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The liberalization efforts of the Doha Round from an institution economical perspective

©2006 Diplomarbeit 99 Seiten


In the prevailing paper, I will argue that the current institutional structure of the multilateral trade negotiations is the decisive factor that limits considerable progress in the liberalization of international agricultural markets. WTO members face a growing institutional complexity which does not allow for substantial liberalization steps. Rather, countries need to find alternative ways to improve their individual trade balance. My examinations will base on the insights of the New Institutional Theory (NIE), which puts its scientific interest on institutions. Since institutions serve as a direct interface of societal processes, including economical as well as political characteristics, its application provides an appropriate attempt to approach multilateral trade negotiations – a subject that indeed touches both areas.



Table of Contents

List of Figures

List of Tables

List of Abbreviations

1 Introduction

2 The World Trade Organization
2.1 General Guidelines of International Trade
2.2 Multilateral Trade Negotiations
2.3 The Way to Doha
2.4 The Doha Development Agenda
2.4.1 The Special Role of Agriculture
2.4.2 The Commitments of the Doha Development Agenda in Agriculture
2.4.3 Progress of the Doha Development Agenda so far

3 New Institutional Economics Theory
3.1 Institutions Matter
3.1.1 Theoretical Assumptions
3.1.2 Major Research Approaches Transaction Cost Theory Property Rights Theory
3.1.3 Why Having Chosen the NIE?
3.2 Libecap’s Analytical Framework

4 Institutional Analysis of Agricultural Negotiations
4.1 What Can Be Gained from Liberalizing Agriculture?
4.1.1 Market Access Tariffs Tariff Rate Quotas Potential Market Access Gains
4.1.2 Domestic Support Green Box and Blue Box Amber Box Payments and the “De-Minimis-Clause”
4.1.3 Export Subsidies Direct Export Subsidies Export Credits State Trading and Food Aid
4.1.4 Total Size of Potential Gains
4.2 How Many Different Interests Are Concerned?
4.2.1 Defining Interest Groups
4.2.2 Civil Society and the WTO
4.2.3 Traditional Interests in the Agricultural Market
4.2.4 Modern Interests in the Agricultural Market Consumer Groups Environmental Groups
4.3 How Heterogeneous Are the Contracting Parties?
4.3.1 The WTO Decision-Making Process
4.3.2 Reasons and Categories for WTO Coalitions
4.3.3 Coalitions during the Uruguay Round
4.3.4 Coalitions in the Doha Round The Bargaining Position of the European Union The Bargaining Position of the United States The Bargaining Position of the G-20
4.4 Evaluation of the Institutional Analysis
4.4.1 Results of the Institutional Analysis
4.4.2 Transaction Cost Theoretical Examination

5 Conclusions and Implications

List of Figures

Figure 1: Trade Policy Instruments in the Agricultural Sector

Figure 2: Effects of Imposing a Tariff

Figure 3: World Agricultural Tariff Averages by Region, 2001

Figure 4: Bound and Applied Agricultural Tariffs by Region, 1997 in Percent

Figure 5: Alternative TRQ Cases

Figure 6: Frequency Distribution of TRQ Fill, 2003 in Percent

Figure 7: Effects of an Export Subsidy

Figure 8: NGOs’ Possibilities to Exert Influence within WTO

Figure 9: Interest Groups and Their Influence on Agricultural Protection

List of Tables

Table 1: Overview of the WTO Liberalization Rounds

Table 2: Non-Market Benefits of Agriculture

Table 3: Share of Agriculture in Gross Value Added, in Percent

Table 4: Domestic Support of Selected OECD Countries, in US$ Million

Table 5: Expenditures on Direct Export Subsidies, 1995-1998 in US$ Million

Table 6: Comparing Expected Agricultural Liberalization Gains

Table 7: Agricultural Producer Support Estimates (PSEs) in OECD Countries, 1998-2000 in US$ Million

Table 8: Country Groupings in the Doha Round

Table 9: Agricultural Imports and Exports of Selected Countries, 2003/2004 in US$ Billion

List of Abbreviations

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1 Introduction

November 2001. Still under the influence of the shocking events of September 11th the same year, when terrorists crashed two jumbo jets into the World Trade Center in New York, international trade officials met in Doha, Qatar, to revive the multilateral trade talks. Much had been achieved since the foundation of the World Trade Organization (WTO), the official forum for trade liberalization. Tariffs were cut, subsidies restricted and thus global trade encouraged. For the past two years, however, negotiations were lying at the soil. The disastrous failure in Seattle in 1999, when globalization critics disturbed international trade politics well-covered by media, was the temporary end of a glorious liberalization story. Since then the negotiation process was at a standstill.

The new attempt in Doha was supposed to build a bridge between WTO’s opposing interests. Negotiations should bring together the stubborn North, being interested in a couple of new issues such as intellectual property rights and the disappointed South, complaining about its previous marginalization. And in fact, the standstill situation lost its severity, when dismay about the terrorist attacks directed attention back to WTO’s initial aim - global prosperity through liberalized trade. Since the growing welfare gap between the rich and the poor was seen as a major factor that drove terrorists to conduct their cruel plans, this claim reached new popularity.

