World Trade Negotiators on a Thankless Mission

Yet another “last ditch” effort to conclude the Doha Round of trade negotiations looks doomed to failure. The net result will be to the disadvantage more of the poor and the aspirant than of the already rich.

Lack of progress, however inadequate, on reducing farm trade distortions could well cause bigger commodity price swings, undermining efforts of the more efficient producers to raise global ou tput. Much of the current price crisis can be traced to subsidies, tariffs and trade controls in key countries and the bizarre situation where corn prices are sky high because of US ethanol subsidies, but global sugar prices are low despite being the most efficient source of ethanol. Meanwhile, obsessions with rice self-sufficiency have resulted ikn a very thing and volatile global market.

Blame can be variously apportioned but developing countries should be ruing the day that, largely by default, they entrusted their interests to India and Brazil. India, as usual, topped the bill of those claiming to represent the global poor despite its abysmal record on behalf of the poor at home. Its high profile trade minister, Kamal Nath, has long appeared more interested in getting media coverage at home than advancing the talks, meanwhile using the issue of agriculture to protect India’s inefficient industrial sector not just from the developed nations but from the likes of China and other east Asian producers.

With its array of subsidies and controls India has scant claim to be a promoter of freer trade in farm products either. As for Brazil, represented by Foreign Minister Celso Amorim, it is surely in favor of more access for its agricultural products – and derivatives such as its highly competitive sugar-based ethanol. But its manufacturing sector, which has plenty of political muscle, is not so keen to face the enhanced competition that lower industrial tariffs would bring.

Both of these countries have been traditionally highly protectionist and inward-looking. Despite quite rapid trade growth and liberalization in recent years, trade for both is a relatively small part of gross domestic product. Neither appears much worried about the likelihood the Doha Round will fail – or at least drag on inconclusively for a few more years. They have the backing of countries such as Argentina, which have also been small players in global trade. They have competitive farming sectors but must protect inefficient manufacturing which employs much politically organized labor.

One of the major losers from this will likely be China, which is looking more and more to developing country markets for export growth as the buying power of the developed world slows or stalls. Yet for foreign policy reasons, and because it is a relative newcomer to the World Trade Organization, it, has preferred to keep a low profile, leaving developing-country representation to countries with very different interests.

Other Asian countries which export both manufactured goods and farm products – Thailand, Malaysia, Indonesia and Vietnam – will also suffer from a Doha failure. Yet they too have left the running to Latin American countries and South Africa, all of whom worry at least as much about Asian competition in manufactures as they do about farm subsidies in the west.

Doha progress needs all the weight that the countries of East Asia, almost all of whom have been beneficiaries of decades of trade liberalization, can give it if the round is not to fail and the liberalization trends reversed. Yet China remains on the sidelines and Japan and Korea keep a low profile, hiding behind the more obvious agricultural protectionism of the EU and US.

This has the makings of a tragedy for a number of reasons.

First, the world may well be on the brink of its worst recession since 1974/5, if not earlier. The current willingness of many countries to see continued trade liberalization will likely falter and perhaps be reversed.

Second, current high prices for most (not all) farm products make it easier now for the EU and US to make concessions on subsidies by capping them closer to today’s than yesterday’s levels. There is no certainty that prices will remain at these levels for very long.

Third, Asian nations in particular are fooling themselves that regional and bilateral so-called free trade agreements (FTAs) will compensate for WTO failures. These FTAs are mostly politically-generated paper deals with little practical effect. Regional trade growth has followed from the expansion of global trade and manufacturing specialization, not vice versa.

Of course much blame for Doha failure also rests with the EU, US and their farm lobbies. It is doubtful that the US Congress would approve even if the US administration committed itself to the much bigger subsidy cuts demanded by Nath. As for the EU, its trade commissioner Peter Mandelson is under constant fire from his own members, notably France whose peacock president Nicolas Sarkozy has threatened to sabotage any deal that hurts French farmers. So much for Gallic pretensions to international leadership.

But the developing world as a whole will have itself to blame if it allows Indian and Brazilian self-interest to stand in the way of the a deal now, far from ideal though it may be.