9-711-043
REV: JANUARY 26, 2011
ARTHUR A. DAEMMRICH
Staalemate
e at the WTO: TRIPS
S, Agricculturall
Sub
bsidiess, and the Doh
ha Round
A rare sense off calm prevailled as trade ministers
m
and
d World Trad
de Organizatio
on (WTO) offficials
prepaared for a Deecember 2011 ministerial meeting,
m
the 9th negotiatiing session of the Doha ro
ound.
Despiite a major gllobal econom
mic crisis that continued to
o wreak havo
oc on governm
ment financees and
emplo
oyment, glob
bal trade app
peared was rebounding from its 20008 nadir. Thee recession led to
tensio
ons among co
ountries and accusations
a
o currency deebasement. But few new trade
of
t
barrierss were
institu
uted in the downturn, and
d tariff rates continued
c
to converge intternationally. WTO meetin
ngs in
the 19990s and early
y 2000s had featured
f
violeent street protests and disaagreements between
b
developed
and developing
d
co
ountries. Meettings in late 2009
2
in Genev
va, by contrasst, were widely characterizzed as
“norm
mal.” Writing
g in a blog, WTO
W
director-g
general Pascaal Lamy celeb
brated the calm
m: “There weere no
surprises. It was not
n a big jamb
boree, with th
housands of journalists,
j
h
hugely
costly arrangementts and
sleeplless nights. But
B a feeling
g of normalitty, a feeling that the WT
TO is a solid
d institution.. This
conferrence was mo
ore like a sharreholders meeeting to review annual actiivities and prriorities.”1
It was an open
n question wh
hether the no
ormality enjo
oyed by Lamy
y and trade ministers
m
refllected
success. The Doha round of WT
TO talks, whicch hinged on
n a major initiaative to reducce trade barriiers in
agricu
ulture and ressolve disputees arising from
m the agreem
ment on Tradee-Related Asp
pects of Intelleectual
Propeerty Rights (T
TRIPS), had made
m
no meaasurable prog
gress in a deccade of negottiations. Addiing to
the co
omplexity, po
ositions of dev
veloped and developing countries
c
had
d reversed. Whereas
W
developing
counttries were relu
uctant to laun
nch the Dohaa round in 20001, by 2010 most
m
had follo
owed through
h with
comm
mitments to enact
e
intellecttual property
y (IP) regimes and had grrown impatieent for the United
U
Statess and European Union to change
c
domeestic agricultu
ural policies. Developed co
ountries, how
wever,
appeaared unwillin
ng to eliminatte agriculturaal subsidies and
a
other pro
otections and sought additional
tariff reductions an
nd the removaal of other traade barriers by
b developing
g economies.
Bu
usiness leaderrs needed to understand
u
th
he WTO in order
o
to desig
gn corporate strategy
s
in relation
to tariff and non-ta
ariff trade baarriers and to plan for glob
bal competitio
on in light off disputes bettween
veloping natiions. IP had gained
g
in straategic importtance to many
y industries, but it
developed and dev
also attracted
a
the critical atten
ntion of non
n-governmenttal organizations (NGOs)) and increassingly
proveed a stumblin
ng block to multilateral
m
treeaty negotiattions. This no
ote updates th
he HBS case, “The
World
d Trade Orga
anization,” an
nd offers perrspectives forr managers to
o use when analyzing
a
how
w the
WTO Doha round may affect th
heir firms.2
______________________
__________________________________________________________________________________________________
Professo
or Arthur A. Daemmrich prepared thiis note as the basis for class discussion
n.
ght © 2010, 2011 Prresident and Fellow
ws of Harvard Colleege. To order copiies or request perm
mission to reproducce materials, call 1-8800-545Copyrig
7685, wrrite Harvard Busin
ness School Publish
hing, Boston, MA 02163, or go to ww
ww.hbsp.harvard.eedu/educators. Th
his publication may
y not be
digitized
d, photocopied, or otherwise reprodu
uced, posted, or tran
nsmitted, without the
t permission of Harvard
H
Business School.
S
ecch the case for learning
Distributed by ecch, UK and USA
www.ecch.com
All rights reserved
North America
t +1 781 239 5884
e [email protected]
Rest of the world
t +44 (0)1234 750903
e [email protected]
711-043
Stalemate at the WTO: TRIPS, Agricultural Subsidies, and the Doha Round
From GATT to the WTO
The WTO traced its roots to a July 1944 meeting of 44 allied nations in Bretton Woods, New
Hampshire. Participants agreed to establish several new multilateral institutions that would govern
international trade and finance, in an effort to avoid a return to the catastrophic nationalistic
economic policies that contributed to the Great Depression and the outbreak of World War II.
International trade had prospered from the 1840s through the 1870s when Britain and France
negotiated deep tariff reductions. But in response to economic crises and rising nationalistic
sentiments, tariffs were raised by most countries starting in the 1870s. After WWI, tariffs were
lowered and international trade prospered. Responses to the 1929 stock market crash, however,
included new tariffs and trade barriers starting with the Smoot-Hawley Act in the United States,
which quadrupled tariffs on more than 3,200 imports. Other countries quickly followed suit, both
deepening and prolonging the Great Depression as trade plummeted.3 Competing bilateral
agreements made it difficult for countries to negotiate collectively on tariff levels.
Looking ahead to a post-war era, government representatives at Bretton Woods agreed to create
the International Monetary Fund (IMF), the International Bank for Reconstruction and Development
(IBRD), and an International Trade Organization (ITO). While the IMF and the IBRD (later called the
World Bank) were founded in 1947, the ITO never came into existence. The General Agreement on
Tariffs and Trade (GATT), signed in 1947 as a transition to the ITO, instead became the institutional
framework under which countries reciprocally reduced tariffs and sought to resolve trade disputes.
