Supping at the WTO's Last Chance Saloon
European Voice, 27 March-2 April 2008, Editorial & Opinion, page 9.
The global credit squeeze has made the world's economics ministers understandably jittery. But the crisis unfolding over world trade is far more serious.
From the beginning, more than six years ago, the Doha Round of talks at the World Trade Organisation (WTO) has suffered from division and distrust.
Every deadline has been missed; negotiators have deadlocked over every key agenda item and media attention has moved on after too many hopes of an agreement were raised and then dashed.
Now the unthinkable could happen. The global trading system may be abandoned.
Talk of the "last chance saloon" for the WTO negotiations has become routine. But this time the deadline is real. If senior officials meeting in Geneva in April cannot agree on the outlines of a new agreement-and that is asking a lot-then the Doha Round will sink into a coma.
It can then be re-animated only once the new US administration is in place. And it will also require a new consensus among American interest groups and the granting by the new Congress of a new trade-negotiating authority for the executive.
That might, theoretically, take a year. But in reality it will probably take a lot longer-two, three, or more years. Agreement may have to be reached during a period of global economic slowdown, which will carry the risk of a general resort to protectionism.
French President Nicholas Sarkozy's drift in this direction suggests that the global trading system will be severely tested; it may even be tested to destruction.
During the last financial crisis, in East Asia in 1997-98, the WTO system held up well. But that was shortly after the successful conclusion of the Uruguay Round. In the decade since then, political support for trade has been eroded. At the same time, the growing list of issues now linked to trade policy-climate change being only the latest and trickiest-risks weighing down the agenda still further.
The danger is a slow withering of the WTO system, rather than an overnight collapse. If that happens, the result will be an upswing in protectionism, and in the discriminatory preferential trade agreements which have already done so much to undermine the WTO.
The EU and the US are most to blame. Neither has lived up to promises to rein in their heavily protected farm sectors. The US said it would cut agricultural protection and subsidies if the EU did the same. This gave a veto to European farmers, who had every incentive to make sure it did not happen.
It is time to refresh memories about the reasons the global trading system was created, after the hard lessons from the protectionist policies of the 1930s, to stimulate investment, marketing, and long-term business decisions. Public debate about trade is nowadays often negative, as the current Democratic presidential primary contest demonstrates. The WTO is seen as merely a way of accessing foreign markets. Imports are seen as something to be feared, rather than helping bring down prices and interest rates and to stimulate domestic competitiveness and productivity. Policymakers on both sides of the Atlantic should remind themselves that the real danger lies with sidelining a system on which the world's future prosperity, and with it our security, depends.
Joe Guinan, an economist at the Brussels office of the German Marshall Fund of the United States, is the co-author (with Hugh Corbet), of Time to Rethink the WTO System: The United States, the European Union, and World Trade, (www.gmfus.org/brusselsforum/2008/doc/GuinanWeb.pdf)