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The end of the WTO?
July 30, 2008
Not with a bang but with a whimper. The failure of the latest efforts to revive the Doha Round hardly came as a surprise; the fact that farming (what else?) was the sticking point was not exactly shocking either. And you could argue that little was immediately at stake. The talks were partly about tariff and subsidy limits, as opposed to tariffs and subsidies actually in place (these are typically well inside their WTO bindings). The breakdown does leave the system more vulnerable to future setbacks, but no great imminent surge of trade will be blocked because of it.
The dispiriting thing is that the talks could founder over the refusal to compromise, when the costs of compromise were indeed so low. (The political costs, I mean. When a country binds itself not to resort to protection, the economic costs are not just low but negative.) Governments no longer judge a successful Doha Round to be capable of delivering them a net political gain. Since that was the reason for the WTO in the first place, the game appears to be up.
Multilateral trade liberalisation brought the world an awfully long way after 1945, but that era has come to an end. The trade-reform agenda is unfinished–especially in the developing world–but future progress, if any, will come from unilateral unreciprocated liberalisation, or from discriminatory bilateral (or plurilateral) agreements, or some blend of the two. There has been a lot of the first lately, which is good. The danger lies with the second. It is a trend that the United States pioneered with its proliferating (until recently) regional FTAs. A rationale often offered for that approach was that regional FTAs were building blocks for broader multilateral liberalisation, with the WTO presiding over the subsequent assembly. Sceptics said no: regional FTAs would complicate the system and create frictions that would make broader trade reform more, not less, difficult. I’d say the sceptics have been proven right.
The FTA tendency is capable, given an enfeebled WTO, of eventually unwinding some of what has been achieved over the past half-century. (On this, see Jagdish Bhagwati’s new book.) If a growing China, India and Brazil follow the US example and use their muscle to develop their own hub-and-spoke networks of trade preference, the eventual costs in forgone trade and income could be great. The logic of trade protection never sleeps.
That farming should be the reason for the collapse of the DOHA Round is surely unsurprising when now over half the world’s population lives in cities. But the importance and virtue of pursuing freer trade, and not just given the current energy and commodity inflation and financial turbulence At the micro level, whether firms or governments, all develop preferential trading partners because most trade deals are long term contracts. Only a very small % of trade is truly competitively “free” at any moment in time, perhaps only 10% or less. Today, few would argue that currency and market price volatilities, tax efficiency, licenses, long term contracts, FDI flows, and transfer-pricing variously outmanouevre import tarifs and quotas. DOHA is a dispute between simple trade liberalisation and those who seek a more complex and economically sensitive system. The general objective should be to help the poorest GDP per capita countries including China and India to broaden and deepen their domestic demand economies to generate and retain more investment locally as well as bring severe trade imbalances, surpluses or deficits, into closer balance at higher per capita real GDP. If a WTO system cannot be designed that is more timing sensitive to each country’s needs in this regard, then we have only one choice, to return to a situation in which the USA again acts as the aggregate engine of world economic growth - not a likely prospect anytime soon!
Posted by: Robert McDowell (Banking Economist) | July 30th, 2008 at 5:49 pm | Report this commentAgriculture has been more often than not the ’spoiler’ in the GATT/WTO liberalisation rounds. Nothing new here. It is essentially the realisation that the contrary to the rhetoric of the rich country liberalisers, political power rules when time comes to practice open trade. That is partly why rich countries could pretend to be generous on ‘tropical products’, sleight-of handing these agriculture into a cul de sac, and then escalating and peaking tariffs that still continue, or using rules of origin as protective devices. Your comment shows a sensitivity that is not often read in the ‘mainstream press’, except of course the erudite columns of Messsrs samuel Brittain and Martin Wolf. Mr. Bhagwati overstates the ‘termite’ bit. He should continue to rail against the far more pernicious intellectual property monopolies and protectionism of the TRIPS and the illogical restrictions on the now ‘commoditised’ labour services. This ‘globalisation’ has made even virtual ‘things’, ‘commodities’ and erased the distinction between factors of production and goods for consumption, and turned ‘comparative advantage’ into a parlour game of ‘competitive advantage’ and win-win- and win again, if you add the ‘environment’. You are quite right. Too many ‘political’ types negotiating trade opening, too few principled pragmatists as in the original GATT. We have now the masters of the mangled metaphors.
Posted by: kgahill | July 30th, 2008 at 8:32 pm | Report this comment[…] Crook in his Financial Times blog comments on the failure of the WTO talks in Geneva. He takes a pessimistic view on the future for […]
Posted by: The ‘usual suspects’ triumph in Geneva « The Inquiring Mind | July 31st, 2008 at 11:35 am | Report this commentRobert McDowell correctly points out that domestic demand in the poorest per capita GDP countries, including China and India, should be broadened and deepened, to generate and retain more investment locally as well as to bring severe trade imbalances, surpluses or deficits, into closer balance.
Linking internationally agreed trade liberalisation to internationally enforceable labour rights would be a step in that direction, helping workers to organise and thereby obtain their fair share of the economic gains from trade.
This has at least been recognised in many bilateral or plurilateral trade agreements. That such a linkage remains a taboo at the WTO is one reason for its lack of support in public opinion, and the public’s indifference or hostility towards multilateral trade negotiations.
Posted by: Edward S | July 31st, 2008 at 4:15 pm | Report this comment