The Nuanced Case for the Doha Round

Abstract

This paper addresses the question: what is the substantive case for the Doha Round, in terms of commercial benefits to the negotiating parties and in terms of more general improvements to the system of international governance that are to be discussed? The paper notes that the starting point for trade negotiations today is that of a highly open system in which many of the gains from trade have already been extracted, where the major players – the OECD countries – face diminishing returns to further openness, and where an effective rules-based system is up and running. It further observes that the remaining areas for liberalization – most importantly agriculture and services as well as integration of developing countries – pose greater challenges than faced negotiators in previous rounds. The paper surveys the results of empirical work based on general equilibrium models which suggest that, scaled to the size of the global economy in 2002 (about US$32 trillion), the remaining potential gains from full liberalization would be an increment to annual income equivalent to as high as about US$790 billion or 2.5% of global GDP. The paper cautions that the extent of liberalization that will be achieved in the Doha Round will only be a fraction of this amount and that the potential gains in areas such as agriculture (about 0.5% of global GDP) and services (1.3%) must be considered in light of the difficulties of achieving them, both in political economy and regulatory-technical terms. To a large extent, a strong result depends on the Doha Round being a "development round" as advertised and hoped for. The paper concludes that, considered in a cost-benefit framework, the case for the Doha Round can be made; at the same time, the paper suggests that the procedures of trade liberalization probably should be reconsidered. The point is not that we need a change of heart about trade, but we may need a change of art and quite possibly a change of pace of liberalization.

Keywords: WTO, Doha Round, multilateral trade liberalization, trade and development, gains from trade

JEL Classification: F13