Universität Lepizig
Fakultät für Wirtschaftswissenschaften
Institut für Wirtschaftspolitik

Diplomarbeit im Fach Volkswirtschaftslehre

The Liberalization Efforts of the Doha Round from an Institution Economical Perspective

Torsten Anke

Table of Contents

1 Introduction ... 1

2 The World Trade Organization ... 3

2.1 General Guidelines of International Trade ... 3
2.2 Multilateral Trade Negotiations ... 6
2.3 The Way to Doha ... 9
2.4 The Doha Development Agenda ... 11
2.4.1 The Special Role of Agriculture ... 13
2.4.2 The Commitments of the Doha Development Agenda in Agriculture ... 15
2.4.3 Progress of the Doha Development Agenda so far ... 16

3 New Institutional Economics Theory ... 19

3.1 Institutions Matter ... 19
3.1.1 Theoretical Assumptions ... 21
3.1.2 Major Research Approaches ... 21
3.1.2.1 Transaction Cost Theory ... 22
3.1.2.2 Property Rights Theory ... 23
3.1.3 Why Having Chosen the NIE? ... 23
3.2 Libecap’s Analytical Framework ... 25

4 Institutional Analysis of Agricultural Negotiations ... 28

4.1 What Can Be Gained from Liberalizing Agriculture? ... 28
4.1.1 Market Access ... 30
4.1.1.1 Tariffs ... 30
4.1.1.2 Tariff Rate Quotas ... 32
4.1.1.3 Potential Market Access Gains ... 34
4.1.2 Domestic Support ... 35
4.1.2.1 Green Box and Blue Box ... 36
4.1.2.2 Amber Box Payments and the “De-Minimis-Clause” ... 36
4.1.3 Export Subsidies ... 37
4.1.3.1 Direct Export Subsidies ... 38
4.1.3.2 Export Credits ... 39
4.1.3.3 State Trading and Food Aid ... 40
4.1.4 Total Size of Potential Gains ... 41
4.2 How Many Different Interests Are Concerned? ... 42
4.2.1 Defining Interest Groups ... 44
4.2.2 Civil Society and the WTO ... 46
4.2.3 Traditional Interests in the Agricultural Market ... 48
4.2.4 Modern Interests in the Agricultural Market ... 51
4.2.4.1 Consumer Groups ... 52
4.2.4.2 Environmental Groups ... 53
4.3 How Heterogeneous Are the Contracting Parties? ... 54
4.3.1 The WTO Decision-Making Process ... 55
4.3.2 Reasons and Categories for WTO Coalitions ... 57
4.3.3 Coalitions during the Uruguay Round ... 58
4.3.4 Coalitions in the Doha Round ... 60
4.3.4.1 The Bargaining Position of the European Union ... 61
4.3.4.2 The Bargaining Position of the United States ... 66
4.3.4.3 The Bargaining Position of the G-20 ... 68
4.4 Evaluation of the Institutional Analysis ... 71
4.4.1 Results of the Institutional Analysis ... 72
4.4.2 Transaction Cost Theoretical Examination ... 73

5 Conclusions and Implications ... 77

Bibliography ... 79

Appendix ... 92

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.

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