President George W Bush less than two
weeks ago urged the Group of Eight (G8) to
recommit to successfully concluding the Doha Round
of World Trade Organization (WTO) negotiations.
Now, the United States is being blamed for
collapse of talks at the weekend.
The
final rift between the ministers of the Group of
Six (G6), made up of the United States, the
European Union, Australia, Brazil, India and
Japan, was sparked by the question of agriculture
- the same issue that has made the climate of the
talks tense from the very start.
The EU,
especially, but also India and Brazil - the
coordinators of the Group of 20 (G20) developing
countries that share common
agricultural interests - held
the US responsible for the failure of the talks
because of its refusal to cut the subsidies
shelled out to American farmers.
"The
United States was unwilling to accept, or indeed
to acknowledge the flexibility being shown by
others and, as a result, felt unable to show any
flexibility on the issue of farm subsidies," EU
Trade Commissioner Peter Mandelson said.
Brazilian Foreign Minister Celso Amorim
said: "Something is wrong" if the G6 heads of
state and government meeting in St Petersburg last
week were given the mandate to quickly reach an
agreement and "after just one day in Geneva we
admit that an accord is impossible".
Advocates claim a new global trade pact
would raise millions from poverty. Sadly, though,
a Doha agreement would benefit mostly the wealthy
and large multinational corporations. It would
offer little for smaller developing countries or
farmers and workers in industrialized nations.
The sticking points in negotiations has
appeared to be US and EU reluctance to dismantle
expensive agriculture support programs and
developing country resistance to slashing tariffs
on manufactured imports. However, the issues
surrounding farm and industrial products are
incredibly complex, and in the details lay the
failings of Doha and agendas of politicians.
Agriculture is protected by so many layers
of income support, export subsidies, tariffs and
import quotas and questionable health regulations
that gains negotiated in one or several areas can
easily be undone by adjustment to policies in
others. We have seen that sort of thing many
times, for example, to protect North American and
European livestock industries.
Moreover,
India and other developing countries want to
exclude their most sensitive products from a Doha
deal. This negates the liberalizing intention of
Doha, outright, and turns the agriculture talks
into a farce.
Developing countries
routinely sport tariffs of 25% and higher on autos
and other complex industrial products where US-
and EU-based industries could accomplish the
greatest export gains. The United States wants
these tariffs slashed, but developing countries
routinely impose other protective devices, such as
undervalued currencies, all manner of subsidies
and regulations on the conduct of foreign
investors.
Lowering tariffs would hardly
affect how many Chevrolets or Volkswagens are imported
into China, India or Brazil, because those
non-tariff practices are not meaningfully
addressed by the Doha Round negotiating agenda.
A deal on tariffs
would only encourage more opaque
protectionism, and developing countries with large domestic
markets are much better at applying those tactics.
Already, most of the benefits
of WTO-sanctioned mercantilism go to
the big developing countries. That is why China,
India and Brazil are growing more rapidly than
their smaller neighbors.
Even in China,
India and Brazil, the fruits of industrialization
are skewed. Wealth and income are profoundly
concentrated in the hands of a few, as the workers
are underpaid for their productivity making
exports of textiles, electronics and furniture.
Those cynical dimensions of the global
trading regime steal jobs from workers in North
America and Europe, hoped for growth in smaller,
poorer developing countries and decent pay from
workers in places such as China and India. We
should not be surprised the unions and many
developing countries are increasingly wary of free
trade policies.
For the United States and the
EU, Doha is a mug's game. Their growing trade
deficits with China, since they agreed to its WTO
membership, provide patent evidence of the
ineptness of US and EU trade negotiators.
So why was Bush pushing so hard for a
Doha agreement?
Multinationals have
greatly profited from protectionism in China,
India and other large developing countries by
placing factories and selling services in their
markets. In the process, they have been able to
grind down wages for the workers they still employ
in the United States and Western Europe.
General
Motors and Caterpillar, for example,
profit well in China thanks to an undervalued
yuan and restrictions on imports, while
the United Auto Workers gird for more
give-backs and plant closures. GE and IBM proclaim
great opportunities await in India's arcane
protected markets.
In Washington, large
multinationals have lobbied for restraint on US
policies, for example, to persuade China to stop
manipulating the yuan or for India and Brazil to
open their markets for products actually
manufactured in the United States. Instead,
multinationals have most earnestly sought
diplomatic support to help clear a path for their
investments and obtain protection for their
intellectual property in large developing
countries.
If the Doha Round ultimately
fails, China, India and Brazil, having little to
gain from further negotiations with the United
States, will be freer to impose onerous terms on
Western multinationals. Multinationals need a Doha
deal that appeases China, India and others to
maximize their profits in those economies.
Bush's economic initiatives from
prescription drugs for the elderly to his failed
proposals for private accounts to replace social
security have favored the interests of large
multinationals, whose political support he has
enjoyed. A Doha deal would similarly serve those
interests.
Trade policy is always
political, and Bush knows how to reward his
friends.
But some have suggested that
though the US is being blamed internationally, its
tough agriculturally subsidy stance plays well
with farmers leading up to November's mid-term
elections.
Meanwhile, WTO director general
Pascal Lamy said the situation is "very serious",
and announced that on Thursday he would recommend
that the organization's 149 member states suspend
the negotiations, which were scheduled to end in
December.
Lamy reflected the views of the
majority of the negotiators when he said, "I
cannot hide the truth: we are in dire straits."
Peter Morici is a professor at
the University of Maryland School of Business and
former chief economist at the US International
Trade Commission.
