Desperate days for Doha

28.07.08 Publication:

This week, on the shores of Lake Geneva, a meeting has been taking place that could determine whether globalization continues to make progress or whether restrictions against trade and cross-border investment begin to be rebuilt. This assembly of trade ministers from 30 member countries of the World Trade Organisation (WTO) has attracted little interest from the media. Yet it is in desperate need of political support. Over the weekend of July 26th and 27th, the WTO came extremely close to an agreement. But without support and follow-up, this could all still fall apart.

 If the agreement does collapse, the whole system of “rules-based trade”, much celebrated by Italy’s finance minister, Giulio Tremonti, in his anti-globalisation book “Fear and Hope”, will be put at risk. Tremonti, like other critics of supposedly unfair competition from emerging economies such as China, claim not to be against free trade as such but rather to be campaigning for “rules-based trade” rather than the law of the jungle. This argument and choice of language has replaced to the old American trade-bashers’ claim of being in favour of “fair trade” rather than just “free trade”.

But this also illustrates the irony of contemporary, especially European, skepticism about globalization: that the worries expressed by influential leaders such as Mr Tremonti are in fact best addressed by the very symbol of globalization itself, the WTO. It is both proponent of globalization and protector of fairness. Without the WTO, the law of the jungle would be all that we would have—or, rather, we would have trade regulated simply by a lot of national rules and restrictions, as we did before the General Agreement on Tariffs and Trade began the post-war task of trying to introduce settled international rules for commerce.

                Trade is the most important aspect of political economy, for it is what has brought us prosperity as well as the choice and diversity which brings so much depth and richness to modern life. It also helps preserve peace by raising the economic costs to anyone of attempting war. Yet it is also the most boring topic in political economy, for although its principles have been thought up by economists its practical workings have been taken over by lawyers. The combination is deadly. No one wants to hear about anti-dumping rules, about binding ceilings on industrial tariffs,  about the proper level of subsidies for sugar beet production or about the “most-favoured nation” principle.

                That is why there is so little media interest in this week’s latest effort to bring a conclusion to what is called the “Doha Development Round” of trade-liberalisation talks that were launched in 2001. Even that name is a turn-off, despite the fact that it was chosen in the hope of associating the WTO with the more exciting and inspiring aim of reducing poverty in the developing countries of Africa and elsewhere.

                Yet if it is so boring, why did President Nicolas Sarkozy of France accuse the European Union’s trade commissioner, Peter Mandelson, of having been responsible for the rejection in Ireland’s referendum of the EU’s constitutional treaty? The British commissioner, despite his nickname back home as “the prince of darkness”, in fact has to work in the bright spotlight shone by the EU’s 27 member states, never offering trade concessions that go beyond his mandate. Yet President Sarkozy thought it politically advantageous to pretend that Mr Mandelson had offered to his Doha negotiating counterparties something daring and outrageous, to the detriment of European farmers, which had in turn persuaded the Irish to turn down the Lisbon treaty.

                The truth is that he has not. Under tight control by the European Council of Ministers, Mr Mandelson has offered to make modest reductions in the subsidies given to European farmers and an overall 60% reduction in farm tariffs, in return for modest reductions in the tariff and regulatory barriers imposed on industrial goods imports by fast-growing developing countries such as Brazil, China and India. The United States has also offered cuts in its farm-subsidy programme, though the rise in food prices that has taken place in the past year makes those offers rather unimportant, at least in the short term, for high prices have made many American and European subsidies unnecessary. Developing countries, including India, Brazil and others, have offered modest cuts in their barriers against trade in industrial goods.

                The deal being argued over is not dramatic. It would be useful but not revolutionary. That is a disappointment to many of its early advocates, but it would still be worth settling, getting the agreement in the bank, so that in future efforts may be made to achieve more ambitious goals. Nevertheless, the Doha deal may still face political problems in many countries.

Despite winning its vote of no confidence this week, India’s government will still face general elections by next May in which trade concessions will simply add to the unpopularity with which the UPA coalition has to face the campaign. The Bush administration, meanwhile, has lost the power to make trade deals without fear of Congressional amendments, which will make ratification of any such deal in America even more difficult than it would anyway have been.

                Those difficulties, placed against the quite modest nature of the Doha Round’s achievement, are what make it important that these concluding negotiations are given strong political support. If the trade ministers’ political backers sound reluctant, then they too will feel impelled to resist signing up to a deal. The risk is that the whole process of agreeing upon rules for trade in this multilateral body could be discredited and, in the near future, ignored.

The WTO is inherently boring. But our prosperity depends on it being able to continue its boring, technical work without threat of being circumvented or undermined by big countries deciding that they might as well set their own rules. Big countries such as the United States under a new Democratic administration, or China. If that happens, then the danger is that trade policy might become too exciting for comfort.