GATT in Action
GATT contained several principles that contributed to its endurance through four decades of
negotiating rounds (see Exhibit 1a). First, the “most-favored-nation” (MFN) rule held that reductions
in tariffs or non-tariff barriers that created “advantage, favour, privilege or immunity” between any
signatory countries applied to every member.4 Countries had incentives to work through GATT
instead of negotiating separate bilateral agreements, although side deals that moved in the direction
of free trade were permitted. A second key principle concerned “national treatment,” under which
GATT signatories pledged identical tax levels and regulatory standards for imported and domestic
products. A third important principle prohibited dumping, defined as pricing exports below the
domestic price in the origin country, or below the cost of production plus additions for transport and
profit.5 Anti-dumping took center stage in GATT negotiations in the 1960s and became controversial
when the United States and European countries brought claims against developing countries in the
1970s. Reflecting changes in global manufacturing, by the mid-1990s developing countries
increasingly filed dumping suits against one another. Economists argued that anti-dumping
measures protected entrenched firms without providing benefits to consumers or national
economies.6 Nevertheless, anti-dumping suits had populist appeal for governments worldwide.
Trade rounds started after participating countries agreed to negotiate on specific product
categories. Although the U.S. Congress had scuttled the ITO in 1950, the country took a leading role
in tariff reductions under GATT. Broadly, the post-war period saw tariffs fall across developed
economies, while developing countries pursued a variety of strategies; some held tariffs high in an
effort to protect nascent domestic industries (see Exhibit 2a). The Tokyo round, which started in 1973,
was the first to consider non-tariff barriers to trade; however, final agreements in 1979 followed in the
tradition of tariff reductions. Countries could file complaints in the event trading partners failed to
follow through on commitments to reduce tariffs or remove trade barriers. In many instances, reports
identified changes needed to align national policies to GATT’s principles. But with no enforcement
mechanism, countries felt little pressure to make speedy changes.7
2
Stalemate at the WTO: TRIPS, Agricultural Subsidies, and the Doha Round
711-043
Founding the WTO
The eighth round of GATT negotiations started in 1986 at a meeting in Punta del Este, Uruguay,
with an ambitious agenda of further tariff reductions; non-tariff barriers, including subsidies, import
procedures, government procurement, and customs valuation methods; and new issues of
intellectual property and international investment. Entering the Uruguay round, the 123 participating
countries also agreed to discuss dispute settlement procedures. On April 15, 1994, the round was
completed with pledges for significant tariff reductions, promises to remove non-tariff trade barrers,
and agreement on dispute resolution and enforcement governed by the newly-created WTO. In
addition to existing GATT agreements, the WTO gained oversight of the General Agreement on
Trade in Services (GATS), Trade-related Aspects of Intellectual Property Rights (TRIPS), TradeRelated Investment Measures (TRIMs), an Agreement on Agriculture (AoA), and the Agreement on
Textiles and Clothing (ATC). A revised agreement on Sanitary and Phytosanitary Measures (SPS)
prohibited WTO countries from using product safety or sanitary regulations to impede trade, an
issue of controversy when genetically modified foods and hormone-enhanced meat entered
commerce in the 1990s. The WTO took over existing GATT offices in Geneva and began scheduling
“ministerial” conferences of trade ministers (typically every two years), occasional other negotiating
sessions, and regular council meetings to carry out the work of dispute resolution and trade policy
review. Broadly, the WTO now had mandates that impinged on national governments in politically
sensitive areas of health, environment, innovation, and competition policies.
While the final agreements were hailed as a major breakthrough in the contentious history of
trade negotiations, the Uruguay round also generated new disputes between developed and
developing countries and drew the attention of NGOs and activists. A group of developing countries
sometimes called the “G-10 hardliners” – led by Brazil and India – initially opposed the inclusion of
services, intellectual property rights, and investment measures in trade talks.8 Suffering from
balance-of-payments crises in the early 1990s and under IMF and World Bank pressure, they agreed
to the final WTO deal. Success at the Uruguay round ultimately hinged on a “grand bargain” that
differed from the traditional reciprocity of opening markets and lowering tariffs between countries
for the same class of goods. The new deal held that OECD countries would open their markets to
agricultural and labor-intensive manufactured goods, including foodstuffs and clothing; in exchange,
developing countries would enforce IP and open financial markets to outside investors.
But the grand bargain also reinforced divisions between developed and developing nations.
Developing countries argued the WTO negotiating process was biased in favor of rich countries and
they resented pressure brought to bear to sign the Uruguay deal. Subsequent WTO meetings grew
increasingly acrimonious. The 1999 Seattle meeting featured thousands of protesters on the streets,
violent clashes with police, and vociferous disputes in meeting rooms. It ended with a walkout by
delegates from most developing countries.9
The Doha Round
Nevertheless, at the fourth Ministerial Conference in Doha, Qatar, in November 2001, WTO
members agreed to launch a new negotiation round. Formally, the talks were called the “Doha
Development Agenda,” rather than a new “round.” Meetings took place under heavy security just
two months after the 9/11 terrorist attacks in the United States. The irony of delegates gathering in a
tightly policed remote location to negotiate free trade was not lost on journalists.10 Participants
explicitly sought to address a variety of development issues, including technology transfer and the
affordability of treatments for AIDS, in addition to further reductions in tariffs and the removal of
other trade barriers. Broadening the scope of trade negotiations was contested by some countries and
fundamental differences emerged concerning agricultural subsidies and IP rights that were not easily
3
711-043
Stalemate at the WTO: TRIPS, Agricultural Subsidies, and the Doha Round
resolved, even under the rubric of development. Talks at Doha concluded with a 10-page declaration
that reaffirmed member states’ rights to regulate domestically, notably environment, labor, and
services. It also outlined technical assistance and capacity building initiatives for developing
countries.11 Delegates announced a “work programme” of negotiations on agriculture, services,
intellectual property, international investment, competition policy, government procurement, and
WTO governance, all of which were to be completed by 2005. (See Exhibit 1b for a list of meetings
held since 2001.)