The new multilateral negotiation round was thus dedicated to the development process of the third World. By improving the opportunities for developing countries to trade, existing welfare imbalances should be reduced. This would on the one hand effectively help developing countries to raise living standards while at the same time minimizing the risks of a stretching terrorism. Therefore, the Doha Round was finally named Doha Development Agenda (DDA).

April 2006. For the third time, WTO officials failed to establish concrete modalities, committing its member countries to severe tariff and subsidy reductions. A first deadline was already missed in March 2003 and a second again in December 2005. Consequently, no serious had been reached since the inauguration of the Doha Round in November 2001. The initial aim of finish the round within three years was thus only a waste of paper. A result which was in no countries best interest.

On the basis of this unpleasant outcome, I want to examine the negotiation process of the present Doha Round. The major question I want to approach is why the current multilateral liberalization process has begun to stutter even though it predicts considerable welfare gains? Why indeed do multilateral liberalization rounds last longer and longer while not providing significant outcomes? And why are countries shifting increasingly away from multilateral to bilateral solutions?

In the prevailing diploma thesis, I will argue that the current institutional structure of the multilateral trade negotiations is the decisive factor that limits considerable progress. WTO members face a growing institutional complexity which does not allow for substantial liberalization steps. Rather, countries need to find alternative ways to improve their individual trade balance. My examinations will base on the insights of the New Institutional Theory (NIE), which puts its scientific interest on institutions. Since institutions serve as a direct interface of societal processes, including economical as well as political characteristics, its application provides an appropriate attempt to approach multilateral trade negotiations – a subject that indeed touches both areas.

Since WTO negotiations comprise a variety of different subjects, that all have its own background and that all raise their own questions, I have to restrict my work to only one of them. In particular, this will be agriculture. I have chosen especially this subject due to its inherent importance in the ongoing Doha Round. No other topic is negotiated as central as agriculture. The main reason is that it was held out from any liberalization commitment in the past rounds, while being actually one of the most important business areas for developing countries. Thus it is predestined for a development round to put focus on. In fact, progress in all other subjects depends on a successful compromise in agriculture. The complete Doha Round will stop, if there is no agreement about how to liberalize the agricultural market.

This thesis is divided into three parts. First of all, I will provide the reader with the general knowledge about the WTO and the previous liberalization process in chapter two. This will be followed by a brief introduction of the NIE, which is the theoretic concept underlying my examinations. Finally, chapter four contains the institutional analysis of Doha’s agricultural negotiation process. Its evaluation will answer the core question of my work: How much liberalization can be expected from the Doha Round?

2 The World Trade Organization

When approaching such a complex and opaque topic such as international trade politics, numerous questions about its actual background will soon come up in a readers mind. The history of multilateral trade is filled with so many incidents, agreements and negotiations that even the most attentive person can easily lose the thread and get confused with all the details. For this reason the following chapter will give a comprehensive introduction into the subject of multilateral trade negotiations. It will present the foundations and the development of the World Trade Organization with a particular focus on agriculture and its recent negotiations. It will thus be possible for the reader to better understand the ongoing process of trade liberalization. This is especially necessary for the institution economical analysis in chapter 4, where selected issues of the current Doha Round will be examined. The chapter starts with a description of the origins and the underlying guidelines of the World Trade Organization and proceeds with a detailed presentation of the Doha Development Agenda.

2.1 General Guidelines of International Trade

Based on the experiences of an exaggerated nationalism during World War II, an atmosphere of joint regulation in international politics emerged in the 1940s. Mainly driven by the United States (US), an initiative to set up international institutions was launched. These institutions were supposed to guide the global process of reconstruction that followed World War II with the aim to prevent further interstate conflicts as well as global economic crisisses.[1] As a result, the United Nations (1945), the International Monetary Fund (1944) and the International Bank for Reconstruction and Development – the World Bank – (1944) were founded.[2] Discussions about establishing a fourth institution to control the unrestricted flow of international merchandise trade were also raised. But first, negotiations about the so-called International Trade Organization (ITO) did not succeed due to the reserved attitude of some Western countries. Indeed they were concerned about the ambitious principles that were summarized in the Havana Charter, the official document to set up the ITO. For example, the draft’s competencies should “[…] extended beyond world trade disciplines, to include rules on employment, commodity agreements, restrictive business practices, international investment, and services.”[3]

But still there was a common consensus that international trade of goods needs to have a general framework. As described by Sutherland & Sewell the merits of a liberal international regime cannot be reached autonomously:

“Post-war leaders were convinced that a liberal international order would maximize international economic stability and growth. But they were concerned that the domestic impact of liberalization could undermine political support for a liberal international system.”[4]

