Viv Davies interviews Peter Sutherland for Vox

May 2011

Transcription of a VoxEU audio interview [http://www.voxeu.org/index.php?q=node/6582] 

Viv Davies:  Hello and welcome to Vox Talks, a series of audio interviews with leading economists from around the world. I'm Viv Davies from CEPR. It's the 24th of May, 2011 and I am speaking to Peter Sutherland who is co‑chair of the High‑Level Trade Experts Group, which has this week published its final report on "World trade and the Doha Round." The report traces the imminent failure of the Doha Round back to what the authors consider to be a deficit of political leadership. I began the interview by asking Mr. Sutherland how the report's conclusions and recommendations have changed in light of events and developments since the Interim report was published earlier in the year.

Peter Sutherland:  I think there are a number of points to be made in regard to that. First of all, events have moved on. Not merely has time passed on a very limited time period window for the conclusions of the round that we've identified in the interim report. But the progress has been faltering in the interval. And we're now faced not with a crisis in terms of trying to move things to a conclusion, but an even more definitive crisis, in that we are in the brink of failure of the Round.

So the temporary positivism that we felt, some of us felt at the beginning of the year has not been fulfilled. And we're now on the brink of a failure. And progress in regard to negotiations in the intervening period has also been faltering.

There has been some progress. There have been moments when it appeared that things were about to happen: zero-for-zero options for an example. sectorals seemed to be moving forward. There seemed to be possible progress that could be made in other areas.

And there was a period when one had some belief that there might have been a leadership dynamic which had been absent in the past. But I think this was an illusion. Apart from the leadership, which clearly is being shown by the sponsors of this endeavor, Germany, Great Britain, Indonesia and Turkey, and some others.

There has been in my view a failure to lead, which has been palpable and very serious in some of the major players, which I'm quite happy to expand upon if necessary.

Viv:  To what extent do you think that the Doha Round has suffered the consequence of a lack of a private sector interest, which many commentators maintain is the engine that has driven previous rounds of successful trade negotiations?

Peter:  It's undoubtedly true that the private sector has become exhausted, which is hardly surprising, with a process that has already taken 10 years. And the inertia of the private sector is something which is unfortunate, because one normal driving force for political activities is removed by their absence. But I frankly understand it. They were not getting the response that they expected and required. And that's particularly the case in my view in the United States.

And this absence of response, an absence of commitment, is dispiriting and has negative impact. And that negative impact is an absence of real involvement or a reduction in real involvement from that which is required.

There are still those in the private sector who take this very seriously. The European Round Rable of Industrialists for example has been very positive in regard to this interim report that we've already produced. So has the International Chamber of Commerce.

And so there is a political activist lobby, but I think that they're fatigued with their own political leadership in many instances. And I don't blame them.

Viv:  So I'm reminded of the story of the aging Chinese premier who had been seriously ill for many years and retired from public life and any significant degree in decision‑making et cetera, then he finally died but no one dared to tell him. Is there a parallel there with the Doha Round?

Peter:  I think that trade negotiations are by definition difficult in the sense that you are often taking on vested interests in the general interest. And taking on the specific interest of lobby groups who are opposed to change is often more difficult than anything else, because the general interest isn’t quite as focused, isn’t quite as active, as the negative interest. And I think that's exactly what we're facing in the case, for an example, of some of the major developing BRICs, where we haven't had the engagement that we would have wished for in my opinion. And I'm talking here of China, Brazil, and to an extent also India, and the United States. They're key to this. And I’m not exonerating the European Union. They could always show a little bit more flexibility in one way or another.

But not because I'm European, or looking from a European point of view, but I think that the Europeans, at least for example in the area of agriculture, have put a great deal on the table as things stand. And the amount of opening of a market in this area is very considerable.

In fact it's the most radical opening of a market of its size ever negotiated in GATT history. And there's already on the table all sorts of possibilities also for the least developed countries, which after all was part of the reason why the round was launched in the first place.

And again, to be fair to the Europeans, they have opened up, the access, market access, absence of quotas and restrictions on imports from least developed countries without any barriers, in a way which I think is very positive.

Viv:  So if Doha does come off the rails, don't countries like the US for example have plenty of other options that would allow them greater market access through bilateral FTAs and more especially through the Trans-Pacific partnership for example, which is currently getting considerable momentum around the world?

Peter:  In my view when historians look at this they will see that potential. And there is some I concede potential in bilateral agreements. But they will see it as an illusion in terms of the overall economic interest of the United States or anywhere else in the world. That local multilateral framework, which has served us so well in the period since the last war to the current time, which has opened up the world, has done so in the basis of principles, most favored nation, for an example, non‑discrimination, and openness generally across the world, which cannot be duplicated by a plethora of bilateral agreements, often leveraged by the most powerful against the weaker in a way which it doesn't ultimately help either, and can recreate the worst elements of mercantilism in the global trading system.

So I think historians will look at a failure of the Doha Round and the damage that will be caused to the WTO as being extremely serious and contrary to the interest of the United States. They will be waiting for years for the opportunities which are now being provided by what is already been tentatively agreed in this Round. And putting it back on track again as ultimately they would recognize is in their interest, is something which will be very difficult.

Viv:  So to what extent is international trade more about making it easier to do business internationally and less about tariff preferences and tariff reductions et cetera? There is some criticism that Doha fails to make it easier for businesses to do business so they don't buy in.

