Sunday, 10 June 2012

Why do trade negotiations take so long?

Christoph Moser   and Andrew Rose look at this question. Doha Round has celebrated its 10th birthday and there is no sign of completion of the round. Infact it is nowhere close.
This table shows various trade rounds and the time taken to achieve the desired changes..

Table 1. Tariff cuts in the GATT rounds, 1947 to 1994
StartLength
(months)
Average tariff
cut %
Tariff per
month (a)
Number of
members (b)
Number of
DCs (c)
Geneva I1947826.039.0197
Annecy194983.04.5208
Torquay195084.06.03313
Geneva II1955163.02.33514
Dillon1960104.04.84019
Kennedy19634237.010.67444
Tokyo19747433.05.48451
Uruguay19869138.05.012588

What is the reason for this?
We find that negotiations take significantly longer when they involve more countries, especially if the countries are spread across different regions. The latter finding is also reflected in the Figure 1. It shows the survival functions for Regional and Cross-regional RTAs, with other control variables held at their average values.

We also find somehow weaker results for two other economic variables: regional trade agreement partners that are more open to trade and richer tend to conclude their agreements more quickly.

Equally interesting, we also found many negative results. Among those candidates for which we could not identify a measurable effect on the length of negotiations are export importance or income divergence. Moelders (2012) has recently confirmed that bilateral trade agreements tend to be hammered out more quickly. Beyond that, he shows that political factors seem to matter as well.

So, pretty intuitive a reason..

This means things are going to only get complicated. The long time taken to complete rounds become a major disadvantage of multilateralism:
These results lead us to be pessimistic about the prospects for future global trade talks. The membership of the WTO continues to grow as the few remaining outsider countries (such as Russia) join. As the number of participants and the diversity of their preferences grow, it becomes increasingly difficult to imagine a successful conclusion to the Doha Round, let alone future liberalisation rounds engineered under the auspices of the WTO. While multilateral liberalisation has many advantages over regional trade liberalisation, feasibility does not appear to be among them.

Hmm..

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