I've bumped today's post on crony capitalism until after the 4th. I want to start plowing into the debacle at the WTO trade talks. The stalemate at Geneva this past weekend gives signs of ringing down the curtain on the Doha round of trade talks, which started in November 2001. (For a look at various points of view on the failed talks see the next post.)
Pundita’s question is whether the Doha agenda is workable under any conditions. The agenda rests on the concept of using trade concessions to aid the development of the poorest countries (which contribute 1% or less to global trade).
Is this approach to aiding the LDCs a rational basis for trade deals between virtually all the world's countries? Today, only 15 small nations have no involvement with the World Trade Organization; all the rest belong to WTO, or have observer status there and/or are working on entry to the WTO).
Anger about perceived US and EU obstructionism over the issues of agricultural subsidies and tariffs diverts attention from the bald fact that the 'advanced' developing countries are not happy with WTO trade aid (which amounts to trade concessions) to the least developed countries. The concessions give the LDCs a big edge over the ADCs in trade with the most developed countries.
Those who see in the stalled WTO talks a further challenge to multilateralism are looking at things from 11 years ago, when the WTO evolved out of the old boy’s club called the International Trade Organization. Today, so many countries belong to WTO – each country representing for their own interests – that the sheer volume and complexity of trade issues forces many countries into bilateral agreements and regionalized trading blocs.
So where does this leave the Little Guys? Well, right now they’re mad as hell and not going to take it anymore. One hundred of the world’s developing nations staged a revolution at the WTO talks in Hong Kong in December. They refused to make any more tariff and subsidy compromises with the developed nations until the intention of the Doha round (trade aid) was honored.
The HK 100 again stuck to their guns at the Geneva talks this weekend; India’s lead trade negotiator walked out of the meeting and pronounced it a bust even before the conference got under way.
Robert Wade, professor of political economy at the London School of Economics and author of Governing the Market, hopes the Doha round is dead. He argues in today’s UK Guardian that the Nama agenda (which he explains in the following piece) has overrun the Doha agenda.
He’s right. But again, we need to look at the big picture of today’s trade negotiations before hoping a new, improved round of talks will rise from the ashes of the Doha round. First, though, we’ll look at where things stand from the professor’s point of view:
The Doha talks must fail for the sake of the world's poor
By Robert Wade
Monday July 3, 2006
"Forcing through very low tariffs on industry will not lead to a more even global distribution of income and wealth
"Among those who care about multilateral trade negotiations the air is thick with talk of crisis in the Doha trade round. Should we be crossing our fingers that agreement is reached around the sort of deal that the parties are negotiating? Pascal Lamy, the World Trade Organisation's director general, says that the price of "failure" would be high.
"The question is: high to whom? The price of failure to agree a deal within the current parameters would certainly be high for the developed countries; but it is not clear that it would be high for most developing countries. To simplify: developed countries have low tariffs on industrial and service imports and high tariffs (or other forms of protection) on agricultural imports. Developing countries have substantial tariffs on industrial and service imports and on some agricultural imports.
"In the Doha round, developed countries are saying to developing ones: "You must make cuts in industrial, service and agricultural tariffs, and then we will make cuts in our agricultural tariffs and other agricultural supports. This will give you better market access for your agricultural exports, in line with your comparative advantage; and we will get better market access for our industrial, service and agricultural exports."
"The developed countries are insistent that developing countries make big cuts in protection on non-agricultural imports, so much so as to yield the acronym Nama (non-agricultural market access). The developed countries are making a big push to get developing countries to accept Nama proposals.
"Most developing countries face serious dangers of de-industrialisation if they accept the basic terms of this negotiation. They risk becoming more specialised than at present in the production of primary commodities and simple, labour-intensive products, and even less diversified in the production of more complex, rich country goods.
"This may suit the collective interest of developed countries quite well, but it would be a bad result for the world. I take it as given that the world interest (at least of the human species) favours a more equal distribution of income and wealth. My argument is that faster, catch-up economic growth and industrialisation in developing countries is unlikely in conditions of free trade, for at least three reasons.
"First, virtually no country has managed to industrialise and become "advanced" without going through a stage of protecting new basic industries. As the domestic industrial sector became deeper the now-advanced countries liberalised their trade selectively and gradually.
"The colonies of these countries were forced to liberalise quickly and unselectively, and experienced rapid de-industrialisation. It is a general law of industrialisation that more advanced countries try to open the markets of less advanced ones to their products, claiming that doing so is good for all.
"Second, industrialisation in today's developing countries is unlikely in conditions of free trade because they will then tend to specialise in exports from their existing efficient industries and agricultures. Their further development depends on diversifying into higher value-added activities in which they are not presently efficient. Their diversification into new activities is unlikely without the use of industrial policy, including both tariffs and other forms of support.
"A recent study of 50 developing countries which 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.
"Third, the developed countries have tightened their protection of new technologies through the WTO's trade-related intellectual property (Trips) agreement, making it more difficult for developing countries to obtain advanced technologies than in the more permissive regime when today's advanced countries were developing.
"So the developing countries should strenuously resist the Nama agenda. They should push for rules that allow developing countries more latitude to set tariff levels in line with the maturity of their industries, and with variation rather than uniformity in tariffs across industries in line with differences in the time needed for upgrading. And they should push for relaxation of Trips.
"No one is saying that such trade rules guarantee success. Trade protection, like any powerful instrument, can be used well or it can be used badly as it has been in Latin America, India, New Zealand and elsewhere. On the other hand, we can be fairly sure that by forcing developing countries to move quickly to very low tariffs on industry, the Doha round, if it "succeeds", will push many developing countries towards de-industrialisation.
"In which case, better that it "fails". Then the newly assertive bloc of leading developing countries could take the initiative for a new trade round within more sensible parameters. So no crossed-fingers for the "success" of the Doha round."