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Wednesday, July 5

More on stalled WTO Doha round of talks

Dave Schuler at The Glittering Eye responds to Monday's Pundita post on the WTO Doha round, which calls for a Pundita response:

"Dear Pundita:
I've already posted my thoughts on the incipient collapse of the [WTO Geneva] talks here.

Frankly, I have reservations about Robert Wade's analysis. First, consider this lead-off quote:

"Forcing through very low tariffs on industry will not lead to a more even global distribution of income and wealth"

Is that objective a legitimate one? There's a simple way of creating a "more even global distribution of income and wealth": make America poorer. That won't make a single child in Zambia (for example) healthier or prevent him or her from starving. Perhaps it will assuage the guilt of a few European intellectuals.

"This will give you better market access for your agricultural exports, in line with your comparative advantage"

That isn't what Lopez Obrador has been saying in his campaign for the Mexican presidency. What he's been saying is that America's comparative advantage in agriculture is so overwhelming that protections are needed to prevent economic disruption in Mexico.

Well, economic disruption is exactly what's needed. Without it poor people will just stay poor. [Regarding Wade's observation:]

"A recent study of 50 developing countries [with] substantially liberalised trade during 1980-2000 found that only 20% (mostly in east Asia) experienced a significant increase in exports and in value-added manufacturing; half the countries experienced de-industrialisation."

I wish the actual study had been cited in the article. How did they disaggregate the effects of trade liberalization from the effects of China's and India's abandoning their policies of autarky or European countries exporting their industries to China? Or the shell game that those signatories who've actually lived up to their obligations under
the Kyoto Protocol have used to do so?

This strikes me as post hoc propter hoc.

As I noted in my own post I think we ought to abolish agricultural subsidies. But anybody who thinks that abolishing our subsidies will suddenly make Mexican corn (for example) competitive is fantasizing. The numbers just aren't there.

The Europeans and Americans aren't the only ones with market-distorting agricultural subsidies. North Vietnam's (!) enormous subsidies for coffee production have thrown the world coffee market into a cocked hat.
Dave Schuler"

Dear Dave:
I have no quarrel with the observations in your post nor with the criticism you expressed about Wade’s views. However, Pundita is intent on frying bigger fish than agricultural subsidies, which are red herring in the context of analyzing the Doha agenda. To repeat the question I stated in the Monday post: Is the Doha agenda workable under any conditions?

Perhaps I should have made it clearer that I highlighted Professor Wade’s Guardian piece because it specifically addresses the rationale for the Doha round and outlines the ‘counterinsurgent’ Nama agenda. No other article I found on the collapse of the WTO Geneva talks does this.

In short, whatever one might think of Wade’s specific arguments and conclusions, he unerringly goes to the heart of the matter – “trade aid” vs. Nama -- and from there pronounces Doha unworkable. He is right in that regard.

Many Americans (indeed, many outside the trade negotiations!) don’t understand that the Doha round rests on the concept of using trade concessions to aid the development of the poorest countries (which contribute only 1% or less to global trade).

Is fashioning development aid out of laws pertaining to global trade a helpful, let alone rational, approach to aiding the LDCs? The approach certainly plays havoc with the concept of free trade and undercuts the rationale for a trading organization, which of course has the objective of trade and not global development aid!

And of course it sweeps development aid issues under the rug of trade deals. It is also patently unfair to the most productive developing countries, which, after climbing out of LDC status, are expected by the Doha round to make trade concessions to the LDCs in a manner that even the richest developed country can balk at!

Indeed, the concept behind the Doha round is so screwy that one has to look at the historical context to understand how it came about: The round was launched in November 2001 –- two months after it was brought home to the world’s most productive nations that the least productive countries make a great breeding ground for terrorism.

And even as early as 2001 Tony Blair, Gordon Brown and others in the EU were viewing with concern the massive debt that several African nations had incurred. At that time they were casting around for ways to reduce the debt without actually writing it off. (A debt write-off was out of the question from the US side.) They saw in the idea of using trade deals to fashion development aid a means to offset the debt payment burden for the poorest countries.

Also, by 2001, the multilateralism espoused by the Chirac School of foreign policy, and which underpinned the creation of the World Trade Organization, was running afoul of the harshest realities of unrestricted globalized free markets for the poorest nations. Here’s a representative sample of the criticism of WTO and globalization that had built by early 2001:
As for the so-called positive relationship between free trade and growth, the emerging consensus is laid out by Harvard Professor Dani Rodrik:

"Do lower trade barriers spur greater economic progress? The available studies reveal no systematic relationship between a country's average level of tariff and non-tariff barriers and its subsequent economic growth. If anything, the evidence for the 1990's indicates a positive relationship between import tariffs and economic growth.