Negotiations in Cancún in September 2003 revealed a hardening of positions on agricultural
subsidies, IP rights, and four “Singapore” issues (named for the first WTO ministerial conference held
in Singapore in 1996): international investment, competition policy, government procurement, and
trade facilitation. Capital flows and investment were particularly contentious in the wake of the 1997
Asian financial crisis, during which investors rapidly pulled money out of Thailand, Malaysia,
Indonesia, Korea, and other countries, generating exchange rate depreciation, stock market crashes,
and recessions. The Cancún meeting also featured a recalibration of North – South relations in WTO
negotiations. Zimbabwe’s Ambassador Chidyausiku spoke for many developing countries when he
observed: “In Doha, they created a process where Ministers could go to the Committee of the Whole
and discuss and raise issues, but nobody was taking into account what they said … In fact, there was
a smaller group taking the decisions for the whole.”12 A WTO G-21 was forged among developing
countries, led by Brazil, China, and India, which agreed to negotiate as a unified bloc. Representing
70% of the world’s rural population, the G-21 criticized efforts by the United States and the European
Union to continue domestic farm subsidies and agricultural export supports. At the same time, some
WTO G-21 members, notably India, objected to cutting tariffs on imported agricultural products, and
four West African countries sought a specific agreement on ending cotton subsidies in the United
States.13 The Cancún meeting ended in disarray. Subsequent meetings grew even more acrimonious,
despite agreement to drop the Singapore issues.
In 2008, as the global economy slid into its most severe recession since the 1930s, economists
worried that protectionist interventions could lead to another Great Depression (see Exhibits 2b and
2c). Russia imposed a variety of new tariffs, the United States included a controversial “buy
American” provision in a major stimulus bill, and the number of WTO anti-dumping cases rose by
40%.14 An IMF study noted: “Gaps in WTO commitments leave ample scope to further restrict trade,
so unless all countries vigorously resist protectionism this could threaten the economic recovery.”15
In the short term, such fears were not realized. A new G-20 of the world’s largest economies was
formed to coordinate macroeconomic interventions; a September 2009 meeting concluded with the
statement: “we are committed to bringing the Doha round to a successful conclusion in 2010.”16
Negotiations continued, although meetings in Potsdam and Geneva failed to achieve consensus.
Having implemented TRIPS, the WTO G-21 argued it was time for the United States and European
Union to phase out agricultural subsidies. Representatives from developed nations responded by
citing weak IP enforcement and continued high tariffs on agricultural imports in developing
countries. According to a 2008 study, 80% of software in China and 70% in India was pirated, down
only slightly from previous years.17 Developed countries also sought long-term “safeguard
measures,” intended under the WTO as temporary measures, to protect their farmers. Any
breakthrough would require compromise on IP issues and agricultural subsidies.
Intellectual Property and Development
Of the controversial agreements signed at the conclusion of the Uruguay round and inception of
the WTO, TRIPS in particular dominated subsequent negotiations. Developing countries decried the
inclusion of intellectual property in negotiations on lowering trade barriers as “forum-shopping” by
4
Stalemate at the WTO: TRIPS, Agricultural Subsidies, and the Doha Round
711-043
the United States after proposals for uniform patent laws failed to gain traction at the World
Intellectual Property Organization (WIPO).18 WIPO operated registries for patents, copyright, and
trademarks, but since new rules passed on a one-country, one-vote system, efforts to expand IP
enforcement internationally were easily blocked by developing nations.
Broadly, the relationship of IP to development was complex. Few economists or other social
scientists contested that granting time-limited monopoly rights in exchange for published patent
claims provided firms with incentives to invest in research and product development, and therefore
generated public benefits through greater innovation and lower prices once patent terms expired.19
However, empirical research had shown that strengthening IP rules reduced the number of domestic
patent filings while increasing foreign applications.20 Critics also noted that IP-dependent industries,
notably pharmaceuticals and electronics, found ways to extend patents on existing products and
prevent market entry of competitors. Adding to the policy debate, developed countries had mixed
histories of patent protection. While the United States opened one of the world’s first patent offices in
1790, the U.S. government seized German chemical patents at the outbreak of WWI and licensed
them to domestic firms under favorable arrangements. Germany’s powerful advantage in chemicals
from the 1880s onward stemmed from its late introduction of patent laws, which enabled a nascent
industry to copy synthetic dyes invented in Britain and France.21 Developed countries did not
hesitate to violate IP in emergency situations; for example, in the fall of 2001 the United States
threatened to license generic production of the antibiotic Ciproflaxin in the midst of anthrax attacks.
Developing countries had long received conflicting advice: introduce IP laws in order to develop,
or develop first and then introduce IP. Newer studies of the relationship of intellectual property and
development proposed a U-shaped relationship: at an early stage of economic development,
countries benefited from strong intellectual property rights that attracted foreign investment; then, as
capacity increased, weaker property rights enabled the domestic imitation of foreign technologies;
finally, as the economy expanded, stronger intellectual property rights helped reward domestic
innovation.22 The pharmaceutical industry argued that global IP rights would encourage more
private investment in therapies for “neglected diseases,” though critics worried that new medicines
would still be unaffordable for poorer patients.23 As developing countries introduced greater
property protections, including IP, they also staked claims to domestic biodiversity, genetic
resources, and indigenous knowledge.24
Trade-related Aspects of Intellectual Property Rights (TRIPS)
Signed in 1994, TRIPS applied the MFN and national treatment principles to patents, trademarks,
copyrights, and geographical indications (food names allowed only for products from a specific
location). WTO member countries had to establish 20-year patent terms, administrative procedures to
review and grant IP, and civil and criminal judicial procedures to enforce patents, trademarks, and
copyrights. TRIPS contained provisions under which countries could refuse patents for inventions
that offended “ordre public or morality,” or in order to “protect human, animal, or plant life or health
or to avoid serious prejudice to the environment.” It further stated: “Members may exclude from
patentability: diagnostic, therapeutic and surgical methods for the treatment of humans or animals;
plants and animals other than micro-organisms.”25 Developing countries had to implement TRIPS by
2005 if categorized as middle-income, or by 2016 if they were one of 49 least-developed nations.