Thus, in 1947 a group of 23 countries concluded to set up the General Agreement on Tariffs and Trade (GATT), which solely concentrated to establish a mechanism for reciprocal tariff reductions. Its obligations towards national governments were not as demanding as those of the ITO, which is why it was easier for all countries to accept it.[5] Being planned to be a temporary solution which grants tariff concessions until the ITO would come into power, the GATT survived for several decades and was finally replaced by the World Trade Organization in 1995. While the GATT represented a simple contract between several states, the WTO finally received the formal status of an international organization and therewith fulfilled the initial intensions.[6]

The basic purpose of the WTO and its predecessor, the GATT, is to “[…] ensure that trade flows as smoothly, predictably and freely as possible.”[7] Serving as a mediator between sovereign countries, the GATT was supposed to facilitate escaping from a prisoner’s dilemma by implementing mutual cooperation. A prisoner’s dilemma in the field of international trade emerges when governments try to maximize their national welfare by unilaterally imposing trade barriers. The unintended result is, however, a pareto-inferior constellation since all other countries would follow raising trade barriers and thus limit the free flow of goods.[8] In order to fulfill the GATT’s task as a mediator, it demands all member countries to harmonize their domestic trade policies. This in turn enables the maximization of global trade gains while at the same time reducing the risk of unpleasant tariff conflicts.[9] To reach this harmonization, the GATT established a number of fundamental principles. These are recorded in the official GATT document, which came into power on the 1st January 1948.[10] A conventional categorization of the main principles can be found at Siebert:[11]

1. Liberalizing Trade - To enhance the gains of international trade, tariffs have to be reduced step by step. Regular meetings – the Ministerial Conferences – decide about the extent to which the members have to participate in the mutual removal of trade barriers. Generally, implementing new tariffs or raising existing tariffs above the bounded level is not allowed. The application of non-tariff restrictions such as quotas and export subsidies is forbidden.
2. Non-Discrimination - No member of the WTO shall be discriminated due to any specific characteristics. Therefore two features have to be followed:
Most-Favored-Nation Treatment (MFN) - The lowest tariff on a certain import product has to be applied to all other WTO members as well.
National Treatment - Imported goods have to be treated as favorable as domestic goods. That means that all internal tariffs, laws or regulations have to be valid for imported and domestic goods without exceptions.
3. Reciprocity - Concessions concluded by the members have to have a mutual character. Thus, any kind of tariff reduction by one country must be faced with a tariff reduction by another country.

A number of exceptions leave considerable space to adjust these basic principles to the more complicated reality of international politics. For example, regional trade arrangements, such as free trade areas and customs unions between two or more countries, are allowed under certain conditions even though they violate against the Non-Discrimination principle. It is thought, that those arrangements would push the development of free trade. The same explanation is valid for preferential tariff treatment.[12] Developed nations are encouraged to provide developing countries a favored market access, because improving their economic situation would help to increase trade relations.

Concerning agriculture, the GATT left some possibilities for active trade policy measures. Article 11 and 16 of the GATT permit the application of import quotas to support domestic farm incomes as well as of export subsidies.[13] These two major loopholes effectively allowed agriculture to become an unique subject within the international trade negotiations. Since the implementation of GATT in 1947, agriculture was always treated differently than the industrial sector. As a result of the exceptions Krugman & Obstfeld conclude that “[…] world trade in agricultural products has been highly distorted.”[14]

2.2 Multilateral Trade Negotiations

The free trade improvements which were achieved under the GATT/WTO are a result of quite formal and complex procedures, called multilateral trade negotiations. Every two years, representatives of the member nations come together at Ministerial Conferences and decide about the instruments to cut tariffs and to liberalize trade.[15] Ministerial Conferences are the highest authority within the WTO[16] and they “[…] can take decisions on all matters under any of the multilateral trade agreements.”[17] When it comes to decision making at Ministerial Conferences every member country has one vote, no matter how big its economy actually is. But even though a majority rule exists, its actual application is in fact restricted to a few cases. Normally, decisions on trade obligations are achieved by the consensus principle guaranteeing that no member actually opposes them.[18] Peter Drahos gets to the heart of it by stating: “Consensus in the context of the WTO means that a decision is accepted when no state objects to it.”[19]

Since negotiations about international trade always include controversial opinions, results cannot be achieved within a couple of days. For this reason the GATT established liberalization rounds which may last up to years. To date, eight liberalization rounds, recently consisting of several Ministerial Conferences, have been finished. While the first five rounds were solely concentrating on cutting the existing tariffs down, the following three rounds took up a vast number of new topics (e.g. services, property rights, non-trade barriers) and hence lasted for several years.[20] When finishing the Uruguay-Round in 1995, the GATT was replaced by the WTO. However, GATT still serves as a part of the newly created organization conducting the liberalization process of merchandise. But additionally GATS, an agreement on liberalizing international services and TRIPS, an agreement protecting intellectual property rights, were also set in power. WTO negotiations thus take place in three different councils (see WTO Organization Chart). The most recent round of multilateral trade negotiations began in 2001 in Doha, Qatar and is still subject to intense negotiations. Table 1 summarizes the previous liberalization rounds and its covered subjects.

