Tax-News Global Trade – Do We Need Doha?

By Tax-News.com Editorial

May 9, 2013

It has been almost five years since the Doha Round of trade talks collapsed with the finishing line in sight. But while there have been numerous attempts to revive the Round, led by the indomitable WTO Director General Pascal Lamy, the world seems to have moved on.

The Doha Round (also known as the Doha Development Agenda, or DDA) of talks began back in 2001. It aims to cut trade-distorting agriculture subsidies, phase out tariffs on industrial goods, open trade in services, facilitate customs operations, open trade in clean technology, adjust anti-dumping rules, and offer duty-free and quota-free access to the exports of the world’s poorest countries among many other goals. However, the talks broke down over the last hurdle of the negotiations – namely, industrial tariff reductions for developed and emerging economies – and although the Round is 80% complete, WTO members have reached an impasse on the last 20%.

Overtly, most Governments and plurilateral organizations like the Organization for Economic Cooperation and Development (OECD) still support Doha. Indeed, new research out just this month from the OECD emphasized the importance of concluding the Doha Round, noting that a multilateral agreement to cut red tape in international trade would dramatically reduce trading costs and add a substantial boost to the global economy.

The OECD concluded that the comprehensive implementation of all measures currently under negotiation in the World Trade Organization's (WTO) Doha Development Round would reduce total trade costs by 10% in advanced economies and by 13-15.5% in developing countries. Reducing global trade costs by just 1% would increase worldwide income by more than USD40bn, most of which would accrue in developing countries, the report says.

The OECD report assesses the potential impact of each of the sixteen policy areas under negotiation at the WTO, including the availability of trade-related information, the simplification and harmonization of documents, the streamlining of procedures, and the use of automated processes and advanced rulings.

The study concluded that:

  • In some African countries, revenue losses from inefficient border procedures are estimated to exceed 5% of GDP;
  • Harmonizing and simplifying documents would reduce trade costs by 3% for low-income countries and by 2.7% for lower middle-income countries;
  • Streamlining procedures would bring further trade cost reductions of 2.8% for upper middle-income countries, 2.2% for lower middle-income countries and 1% for advanced economies;
  • Automating processes would reduce trade costs by more than 2% for all countries studied; and,
  • Ensuring the availability of trade-related information would generate cost savings of 2% for advanced economies, 1.4% for lower middle-income countries and 1.6% for low-income countries.

Addressing the Chittagong Chamber of Commerce in Bangladesh in February, Lamy stated that achieving a global deal that would lower tax barriers to trade and cut red tape in half would deliver an economic boost worth more than USD1 trillion to the USD22 trillion world economy.

Underscoring the importance of reducing bureaucracy at the borders, Lamy pointed to the findings of a new study from the World Economic Forum that a global deal to reduce trade taxes would only boost the world's GDP by 0.7%. However, if negotiators are able to include meaningful reforms to slash red tape, this economic boost would rise to 4.7% of GDP.

A recent International Monetary Fund (IMF) report also emphasized the gains that would flow from a successful completion of the Doha Round, and urged both developed countries and emerging markets to re-engage in the stalled process.

Doha is worthwhile concluding, says the report, for two main reasons: (i) for its direct benefits through actual new market access; and (ii) to add security to trading relationships by updating members’ WTO commitments and multilateral trade rules.

However, the IMF observed that the breadth of issues covered by Doha has made it difficult to assemble a package agreeable to all 153 WTO members, and also noted that changed geopolitical circumstances have altered the balance of power between developed countries and emerging markets.

Yet, in spite of a lack of an agreement on the Doha Round, world trade volumes continue to grow apace, save for a rare blip in 2009. According to the WTO, exports bounced back strongly from the immediate aftermath of the world recession, growing 14.5% in 2010.

In its latest assessment of world trade figures, the WTO offered a rather gloomy analysis after a fall in world trade growth to 2% in 2012. However, it must be remembered that this was achieved while most of the world’s developed economies were struggling to grow at all, with some of them actually shrinking.

It cannot be a coincidence that, despite sluggish global economic growth, growth in international trade has been sustained while tariff and non-tariff barriers have continued to come down overall, without Doha. This is largely because free trade agreements continue to be negotiated at bilateral and multilateral level.

Notable examples include the following:

The Association of South East Asian Nations (ASEAN)

Since the Association of South East Asian Nations (ASEAN) accord was struck in 1967, tariffs between the founding members Indonesia, Malaysia, Philippines, Singapore and Thailand have been reduced to no more than 5% on the vast majority of tariff lines. Since then, five more states have joined the grouping, including Brunei, Cambodia, Laos, Myanmar, and Vietnam and these are attempting to reduce tariffs on intra-ASEAN trade to the same levels by 2018. Member states are also committed to reducing non-tariff barriers.