Countries seeking to join the WTO after 1994 had to implement domestic legislation aligned with
TRIPS as part of their “accession package.”
Actions taken by the U.S. government and the pharmaceutical industry in the late 1990s had the
further consequence of convincing developing countries that TRIPS was against their interests.
Countries that violated patents were placed on a “priority watch list” by the United States, and
5
711-043
Stalemate at the WTO: TRIPS, Agricultural Subsidies, and the Doha Round
threatened with trade sanctions. Despite a growing AIDS crisis in Africa, South America, and Asia,
some pharmaceutical firms held that a strict interpretation of IP rights was necessary to provide
incentives for research. Among other steps, firms threatened WTO action when countries imported or
manufactured generics of drugs still under patent.26 A suit filed by 39 pharmaceutical firms in 1998
asserted that South Africa was violating TRIPS by authorizing its Health Minister to ignore patents in
order to protect public health. With more than 4 million South Africans infected with HIV (in a
population of 45 million), the suit sparked outrage in the NGO community and was withdrawn in
June 2001 under an avalanche of negative publicity.27
At the start of the Doha round in November 2001, developing countries and activists demanded
reforms in order to ensure access to medicines. By the end of the meeting, trade ministers from 144
countries agreed: “The TRIPS agreement does not and should not prevent members from taking
measures to protect public health. We affirm … WTO members’ right to protect public health and, in
particular, to promote access to medicines for all.”28 Nevertheless, developing countries felt
pressured to adhere to a strict interpretation of TRIPS. Fearing a backlash from the United States and
European Union, few nations established compulsory licensing procedures and threats to violate IP
were rare.
An uneven distribution of patents internationally also drew criticism that TRIPS reinforced global
inequality. Overall, TRIPS appeared to be encouraging more patenting; in 2008, over 1.9 million new
patent applications were filed worldwide, up from an average of 1 million per year in the decade
between 1985 and 1995. But of 6.7 million patents in force worldwide, 60% were held by nationals of
just four countries: the United States, Japan, Korea, and Germany. People from countries with a GDP
per-capita below $12,000 filed only 25% of new patents.29
Agriculture and Trade
Tariffs on agricultural commodities and farm subsidies had a long history. In the United States,
direct subsidies and counter-cyclical price supports were established during the Dust Bowl era, a
period of drought from 1931-1939 that coincided with the Great Depression. By the early 2000s, a
wide array of programs helped make agricultural exports a bright spot in the U.S. economy. The EU’s
Common Agricultural Policy (CAP) originated in the 1957 Treaty of Rome, though it took years of
negotiations to establish rural development grants and agricultural price stabilizing schemes.30 By the
early 2000s, most agricultural products in Europe had target prices maintained through European
Union purchases. Common EU tariffs and rules on product names protected farmers from outside
competition, while a variety of programs supported agricultural land management. Other countries
also maintained barriers on trade in agricultural products, notably Japan, which especially protected
domestic rice farmers, and India, which was concerned about the viability of millions of small farms.
Some types of subsidies were anticipated to be permissible post-Doha, including farm loans,
government-backed crop insurance, and transfer payments not related to specific crops or production
levels that stabilized income in bad years. Other direct or indirect subsidies that were on the block to
be phased out included import tariffs, export subsidies, production-coupled payments, and
purchases of agricultural surpluses. The Doha round negotiations thus involved challenging a long
history of complex subsidy schemes.
The Logic of Subsidies
The primary rationale for subsidies was to even out price fluctuations for commodities that
experienced high price volatility caused by unpredictable shocks. Weather, insects, disease, and
variation in the cost of inputs such as fertilizer all dramatically affected farm production. Lags of six
6
Stalemate at the WTO: TRIPS, Agricultural Subsidies, and the Doha Round
711-043
months or more between planting and harvesting forced farmers to make decisions without
knowledge of sale prices, and since it was expensive or impossible to store many foodstuffs, they
often were sold at low points in the price cycle.
A second rationale was food security, which increasingly connected to national security. Concerns
were raised in the United States and Europe that absent subsidies, domestic farmers would fail,
leaving the citizenry exposed to the exigencies of international trade. Frightening scenarios included
shipping disruptions from terrorist attacks or fuel price spikes, hold-ups by foreign countries, or crop
failures in other parts of the world. In poorer countries, by contrast, food security referred more
fundamentally to the availability and affordability of food. The UN Food and Agriculture
Organization estimated that 925 million people were undernourished worldwide, primarily in
developing countries.31 Economists studying food aid observed that donation programs often
undermined local farmers, and advocated free trade in agriculture balanced by financial assistance to
the poor.32 Ironically, rising real prices for commodities in 2006, 2007, and 2009, encouraged
American and European policymakers to use food security as a basis for continuing subsidies.
Third, citizens around the world supported sustaining agricultural landscapes. These had great
variance, from small dairy farms in the Alpine foothills to enormous expanses of corn in the
American Midwest, but shared deep historical roots and an important role in the national psyche.