Table 1: Overview of the WTO Liberalization Rounds

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Sources: WTO [Homepage]a and ECAT [Homepage].

Overall, negotiations under the GATT/WTO have been quite successful. The most visible progress has been achieved in the field of industrial goods. While at the end of World War II the average tariff rates on industrial products were roughly 40%, they have decreased to only 4% when finishing the Uruguay-Round.[21] However, average numbers should not disguise that tariffs seen in absolute numbers are still a decisive source for trade distortions. This is especially true for agricultural tariffs.[22] Those were mostly kept out of the negotiation agendas and so they are still unprecedentedly high. Gibson et al. calculated that the global average tariff for agricultural products was 62 percent when finishing the Uruguay Round.[23]

Surveying the previous liberalization rounds, some general trends of the liberalization process become obvious:

1. The length of the several liberalization rounds has constantly increased. While the first rounds were finished within one year, negotiations of the Tokyo Round already lasted three years and those of the Uruguay Round even eight years. The current Doha Round was supposed to end in 2005 after three years of negotiations. But as can be followed from recent developments this can rather be seen as an optimistic estimation than a realistic expectation.
2. The number of WTO members are growing each round. At the beginning, GATT comprised only 23 member countries including the US, the UK, Canada, Australia, France, the Netherlands and Norway as major players. Today in contrast, except from a few smaller countries, no important economy is missing at the bargaining table.
3. The subjects to be negotiated become more and more diverse. The first rounds focused purely on cutting tariffs of industrial goods whereas the latter ones included almost every area that is somehow connected to international trade (e.g. Singapore issues[24], etc).

2.3 The Way to Doha

Getting the recent WTO negotiation round (the Doha Round) started was not an easy task. Actually, Doha was not the first attempt to set up a ninth WTO multilateral negotiation round. In fact, a first trial at the Ministerial Conference in Seattle, USA, failed deplorably in 1999. This debacle and its run-up must be taken seriously into account to understand the background of the current Doha talks. Its reasons and objectives were strongly shaped by Seattle’s aftermaths.

Completing the Uruguay Round in Marrakesh, Morocco, in 1994 after eight years of “[…] offers and counteroffers, threats and counterthreats, and, above all, tens of thousands of hours of meetings so boring that even the most experienced diplomat had difficulty staying awake”[25] was a big success for the multilateral trade talks. Never before had so many negotiators found a consensus on such a complex “single-undertaking”.[26] The total agreement covered documents with more than 22,000 pages![27] One of the major outcomes of the Uruguay Round is the “Agreement on Agriculture”. It was the first time that a WTO round agreed on liberalizing agricultural markets. Although the initial expectations of the USA to achieve “[…] free trade in agricultural products by the year 2000”[28] could not be met, the final outcome provided at least some first considerable results. For example, the so-called tariffication process led to a transformation of all agricultural non-tariff border measures into tariffs. In addition, these tariff lines were subject to linear cuts of 36% in developed countries and of 24% in developing countries.[29]

A second issue that was put on way was the so-called “built-in” agenda. This agenda contained those subjects whose further liberalization process was agreed on and already scheduled. Since the number of topics did not provide the “critical mass of issues”[30] for a complete new multilateral negotiation round they were mandated as single subjects. The agenda’s most striking topics were agricultural trade and trade in services. However, the European Commission was not in favor of liberalizing these two subjects exclusively. In fact it “[…] treated the built-in agenda as a threat.“[31] The reason was, that EU’s Common Agricultural Policy (CAP) as well as its audio-visual services were highly protected areas. Negotiations on these topics would put the Commission in a tight situation. On the one hand, EU countries would hardly accept concessions in either issue without seeing gains in other fields and on the other hand, WTO countries would force it to present reliable commitments.[32] Thus, the EU tried to launch a new multilateral negotiation round, including a wider range of subjects to balance potential concessions in agriculture and services.

The “Millenium Round,” as the new multilateral negotiation round was supposed to be called, should help to include topics where the EU favored an onward liberalization, such as in competition policy and investment measures.[33] It was assumed, that a trade-off between claims in these fields and concessions in agriculture would facilitate to reach a consensus within the EU15. But the single support of the EU was not enough to get a new round started. At least the USA, the foremost promoter of multilateral liberalization and at the same time a potential winner of cutting barriers in agriculture and services, had to be convinced. This was finally achieved by including labor standards into the extended agenda, a topic in which US-President Bill Clinton had high levels of interest.[34] On the other hand, developing countries were held almost completely outside the agenda setting or how Heinz Hauser points out: “[…] developing countries stayed during the preparation of the Ministerial Conference and its negotiations as onlookers. They had to watch how industrial countries, especially the EU and the USA, were taking care of their own interests in the first place.”[35] Concerns by developing countries that labor standards would be a means of protecting the industrialized markets kept being unheard. Moreover, issues which would improve a developing countries’ trade situation got only marginal attention. Hence, launching a “Millenium Round” was seen disproportionate by developing countries.

