Can the G20 rescue deadlocked Doha?

After nine years of negotiations, the Doha Round is at an impasse. A number of reasons can be cited for this but some of the most important issues reside outside the ambit of the Round. Of these, the growing acrimony between the US and China on a range of economic issues is the most significant.

The US' preoccupation with its uncertain recovery from the crisis and a stubbornly high unemployment rate do not provide a congenial environment for President Obama to take political risks on trade issues.

The situation has been exacerbated by the anti-trade rhetoric emanating from politicians of all persuasions in the US, especially in the run-up to the mid-term Congressional elections scheduled for early November.

Although much of this rhetoric is aimed at China, other emerging economies like India are not immune, as the recently enacted Border Security Bill and the Anti-Offshoring Bill (which was blocked by the US Senate on September 29) demonstrate.

Perhaps the most visible symbol of the differences between China and the US is the currency issue. On September 29, the US House of Representatives passed a Bill that would allow President Obama to impose sanctions on China if it is determined to be a currency manipulator.

It is by no means certain, however, that the Senate will follow suit. If, indeed, the Bill becomes law, the systemic implications for the World Trade Organisation (WTO) would be enormous. A determination by the US Administration that the currency practices of China constitute an export subsidy would almost certainly lead China to seek recourse in the dispute settlement process in the WTO.

This is a challenge the WTO would be happier to avoid since the issue is way outside its core competence. Apart from the complexities of adjudication, there would be the likely problem of compliance. Moreover, if China is indeed guilty of currency manipulation, it is certainly not alone.

Brazil's Finance Minister Guido Mantega spoke recently of an "international currency war, a general weakening of currency&". The US Federal Reserve recently decided to continue monetary expansion by buying more securities and injecting more liquidity into the capital markets, thus driving up the price of gold and leading to a depreciation of the dollar vis-a-vis the euro and yen. Japan and Switzerland, among others, have taken similar decisions.

The WTO cannot be the forum for deciding issues of global adjustment. These are larger issues that require a political settlement and the G20 is best placed to address them.

Another important issue holding up the Doha Round is the perception in the US that emerging economies have not made an adequate contribution in terms of market access in the negotiations.

This was the major reason for the Bush Administration pulling the plug on the July 2008 Informal Ministerial Meeting and continues to be the cornerstone of the negotiating position of the Obama Administration.

It is difficult to say how much this position is based on economics and how much on politics. While the US has obvious expectations of market access gains in emerging economies like Brazil, India and the Asean countries, its political focus is on China.

There are at least two problems with this approach. First, even if the other emerging economies were to accede to the US demands, it is by no means clear that the US will be the major beneficiary.

As far as India is concerned, the simulations show that it will be China that is likely to gain the most. Secondly, the oldest cliche; in the WTO is that in negotiations you never get anything for free.

The US has given no indication that it is willing to pay for further concessions by others. The assessment of most observers is that, given its difficult political situation, the US is not in a position to make significant concessions.

But if it is indeed additional market access from China that the US needs to present an acceptable package to Congress, it can be argued that they are going about it in the wrong way.

China's accession to the Government Procurement Agreement, which is underway, can deliver substantially more market access for US businesses than the incremental concessions likely from China in the Doha Round. Yet, the US has not exhibited much urgency or engagement on this.

China recently presented a revised package of market opening in its accession process that was generally seen as a substantial improvement over their previous offer. The Europeans, always pragmatic, welcomed it. The US confined itself to a tactical expression of disappointment.

The gist of the matter is that the continuing preoccupation of the US with fixing its domestic economy is translating into a lack of meaningful engagement with the rest of the world on trade issues.

In a rapidly changing global economy, the absence of US leadership is not only impeding the multilateral process, but is also adversely impacting its overall competitiveness. As Asia integrates rapidly within the region and outside, it continues to cement its position as the growth engine of the world.

The European Union, which is not politically constrained on the issue of economic partnerships, continues to pursue vigorously its agenda of linking up with the dynamic emerging economies through a network of free trade agreements (FTAs). In this evolving situation, the US is the outlier.

Clearly, the key to resolving the Doha Round impasse lies outside the WTO. It is important that the issues between the US and the emerging economies, including China, are resolved politically. Such a resolution will need to be within the larger framework of global adjustment that the G20 is addressing. The November meeting of the G20 leaders in Seoul provides one such opportunity.