Models suggesting that Swiss dairy farms would be forced to shift to sheepherding or that U.S. cotton
production would drop by 15% provoked concern that the WTO was interfering with domestic land
management and national identity.33
While each of the above rationales served public interests, an alternative explanation held that
farmers and agribusiness had captured the policy process. Critics identified the power of agricultural
interests in Washington, D.C. and Brussels as an explanation for tariff and other trade-inhibiting
policies that raised prices for consumers and imposed a burden on farmers in developing countries.34
OECD nations spent $280 billion in 2005 supporting agricultural producers; liberalizing trade, it was
estimated, would generate real income gains between $50 billion and $185 billion worldwide.35
According to some critics, farmers were being used as pawns in a policy game that supported large
agricultural interests to the detriment of the environment and public health.36
Agriculture at the WTO
Under the 1947 GATT agreement, tariffs on industrial and agricultural products were to be
lowered together. In practice, successive negotiation rounds dropped agriculture to achieve
consensus on other tariff reductions. Under the Uruguay agreements signed in 1994, developed
countries agreed to sort tariffs and subsidies into three conceptual “boxes”: a permissible green box, a
transitional blue box, and a banned amber box.37 Other countries committed to agricultural supports
below 5% of production value (10% for developing nations). Green box policies had minimal impact
on production and trade; these included conservation programs, agricultural research, and nutrition
programs, such as food stamps. Amber box policies had direct affects on production and trade; they
were to be phased out over time from baseline levels. Prohibited policies varied by economic
development level, but broadly included counter-cyclical payments, direct price supports by volume
of harvested crop, and government-subsidized loans to farmers or crop purchasers. The blue box,
intended as a transition from green to amber, proved particularly controversial once the European
Union and United States sought to use it to postpone major changes.
While the United States initially aligned policies with WTO commitments, notably through the
1996 Federal Agricultural Improvement and Reform Act, Congress subsequently passed emergency
spending packages that cushioned farmers from a variety of crises. The 2002 farm bill grouped these
with other counter-cyclical payments and established “production flexibility contracts” granting
7
711-043
Stalemate at the WTO: TRIPS, Agricultural Subsidies, and the Doha Round
subsidies independent what crops were planted. The United States then categorized the revamped
support funds as blue box, and pledged to limit them to 2.5% of the total annual value of agricultural
production.
The European Union likewise passed reforms in 2003 that decoupled farm payments from output,
giving farmers greater flexibility in crop choice. At the same time, export subsidies were restructured
and categorized as blue box. Tariffs on imports remained high and direct and indirect farm subsidies
comprised over 40% of the EU budget throughout the 2000 – 2010 period.
These moves proved controversial in WTO meetings, and complex, shifting alliances were
formed. The United States and G-21 countries requested that the European Union reduce tariffs by
50% or more. The European Union and the G-21 argued that the United States should put all
“emergency” payments and production subsidies in the amber box for elimination. Developing
countries proposed safeguard mechanisms under which they could impose tariffs if imports surged
by 10% or more, while the United States and European Union wanted the threshold set at 40%.38
The WTO in Action
Despite the Doha round stalemate, the WTO developed formal procedures to resolve trade
disputes and enforce decisions. Whereas GATT had relied on the agreement of all members
(including the offending party) in order to levy sanctions, the WTO established a Dispute Settlement
Body (DSB) with real power to rule on trade disputes, monitor implementation, and authorize
retaliation if countries failed to comply.39
Dispute resolution at the WTO followed a four-stage sequence of consultation, panel proceedings,
appellate review, and implementation (see Exhibit 3). The first step was for parties to meet in an
attempt to settle differences directly. If negotiations failed after 60 days, the DSB formed a panel of
three (in rare cases, five) experts to hear the case. The panel, whose members had to be selected
within 45 days and in consultation with the claimants, accepted written arguments from both sides,
held a series of hearings to allow oral argument and rebuttals, and then delivered an interim report of
findings and conclusions. Once each side reviewed and commented on the interim report, the panel
issued a final report explaining whether a disputed measure violated WTO agreements. Unless a
consensus at the DSB rejected the report, it became an official ruling within 60 days. Appeals, which
could come from either side, were heard by three members of a permanent seven-member appellate
body drawn from the WTO membership. Members of panels and the appellate body served “in their
individual capacities,” without instructions from home governments. In theory, the full process was
supposed to take no longer than 15 months. In practice, some disputes dragged on for years.
Countries that failed to comply with panel or appellate body rulings within a “reasonable period
of time” had to re-enter direct negotiations with the complainants to determine compensation.
Payments for prohibited policies took the form of new tariffs by the complainant or tariff reductions
by the losing party that were of particular benefit to the complainants. If no agreement was reached,
complainants could ask the DSB for permission to impose trade sanctions, typically in the same sector
as the dispute, although the WTO sometimes authorized cross-sector retaliation.
In the DSB’s early years, the United States and European countries filed most claims, both against
one another and against developing countries. In the latter half of the 2000s, the pool of complainants
broadened, yet critics continued to attack the WTO as lacking democratic legitimacy (see Exhibit 4).
8
Stalemate at the WTO: TRIPS, Agricultural Subsidies, and the Doha Round
711-043
Multilateralism, Bilateralism, and the Future of Free Trade
Neither WTO officials nor most trade ministers expected a breakthrough in the Doha round at the
December 2011 meetings. With global trade recovering from the 2008 crisis and the DSB process
gradually building credibility, some observers held that protracted negotiations posed little economic
or political risk. A great deal of world trade was duty-free and tariffs on manufactured goods
averaged below 5% across industrialized economies. Developed countries nevertheless sought
greater access to high-growth markets in middle-income countries for financial services, medicines,
entertainment, and agricultural goods. Poorer nations had limited options for agricultural and
manufactured exports, and commonly were dependent on a small number of purchasers locked in
through bilateral agreements. A Doha round compromise could expand trade for both sides.
