Exchanging policy space

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: The WTO negotiations to conclude the Doha trade round are deadlocked and prospects for salvaging them appear increasingly dismal. Trade ministers from six countries—India, Brazil, the EU, the US, Australia and Japan— recently met in New Delhi, but the talks didn’t deliver any substantial result. Although the ministers agreed to complete the talks by December 2007, any sense of urgency to wrap up the Doha round is missing.

Developed countries like the US, for instance, remain adamant on not reducing trade-distorting farm subsidies. Developing countries like India, however, fear that liberalising agricultural trade affects the livelihood of millions of small farmers and intend to use “special product” provisions to shield them from tariff cuts. But in a negotiation entailing give-and-take, how can India, without budging an inch, ask the US and the EU to reduce farm subsidies and tariffs? A deadlock was inevitable.

Why is there no urgency? Even though the bulk of the estimated $96 billion benefits from a “likely” outcome of the Doha negotiations go to developed countries, Prof Dani Rodrik of Harvard University argues that they need flexibility to intervene when multilateral trade conflicts with social values at home or weakens the bargaining power of workers. Developing countries like India have no urgency either, as the total tariff revenue losses due to industrial liberalisation in the Doha round could be $63.4 billion (four times the benefit).

Prof Nagesh Kumar of the Delhi-based thinktank RIS and Kevin Gallagher, in their paper ‘Relevance of policy space for development: implications for multilateral trade negotiations’ argue that developing countries should thus seek to preserve policy flexibility and retrieve the space that has been eroded in previous WTO rounds. While rich countries used infant industry protection and soft patent regimes to industrialise, the space to employ these by developing countries has been squeezed by WTO negotiations on trade-related intellectual property rights (Trips) and trade-related investment measures agreements (Trims), etcetera. Will the Doha deadlock then be broken if both sets of countries exchange policy space? Rodrik thinks so: rich countries must be allowed to protect their social compact if they, in turn, allow others to employ strategies that entail flexible compliance with Trips and Trims.