However, developing countries were not able to form a considerable opposition against the proposed Millenium Round. Instead it was civil society protest that drew attention to the perceived negative effects of globalization for the poor. 50,000 demonstrators[36] representing interest groups from all over the world accompanied the Ministerial Conference in Seattle (11/30 – 12/03/1999). Although there appeared some dubious groups pursuing controversial aims,[37] their joint critics on the liberalization process helped overcome contrary opinions. In addition, occasional fights between the demonstrators and the police raised the public interest and unified the pressure on the Western countries. Media broadcasting even accelerated this tension.

But the final break down of the Seattle negotiations was not due to the North-South conflict. “The WTO ministerial collapsed not because of developing-country opposition to the rich countries' agenda but because the rich countries disagreed among themselves on the negotiating objectives.”[38] In fact, the EU-US gap between agricultural claims and offers was too wide to find a common position.[39]

Nevertheless, world society became aware that the interests of developing countries in WTO negotiation rounds were yet under-represented. Thus, the pressure towards the Western countries to focus more on third World problems had crucially grown. Stiglitz summarized this as follows: “Seattle demonstrated that without greater balance the success of future negotiations will be imperiled.”[40]

2.4 The Doha Development Agenda

From November 9th to 14th of 2001, the fourth WTO Ministerial Conference was held in Doha, Qatar, launching a new round of multilateral negotiation. The success of more than half a century of liberalizing trade, while at the same time facing a global economical slowdown, encouraged the WTO members to go back to the negotiation tables.[41] However, the lessons learned in Seattle still echoed in the diplomats’ minds. The pictures of thousands of protesting individuals had not shed a favorable light on liberalized trade. That is why two major changes had been taken into account. At first, WTO was looking for a more offside conference site. Potential anti-globalization demonstrators should not be again in the favorable position to disturb the negotiations and to present their success via TV worldwide. So, non-central and unlively Qatar was chosen. The second lesson learned was to put more focus on the concerns of developing countries. It was recognized that the majority of WTO members are actually developing nations having different expectations in the liberalization process than the industrialized countries. Risking a second collapse as having had in Seattle was not of anyone’s interest. After all, WTO’s future was at stake. Failing again would probably seal the end of multilateral trade negotiations. Thus, to ensure the participation of developing countries, the Doha Round was dedicated to them as stated in the Doha Ministerial Declaration:

“International trade can play a major role in the promotion of economic development and the alleviation of poverty. We recognize the need for all our peoples to benefit from the increased opportunities and welfare gains that the multilateral trading system generates. The majority of WTO Members are developing countries. We seek to place their needs and interests at the heart of the Work Programme adopted in this Declaration.”[42]

Particular focus was put on least-developed countries and their special needs. Article 3 of the Doha Ministerial Declaration refers to them as follows:

“We recognize the particular vulnerability of the least-developed countries and the special structural difficulties they face in the global economy. We are committed to addressing the marginalization of least-developed countries in international trade and to improving their effective participation in the multilateral trading system.”[43]

The purpose of the Doha Round to put central interest on developing countries found its expression in the name “Doha Development Agenda”. The DDA, which was supposed to be finished within an ambitious period of three years until 1st January 2005,[44] includes a general Work Programme. Here, commitments for each subject are recorded. Besides agriculture, the Doha mandate includes altogether 21 different topics which are subject to official negotiations, actions, analysis and/or monitoring.[45] Before presenting the framework decisions that were concluded for the agricultural sector, I want to explain why agriculture plays a major role in case of a development round.

2.4.1 The Special Role of Agriculture

To understand why agricultural markets are still highly protected and therefore play a central role in the DDA negotiations, one has to elaborate upon the different functions that agriculture serves and what importance they have for each country. Of course, as a primary function, agriculture provides the markets first of all with tradable goods. According to the International Standard Industry Classification (ISIC) these goods can be out of the following five areas: forestry, hunting, fishing, cultivation of crops and livestock production.[46] The availability of agricultural goods at the market is of special importance since food is necessary for the existence of mankind. A persisting under supply of food will have existence-threatening consequences for the consumers.

Table 2: Non-Market Benefits of Agriculture

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Source: Hediger (2004), p. 2.

Apart from the obvious purpose of producing food and fiber, agriculture also provides some additional, so-called “non-market benefits”.[47] These externalities can be categorized as socio-economic and environmental benefits as presented in Table 2. In science the concept which deals with these secondary functions is called “multifunctionality”. The application of multifunctionality within the liberalization process of the WTO, however, is heavily controversial. The reason is that it opens the window wide for protectionist arguments. Up to date, the WTO does not mention multifunctionality directly. Instead, it addresses these aspects as “Non-Trade Concerns” as for example in the Doha Ministerial Declaration (2001):

“We take note of the non-trade concerns reflected in the negotiating proposals submitted by Members and confirm that non-trade concerns will be taken into account in the negotiations as provided for in the Agreement on Agriculture.”[48]

The foremost promoters of the multifunctionality concept are a handful of countries called “Friends of Multifunctionality”: the European Union (EU), Japan, Norway, South Korea and Switzerland. These five countries claim a certain flexibility from WTO to ensure that those additional functions of agriculture can be guaranteed.[49] They want to be able to internalize the positive externalities of agriculture. However, since these countries are quite protectionists, especially concerning agriculture, they are accused by the rest of the WTO community of looking for disguising arguments to keep up their existing trade barriers.

