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

Table of Contents

Table of  Contents  

Table of  Contents  I

  List of Figures  III

  List of Tables  IV

  List of Abbreviations  V

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

I

Table of Contents

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   

II

List of Figures

  List of Figures  

  Figure 1: Trade Policy Instruments in the Agricultural Sector  29

  Figure 2: Effects of Imposing a Tariff  30

  Figure 3: World Agricultural Tariff Averages by Region 2001  31

  Figure 4: Bound and Applied Agricultural Tariffs by Region 1997 in Percent  32

  Figure 5: Alternative TRQ Cases  33

  Figure 6: Frequency Distribution of TRQ Fill 2003 in Percent  34

  Figure 7: Effects of an Export Subsidy  38

  Figure 8: NGOs Possibilities to Exert Influence within WTO  48

  Figure 9: Interest Groups and Their Influence on Agricultural Protection  52

III

List of Tables

  List of Tables  

Table 1:  Overview of the WTO Liberalization Rounds  7

Table 2:  Non-Market Benefits of Agriculture  13

Table 3:  Share of Agriculture in Gross Value Added in Percent  14

Table 4:  Domestic Support of Selected OECD Countries in US Million  37

Table 5:  Expenditures on Direct Export Subsidies 1995 1998 in US Million  39

Table 6:  Comparing Expected Agricultural Liberalization Gains  41

Table 7:  Agricultural Producer Support Estimates (PSEs) in OECD Countries  1998

2000  in US Million  50

Table 8:  Country Groupings in the Doha Round  61

Table 9:  Agricultural Imports and Exports of Selected Countries 2003 2004 in US  

  Billion  64

IV

List of Abbreviations

List of Abbreviations  

ACP African, Caribbean and Pacific Countries  

AMS Aggregate Measurement of Support  

APEC Asia Pacific Economic Cooperation Forum  

ASEAN Association of Southeast Asian Nations  

CAP Common Agricultural Policy  

CTE Committee on Trade and Environment  

DDA Doha Development Agenda  

EU European Union  

FAO Food and Agriculture Organization of the United Nations  

FIP Five Interested Parties  

GATT General Agreement on Tariffs and Trade  

ISIC International Standard Industry Classification  

ITO International Trade Organization  

LDC Least Developed Countries  

LMG Like Minded Group  

MFN Most Favored Nation  

NGO Non-Governmental Organization  

NIE New Institutional Economics Theory  

OECD Organization for Economic Cooperation and Development  

PRT Property Rights Theory  

PSE Producer Support Estimates  

SPS Agreement on Sanitary and Phytosanitary Measures  

SACU Southern African Customs Union  

STE State Trading Enterprise  

SVE Small and Vulnerable Economies  

TAC Transaction Cost Theory  

TRQ Tariff Rate Quotas  

UN United Nations  

UNDP United Nations Development Programme  

US United States  

USTR United States Trade Representative  

WTO World Trade Organization  

V

1 Introduction

1 Introduction

November 2001. Still under the influence of the shocking events of September 11 ^th 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.

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1 Introduction

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?

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2 The World Trade Organization

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,

¹ See Krasno (2004), p. 4.

² See Markusen et al. (1995), p. 343.

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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

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). 4

2 The World Trade Organization

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 1 ^st 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 nontariff 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:

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

⁹ See Siebert (1997), p. 212.

¹⁰ See WTO [Homepage]c.

¹¹ See Siebert (1997), p. 213f.

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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 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.

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2 The World Trade Organization

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

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 ²⁰ See Siebert (1997), p. 216.

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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).

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.

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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 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.

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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 tradeoff 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 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. 10

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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 9 ^th to 14 ^th 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 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.

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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 1 ^st 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.

⁴² WTO (2001), Article 2.

⁴³ WTO (2001), Article 3.

⁴⁴ See WTO (2001), Article 45.

⁴⁵ See WTO (2001), Articles 12-44.

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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

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

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.

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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.

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. ⁴⁹ See Landau (2001), p. 918.

⁵⁰ See McCalla (2001), p. 167.

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