Dark clouds over Doha

Nov 10th 2005
From The Economist Global Agenda

Trade negotiators have been forced to admit they are unlikely to reach substantial agreement at a supposedly crucial meeting in Hong Kong next month. The quest for liberalisation seems to be stalling everywhere, thanks largely to quarrels over sensitive areas like agriculture. But the Doha round is not dead yet

HARRY TRUMAN, an American president, wished for a one-handed economist, so that he wouldn’t have to endure advisers saying “On the one hand…but on the other hand…” These days, however, there is at least one thing about which almost all dismal scientists agree: cutting barriers to trade is good for all countries involved.

Yet outside of the world’s departments of economics, trade is one of the most bitter and contentious issues around. During the 1990s, when “globalisation” was still spoken of with affection, it seemed that the world was headed, slowly but inevitably, towards a liberal utopia where goods and services flowed seamlessly across borders. In the six years since world trade negotiations collapsed in Seattle, however, protectionism has staged a comeback. Though negotiators finally succeeded in launching an ambitious round of talks under the auspices of the World Trade Organisation (WTO) in Doha in 2001, the subsequent negotiations have been inching along at a glacial pace. Talks this week in Geneva, which were supposed to set the stage for the crucial ministerial meeting in Hong Kong next month, ended without progress on Wednesday November 9th, as negotiators announced they had been unable to come to agreement over agriculture.

Time is running out for the Doha round. George Bush’s hard-won “fast track” authority for trade talks, which forces Congress to vote on deals quickly and without amendment, will expire in mid-2007. By then, Mr Bush will be heading towards his final year in office, and Congress will be gearing up for the 2008 elections, making it extremely unlikely that he will be able to get fast track renewed—particularly considering the resurgence of protectionist sentiment, among both the public and politicians, since he took office. Without fast track, there is little hope of getting a deal on Doha done.

To its credit, the Bush administration has been pushing hard for trade liberalisation. Rob Portman, America’s trade representative, attempted to revitalise Doha last month by making a bold proposal on agricultural subsidies, which have been the main sticking point so far. Under the American plan, the highest tariffs would be cut by 90%, and the most trade-distorting subsidies by 60%. Though this was less than developing countries had been calling for, it was a big concession from a country where a single agricultural lobby, the sugar growers, nearly mustered the political muscle to kill off the Central America Free Trade Agreement (CAFTA) a few months ago.

But the European Union, where the common agricultural policy (CAP) accounts for nearly half of the budget, has dragged its feet. After much pressure, the EU’s trade commissioner, Peter Mandelson, made an offer to cut farm tariffs by an average of 39%. This offer not only fell well short of the American one but also contained loopholes big enough to drive a combine harvester through, including a provision to allow the EU to designate up to 8% of categories as “sensitive” products that would be granted special protection. A World Bank report released on Wednesday says that exempting even 2% of agricultural categories from reform in rich countries would destroy nearly all the benefits of liberalisation to developing countries.

And those benefits are large. The report estimates that abolishing all kinds of tariffs, subsidies and domestic-support systems would boost global wealth by nearly $300 billion per year by 2015—with almost two-thirds of that increase coming from cutting farm supports.

Agricultural subsidies are the most politically sensitive form of support; farmers are well-organised, and voters everywhere romanticise their increasingly distant pastoral past. As a result, previous rounds of liberalisation have skirted round the issue. This has denied many poor countries the benefits of freer trade, as rich-world farm protections have locked them out of the main markets where they have a comparative advantage. At WTO talks in Cancún in 2003, a group of developing countries led by Brazil and India brought the proceedings to a screeching halt by insisting that they would not discuss freeing trade in goods and services until they saw substantial progress on agriculture.

The group, known as the G20, has a point. As well as keeping poor countries out of lucrative export markets, rich-world farm supports encourage overproduction, which undercuts poor farmers in their domestic markets. While this is very nice for vegetable-buying urban workers, it can be devastating to rural communities.

But some European politicians, it seems, would rather spend billions on aid than allow poor-world farmers to sell attractively priced food to Europe’s consumers. Led by Jacques Chirac, the French president, they are blocking Mr Mandelson from sweetening his offer, claiming that he has already gone too far. Thanks largely to their efforts, the Geneva talks broke up with the glum recognition that it was unlikely that any substantial agreement could be reached in Hong Kong.

Mr Mandelson, whose hands seem to be tied, gamely tried to pin the blame for the setbacks on developing countries, saying they were unwilling to discuss opening their markets to goods and services in exchange for European concessions on agriculture. But in an interview with the New York Times, Celso Amorim, the Brazilian foreign minister, said that his country’s attempts to discuss such a quid pro quo had met with the cold shoulder. “What we heard yesterday…led me to the conclusion that [the Europeans] are setting the bar very high on industrial goods because they don’t even want to talk about agriculture.”

Nothing is better than something

Yet there is still hope for Doha. Negotiators are talking about using Hong Kong to set up talks in the spring, giving them time, just, to find enough common ground for a substantial agreement. This is disappointing, but not nearly as disappointing as it would have been if negotiators had simply scaled back the ambitions for the Doha round to the sorts of modest tinkering on which they could readily agree. Both the EU and the G20 have much to gain from a trade deal, which makes it possible that their brinkmanship will soften as the talks go down to the wire.

If Doha collapses, there will be bitter times ahead for free-traders the world over. Deeper regional trade integration has, like the WTO talks, fallen victim to voter backlash. While Congress passed CAFTA by the slimmest of margins, Mr Bush’s other big regional push, the Free Trade Area of the Americas, ran aground at a summit last weekend in Argentina, thanks to opposition from Latin America’s largest economies. And China’s booming export industries—its trade surplus hit a record $12 billion in October—have provoked harsh reactions in the EU and America. Both have slapped restrictive quotas on textile imports from China, and American politicians have been making loud noises about severe retaliation unless China lets its currency rise against the dollar (making its goods more expensive for American consumers). The quotas are temporary, but the sentiment behind them seems more enduring. Perhaps there is a reason why those economists are so often dismal.

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