Table 3: Share of Agriculture in Gross Value Added, in Percent

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Source: FAO (2005).

While farming accounts only for a very small GDP share in the developed world, developing countries are instead highly dependent on the agricultural sector (see Table 3). For example, in some of the poorest developing countries more than 60 percent of the labor force is employed in the agricultural sector, being responsible for approximately 40 percent of the country’s GDP. Moreover, since agricultural production often provides a comparative advantage at the world market, exporting food and fiber is one of the most important sources of export sales for developing countries.[50] However, at the same time there are also cases where food aid from International Organizations is necessary to guarantee a sufficient nutrition for the population of developing countries. Due to these facts it becomes clear that the primary function of supplying the economy with food and fiber dominates any potential benefit from the multifunctionality concept for developing countries.

All in all, one can conclude that the agricultural production plays an exceptional role for developing countries’ economies. By improving their export opportunities for agricultural products they could raise the national GDP and push the development process forward. For this reason agriculture needs to be addressed as one of the central issues when launching a development round.

2.4.2 The Commitments of the Doha Development Agenda in Agriculture

Concerning the goals that the DDA formulates in the fields of agriculture, it strongly refers to the Agreement on Agriculture:

“We recall the long-term objective referred to in the Agreement to establish a fair and market-oriented trading system through a programme of fundamental reform encompassing strengthened rules and specific commitments on support and protection in order to correct and prevent restrictions and distortions in world agricultural markets. We reconfirm our commitment to this programme.”[51]

Negotiations between the WTO members shall aim at the reduction of trade barriers to set up a market-oriented trading system. In particular, a three-pillar system is concerned, including improvements in market access, export subsidies and domestic support.[52] The following three commitments are stated in Article 13 of the Work Programme:[53]

- “ […] substantial improvements in market access;
- reductions of, with a view to phasing out, all forms of export subsidies;
- and substantial reductions in trade-distorting domestic support.”

The Declaration does not provide any specific targets concerning these three pillars and hence stays quite inconcrete. However, the word “substantial” implies that the Doha Round is not intended to reach just some superficial achievements. Nevertheless, the only fixed goal which is directly mentioned is to end all kinds of export subsidies. According to Article 14 of the DDA, modalities[54] shall be established “[…] no later than 31 March 2003.”[55]

2.4.3 Progress of the Doha Development Agenda so far

Official decisions concerning the commitments written down in the Doha Work Programme are made at multilateral meetings. Since the Doha Round was started, three of those meetings have taken place. There have been two Ministerial Conferences in Cancún, Mexico in September 2003 and in Hong Kong, China in December 2005. A third meeting has taken place between them in Geneva, Switzerland in July 2004. The results of these three Conferences were quite diverse as will be described below.

Cancún , Mexico (Ministerial Conference) – The Ministerial Conference in Mexico was supposed to finish with explicit modalities on the issues laid out in Doha. This was actually necessary to meet the ambitious schedule, finishing the DDA in January 2005. Although negotiations during the first days have been a bit tough, no one expected that Mexico’s foreign minister and Chairperson of the conference, Luis Ernesto Derbez, finally would close the meeting without any result.[56] While negotiations on agricultural issues seemed to cause some insuperable difficulties, it was actually disagreement on the Singapore issues that has to be blamed as the final reason for the break down. A lack of compromise on either side – developing countries (especially the Core Group and G-90) and EU/USA – caused this negative outcome.[57] While Non-Governmental Organizations (NGO) celebrated this second deadlock after Seattle, questions raised about the potential end of the WTO.[58] Nevertheless, Jagdish Bhagwati soon concluded, that Cancún cannot be compared with Seattle. He mentions three reasons supporting his assumption: there have been less intense protests, the purpose of the conferences was very different and the politics by the main actors differed as well. Thus he expected that the DDA will proceed even if the schedule cannot be held.[59]

Geneva , Switzerland – After the breakdown in Cancún, WTO and its members were paralyzed for a certain while. It took some months until first timid attempts by the European Union and the United States to start new talks, which finally resulted in the “July 2004 Package”. 25 WTO members met in July 2004 in Geneva to bring the DDA Work Programme back on track. A framework agreement was reached, including a new target date (December 2005) and proposals for the various issues. As a novelty, the cotton negotiations were singled out in a special negotiation group. The most important targets in agriculture are the following:[60]