As a group, the ASEAN member states have concluded six free trade agreements with some of Asia-Pacific’s key trading nations, including Australia, China, India, Japan, New Zealand and South Korea and it was decided at the ASEAN Summit in Cambodia last November that all participants in the ASEAN plus six group should begin talks towards the possibility of concluding a regional trade treaty, to be known as the Regional Comprehensive Economic Partnership (RCEP). If it becomes a reality, the RCEP would encompass a market of 3bn people with a combined gross domestic product of USD20 trillion.

ASEAN Governments also reiterated recently their goal of achieving the ASEAN Economic Community by 2015. While this won’t result in the creation of single market along similar lines to the European Union on that date – at present there is no institutional framework to put an Asian EU in place – it should guarantee even lower tariff and non-tariff barriers to internal ASEAN trade and deeper economic integration within the group in the long-term.

The USA and the Tran-Pacific Partnership

Most of us were left guessing as to the direction of US trade policy early in President Obama’s administration after he gave off some distinctly protectionist signals, such as with the “buy American” clauses in his first economic stimulus bill. It can be said however, that Washington’s trade agenda has matured since 2009, and the US Government is now taking an active role in developing free trade in the Asia Pacific region within the expanded Trans-Pacific Partnership talks.

At the close of the 10-day 16th round of Trans-Pacific Partnership (TPP) negotiations on March 13, 2013, in Singapore, the Office of the United States Trade Representative (USTR) reported that the talks had been placed on an accelerated track toward conclusion of the trade agreement this year.

The extension of the TPP is currently being led by the United States, together with Australia, Brunei, Canada, Chile, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam.

Assistant USTR Barbara Weisel reported that, building on the consensus the TPP countries have already achieved on a significant number of the issues under negotiation, during this round the 11 delegations intensified their drive to find mutually-acceptable paths forward on the remaining issues in the legal texts of the agreement.

The delegations were said to have succeeded in finding solutions to many issues in a wide range of areas such as customs, telecommunications, investment, services, technical barriers to trade, sanitary and phytosanitary measures, intellectual property and regulatory coherence.

The 11 countries also made progress during this round in continuing to develop the comprehensive packages that will provide market access for goods, services and investment, and government procurement. Productive exchanges occurred on tariff packages on industrial goods, agriculture, and textiles, as well as on rules of origin and how best to promote the development of regional supply chains.

It was feared however, that Japan’s decision to enter the TPP talks could slow things down. Certain sectors of the Japanese economy, namely the automotive and agricultural sectors, are still strongly protected and few were sure whether to take Prime Minister Shinzo Abe’s determination to take Japan into the TPP seriously or not. However, following an announcement that the United States and Japan had completed bilateral consultations, Acting US Trade Representative Demetrios Marantis notified Congress, in a letter dated April 24, of the Administration's intention to include Japan in the Trans-Pacific Partnership (TPP) agreement negotiations.

The notification triggered a 90-day consultation period with Congress and the public on US negotiating objectives with respect to Japan. While Marantis noted in the letter that Japan's entry into this important negotiation will help to deliver significant economic benefits for the US, Japan and the Asia-Pacific region, it is still likely to generate significant opposition within America, particularly from motor manufacturers and their Congressional allies.

Nevertheless, the US Governments seems determined not to let the Japanese issue deflect its commitment to the TPP, and on April 24 Marantis announced that Washington was championing Vietnam’s eventual entry into the talks.

“The United States also is committed to helping Vietnam achieve the high standards the TPP countries are seeking, which is the best way to promote development in Vietnam and in the region,” he said.

International Services Agreement

A momentous development for world trade took place back in January – and one which may represent something a of a body blow to Doha advocates – when United States Trade Representative (USTR) Ron Kirk notified Congress that the Obama Administration is to enter into negotiations for a new trade agreement on international trade in services.

The negotiations will begin in Geneva, Switzerland, with a group of 20 trading partners – the US, Canada, the European Union, Norway, Switzerland, Australia, New Zealand, Hong Kong, South Korea, Japan, Singapore, Taiwan, Mexico, Chile, Colombia, Peru, Costa Rica, Israel, Pakistan and Turkey – who represent nearly two-thirds of global trade in services, with the objective of promoting international trade in services.

In July 2012, a group of WTO members, the so-called "Really Good Friends of Services", had agreed to intensify discussions on a "high ambition" international agreement on a wide range of services, to reinforce and strengthen the multilateral trading system.

