GMF - The German Marshall Fund of the United States - Strengthening Transatlantic Cooperation

It ought to be good news that the current round of WTO trade negotiations is finally getting serious. The world needs an example of international cooperation to cheer about.

Ever since the repeal of the corn laws, most economists have agreed that trade barriers are a bad thing and that freer trade promotes economic growth. Add in the idea of making trade a tool for poverty reduction in the global south, and the current Doha ‘development’ round looked like a promising model for international solidarity in the 21st century. So why have we had to wait four years for things to get going, and why are so many people depressed about the likely outcome?

Each round of trade negotiations has taken longer to complete than the previous one. This is because each round increases both the number of member countries at the negotiating table and the number of issues up for discussion. The rule that every member has to agree every part of the deal makes it inevitable that ever more time is needed. The previous Uruguay round lasted almost eight years and we have just begun year five of the Doha round. While many have seen it in their interest to spin next month’s Hong Kong ministerial summit as ‘make or break’, in reality there is still a long way to go and a final agreement is extremely unlikely before the end of 2007.

Most agree that the round badly needs progress in agriculture, the sector that retains the greatest barriers to trade and that is most important for developing countries. Things recently got moving when the US tabled an offer to cut its farm subsidies by an impressive amount if the EU followed suit. Peter Mandelson, who as Trade Commissioner negotiates on behalf of all 25 EU member states, responded with an offer that did not quite match the US but was sufficiently ambitious to anger France and other countries that benefit disproportionately from the generous farm subsidies. These offers are in addition to an agreement to end agricultural export dumping which the US and EU agreed last year.

There is now enough on the table for the Hong Kong summit to go ahead, but the small print of each offer leaves ample wiggle room to preserve heavily subsidised European and American farms. What is more, the US offer is conditional on getting access to new markets for its farm exports while the EU offer is conditional on larger developing countries like India opening up their markets for Europe’s manufactured products and services. We are witnessing the hard reality: whatever the rhetoric of political leaders, when it comes down to it, their trade negotiators are not natural altruists. Idealists are right to be disappointed that the round has only been revived by key negotiators reverting to the tried and tested mercantilism of each country pursuing its own interests.

It is also becoming clear that, despite a moment in the sun at Cancún in 2003, smaller developing countries are now being eclipsed by the latest transatlantic pas de deux and aggressive, low-cost agricultural exporters like Brazil, Australia and Thailand. Large, middle-income Brazil in particular has developed a muscular approach to the WTO which mirrors the enviable farm productivity that has made it the world’s rising agricultural superpower.

The smaller, less competitive developing countries, mainly in Africa, are right to be worried. Every across-the-board reduction in EU and US market access reduces the value of the preferential access many of these countries currently enjoy. In addition, the public finances of many poor countries are heavily reliant on income from tariffs so trade liberalisation requires restructuring the domestic tax system – not an easy task for countries where corruption is endemic and there are not enough doctors and teachers, let alone civil servants and tax collectors. These countries need basic things like roads with tarmac and capital for investment before they will be able to compete in an open world economy.

Ever since the rioting at Seattle in 1999 placed the WTO on the front pages, politicians have found it harder to delegate to negotiators in Geneva the necessary authority to move things forward in the long months that pass between ministerial summits. Trade-related job losses give a sharp economic edge to the threat that globalisation presents to cultural identities, and politicians know that they will be far more heavily punished for trade-related layoffs than they are for redundancies resulting from other causes such as technological change. Trade is a political minefield. Peter Mandelson discovered this during the ‘bra wars’ when his well-motivated attempt to avert job losses in French textile factories in the run up to the referendum on the new EU constitution backfired spectacularly. Meanwhile, the US administration had to deploy major league arm-twisting and palm-greasing to secure the passage through Congress of a relatively innocuous trade agreement with six economic minnows in Central America, a fact that raises doubts about President Bush’s offer to scrap all farm subsidies if others did the same.

Despite its shortcomings, there is just about enough that is worthwhile in the Doha Round for it to roll on into 2006 and beyond. However, it is looking ever more like a regular trade round. Hopes that trade can be made to work for development are now largely dependent upon interventions and resources outside of the WTO negotiations, such as substantial funds to build the trading capacity of the poorest developing country economies. Those cynics who, at the launch of the round, sounded a discordant concern that the ‘development’ tag would only raise unrealistic expectations are looking wiser by the day.

Jack Thurston is a fellow of the German Marshall Fund of the US.