruguay Round.
Jean Kemp, director of steel policy at the Office of the U.S. Trade Representative, estimates that 38 steel-producing economies that have not removed all tariffs on steel imports produced 650 million metric tons of crude steel, 58.7% of global production, in 2005. These included China, India, Brazil, Turkey, Taiwan, Mexico and South Africa.
Moreover, these economies are significant steel exporters, accounting for 44.7% of all global exports of semi-finished and finished steel products worldwide in 2004, Kemp told a global steel forum in India last year. The percentage of global steel production and exports from countries that have not eliminated tariffs has increased since then, due mostly to China’s increase in production and exports.
Gordon Moffat, director general of the Brussels-based European Confederation of Iron and Steel Industries (Eurofer), says the overriding issue for the European steel industry is market access for industrial goods. “Given the importance now of emerging markets, we have a clear interest in securing a good deal on market access for industrial goods, where we see a reduction in tariff peaks and an overall reduction in the level of tariffs,” he says. “That would help us in terms of access to markets for finished products and also important access to raw materials for steelmaking.”
Eurofer favors an extension of the existing zero-for-zero agreement that was negotiated in the Uruguay Round and eliminated industrial tariffs among a limited group of steel-producing countries. Moffat estimates the chances of having non-signers Brazil, China and India agree to zero-for-zero “are not bad,” but stresses that everything hinges on agriculture.
“If they can secure a deal on agriculture, then we are talking about improved offers on the NAMA [non-agricultural market access] side,” he says. “It’s a side negotiation, but there must be a chance to expand the numbers of countries that sign on.”
The average applied industrial tariff rates are around 9% in China, 12.5% in India, 11% in Brazil and 12.2% in Mexico.
The preservation of strong trade remedies is seen as another important priority for the metals industry, along with the reduction or elimination of government subsidies.
Jorge Gerdau Johannpeter, chairman of Brazil’s Gerdau Group SA, one of the largest exporters of Brazilian steel products, says the WTO has to establish policies that do not permit international trade in subsidized steel. “In order not to permit trade in subsidized steel, we have to have conditions to reduce protectionism, and these are rules that are only possible to establish in global negotiations,” he said in a January interview at the World Economic Forum in Davos, Switzerland.
The Bush administration did not demand as part of Doha a full renegotiation of global subsidy rules or special talks for steel, as it had in earlier talks. Although the administration claims to favor strengthened trade laws, it has not been proactive and pushed a particular agenda in the current talks.
The dilution of trade remedies (dumping, subsidies and countervailing duties) is an issue for some players, but the Democratic-led U.S. Congress would likely not accept any significant dilution, Wolff says. Developing nations, as well as major metals producers such as Japan and Korea, would like trade remedies weakened, which could reopen the question of how to address dumping—an issue that was finessed during the Uruguay Round. WTO trade diplomats predict that eventually, the anti-dumping negotiations will become controversial.
Negotiators from the U.S. and other major Western countries are more upbeat that the prospects are relatively good for securing advances to streamline customs clearance procedures. There also is a drive to remove cumbersome and costly non-tariff barriers such as export taxes slapped on raw materials like iron ore and industrial scrap by some WTO members.
Trying an End Run
Given the complexity of global trade talks in each round and the prospect that the WTO may be approaching gridlock, some industries are attempting to find alternative forums in which to solve their immediate problems.
“We felt, given the dominance of [agricultural] issues in Doha, steel was unlikely to be very high up the agenda scale,” Christmas says. “And we tried very early on, if we wanted governments to address some steel issues, to use the forum of the OECD [Paris-based Organisation for Economic Co-operation and Development] steel committee to do that.”
The OECD talks on a Steel Subsidies Agreement (SSA) have, to the dismay of the North American industry, failed to deliver a concrete outcome and are in limbo. The reason: the recent boom in the global steel industry combined with the lack of political will to push for an OECD deal that would limit trade-distorting subsidies.
The firmness that China, India and Brazil displayed in the Doha Round has been mirrored in the OECD steel talks, where these nations have resisted calls by the U.S. for radical overhaul of industrial policies that boosted domestic steel producers. “There was not enough political will to make it succeed,” Christmas says.
Wolfgang Hubner, head of the OECD’s structural policy division, says the prospect of reducing or eliminating subsidies in the steel sector for the time being is slim: “I don’t see it at the moment.”