Thursday, 31 July 2008

The collapse of the WTO trade talks

The failure on Tuesday (29) to secure agreement on the Doha Round of world trade talks is rightly being presented as yet another missed opportunity for improving the trading opportunities for all countries, including the world’s poorest. Back in 2001 when this trade round was launched it was presented as a round that would focus on the needs of the world’s poorer nations. Failure to get an agreement will damage those countries most of all.

Economists are famously unable to agree on almost anything, yet the one proposition that does unite them is that liberalising international trade from national protective controls will generate gains for all – rich and poor countries alike. Of course the problem with that proposition is that removing controls on imports – be this for agricultural or manufacturing products or services – is not painless. Domestic suppliers inevitably will face tougher competition and some local producers may be forced out of business. This is particularly the case where trade concessions are granted for products that can be produced ‘abroad’ much more cheaply than at home. On the plus side, of course, domestic consumers will gain from access to lower priced products as new export opportunities are made available to suppliers from other countries – very often the world’s poorest nations. And as these countries benefit from new exports, and their economies grow, all countries stand to gain from the rising trading opportunities that result.

What happened last week was that a few of the world’s key trading countries (the US, China, India) were unable to agree on how to manage the transition to freer trade in agricultural and manufacturing products. No agreement could be reached on how to spread the “pains and gains” between themselves.

This is far from a new problem. This trade round, as others before it, has been beset by this very issue really since it began in 2001. Much of the dispute centred around a specific issue, i.e. the special safeguard measures (SSM) to be applied by developing countries. Countries such as India and China supported a more flexible SSM to protect subsistence farmers from large amounts of imports from highly competitive agricultural exports. However, on the other side the United States backed by some of the major developing exporter countries in South America (e.g. Brazil) wanted to see a stricter SSM that would enable them to access these markets.

It should be stressed that the EU was not involved in this dispute and in this respect cannot be blamed this time for the collapse of this round of Doha trade talks. Nevertheless, substantial progress was made in a number of other areas, where agreement was reached on duty-free quota-free market access for least developed countries, aid for trade and the “enhanced integrated framework” of assistance to least-developed countries.

What makes last week’s failure especially worrying, however, is that it occurred against a backdrop of what is increasingly looking like an imminent and possibly global economic recession within the richer countries – driven by rising fuel and commodity prices – which is not an environment conducive to trade liberalisation. And there is the not trivial matter of the forthcoming US presidential elections to consider. It was the intransigience of recession-worried US negotiators last week that was partly responsible for the failure to reach agreement. Given that, it is probably expecting too much for either of the presidential candidates to come out at this moment to champion a resumption of global trade talks to get the Doha Round back on track.

But the challenges lie not only across the Atlantic, or indeed in India or China. The EU has to look to its own position. Agricultural policy – or agricultural protectionism – continues to be the main sticking point in these discussions. Since the mid-1960s the EU’s agricultural policy and reform agenda has been largely driven by ‘domestic’ (i.e. intra-EU) political considerations. With France currently holding the EU Presidency, and given its history of staunch opposition to the liberalisation of the EU’s farm policy – itself much criticised by the developing countries – it is difficult to expect Brussels to take on a leadership role in unblocking the stalled negotiations for at least the next 6 months. After that, of course, the EU goes into election mode as the campaign for the June 2009 elections to the European Parliament gets underway and the Commission – and EU trade Commissioner Mandelson – readies itself for the change in personnel that will follow. And that isn’t even to begin to look at elections that are imminent in some of the other main countries involved in the Doha Round, including India.

Notwithstanding this latest crisis, there is a sense that most participants are keen to see this trade round brought to a successful conclusion. The question is to what extent they are prepared to make the short term sacrifices necessary in the interests of securing what will be the very real long term gains.

The timing of the current failure is dire, coinciding as it is with a global economic downturn. There is a real risk that the world’s poorer nations will suffer a double-whammy – first from the immediate effects of declining economic activity and so demand in the richer (and recession-prone) countries and second from a significant lowering of their longer term prospects for raising their levels of exports and so economic growth.

Certainly it is fair to say that the deal on the WTO trade talks table would have had some serious implications for some parts of Scotland’s farming sector, not least beef, pig and poultry meat.

On the other hand, its failure could have a considerably more serious longer term consequence for the multilateral trading order as we know it today. If the Doha Round fails, then serious questions will be raised about the continued role of the World Trade Organisation (WTO). The sole remit of the WTO is to manage global trading relations on a multilateral basis – that is by including all 153 countries who have been admitted to its ranks in the negotiations, including of course many less developed countries. If it cannot perform this function then there is a very real likelihood that the WTO will be overtaken by direct negotiations between the world’s largest trading blocs such as the US, the EU, China, India, Brazil, and Japan. In that scenario the vast majority of WTO countries will be left out of the very negotiations that will determine their trade prospects, and they will be faced with the option of simply accepting or not the terms of trade decided by the powerful trading nations. This has to be avoided, arguably at any cost, especially given the difficulties we have already seen with the negotiation of Economic Partnership Agreements.

Globalisation has been, and can continue to be, a positive force for all trading nations. It can lead to rising prosperity and greater opportunities in all countries, including the poorest. But that will only be assured if world trade talks are open to all trading nations: that is are truly multilateral. The WTO is the only guarantor of multilateralism, and in that role is absolutely central to ensuring that the poor as well as the rich countries are able to enjoy the much needed gains from freer international trade.

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