Peter:  Well I don't think that criticism is accurate. I mean, obviously tariff and non‑tariff barriers are a crucial element in the whole template of free trade and helped the opening of the greater trade liberalization, and if you want to build on that into other areas, which are not anything like as advanced as trade-in-goods, for an example in the area of trade-in-services, you have to do it in a progressive way. And we're progressing from tariff removal, non‑tariff barrier removal, dealing with subsidies gradually into a broader range of trade issues, which are being dealt with very effectively I think in the multi‑lateral trade system. And to jettison all of that and to jettison what has already been agreed and is on the table, which will be removed if the Round isn't concluded, will in fact damage the overall trade agenda seriously.

Viv:  So that's what they have to lose but what incentives do they have, like the US and China for example, to really buy in and engage with Doha now at this critically late stage?

Peter:  What they have already on the table is a very considerable increase in trade volumes because the reduction of barriers will be very considerable, and it will also provide the promise of a continuing development of market opening under the template, which will be provided by the conclusion of the Round. And what they will lose is they will be left in a far more anarchic trade world than the one which exists at present. They will have undermined, I don't say fatally, the WTO won't go away, but they will have undermined the discipline and rule-making capacity of an institution which has allowed, for an example, the integration of China into the global economy in a relatively seamless way and in a way which has been enormously beneficial not merely for China but for the rest of the world.

They will have removed the vehicle which has allowed the integration of what was originally a highly protectionist command economy, and India—for an example, which to my mind was a very protectionist economy. They have allowed for the gradual liberalization that we have seen since 1990 in India to progress also.

This all hasn't happened by accident or by unilateralism. It has been done within the framework of a multi‑lateral system, and it's the lack of comprehension, I suspect by political leaders of what is at stake here that is particularly distressing for anyone looking at the issue.

Viv:  So you mentioned protectionism then, and I wonder to what extent you think that the process of exchanging trade policy concessions particularly between the US and China for example is being undermined or even nullified by China's exchange rate policy, which is an issue that is beyond the scope of multi‑lateral negotiations and discipline et cetera.

Peter:  I think it is obviously a factor that currencies either increase or decrease in value. It has an effect on trade. If you take the European example, it's one reason, the main reason why we created a euro and the European Union because it facilitates the functioning of a market whereas disparities in exchange rates and volatility in exchange rates can be damaging to it, but I do not believe that the answer to trade liberalization is the cry ‘We will not liberalize trade because X's currency has gone up or gone down in a way that we don't approve.’ I mean you can argue the same if you are a Brazilian, you can say that our real has gone up in value to an amount which makes it difficult for us to allow market access to others in the trading environment. It's not the correct way to deal with this.

The currency situation is gradually becoming, I think, under control. There are great difficulties with debt mountains and other issues, but if we used all of these instruments, all of these issues as arguments against trade all you are doing is ultimately shooting yourself in the foot.

Viv:  So to what extent do you think the services sector is at the core of the issue in stalling the Doha Round?

Peter:  I don't think it's at the core of the issue. I think it would have been helpful had it been further advanced in the sense that it would have provided another potential lobby of considerable value on the positive side towards concluding the Round, and I also believe that some of the impediments to service liberalization work to the massive disadvantage of developing countries who retain monopoly powers or status policies in a whole range of service areas from banking to telecommunications to power generation and so on in a way which ultimately damages their own interest. So I don't think it's part of the development agenda or should be part of a development agenda to remain protected in these areas. For that reason, I believe that had services been more advanced it would have been helpful. Having said that, there is some progress in what is on the table and that progress will be removed if the Round isn't concluded, and there have been signals by a large number of countries of their willingness to move further in the context of closing the Round in the area of services, and it's a terrible pity that that opportunity has been lost.

Viv:  So to sum up Peter, what would you say are the key messages of hope and progress and optimism that the report brings out that you would like to transmit now?

Peter:  Well, first of all I think that we've never been at a more propitious time for the conclusion of the round. We've a relatively, notwithstanding all the difficulties that we have in the world, we've a relatively benign economic outlook for the moment. We have had a period of sustained growth, which has been facilitated by the process of globalization. Globalization is not a freak occurrence. It was something that has occurred because we have a rule-based system that we've relied on to provide the framework for the development of globalization, and we are threatening that now by failing to conclude the Round.

So the opportunity is there, and the consequences of concluding the round would be a significant boost to global confidence and growth prospects. At the moment, I can only express some significant degree of pessimism however in the context of where we are. We have had an absence of leadership. Where is the G20? Where is the leadership of the G20 on this?

It's time that we started speaking frankly about culpability as well as simply voicing the positives that are available to us if the Round is concluded. I think we have seen a demonstration of a failure of global leadership. That's what we are witnessing at the moment and it is deeply worrying. It's particularly worrying having seen the failure of multi‑lateral negotiations in the area of climate change.

Now this is an area where we have the framework, where we have done the groundwork, where since the last war, we've had eight rounds of successful negotiations, which have brought us a considerable distance. The fact that people don't seem to be as aware as they should be of the consequences of a failure is I think deeply lamentable, but hopefully there is still a moment left to try to bring this to a closure.

Viv:  So the Doha Round is about global cooperation and the lack of the Doha Round is more about global fragmentation?

Peter:  That's exactly right.

Viv:  Peter Sutherland, thanks very much for talking to us today.

Peter:  Thank you.