Summer, 2008

From the Editor

Can DOHA Be Salvaged?

The recent collapse of the DOHA-round global trade talks in Geneva is disconcerting. It is not so much that this particular round is so crucial; global tariffs on non-food items are relatively low and, in most cases, not a large obstacle to trade.

True, this was the round that finally held hope for a liberalizing of trade in food and agriculture — a matter of enormous importance for developing countries — and econometric models indicate that even small decreases in trade barriers can lead to significant increases in prosperity. Yet the more important concern is that the dynamics that led to a collapse of the talks indicate we are entering a world in which international agreements will be more difficult to obtain.

For the most part, the trade talks since World War II were discussions between the industrialized countries and the developing nations. The developing countries wanted access to the rich industrialized markets, especially for manufactured products, so the developing countries would not be simply suppliers of raw material. The industrialized countries wanted access to the markets in developing countries while protecting politically powerful industries such as textiles and agriculture.

Through negotiation, we have had about a half-century of the lowering of trade barriers and, not at all coincidentally, a massive explosion in global prosperity. That prosperity has created a new dynamic, with countries such as Brazil, India and China now having one foot in the industrialized world and one foot in the developing world.

In this most recent case, the industrialized countries finally agreed to reduce their own subsidies and trade barriers on food and agricultural products, and the developing world eagerly agreed to this compromise, which would have enhanced their access to wealthy markets.

Brazil endorsed the deal but China and India balked. They wanted to amend the compromise to let them impose “snap-back” tariffs if substantial food imports started hurting their farmers.

Put another way, India and China each have two “countries” within them. One is mostly rural, poor and agricultural; the other affluent and industrial. In a sense, India and China wanted to preserve the markets in their industrial regions for their own rural regions. This is what the United States, Japan and Europe have wanted as well — but in these and other industrialized countries, the agriculture sector is now comparatively small, employing a percentage or two of the population, and its interests can be either bought off through other payments or compromised in the national interest.

The rural sectors in India and China are massive however, and their interests are not easily bought off or compromised. Add in some resurgent nationalism and a desire not to be dependent on other nations, and it is easy to see how the talks could collapse.

Can the talks be revived? The head of the World Trade Organization believes so, and India’s representatives have said they see the talks as being in a “pause,” not as having failed. But they also say the discussions must focus on protecting farmers — which either is going to be a fig leaf or is incompatible to the goal of freeing up agricultural markets.

Political dynamics in the United States are not good. The Democratic Party, which was once in the vanguard of efforts to expand global trade, has become increasingly protectionist, looking to impose environmental and labor codicils to international trade agreements that would act as protectionist barriers. With Democratic gains in the U.S. Congress highly likely and the possibility that Democratic nominee Barack Obama will win the presidency, it seems unlikely that a deal done after the U.S. elections will find a better reception in Washington.

Yet even there, the truth is known: free trade increases prosperity. One of Obama’s economic advisers caused an international incident when he advised Canadian officials not to pay any attention to Obama’s pledge to renegotiate the North American Free Trade Agreement — all that talk was just politics.

In fact, the subsidies the United States, Europe and Japan provide to agriculture are damaging to their own prosperity, and an extra “incentive” in the form of increased market access should not be required to get them to reduce and eliminate such subsidies. If they do so, a substantial portion of the benefits of the DOHA round can be realized unilaterally.

Hopefully, this will happen but whether it does or doesn’t still leaves the point that the nations of the world need an effective mechanism for dealing with common problems. If we can’t make a deal even on a win-win issue such as trade, how will we possibly deal with issues such as climate change? 

There is still time to salvage the DOHA round. Doing so could not only open the way for a round of gross domestic product increases across the globe but also set the tone for global cooperation necessary for world peace and prosperity.     EXP