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Setback at WTO, everyone is a loser

Apart from the recent failure, the dim prospect of resumed talks raises concerns all round

THE TRACK record of the Doha round of trade talks suggested that a breakthough depended almost entirely on far-sighted statesmanship on the part of those at the helm in the principal trading countries. Not that these countries as well as other members of the 149-nation strong WTO were unaware of the economic gains from a multilateral trade agreement. A successful conclusion of the Doha round would have created an estimated $300 billion of wealth and pulled millions of people out of poverty.

Such estimates may be and have been challenged on the ground that they exaggerate the benefits but a general consensus among WTO members has been in favour of a multilateral trade arrangement precisely because it is capable of delivering maximum returns from global trade and more importantly under a just, legal framework.

The latter gain, one of the understated achievements of the WTO, has been of tremendous consequence to the orderly conduct of trade. The WTO's disputes settlement mechanism has brought the rule of law to world trade.

Saddening stalemate

If the gains from multilateral trade are well recognised, the paths towards a satisfactory agreement are elusive. This message is obvious from the recent hurdles in the Doha round. Last week, when trade negotiators from the six major trading blocs /countries — the EU, the U.S., India, Australia, Brazil and Japan — ended their meeting at Geneva amidst mutual acrimony, reactions from across the globe bordered on hopelessness. It is saddening that more than five years of serious negotiations, including several informal meetings among the principal trading partners, should grind to a nought. As much as the immediate failure to achieve any breakthrough, the inability to foresee a resumption of talks has raised concerns all round.

In that sense the latest failure has an air of finality about it. Previous meets, including more formal ones such as the Hong Kong Ministerial, did not achieve much. But even while they disappointed, they seemed to reenergise the talks and committed negotiators to meet even more stringent timetables. However, successive failures and missing of deadlines lengthened the odds and cast a heavy burden on the negotiators at the last G-6 meeting.

There was a ray of hope in the form of an exhortation by the G-8 countries at St. Petersburg the previous week. But nothing came of it.

End of WTO?

No wonder many see in the latest failures the collapse of the Doha round. Others have gone further and said that the future of the institution of the decade-old WTO itself is undermined. Such judgments seem to fit into the prevailing mood of despondency though they may be premature. After all no country has backed out of the trade talks completely. And all have expressed their in-principle support to multilateralism.

The difficulty is that political agendas of countries, always a potent factor, will decide, more than ever before, efforts to salvage the talks. The rationale for working out the modalities on agriculture and industrial goods (basically detailed formulae to reduce tariffs and subsidies) before July end was to enable lawyers and other experts to build on an agreement before the end of 2006.

The important deadline (which everyone now admits cannot be met) will be in mid-July 2007 when the U.S. President's fast track authority to approve trade deals expires. Besides, after the November mid-term elections in the U.S., there is a real possibility that in the new Congress more legislators will support protectionism and in general oppose the principles of free trade.

Even to begin with, trade ministers and other negotiators have an unenviable task. Any "concession" that they may offer is bound to hurt important, well entrenched domestic constituencies. The quantifiable benefits will take time to accrue, though to wider sections. It is highly unlikely that those in charge of negotiations today will be in power by the time the results of free trade are seen.

The guiding principle has been to trade market access in one country for access in another country. But opening of domestic markets by countries such as India is fraught with much greater risk and very little economic sense especially in farm products.

After the recent suspension of talks, many experts have blamed farmers' lobbies in the EU, the U.S. as well as in developing countries such as India for the failure. Agriculture is heavily subsidised in the developed world, the extent of subsidy being as high as $1 billion a day in the U.S. and the EU. Besides, the EU is accused of having unacceptably high tariff barriers to farm produce imports.

In the words of WTO Director-General Pascal Lamy, a triangle of issues will have to be resolved: the U.S. will have to agree to a deeper cut in its domestic farm support; the EU to increased market access (by lowering tariffs) and developing countries to a lowering of industrial tariff.

U.S. stand blamed

Obviously, none of these has happened, not in a way that will satisfy the sensibilities of all the three groupings — the U.S., the EU and advanced "developing" countries such as India. But it is the stand of the U.S. that has received the maximum flak. Its failure to lower its domestic support to agriculture has been held to be the single important reason for the failure.

As is to be expected, it is the poorer countries that stand to suffer the most from the failure. They will not be able to compete with their agricultural goods as the richer countries continue to lend large support to their farmers and maintain tariffs. The developed countries too suffer: a further liberalisation of trade in services and manufactured goods can only benefit them. Global trade may be the ultimate loser.

There is ample evidence to show that it grows in a freer environment. A setback to multilateral trade as visualised in the Doha round means that the disputes settlement mechanism of the WTO may be overburdened as individual countries engage in "tit for tat" policies" rather than abide by the rules of fair trade that should have been in place.

C. R. L. NARASIMHAN

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