In the absence of progress at the WTO, bilateral and other preferential trade agreements had
proliferated, with over 200 new deals signed since 2001.40 The Association of Southeast Asian Nations
(ASEAN) and the Union of South American Nations (UNASUR) were negotiationg free-trade zones
and possible currency unions. The United States had signed free trade accords with Colombia (in
2006), Panama (in 2007), and South Korea (in 2010), although all three awaited congressional
approval. Trade negotiations also were underway between the United States and Malaysia, Thailand,
the United Arab Emirates, and the Southern African Customs Union, which included Botswana,
Lesotho, Namibia, South Africa, and Swaziland.
Some proponents of global free trade considered bilateral agreements a necessary precondition to
multilateral solutions at the WTO. Others worried that a thicket of competing bilateral treaties would
undermine momentum for the compromises needed to complete the Doha round.41 Bilateral treaties
inevitably imposed externalities on other non-member countries, borne disproportionally by smaller
nations. Academic economists noted that they distorted trade and were more subject to capture by
industries than WTO agreements. In some instances, bilateral free trade agreements had even fewer
workplace or environmental controls than were found in WTO agreements. Furthermore, bilateral
negotiations put smaller and poorer countries at a disadvantage relative to the United States and
European Union in terms of technical expertise and staffing at meetings.
Multinational companies were leery of public engagement with free trade issues stemming from
concerns about negative publicity in the charged atmosphere surrounding the Doha round.
Nevertheless, the WTO stalemate did not let corporate leaders off the hook. International trade
agreements directly affected firm-level management of supply chains, strategies for differentiation
from present and anticipated competitors, and research and product innovation. In most cases, the
solution appeared to be a contingency model in which tariff costs and other barriers were built into
existing product-line strategies while alternatives planned for greater openness, including
competition from new entrants. Business leaders also had the opportunity to articulate the public
benefits from greater trade at a historical moment when some government policies remained biased
against free trade.
9
January 1956
September 1960
May 1964
September 1973
September 1986
November 2001
Geneva II
Dillon
Kennedy
Tokyo
Uruguay
Doha
141
42
45
62
102
123
23
34
41
Countries
June/July 2006
June 2007
July 2008
December 2009
December 2011
Geneva
Potsdam
Geneva
Geneva (7th Ministerial)
Geneva (8th Ministerial)
Agricultural subsidies and import taxes
Agricultural subsidies and import taxes
Agricultural subsidies, import taxes, special safeguard mechanisms
Global trade and development
Topics under advance negotiation
Agricultural subsidies
Agricultural subsidies
Doha Round objectives and negotiation framework; TRIPS;
agriculture; “Singapore” issues of government procurement,
customs, international investment, and competition
Agricultural subsidies
Negotiation Topics
Tariffs
Tariffs
Tariffs, anti-dumping
Tariffs, non-tariff measures, framework agreement
Tariffs, non-tariff measures, services, intellectual
property, textiles, agriculture, dispute settlement
process
21 topics, including: tariffs, non-tariff measures,
agriculture, labor standards, environment, competition,
investment, transparency, patents and trademarks
Tariffs
Tariffs
Tariffs
Negotiation Topics
Source: Adapted from World Trade Organization, “Understanding the WTO,” www.wto.org, accessed October 2010.
May 2005
December 2005
July 2004
September 2003
Dates
Paris
Hong Kong (6th
Ministerial)
Geneva
Cancún (5th Ministerial)
Location
Ongoing
5 months
11 months
37 months
74 months
87 months
7 months
5 months
8 months
Duration
WTO Doha Development Round
April 1947
April 1949
September 1950
Exhibit 1b
Initiated
Geneva
Annecy
Torquay
From GATT to the WTO
Round
Exhibit 1a
Singapore issues removed from agenda; new framework
agreement; new deadline of December 2005
No agreement
Agreement to eliminate agricultural export subsidies by
2013; industrialized nations pledge to open markets to
agricultural imports; new deadline of December 2006
Talks suspended
Negotiations collapsed
No agreement
Agreement to hold ministerial meetings every 2 years
To be determined
Negotiations collapsed
Outcome
GATT signed; 45,000 tariff concessions
5,000 tariff concessions
8,700 tariff concessions estimated to reduce tariff levels
by 25%
$2.5 billion in tariff reductions
4,400 tariff concessions worth $4.9 billion
Tariff concessions worth $40 billion
Tariff concessions worth $300 billion
Creation of the WTO; significant tariff reductions (~40%);
pledges to reduce agricultural subsidies; uniform
intellectual property laws
None to date
Outcome
711-043
-10-
Stalemate at the WTO: TRIPS, Agricultural Subsidies, and the Doha Round
Import Tariffs (percentage)
Exhibit 2a
USA
EU
Japan
Brazil
India
Notes:
711-043
1915
44.0
11.0
17.2
60.0
4.0
1925
37.0
15.3
12.5
21.0
16.0
1933
45.0
21.8
21.0
30.0
n/a
Non-agricultural
1950
1960
1981
1990
14.6
16.5
7.0
6.1
22.5
14.8
8.9
8.4
3.7
19.3
4.3
3.9
9.0
99.0
49.0
34.8
n/a
25.7
74.3
83.7
2000
4.0
4.3
2.9
16.6
31.6
2005
3.3
4.0
2.7
15.0
16.0
2009
3.3
4.0
2.5
14.1
10.1
Agricultural
2005
2009
5.3
4.7
15.1
13.5
24.3
21.0
10.2
10.2
37.6
31.8
Data represent the most-favored nation (MFN) unweighted applied tariff rates, averaged across non-agricultural or
agricultural goods as indicated. European Union common customs tariff started in 1968; previous years were
calculated as a simple average of France, Germany, and the United Kingdom. Japan’s tariff rates are for both
agricultural and manufactured goods prior to 1990. The tariff rate listed for India in 1960 is from 1962.
