Between Rhetoric and Results

Stephen DeAngelis

July 3, 2006

Yesterday’s Washington Post announced the collapse of trade talks that began nearly 5 years ago in Doha, Qatar [“Trade Ministers Give Up on Compromise,” by Paul Blustein]. For anyone who believes that “shrinking the Gap,” as Tom Barnett likes to put it, is an important grand strategic aim, this collapse is distressing. The surest path to peace and prosperity is getting all nations to play by the same rules. The Cold War, which had two competing blocs each playing by a different set of rules, demonstrated that such international dysfunctionality is bad for everyone. “Playing by the same rules” doesn’t mean everyone’s economy must be identical. Look at the NFL. Teams all play by the same rules but some teams are built for the running game, some for a passing game, and some stress defense over offense. Without rules, however, there is chaos and confusion and little sustainable development.

 

That is what’s so troubling about the collapse of the Doha round. It undermines the World Trade Organization, one of the rule makers; it encourages those who want to isolate large chunks of the world from globalization; and it makes developed nations’ statements about helping the developing world look more like rhetoric than a plan of action.

“There is no need to pretend that this has not been a failure,” said Kamal Nath, India’s commerce and industry minister. He spoke at a news conference of representatives from developing countries, many of whom blamed the United States for making what they called unreasonable demands on them to open their markets. … Seasoned trade diplomats expressed skepticism about the chances for a deal because the gaps are so wide and the negotiating positions are so rigid. Inability to reach a compromise this month would almost surely doom chances for completing the Doha round before new political problems complicate the task even further — prime among them the looming expiration of President Bush’s authority to negotiate trade agreements.

The U.S. makes an easy target, but there is plenty of blame to go around. The article discusses the crux of the problem:

Because poor countries typically depend heavily on agriculture, the chief issues include lowering tariffs and quotas that limit their ability to export their farm products, and curbing billions of dollars in subsidies that rich nations pay to their farmers. Such subsidies can lead to overproduction of crops and gluts on world markets that depress prices for farmers in poor countries. The Bush administration views the round as a prime opportunity to gain new markets for U.S. exporters, especially farmers. It has insisted that other countries with high farm tariffs cut them drastically, in exchange for which the United States would reduce its farm subsidies by more than half. That would benefit poor countries, according to U.S. officials, who cite studies by the World Bank and other institutions showing that the biggest gains the round could bestow on the poor would come from lower barriers to agricultural trade. But officials of many developing countries rebelled against that view of development at this weekend’s meeting. Repeatedly emphasizing their “solidarity” and “unity” at a news conference, ministers from Africa, Latin America and Asia said that while they wanted barriers in rich countries lowered, they had to maintain many of their own high duties. Their farmers, who often operate at near-subsistence levels, need shelter from foreign competition, they said.

An article in today’s Washington Post [“Growers Reap Benefits Even in Good Years,” by Dan Morgan, Sarah Cohen and Gilbert M. Gaul] underscores that the challenge. A column in the 26 June 2006 edition of the New York Times by Susan Sechler and Ann Tutwiler [“Trading Up”] indicated the negotiators were closer than any of them are willing to admit.

A study completed this month by the International Food Policy Research Institute argues that, with two modest changes, the deal on the table in Geneva could bring about greater global economic growth and greater benefits for poor countries. The United States and Europe oppose these changes. But instead of defending narrow commercial interests at exorbitant expense, they should embrace this opportunity to advance their larger strategic goals of promoting prosperity and stability among the world’s poorest nations.

It is easy to lose track of grand strategy in an election year, especially when the country has yet to congeal behind any one vision of the world. Tom and I are still in the selling stage of Development-in-a-Box™ because there has been neither a national debate nor a consensus about the direction the country should take over the next half decade. Sechler and Tutwiler note that the International Food Policy Research Institute study indicates that two adjustments to the rejected deal currently on the table would make a huge difference to the developing world.

The first was to exempt from duties and quotas all exports from the least developed countries to the richest countries. If such exports were exempted, the benefits from the deal increase to $70 billion — with nearly half of that gain going to the poorest countries. The United States is justifiably proud that with an average applied tariff rate of 1.4 percent (in 2005), our economy is among the most open. But Washington wants still to exclude various items of clothing, footwear and agricultural products — the very products that poor countries have to sell — from any big cuts in duties, even for the poorest countries. The United States fears a surge of textile imports from places like Bangladesh and Cambodia. But isn’t that the very point of a development round? American politicians will argue that these protections are needed so that American workers are not asked to bear the brunt of bringing the world’s poor into global markets. But the cost of protecting jobs in uncompetitive sectors through tariffs is foolishly high, with little of the benefits accruing to workers. The Federal Reserve Bank of Dallas reported in 2002 that saving a job in the sugar industry cost American consumers $826,000 in higher prices a year, saving a dairy industry job cost $685,000 per year and saving a job in the manufacturing of women’s handbags cost $263,000. Wouldn’t these workers choose not to hold an insecure job for another year or two if they had the option instead of getting more education and more training, which would enable them to find work in a growth industry, or health care, retirement and even a college education for their children? The second change proposed by the International Food Policy Research Institute lowers the percentage of ”sensitive and special” agricultural products that can carry high tariffs from 5 percent to 1 percent. This modification increases world income by $7.5 billion beyond the $54 billion. Because it applies to all countries, the benefits of this change are spread more evenly. But such a step would be particularly good for developing countries like Thailand, Vietnam and Zimbabwe for which agriculture is an important source of export revenue. Here Europe and Japan are fighting the change; they originally pushed for exemptions on 8 percent and 15 percent respectively of agricultural products.

I know these are emotional topics. Every job loss affects a real family. But there are families on both sides and we are in a position to help both families if we put our hearts and minds to the task.

By not showing more altruistic leadership in the trade talks, the United States and Europe are in serious danger of missing the chance to lead the world closer to a rules-based global system of markets, trade and finance built on the democratic norms and values both continents profess to support. And in particular, the United States is forgoing an opportunity to restore some luster to its public image overseas. But making the trade deal truly benefit the world’s poorest is not simply an act of charity or a public relations gesture. The extra increase in market potential could also enable the poorest countries to attract more investment in roads, ports and training, helping their businesses to grow and opening more opportunities for American and European companies. That’s why two weeks ago more than 200 leading American companies, business associations and organizations sent a letter urging American trade negotiators not to accept a ”Doha-lite” agreement.

Sechler and Tutwiler make strong points, both economically and ethically. Although it may be too late, I’d like to add my voice to those calling for the negotiations to continue. There is a lot at stake.