SPEAKING
FREELY Put a fork in the Doha
Round By Peter Morici
Speaking Freely is an Asia Times
Online feature that allows guest writers to have
their say. Please click hereif you are interested in
contributing.
The Doha Round of
World Trade Organization negotiations is in
desperate straits. US President George W Bush and
his new trade chief, Susan Schwab, have made clear
their determination to accomplish an agreement,
and advocates of genuinely open trade should be
frightened by that prospect.
Supposedly, a
grand bargain is on the table. Developing
countries would cut their prohibitively high
tariffs on manufactured goods, and reduce
regulatory barriers to US and European Union
exports
of
high-end services in finance and technology-driven
activities. In return, developing countries, led
by India and Brazil, want the Americans and
Europeans to slash agriculture subsidies, tariffs
and quotas.
Throughout the world,
agriculture is irrationally protected, and
liberalizing this sector offers great potential
trade benefits for poorer countries. While the EU
Common Agricultural Policy receives a great deal
of attention, China also manages to keep at least
150 million surplus workers on the farm, and the
Bush administration openly acknowledges that US
farm-subsidy programs bestow the most benefits to
a relative handful of politically savvy farmers.
Anxious to reduce the federal deficit, the
Bush administration has tabled a generous offer to
cut crop supports, but the Europeans, burdened by
French fears of modernism, are not politically
capable of matching it. Hence the two great, aging
commercial powers have little leverage available
to prod developing countries to treat the likes of
Volkswagen and Citibank better.
The truth
is that, even if an agriculture deal could be
brokered, the Doha Round would do little to open
developing-country markets because it was flawed
from the start. Dubbed the "Development Round",
Doha was intended to aid poorer nations by
exempting the principal issues that most plague US
and EU exports: arcane industrial policies in
developing countries that would protect their
manufacturers even if tariffs were slashed;
cartels and other private unfair trade practices;
foreign-investment regulations that compel
multinational corporations to give away technology
and transfer production and jobs to locations that
make little sense; currency manipulation now
rampant in Asia; and opaque subsidy schemes such
as low-interest loans and tax holidays.
For example, General Motors, to gain entry
to the Chinese market, was required to form a
joint venture with state-owned Shanghai Automotive
Industry Corp (SAIC); now, having absorbed GM's
know-how, SAIC is planning to produce and export
cars independently to Europe. China spends more
than US$200 billion a year subsidizing exports by
suppressing the value of the yuan through
intervention in the foreign-exchange market, and
provides cheap capital to "national champion"
firms through state-bank loans and generous tax
rebates.
As things stand, even a
successful Doha Round would do little to boost US
exports or increase US imports. By my estimates,
US exports would increase about $90 billion.
Subtracting additional imports, this would hardly
dent the $760 billion US trade deficit. The
additional trade would increase US incomes and
welfare only about $9 billion, or less than 0.1%
of gross domestic product. Studies sponsored by
the Carnegie Endowment for International Peace and
the World Bank, employing different models,
calculate very similar income gains.
The
administration should not be surprised that its
efforts to open markets through Doha are
generating little excitement or support from US
voters. Instead, the job losses caused by rising
US trade deficits are becoming a political
albatross for members of Congress aligned with the
president.
Sadly, under current
arrangements, the gains in exports and income
accomplished by China, India, Brazil, and a few
other large emerging economies come at the expense
of smaller developing countries, which are not
able to use large domestic markets as a lever to
accomplish mercantilist gains.
Open
markets are perhaps the finest idea for
instigating prosperity ever conceived by the
collective wisdom of liberal thinkers, but the
process under way under the Doha banner is a
farce. It is endangering support for free trade
among the electorate of its strongest champion,
the United States, and is relegating to permanent
second-tier status smaller Asian, African and
Latin American countries.
The greatest
danger is that either Doha will succeed or trade
officials, being diplomats, will cook up some
face-saving, limited deal that leaves the issues
creating inequity and poverty unaddressed for
another decade or more.
It is time to
admit the emperor has no clothes, end the Doha
Round, and establish a new agenda that more
equitably addresses the concerns of all parties.
Peter Morici is a professor at
the University of Maryland School of Business and
former chief economist at the US International
Trade Commission. He serves on the Bloomberg and
Reuters macroeconomic forecasting panels.
(Copyright 2006 Peter Morici.)
Speaking Freely is an Asia Times
Online feature that allows guest writers to have
their say. Please click hereif you are interested in
contributing.
