Despite Doha Collapse, Free Trade Is Marching On

August 1, 2008 • Commentary
This article appeared in the Daily Telegraph, UK on August 1, 2008.

The Doha Round didn’t die this week in Geneva. It died five years ago in Cancun, when certain ministers determined that the negotiations would be more valuable as a stage to dazzle domestic audiences than as a means to an agreement. This week finally provided that clarity.

Although a successful Doha conclusion would have been welcome — if for nothing more than reaffirming nations’ commitments to the rules‐​based system and justifying seven years of time and expense — the Round’s failure is not a big economic setback. Ironically, it could be the catalyst for further reforms and greater trade flows.

Since 2001, as negotiators toiled in Geneva, Brussels, and Washington (or watched football in New Dehli), the world economy seems to have gotten on just fine. Trade flows increased by 70 per cent and the global economy grew by 30 percent in real terms to $55 trillion.

Much of that growth can be attributed to the emergence of previously‐​slumbering economies, many of which were energised by domestic reforms, including tariff reductions and improvements to customs and other border clearance procedures.

Economists at the World Bank believe these “trade facilitation” reforms could yield greater gains than further tariff liberalisation would.

Tariffs are trade barriers, but so are bureaucratic red tape, logistics bottlenecks, and customs corruption. Reforms in these areas are already paying dividends for countries rich and poor, but there is scope for greater improvement still.

If the United States were able to reduce its import and export clearance procedure time by one day each, annual US trade would be expected to increase by about $30 billion. That’s 50 per cent more annual trade than is attributed to the pending US‐​South Korea agreement.

Contrary to the mercantilist rhetoric of reciprocity, trade liberalisation is first and foremost a matter of domestic reform. That is why unilateral reforms have accounted for a greater share of trade liberalisation than have reciprocal agreements during the past quarter century.

Americans and Europeans don’t need incentives from foreigners to abandon agricultural subsidies and barriers, and Indians and Chinese don’t need pressure from the West to allow foreign banks and telecommunications companies to operate freely in their countries. The pressure to do the right thing will comes from within.

In a globalised economy charactersed by transnational production processes and just in time supply chains, where countries are competing for investment and talent as much as they are for markets, there is little choice but to liberalise. Remove the pretense of reciprocity and the liberalisation will continue.

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