Sources: Adapted from WTO, World Tariff Profiles (Geneva: WTO, various years); R. Finlay and K. O'Rourke, Power and Plenty
(Princeton University Press, 2007), 494-5; Japan, Ministry of Finance, “Finance Statistics Monthly Report,” (various
years). Bhagwati, India: Planning for Industrialization (London: OUP, 1970); The World Bank, “Trends in Average MFN
Applied Tariff Rates,” http://econ.worldbank.org.
Exhibit 2b
1950
1960
1970
1980
1990
2000
2008
2009
Global Export Volumes and World GDP (1950 = 100)
World GDP
100
155
265
396
543
682
818
798
Manufactured Goods
100
231
625
1,244
2,132
4,262
6,809
5,754
Fuels and Mining
100
217
435
513
566
818
1,040
994
Agricultural Products
100
162
238
336
389
575
784
762
Source: Adapted from WTO, International Trade Statistics, 2010 (Geneva: WTO, 2010).
Value of World Exports
Exhibit 2c
US$, billion s, curren t prices
18,000
16,000
14,000
12,000
10,000
8,000
6,000
4,000
2,000
0
1980
1985
1990
1995
Good s
2000
2005
2008
2009
Ser v ices
Source: Adapted from WTO, Statistics Database, various years, www.wto.org, accessed December 2010.
11
711-043
Stalemate at the WTO: TRIPS, Agricultural Subsidies, and the Doha Round
Exhibit 3
WTO Dispute Settlement Process
Timeline
Process
60 days
Consultations
by 2nd DSB meeting
Panel established by DSB
0 – 20 days
Terms of reference
Panel composition
20 days (+10 if WTO
Director-General
composes panel)
Panel examination
(normally 2 meetings with parties,
1 meeting with third parties)
Interim Report issued to parties for
comment (review meeting with
panel upon request)
6 months from
panel’s composition,
3 months if urgent
Panel Report issued to parties
Up to 9 months from
panel’s founding
Panel report issued to DSB
Appellate review
(90 days maximum)
60 days for panel
report unless
appealed
DSB adopts panel/appellate report,
including any changes to panel
report made by appellate review
“Reasonable period
of time” proposed by
losing party or
arbitrator
Implementation report by losing
party within “reasonable period of
time”

If report is disputed,
proceedings possible,
including referral to
implementation panel
In cases of non-implementation,
parties negotiate compensation
(pending full implementation)
Retaliation
If no agreement on compensation,
DSB authorizes retaliation
(pending full implementation)
Possibility of arbitration
on retaliatory tariffs or
cross-sector retaliation
Source: Adapted from WTO, “The Process — Stages in a Typical WTO Dispute Settlement Case,” www.wto.org, accessed
December 2010.
12
WTO Dispute Settlement Body Complaints
Argentina
Australia
Canada
2
Other Developed Countries
1
5
1
1
7
2
3
1
4
1
9
10 19
4
2
1
1
4
10
6
2
6
6
4
2
6
3
1
1
2
1
1
120
4
4
7
5
9
8
8
7
31
5
2
15
10
2
3
39
3
3
15
3
2
5
2
4
1
1
35
6
13
2
8
2
1
1
1
1
Source: Adapted from WTO, “Dispute Settlement: Disputes by Country/Territory,” www.wto.org, accessed December 2010.
* Some cases have more than one complainant. Between January 1995 and December 2010, there were 418 total DSB cases.
15 10 14 16 13 20 76 20 15 13 13
1
2
Other Developing Countries
Total Complaints Against
1
Other Least-Developed Countries
USA
Thailand
4
3
4
3
2
5
Mexico
1
1
4
3
4
1
Korea
4
1
India
Japan
7
2
Thailand
European Union
China
2
1
Japan
1
1
Mexico
9
1
Other Developing
Countries
Chile
3
2
China
7
3
1
32
7
21
3
1
Other Developed
Countries
Canada
1
European Union
3
India
Brazil
1
Chile
6
Korea
2
2
Brazil
1
USA
Australia
Responding Country
Other LeastDeveloped Countries
Argentina
Complainant
Exhibit 4
453
22
26
48
101
13
21
14
12
20
79
9
10
32
26
6
14
Total Complaints
Brought*
711-043
-13-
711-043
Stalemate at the WTO: TRIPS, Agricultural Subsidies, and the Doha Round
Notes
1 P. Lamy, “Ministerial Conferences: Pascal Lamy’s Ministerial Conference Blog,” World Trade Organization,
www.wto.org, accessed December 2010.
2
This note draws extensively on: D. Moss and N. Bartlett, “The World Trade Organization,” HBS Case 703015 (Boston: Harvard Business School Publishing, 2002).
3
J. Madsen, “Trade Barriers and the Collapse of World Trade during the Great Depression,” Southern
Economic Journal 67 (2001): 848–868.
4
“The General Agreement on Tariffs and Trade (GATT 1947),” p. 4, www.wto.org, accessed December 2010.
5
Ibid, 9.
6 I. Neufeld, “Anti-Dumping and Countervailing Procedures: Use or Abuse?” United National Policy Issues in
International Trade and Commodities, Number 9 (2001).
7 E. Reinhardt, “Adjudication without Enforcement in GATT Disputes,” Journal of Conflict Resolution 45
(2001), 174-195.
8
C. Bown, Self-enforcing Trade: Developing Countries and WTO Dispute Settlement (Washington, D.C.:
Brookings Institution Press, 2009), 22-44.
9
S. Ostry, “The World Trading System: In the Fog of Uncertainty,” The Review of International Organizations 1
(2006), 139-152.
10
R. Stevenson, “Measuring Success: At Least the Talks didn’t Collapse,” The New York Times (November 15,
2001).