Participants have stated that a new International Services Agreement  should be comprehensive in sectoral scope; contain new and enhanced rules that countries have developed since the WTO General Agreement on Trade in Services (GATS) entered into force in 1995; increase market access commitments to be as close as possible to countries' current practices; and produce new market access improvements.

The significance of such an agreement cannot be overstated. When we talk about global trade, huge volumes of it these days are in services rather than goods, particularly between developed nations. The services sector accounts for the largest share of most economies, and the US, for example, exports more services than any other country. In 2011, the US had a USD178.5bn surplus in services trade worldwide – the world's largest.

In March Canadian Government also announced that it will participate in negotiations toward the new agreement on international trade in services.

Services represent almost 70% of the Canadian economy, and are responsible for the employment of nearly 13.5m workers. In 2011, Canada exported a total of almost CAD83bn (USD81bn) worth of services.

The Canadian Government believes that a potential agreement could provide increased access to and legal stability in markets that are open but not subject to trade agreements.

Michael Landry, Chair of the Canadian Services Coalition, said: "Services are a vital and growing component of the Canadian economy. Today they represent almost two-thirds of our GDP, yet movement on this front has long been stalled by the Doha Round. The Canadian Services Coalition is pleased that the Canadian government is prepared to be at the table for these important negotiations, and we look forward to the rapid conclusion of an ambitious and comprehensive agreement on services."

Bilateral Agreements

Progress is also being made on some important bilateral free trade agreements.

In April, the EU and Japan completed the first round of negotiations toward a free trade agreement, described as "a good start" by the European Commission. According to the European Commission, a deal could boost the EU's economy by 0.6-0.8% of its gross domestic product and result in the creation and growth of 400,000 jobs. A 32.7% jump in EU exports to Japan is anticipated, while Japanese exports to the EU could rise by 23.5%.

Canada is a country forging ahead with an ambitious free trade policy and is also holding talks towards a trade deal with Japan. The second round of these negotiations towards an economic partnership agreement (EPA) concluded in April, and the Canadian Government claims that an EPA could also boost Canadian gross domestic product by as much as USD3.8bn, a figure ministers say is equivalent to nearly 30,000 new jobs or a rise of USD325 in the average family's income. 

Canada and the EU are also engaged in trade talks. According to the Canadian Government, the comprehensive economic and trade agreement (CETA) currently under negotiation would eliminate tariffs on almost all of Alberta's key exports and provide access to new EU market opportunities. The energy, chemicals and plastics, agricultural commodity, and advanced manufacturing sectors are in particular expected to benefit.

In April, representatives from India and the EU were said to have held a "candid discussion" on all elements of their ongoing Trade and Investment Agreement negotiations. Sixteen rounds of talks have so far been held between EU and Indian negotiators, and according to the Indian Government, only "loose ends, if any,” remain to be dealt with.

The most significant free trade agreement of all however would be one between the EU and the US, momentum towards which looks to be accelerating. In April, the United States Chamber of Commerce joined with partners in the Business Coalition for Transatlantic Trade, and US and European Union lawmakers, to formally launch the Coalition, and to highlight the strong support that exists for an ambitious transatlantic trade agreement. Later that month, a group of European Parliament lawmakers called on ministers to authorize a June launch for Transatlantic Trade and Investment Partnership talks with the US.


WTO Director General Lamy has spent his entire term trying to complete the Doha Round, and he still believes that it is in the world’s best interests for the deal to be closed.

In December, Lamy praised members for making progress during the year and noted that despite a slow start to negotiating activities in early 2012, progress picked up during the second half of the year. He reported to the General Council "encouraging signs of re-engagement," and progress on trade facilitation (customs procedures), on some agriculture items, on Special and Differential Treatment (provisions which give developing countries special rights), and on dispute settlement issues.

Lamy stressed that it is critical that during the first quarter of 2013, "this momentum and renewed sense of engagement is translated into concrete proposals.”

“Our credibility - your credibility - in the next phase will depend on our ability to make tangible progress on specific issues as they mature," he said.

However, Lamy is due to step down from the post in August, by which time he will have served out his second four-year term as WTO DG. There are currently nine candidates in the running to succeed him, but whether they will pick up the baton from their predecessor and push towards the Doha finish line is at the moment highly uncertain.

Perhaps the elements yet to be agreed will be hived off into a new round of trade talks concentrating on market access in developing nations. However, one could ask the question of whether it is really worth reviving Doha in its entirety when so much to promote free trade is being achieved outside of this framework.


Tags: law | Switzerland | Cambodia | Peru | Brunei | Mexico | Malaysia | investment | New Zealand | Australia | Singapore | agreements | tariffs | Vietnam | India | United States | Canada | services | Japan | tax | trade

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