Global Policy Forum

Trade Talk


By Brendan Vickers*

Business Day
September 4, 2007

Mike Moore, once director-general of the World Trade Organisation (WTO), recalls that at the launch of the Doha Round of multilateral trade negotiations in November 2001, a trade minister passed him a note with the word "Doha" scribbled on it. The minister had drawn a line through the "h" and added: "Dead on Arrival". At that stage, the minister had no idea how true his mischievous prediction would turn out to be. Six years later, the developed world still appears unable to rise to Doha's challenge to rebalance the global trading system in favour of developing countries, without extracting an inordinate price.

With trade promotion authority in the US having lapsed and a looming presidential election next year, Doha has -- at least for the moment -- reached its denouement. This does not mean Geneva will indefinitely shut up shop. Collapse and failure are today endemic (even structural) features of the multilateral trading system. Ironically, this is the only way complex trade rounds can possibly succeed. But in light of Doha's ongoing troubles, negotiation theorists may well pose a pertinent question: do developing countries have a Best Alternative to a Multilateral Agreement (Batma)? While there is no substitute for rules-based, binding and enforceable multilateralism, thus far multilateralism has poorly served the cause of development. Just ask Brazilian or west African cotton farmers, or those who for long suffered without access to essential medicines. Several developing and least-developed countries have ventured that their Batma may indeed lie elsewhere, in enhanced south-south trading relations. South-south trade is expanding rapidly, but this is also where some of the greatest global trade barriers reside. This is compounded by uneven and competitive -- rather than complementary -- production structures, and high transportation costs.

Complementary to Doha, developing countries therefore launched the Sao Paulo Round of the Global System of Trade Preferences (GSTP) in June 2004. This is the third of the GSTP's trade rounds and is being conducted under the aegis of the UN Conference on Trade and Development (Unctad). According to President Lula of Brazil, the GSTP aims to create a dynamic "new trade geography". The GSTP is a scheme by which developing countries provide trade preferences for products originating from other developing countries. They do not have to extend the concessions and benefits to developed countries. In contrast to the World Trade Organisation, the GSTP provides more scope for strategic integration into the global economy (as China did since the 1970s); prioritises "special and differential treatment" for least-developed countries; and preserves the necessary policy space for development. At last count, the GSTP had 44 members. The Latin American grouping Mercosur joined in November last year. Last year's India-Brazil-SA (Ibsa) heads of state summit expressed strong political support for the GSTP, and they are likely to do so again when they meet this October in SA. Ibsa is also nursing the vision of grand trilateral free trade area (FTA) that could create a market of 1,2-billion people, $1,2-trillion of GDP and foreign trade worth $300bn. At the launch of the GSTP's Sao Paulo Round in 2004, then deputy trade and industry minister Lindiwe Hendricks indicated that SA would seriously consider participating in this round of the negotiations. With our major exports destined for the markets of the US and the European Union, Pretoria is keen to diversify the country's trading relations. The GSTP -- or some other preference scheme -- may be one way to address SA's significant trade imbalance with the rest of Africa.

Thus far, however, the GSTP has done little to enhance south-south trade flows. The original concessions made in 1988 were very limited, with little commercial or economic value. The second round of the GSTP failed because it was eclipsed by the Uruguay Round. But today, developing countries -- mobilised by Brazil and Argentina -- are serious about harnessing the GSTP as an effective instrument for economic development and diversification. In the current round, there is talk of across-the-board tariff cuts in the range of 15% to 30%. Unctad estimates that a 50% tariff reduction among GSTP members would result in a trade gain of $15bn-$18bn. The GSTP therefore has considerable trade potential. In 2005, its member countries accounted for more than one-third of global trade. In that year, the GSTP accounted for $1,8-trillion in exports plus $1,6-trillion in imports. Together, that's $3,4-trillion in terms of trade presence in the global market. The GSTP countries therefore have sufficient weight to drive this trade creation initiative. Obviously, the GSTP is no substitute for the benefits of rules-based multilateralism. But until developed countries show stronger commitment to that system, developing countries are starting to hedge their bets elsewhere.

About the Author: Brendan Vickers is Senior Researcher in multilateral trade at the Institute for Global Dialogue.

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