11
WTO, “Ministerial Declaration,” November 14, 2001, www.wto.org, accessed December 2010.
12
A. Kwa, Power Politics in the WTO (Bangkok: Focus on the Global South, 2003), 26.
13
“The WTO Under Fire,” The Economist (September 20, 2003), 26-28.
14
J. Miller, “Nations Rush to Establish New Barriers to Trade,” The Wall Street Journal (February 6, 2009), A1.
15 R. Gregory, et al., “Trade and the Crisis: Protect or Recover,” IMF Staff Position Note (April 16, 2010), 4,
www.imf.org, accessed December 2010.
16
G-20, “Leader’s Statement: The Pittsburgh Summit,” www.pittsburghsummit.gov, accessed September
2010.
17
International Data Corporation, “Global Software Piracy Study,” http://portal.bsa.org, accessed December
2010.
18
J. Braithwaite and P. Drahos, Global Business Regulation (Cambridge: Cambridge University Press, 2000),
79-87.
19 On the need for patents to stimulate private investments in innovation, see: K. Arrow, “Economic Welfare
and the Allocation of Resources for Invention,” in National Bureau of Economic Research (ed.), The Rate and
Direction of Inventive Activity (Princeton: Princeton University Press, 1962), 609-626.
20 J. Lerner, “The Empirical Impact of Intellectual Property Rights on Innovation: Puzzles and Clues,”
American Economic Review Papers & Proceedings 99 (2009), 343-348.
21
A. Arora and N. Rosenberg, “Chemicals: A U.S. Success Story,” in: A. Arora, R. Landau, and N. Rosenberg
(eds.), Chemicals and Long-Term Economic Growth (New York: John Wiley & Sons, 1998), 71-102; J. Beer, Emergence
of the German Dye Industry (Urbana: University of Illinois Press, 1959), 54-56.
14
Stalemate at the WTO: TRIPS, Agricultural Subsidies, and the Doha Round
711-043
22
Y. Chen and T. Puttitanun, “Intellectual Property Rights and Innovation in Developing Countries,” Journal
of Development Economics 78 (2005), 474-493.
23
J. Lanjouw, “Intellectual Property and the availability of Pharmaceuticals in Poor Countries,” Innovation
Policy and the Economy 3 (2003), 91-130.
24
I. Mgbeoji, Global Biopiracy: Patents, Plants, and Indigenous Knowledge (Ithaca: Cornell University Press,
2006).
25 WTO, “Marrakesh Declaration of 15 April 1994, Final Act, Annex 1C: Agreement on Trade-Related
Aspects of Intellectual Property Rights,” Article 27, p. 331, www.wto.org, accessed October 2010.
26
A. Curti, “The WTO Dispute Settlement Understanding: An Unlikely Weapon in the Fight against AIDS,”
American Journal of Law & Medicine 27 (2001), 469-485.
27
J. Barton, “Trips and the Global Pharmaceutical Market,” Health Affairs 23 (2004), 146-154.
28 WTO, “Declaration on the TRIPS Agreement and Public Health,” Doha Ministerial (November 20, 2001),
www.wto.org, accessed October 2010.
29
World Intellectual Property Organization, World Intellectual Property Indicators (Geneva: WIPO, 2010), 33-
48.
30
G. Trumbull, V. Dessain, and E. Corsi, “Common Agricultural Policy and the Future of French Farming,”
HBS Case 707-027 (Boston: Harvard Business School Publishing, 2007); B. Gardner, American Agriculture in the
Twentieth Century (Cambridge: Harvard University Press, 2002).
31
Food and Agriculture Organization, The State of Food Insecurity in the World (Rome: FAO, 2010).
32 J. Staatz, D. Boughton, and C. Donovan, “Food Security in Developing Countries,” in: L. Phoenix and L.
Walter (eds.), Critical Food Issues (Santa Barbara: Greenwood Publishing, 2009), 157-175.
33 R. Huber and B. Lehmann, “WTO Agreement on Agriculture: Potential Consequences for Agricultural
Production and Land-use Patterns in the Swiss Lowlands,” Danish Journal of Geography 109 (2009), 131-145; M.
Jales, “Potential Impacts of Alternative Policy Reform Scenarios on the World Cotton Market,” Trade Negotiations
Insights 9 (March, 2010), 8-10.
34 D. Rodrik, “Political Economy of Trade Policy,” in: G. Grossman and K. Rogoff, (eds.), Handbook of
International Economics v. 3 (New York: Elsevier, 1995), 1457-1494.
35 S. Tokarick, “Dispelling Some Misconceptions about Agricultural Trade Liberalization,” Journal of Economic
Perspectives 22 (2008), 199-216.
36
M. Pollan, The Omnivore’s Dilemma: A Natural History of Four Meals (New York: Penguin Press, 2006).
37 These boxes varied slightly from other WTO subsidies, which were classified as green box (permitted),
amber box (to be reduced), and red box (forbidden).
38 WTO, “WTO Agricultural Negotiations: The Issues, and Where We Are Now,” December 1, 2004,
www.wto.org, accessed December 2010; R. Schnepf and C. Hanrahan, “WTO Doha Round: Implications for U.S.
Agriculture,” Congressional Research Service, Report RS 22927, January 4, 2010.
39
WTO, “Understanding the WTO: Settling Disputes,” www.wto.org, accessed October 2010.
40
WTO, “Regional Trade Agreements Information System,” www.wto.org, accessed December 2010.
41 J. Bhagwati, “Regionalism and Multilateralism: An Overview,” in: J. de Melo and A. Panagariya (eds.),
New Dimensions in Regional Integration (Cambridge: Cambridge University Press, 1993), 22-50; J. Schott, Free Trade
Agreements: U.S. Strategies and Priorities (Washington, DC: Institute for International Economics, 2004).
15