Towards a Better Deal
The crash of the World Trade Organization (WTO) talks was greeted with muted cheers by some protected farmers in wealthy countries, some even buying new tractors to celebrate yet another failure to produce a more efficient and just global marketplace.
But sadly there was not much grief on any negotiating team, as most countries seemed to believe there was 'nothing on the table' for which to mourn.
Yet much will be lost unless negotiators, heads of state, NGOs and others use this 'pause' to do three things: first, consolidate the real gains made in terms of moving the globe toward a fairer trading system; second, strengthen what a new trade agreement could bring for the poorest countries; and third, develop national plans to change the basis on which subsidies are given to farmers, making the payments less market distorting and more politically feasible.
The deal that the G6 (USA, EU, Japan, Brazil, India and Australia) dropped because of disagreements over agriculture contained important reforms that should not be lost. A completed deal could have brought a long-sought end to agricultural export subsidies and disciplined other trade-distorting farm subsidies, thereby helping developing-country exporters. And it could have helped reform industrial and agricultural market access barriers, an area where the bulk of the gains from trade liberalization lie. These two possibilities alone make a resurrection of the negotiations worthwhile.
While the deal under discussion would not have spurred significant growth in the poorest economies – the intended beneficiaries of this 'Development Round' – with small adjustments it could have given the poorest countries a helpful shove.
A study completed last month by the International Food Policy Research Institute (IFPRI) * showed that a deal similar to that being discussed could create global gains of around US$ 54 billion a year. High-income countries, which account for about 80% of world income currently, would get almost 60%; middle-income countries, with almost 20%, would get about 40%; and low-income countries (only 1.2% of world income) would see a mere 1.9% of the gains.
But with some revisions two of the proposals already on the table could significantly boost gains for the very poor. The first would exempt from duties and quotas 100% of the exports from the least developed countries to the richest countries, instead of the 97% on offer. This would increase annual benefits from US$ 54 billion to US$ 69 billion, with nearly half of that gain going to low-income countries, because many of the products rich countries exclude from tariff and duty free status include clothing, footwear and agricultural products, the very products that poor countries are able to sell.
The farm lobby claims these tariffs are meant to protect workers! But the cost of protecting jobs in uncompetitive sectors through tariffs is foolishly high, with few benefits actually accruing to workers. In the United States, the Federal Reserve Bank of Dallas reported that saving a job in the sugar industry costs US consumers US$ 826,000 in higher prices annually. Meanwhile, many jobs in candy manufacturing move overseas to avoid paying for overpriced US sugar.
Negotiators would be well advised to use this pause in the trade talks to persuade their governments that more effort is needed to help people who will be hurt by subsidy reforms to adjust.
The poorest countries could also benefit from the proposed financing for "Aid for Trade", helping them take advantage of new market-access openings. WTO Director General Pascal Lamy had obtained US$ 4 billion in commitments from the donors to support this proposed expansion of trade-related development assistance. If this commitment is allowed to perish, that will be sad indeed.
The Doha Round is now in limbo. But that is not an excuse for Washington and Brussels to avoid taking some small but immediate steps on the "development package" that could make a real difference for the world's poorest countries. In this way, they can begin the work of rebuilding toward a trade agreement that will allow the other 90 percent of humanity access to the same opportunities they had to generate their own unprecedented wealth.
Susan Sechler is U.S. Director of the Trade & Development Program for the German Marshall Fund and Ann Tutwiler is Managing Director of Trade and Development at the Hewlett Foundation.
* See Antoine Bouët, Simon Mevel and David Orden, Two Opportunities to Deliver on the Doha Development Pledge, IFPRI Research Brief No. 6, July 2006.