We can expect the usual finger-pointing as World Trade Organization (WTO) members come to grips with the collapse of the perennially struggling Doha round of trade talks.
Members and trade observers went through a roller-coaster ride of imminent success and imminent failure many times during the nine-day meeting in Geneva that was called in a last-ditch effort to finalize the round. But after some hope of a deal on July 25, as 30 trade ministers agreed on a broad outline of cuts to agricultural and manufacturing tariffs and subsidies, the final blow came from the failure of seven major trading nations to agree on special protections for a limited number of farm goods.
The danger now is that the WTO will become just a meeting venue and treaty custodian…
At the beginning of the week, it looked as though the United States was the key obstacle to securing agreement. Washington had offered to reduce the amount of trade-distorting farm support from the present annual cap of about $48 billion to $15 billion (later reduced to $14.5 billion), but other members dismissed that offer as insufficient given price-support and subsidy outlays of a projected $9 billion over the next few years. Moreover, the offer came with quite a string attached: an assurance from other WTO members of no legal action if those subsidies hurt other countries.
As it happens, the U.S. offer was the last headline-grabbing move by any of the parties involved in the talks. After that offer was made early in the week, talks degenerated with an unhelpful stance by Indian Commerce Minister Kamal Nath on the ability of India to shield its farmers from import surges. Further intransigence followed from China, which expressed a belief that it had cut its own tariffs by more than enough when it joined the WTO.
We can expect more dueling-by-press release over the coming days as countries seek to avoid blame for the collapse of the round, while also seeking political capital at home for taking a “firm stance” in support of a misguided notion of national interest.
Although consumers who would have benefited from lower taxes on imported food, clothes, and automobiles have been dealt a blow, some special interests will no doubt be breathing a sigh of relief. Farmers in rich countries, who jealously guard their subsidies despite overwhelming evidence of economic damage at home and abroad, will be delighted that their special protections remain intact for the foreseeable future. Carmakers, too, can take comfort behind tariff walls that add thousands of dollars to the cost of a car.
Service providers and other exporters in the United States, however, have just lost their best immediate opportunity to expand abroad, especially into fast-growing developing countries. Farmers in those developing nations, many of whom are very poor, will also suffer from today’s collapse.
The danger now is that the WTO will become just a meeting venue and treaty custodian, or, worse still, a quasi-international court that risks irking members into withdrawing from the organization. A litigation body without the constant promise of further negotiated reductions in trade barriers and subsidies would expose the WTO to further weakening.
While the present reality of globalized trading with international supply chains means we are unlikely to return to the trade-war era of the 1930s, a successful Doha round would have cemented the progress made since those dark days.
Of course, a deal was always a stretch considering the antitrade mood in the U.S. Congress — a mood unlikely to be improved by the national elections in November. The 2006 congressional elections saw many pro-trade members replaced with outspoken trade skeptics, and with the economy slowing down and much-publicized malaise sweeping the nation, that trend looks set to continue. As testament to the power of the U.S. farm lobby, Congress was unlikely to agree to the type of deal that looked set to come out of Geneva this week.
But it would have been nice to produce an agreement, if only to send the message that — go figure — trade ministers understand the inherent value of trade.