National interests, coalitions and rules of decision in multilateral trade negotiations

The Uruguay Round has often been described as an opposition between USA and European Union (EU) about agriculture. In contrast, the Cancun summit, of which the objective was to launch the Doha Development Round (DDR) highlighted numerous conflicts of interest between various countries or coalitions of WTO (World Trade Organization) members. In WTO rules, it is stipulated that any international agreement on a global package has to be adopted unanimously. As a matter of fact, controversial issues are various : degree of liberalization in agricultural sector, progressive or linear formulae, cancellation of export subsidies, decoupling of domestic support, liberalization in non agricultural sectors, special and differential treatment to be reserved to developing countries or to least developed ones, Singapore issues about trade facilitation, investment policy… On the other side , trade negotiations are affected by the emergence of new coalitions: G10, G22, G90, Like -Minded Group, SVE (Small and Vulnerable Economies), Cairns group… About many issues, it is difficult for coalitions to avoid controversy. Of course, negotiating actors could have adopted strategies: standing on maximalist positions in order to obtain greater benefits. But convergence is slow such that pundits are rather pessimistic. One can change rules of negotiation ; for this purpose Sally (2004) suggested that least developed countries could be excluded from negotiating: ‘Stated baldly : only a minority of the WTO members have the bargaining power and capacity to advance negotiations. These are the OECD countries and about a score or so of advanced developing countries (most of them in the G20). Hence the key liberalising and rule-making deals in the WTO must be done by the 30-plus countries (counting the EU as one) that accounts for over 80% of international trade and an even bigger share of foreign direct investment.’ (Sally, 2004, p. 11). On one side this proposal is not democratic and could give rise to worldwide public outcry; on the other side success is in no case guaranteed, for deepest dispute may engage rich and emerging countries. Majority voting may also be adopted even if it is difficult to envisage an unvoluntary change in national trade policy due to an international agreement. The objective of this pape r is to examine the case of a unanimous agreement in international trade negotiations. For this purpose we study fundamental interests of WTO members in respect of a global package that could be agreed by these countries.We are trying to determine which negotiations issues are the most beneficial for each WTO member and to link these elements to national economic features. The starting point is an inversion of traditional methodology: testing a large set of various scenarios by a Computable General Equilibirum Model (CGEM) and ranking them for each country. This approach should lead to an identification of countries position in the multilateral trade negotiation, whatever is their official position. Firstly considering that countries maximize national welfare, an axiomatic approach is used; bargaining theory and cooperative games offer some solutions to this kind of problematic. This is why we examine a theoretical solution to this cooperation problem: the Nash solution. In the real bargaining process, two elements could modify this scenario. Firstly the WTO members’ economic sizes are quite different and this could clearly influence the agreement. Modelling trade negotiation needs the introduction of bargaining powers. The bigger a trading zone is, the larger influence it gets on the agreement. These parameters could be changed by the composition of trade coalitions. Secondly a central methodological element is the definition of national interest. National welfare captures the total gains of a nation from improving worldwide market access, but it does not tackle the redistributive conflict which is implied by this process. Moreover political governments are quite sensitive to loss of individual income caused by a political decision. The study is thus using a pragmatic approach where governments are seeking to maximize benefits from cooperation (welfare) while minimizing adjustments costs (income losses). This hypothesis may be linked to recent developments in political economy of protectionism (Grossman et Helpman, Bagwell et Staiger, 1999 ; Ozden et Reinhardt, 2004). Section 1 presents methodological assumptions: main features of the CGEM, sector and geographic breakdown, definition of national interests, definition of scenarios to be tested. Section 2 reveals the Nash solution of this bargaining process when each trading zone is equally weighted and objective function is welfare. Section 3 focuses on the inclusion of bargaining powers and the possibility of coalitions. Section 4 studies the negotiation when governments take into account national welfare and redistributive costs. Section 5 concludes.