- Market Access: Market access has to be improved by cutting bound tariffs according to a tiered formula, which cuts higher tariffs with a higher proportion and leaves flexibilities to sensitive products,
- Domestic Support: Trade distorting support (“Amber Box”) shall be reduced on the basis that higher subsidies shall be subject to higher cuts while binding Blue Box support to 5% of a member’s average total value of agricultural production,
- Export Subsidies: Export subsidies and export credits with repayment periods beyond 180 days have to be eliminated as well as trade distorting practices of exporting state trading enterprises (STE),[61]
- Special and Differential Treatment: Developing countries are guaranteed a flexible treatment including the tiered tariff reduction formula, the number and treatment of sensitive products, the expansion of tariff rate quotas and the implementation period. Least-developed countries are not forced to any reduction commitments while having full access to all special and differential treatment provisions.

Hong Kong , China (Ministerial Conference) – High pressure accompanied the way up to the sixth WTO Ministerial Conference in Hong Kong. While on the one hand Hong Kong needed to become a success to relieve the wounds Cancún left, on the other hand the proposals of the USA and the EU before the meeting showed a considerable gap. The United States Trade Representative (USTR) Rob Portman proposed tariff cuts up to 90% for developed countries and Amber Box cuts of 60% for the US and 83% for the EU.[62] For the European Commission, however, these proposals were too ambitious. Hong Kong was again supposed to end up with modalities. And again the outcome provided much less. The following was concluded in the field of agriculture:[63]

- all forms of export subsidies shall be eliminated until the year 2013,
- an agreement on cotton, including the elimination of export subsidies in developed countries until 2006 and the ambitious reduction of trade distorting domestic support within a short period,
- duty-free and quota-free market access for all products originating from least-developed countries.

Recalling the high expectations that the DDA raised in 2001, the outcome so far is quite low. The prospect to “establish a fair and market-oriented trading system through a programme of fundamental reform”[64] does not seem realistic when recapitulating the progress so far. Only a few improvements can be listed, but they are by no means comparable to a complete and ambitious agenda. Furthermore, the breakdown in Cancún and the tough compromise in Hong Kong have shown how unstable the multilateral trading system is by now. The negotiation front between the North and the South has become quite inflexible, with a main focus on the agricultural sector. Even though agriculture accounts only for a small percentage of world trade, it has now become the central issue of the negotiation process. Results in all other fields like tariff reductions in the industrial sector or service improvements are highly dependent on a positive outcome in agriculture.

3 New Institutional Economics Theory

The previous chapter gave a comprehensive summary of the foundations and the development of the multilateral trade negotiations. In contrast to this real world review the following chapter will put its focus on the theoretical background of my later examinations. Since I decided to approach the Doha Round negotiations from an institution economical perspective, I now want to present the basic principles of this theory. First of all, a short introduction into the New Institutional Economics Theory will be given. This includes an explanation of its central research interests, its basic assumptions and its major research approaches. Based on these general remarks, I will afterwards present the analytical framework I am mostly working with. It will be the basis for my institution economical analysis in chapter 4. Reading this chapter will help to understand why I chose the New Institutional Economics Theory and how it can be used to explore international trade negotiations.

3.1 Institutions Matter

Although scientists have been aware of the existence of institutions for a long time, there has not been an extensive theoretical approach focusing exclusively on them until recently. Examining the influence institutional arrangements play in society is still a young matter of interest in economics. It was up to Ronald Coase’s paper, “The Nature of the Firm,” in 1937 to lay the foundations for the new theoretical approach, which was first named the “New Institutional Economics” in 1975 by Oliver Williamson.[65] Up to date, scientific progress in the field of institutions has not stopped. At the moment scientists raise the question, whether the NIE should be regarded as an extent of the neo-classical approach or as a completely new economic paradigm.[66] Major representatives like Douglass North plead for the latter. Irrespective of this academic dispute, I want to follow Blum et al. who interpret the NIE as a generic term subsuming several different theories.[67] Even though these different theoretical attempts might not provide a homogenous entity yet, they all share at least the assumption that “institutions matter”.[68]

Generally speaking, what the NIE wants to explore is how society in total is organized.[69] In this context institutions are of central interest. They “[…] reduce uncertainty by providing a structure to everyday life.”[70] Scientists claim that institutions have a strong influence on the behavior of individuals and with it on the economic development of an economy. Unfortunately, up to date, there has not been a uniformly accepted definition of an institution. According to their personal understanding of institutions, all famous scientists try to establish their own wording. Of course, none of them are wrong, but they differ crucially according to the subject which is under consideration. Concerning this thesis the following broadly accepted definition by Douglass North is chosen:

“Institutions are the rules of the game in a society or, more formally, are the humanly devised constraints that shape human interaction. In consequence they structure incentives in human exchange, whether political, social, or economic.”[71]

According to Voigt, there are two components characterizing institutions. On the one hand institutions set up rules which are widely known by the society, while on the other hand they provide means of sanctioning when violating these rules.[72] The latter is necessary to bind all humans to these rules and thus to minimize potential free-rider losses. Based on this characterization, institutions can be categorized in two groups. While internal institutions (e.g. customs, habits) are carried out and sanctioned by the society, the same is done in the case of external institutions (e.g. laws, rules) by the state or another legal entity.[73] For the following descriptions my focus will be on the latter ones, since concrete rules actually define the international trade arena.

