A modest proposal for the ‘G-20’ summit

The IMF's Managing Director should not try to talk down expectations for next weekend's summit. We deserve much more from these leaders that, so far, have done little to match their promises of reform of global governance over the past decade.

The G-20's role should be to set up the best conditions for a recovery in real markets, not just in financial markets. But, on their past behavior, it is likely they'll re-cycle yet another low-credibility statement about completing the noxious Doha deal that was on the table last July.

A more modest program to open world markets that is not burdened with the second-thoughts, exceptions and safeguards would do much more to lift global market confidence if it could be quickly implemented. Here's a blast-from-the-past idea that could also set up a still more effective resumption of Doha when the new U.S. administration (and the new EC Commission and Indian Government) is ready to deal

A proposed market-opening initiative for the G-20

Summary: the G-20 Meeting in Washington should agree on an immediate across-the-board measure to open goods markets using the Uruguay Round modalities (pending eventual conclusion of the Doha Round).

Rationale

Considering that the world economy now faces a serious recession, G-20 governments should open markets quickly in a co-ordinated, multilateral action to encourage the recovery of trade flows.

The conclusion to the complex Doha Round negotiations is too far off and too uncertain to help with rebuilding the global economy now.

If, as seems likely despite the anti-globalization rhetoric of its campaign, the Obama Administration agrees to restart the Doha Round negotiations speedily, it is very unlikely that those negotiations can be concluded before the end of 2009, well into the projected global economic downturn. Elections in India and the cycling of the EC Commission also suggest agreement on Doha is at least a year away.

A different approach¾but an old technology¾could bring about an early multilateral trade agreement on an effective response to the economic crisis. G-20 governments should agree to immediately implement an across-the-board tariff cut in agricultural and non-agricultural products using the same approach as the Uruguay Round:

Uruguay Round: cuts to bound rates of duty

* There was no formula tariff cut for non-agricultural products. The Quadrilateral Trade Ministers announced in July 1993 that they were looking for a 50 percent reduction in bound rates over 15% (with certain exceptions) and negotiated cuts averaging at least one-third. The target for developing countries was an informal understanding in Geneva.

Impact assessment

Agriculture: A review of the latest WTO data on average bound rates of duty (see graphs based on WTO Tariff Profiles, 2008) suggests that this level of cut could be agreed by most of the G-20 governments without significant disruption to current trade policies. In these economies, bound rates of duty in the agriculture sector that are more than 33% above than the trade-weighted (applied) rate of duty. Those economies where the bound rate is less than 133% of the applied rate (highlighted) would see a cut in the overall applied average duty. The biggest impacts would be in Korea (a 52-point cut in the t/w average rate) and Mexico (an 11-point cut). China would see its t/w average cut by 6 percentage points.

All agricultural tariff quotas should be expanded by the same amount as in the Uruguay Round (or some substantial fraction; e.g. by 2%).

Non-agriculture: The latest WTO data on bound rates of duty (see graphs) shows that all G-20 countries could meet the Uruguay Round target without cutting their t/w applied rates of duty.

A positive contribution

The apparently non-disruptive character of this tariff cut may seem to be an argument against it. There are, however, two factors that stand in its favour in addition to its simplicity:

1. It will cut the bound rates on which any resumed Doha Round tariff cut will be based, increasing the leverage of whatever modalities are finally agreed in Doha
2. It can be implemented without any explicit provision for sensitive or special products. The Uruguay Round tariff cut is an average across all tariff lines (not a cut in the overall tariff average; a much stronger result). This means that participants can reduce the incidence of the tariff cut on sensitive tariff lines¾but not below the minimum rate of cut¾while raising the incidence on other lines to meet the overall average. In other words, the modality has built in flexibility.

This agreement could be agreed all G-20 Members for immediate application. It would be an MFN agreement to which other WTO Members outside the G-20 (and Russia) would be encouraged to adhere. But its implementation by G-20 Members would not be conditional on any other WTO Member taking the identical action. In other words, the G-20 would consider that implementation by all G-20 Members comprised a critical mass that allowed them to extend the benefits of the agreement on an MFN basis.

This agreement would not be a substitute for eventual completion of the Doha Round.

Liberalization of services trade is equally important but no formula has been found to open services markets. G-20 Members could commit to an early re-start of the Doha Round services plurilateral process.

More details for agriculture:

(a) There would be no modalities that differentiate among products on the basis of their sensitivity or special character; tariff cuts will be across the board.

(b) Developing countries will have fewer obligations as a consequence of the Uruguay Round targets but no other categorical exceptions would be made

(c) There will be no new safeguard mechanisms (Article XIX safeguards will remain available, the SSG could remain as is until further considered in the Doha negotiations)

(d) The EC and USA should be asked unilaterally to cut their domestic supports in line with the offers that they made during Doha Round negotiations in July 2008.

(e) Those governments that have more ambitious agendas may make separate plurilateral agreements as long as they are prepared to offer the benefits of those agreements, once reached, to all WTO Members on an MFN basis

(f) The Hong Kong Ministerial Conference decision on export subsidies should be made final.

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