“The only clear pattern is that countries dismantle their trade restrictions as they grow richer. This finding explains why today's rich countries, with few exceptions, embarked on modern economic growth behind protective barriers but now display low trade barriers."

In the face of such evidence, C. Fred Bergsten, the head of Washington's Institute of International Economics (IIE), a noted partisan of free trade and the WTO, now says that there "has to be an honest recognition and admission that [free market globalization] has costs and losers," [that] "globalization does increase income and social disparities within countries" and "does leave some countries and groups behind."
--March 2001, Walden Bello, Bangkok Post
Whether or not you agree with Bergsten’s conclusion, it represented the climate of opinion in 2001, which set the stage for the first Doha round.

However, the grand idea behind Doha did not go swimmingly well in actual practice. In fact, it went virtually nowhere except to generate a lot of paperwork and meetings and generally irritate everyone at the subsequent negotiation rounds. By the time of the Hong Kong Doha round in December 2005, the developing countries were in full-scale revolt.

At the conference they formed a coalition of the poorer countries (the Hong Kong 100, by now grown to 110) to demand the impossible: that the rich countries live up to the principle on which the Doha round was founded. The revolt was led by the more developed countries; specifically, India and Brazil, with China quietly egging them on.(1)

Now watch carefully; don’t blink: Because the Doha principle is unworkable, why go to war over it? Well, do we honestly expect India and China to sit up nights worrying about the plight of African governments that are so corrupt and inept that giving them more aid in any form is pouring money into a black hole?

And do we expect the trade ministers in the up-and-coming countries to go along with trade concessions to the LDCs that they didn’t receive when they joined the WTO?

To put it bluntly, staging a revolt was the only way to grind Doha to a halt and thus, hold onto trading advantages for the most productive developing countries. That is why the collapse of the next round of talks (last week in Geneva) was a foregone conclusion.

Indeed, India’s trade minister pronounced the talks a bust before they got underway. He even refused to be on time for the opening of the conference on the insulting excuse that he wanted to watch a World Cup game between Germany and Argentina. (Argentina’s trade rep showed up on time for the conference.)

Through such actions India’s government is saying that if the WTO is going to create laws that strong-arm the poorer countries into charity under the rubric of trade, India declares the trade talks –- and WTO -- a farce.

Here Pundita must pause to remind the na├»ve among our readers that of course India and the other productive developing countries do not come right out and say all that. How can they, without being perceived as – er, not terribly concerned about the world’s poorest? In lieu of bluntness they mounted a storm of protest that they knew would break against the iron will of the richest countries, thereby neatly collapsing Doha.

Professor Wade’s view clearly does not question the rationality of the Doha round; he seems to believe that what we really need is a round of talks with more teeth than Doha. So he does not question the concept on which Doha is founded, whereas Pundita does – and which I argue any reasonable person without a degree in economics should.

If one is tempted to laugh at the thought that trade laws could really be used as outright aid: realize that the same scoundrels dug in and around the United Nations are not playing when they call for the rich to completely turn out their pockets to the poor.

Calls are mounting to make the WTO more “democratic” in its decision-making process by establishing a parliamentary system of voting; indeed, the idea has had trouble getting off the ground only because of arguments that the rich countries at WTO would still have means to circumvent a parliamentary system of voting. (1)

The Jeffrey Sachs contingent wants the world’s poorest nations, which again I stress contribute 1% or less to world trade, to have as much say on trade matters as the world’s most productive nations.

That’s where things are heading; perhaps all that has saved us to this point from such madness is the common sense of the most productive developing countries. They don’t like being on a decision-making par with nations that are a bottomless pit for aid; neither should any sensible government negotiating trade deals.

1) For a very clear primer on the issues cited by the Hong Kong 100, see two articles at the BBC website; they're a 'must' read if you're trying to understand the current impasse at the trade talks and the larger issues pertaining to the Doha round:

POOR NATIONS UNITE AT TRADE TALKS and Key issues at the Hong Kong talks.

2) From Wikipedia:
While most international organisations operate on a one country, one vote or even a weighted voting basis, many WTO decisions, such as adopting agreements (and revisions to them) are officially determined by consensus of all member states. The advantage of consensus decision-making is that it encourages efforts to find the most widely acceptable decision.

Main disadvantages include large time requirements and many rounds of negotiation to develop a consensus decision, and the tendency for final agreements to use ambiguous language on contentious points that makes future interpretation of treaties difficult.

In reality, WTO negotiations proceed not by consensus of all members, but by a process of informal negotiations between small groups of countries. Such negotiations are often called "Green Room" negotiations (after the colour of the WTO Director-General's Office in Geneva), or "Mini-Ministerials", when they occur in other countries. These processes have been regularly criticised by many of the WTO's developing country members which are often totally excluded from the negotiations.

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