An important distinction has to be established between an institution and an organization. Both words are often used as synonyms in everyday language, but have slightly different meanings. While institutions represent the general rules of a society, organizations comprise all human beings which are included in setting these rules.[74] Thus, following Schmoller, organizations can be called the “personal side of institutions”.[75]


[1] See Krasno (2004), p. 4.

[2] See Markusen et al. (1995), p. 343.

[3] WTO [Homepage]a.

[4] Sutherland & Sewell (2001), p. 102f.

[5] See Markusen et al. (1995), p. 343.

[6] See WTO [Homepage]a.

[7] WTO [Homepage]b.

[8] For a detailed description of the prisoner’s dilemma see e.g. Axelrod (1984).

[9] See Siebert (1997), p. 212.

[10] See WTO [Homepage]c.

[11] See Siebert (1997), p. 213f.

[12] See Siebert (1997), p. 215.

[13] See WTO [Homepage]c.

[14] Krugman & Obstfeld (1997), p. 239.

[15] See Krugman & Obstfeld (2003), p. 315.

[16] The WTO Organization Chart is attached in the Appendix.

[17] WTO [Homepage]d.

[18] See Schott & Watal (2000).

[19] Drahos (2003), p. 85.

[20] See Siebert (1997), p. 216.

[21] See OECD (2003), p. 2.

[22] For a detailed description of current tariff levels in agriculture see chapter 4.1.1.

[23] See Gibson et al. (2001), p. 1.

[24] During the Singapore Ministerial Conference in 1996 four working groups were set up to investigate the influence of the following issues on trade: investment, competition policy, transparency in governmental procurement and simplification of trade procedures.

[25] Krugman & Obstfeld (1997), p. 239.

[26] A negotiated single-undertaking compromise is a complete measure package, which can either be fully accepted or rejected by WTO members. Partial agreements are not permitted.

[27] See Krugman & Obstfeld (1997), p. 239.

[28] Krugman & Obstfeld (1997), p. 239.

[29] See WTO [Homepage]e.

[30] Das (2000), p. 742.

[31] Hindley (2000), p. 52.

[32] See Hindley (2000), p. 53.

[33] See Schott (2000a), p. 380.

[34] See Hindley (2000), p. 54.

[35] Hauser (2000), p. 61 – Translation from German to English: Torsten Anke.

[36] See Harden (2005), p. 156.

[37] See Hauser (2000), p. 62.

[38] Schott (2000b), p. 66.

[39] See Hauser (2000), p. 60.

[40] Stiglitz (2000), p. 437.

[41] See WTO (2001), Article 1.

[42] WTO (2001), Article 2.

[43] WTO (2001), Article 3.

[44] See WTO (2001), Article 45.

[45] See WTO (2001), Articles 12-44.

[46] See ILO [Homepage].

[47] Hediger, W. (2004), p. 2 – There exist a variety of different other expressions such as “non-economic objectives” in Anderson (2000), p. 478.

[48] WTO (2001), Article 13.

[49] See Landau (2001), p. 918.

[50] See McCalla (2001), p. 167.

[51] WTO (2001), Article 13.

[52] A definition of market access, domestic support and export subsidies will be given in chapter 4.1.

[53] WTO (2001), Article 13.

[54] Modalities are concrete liberalization commitments that countries have to agree on.

[55] WTO (2001), Article 14.

[56] See WTO [Homepage]f.

[57] See Narlikar & Tussie (2004), p. 950.

[58] See e.g. Razeen (2004), p. 1.

[59] See Bahgwati (2004), p. 52f.

[60] See WTO (2004), p. A-1ff.

[61] STEs are state-owned enterprises that receive special or exclusive privileges by the state.

[62] See USTR [Homepage].

[63] See WTO (2005), p. 1ff.

[64] WTO (2001), Article 13.

[65] See Ménard & Shirley (2005), p. 2ff.

[66] See Richter & Furubotn (2003), p. 3.

[67] See Blum et al. (2005), p. 43.

[68] Williamson (1996), p. 3.

[69] See Blum et al. (2005), p. 44.

[70] North (1998), p. 3.

[71] North (1998), p. 3.

[72] See Voigt (2002), p. 34.

[73] See Voigt (2002), p. 39f.

[74] See North (1998), p. 4f.

[75] Schmoller (1900), p. 61.


ISBN (eBook)
ISBN (Paperback)
885 KB
Institution / Hochschule
Universität Leipzig – Institut für Wirtschaftspolitik
2006 (November)
Doha Round

Titel: The liberalization efforts of the Doha Round from an institution economical perspective
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99 Seiten