The collapse of the Doha Round and the future of the world economy - I
Eisuke Suzuki
ARTICLE (August 13 2008): This is the first of a two-part series on the Doha Round. The Doha Round negotiations collapsed on July 29, 2008 over the issues of agricultural trade between the United States and India, in which China and Indonesia joined.
Out of 20 topics to be negotiated in Geneva, delegates managed to converge on their positions in respect of 18 items on the agenda, but failed to narrow the gaps on the 19th topic - the special safeguard mechanism (SSM), a measure designed to protect poor farmers by allowing countries to impose a special tariff on imports of certain agricultural goods in the event of an import surge or price fall.
There was insoluble disagreement between India and the United States over the SSM. One of the main sticking points has been whether, and by how much, countries should be allowed under the SSM to impose safeguard duties in excess of current (ie, pre-Doha) tariff ceilings. The G-33 bloc of developing countries, which includes China , India , and Indonesia , insists that the SSM may sometimes be necessary to protect poor farmers.
The United States and India could not agree on the threshold that would allow the mechanism to be used, with the United States arguing that the threshold had been set too low. The United States and some European Union members, especially France, blamed India for the failure of the talks. The EU's Peter Mandelson, however, said that India and China should not be blamed for the failure of the Doha Round.
In his view, the agriculture talks had been harmed by the five-year programme of agricultural subsidies recently passed by the US Congress which, he said, was "one of the most reactionary farm bills in the history of the US". The poor countries of the world refused to play along with the Doha trade negotiations. For the past seven years, the developed countries did not listen to developing countries complaints.
Despite the Doha Round being called a "development round," the reality of negotiations, both in terms of substance and procedure, could not have been farther from the truth. Whilst the WTO Charter proclaims that trade is a medium for development, from the very start, developed countries have wanted the Doha Round in order to achieve greater market openings for them while making minimal concessions on their part.
Developing countries have been asking for a limit on developed countries' agricultural subsidies, which are essentially indirect export subsidies, and for the incorporation of a mechanism which can provide sufficient cushion for their small farmers against the distortions in world agricultural trade.
The developed countries failed to deliver on both those issues, whilst asking developing countries to make major market openings in the area of industrial products, possibly jeopardising their future prospects for industrialisation. From the perspectives of developing countries, inserting the label "development" to the Doha Round was simply a cynical ploy to make the process look more amenable to development.
As I mentioned previously in this column ("Doha, Pakistan and Karamazov's Lament," March 19, 2008), the World Bank, the IMF and the WTO have preached the gospel of "free trade" as a pathway to global economic nirvana as a matter of faith.
Free trade is, in the words of Joseph Stiglitz, former Chief Economist of the World Bank, "a stale and repugnant ideology," not empirically verified, and so is neo-liberalism which has become global laissez-faire, thanks to the power of the United States and the international institutions such as the IMF, the World Bank and the WTO.
Where is the evidence that attests to a single country that has become industrialised by practising the ideology of free trade? To the contrary, all developed countries had gone through the stages of protectionism one time or another until they became strong enough to enjoy free trade.
History attests that economic development does not correspond to the integration and harmonisation of national economies with the global economy. Trade liberalisation has been the outcome of economic development - not its cause. India and China, two most talked-about economic super idols of globalisation today, were controlled and command economies, respectively.
The key to East Asia's success, long preceding the present success of India and China, was selective liberalisation pursued under strategic protectionism driven by the government. Dr Ha-Joon Chang, a South Korean economist at Cambridge University, explains in his book Bad Samaritans (2007): "The Korean state nurtured certain new industries selected by the government through tariff protection, subsidies and other forms of government support, until they 'grew up' enough to withstand international competition."
Industrialisation strategies of Japan, Taiwan, and Korea included educational policies, establishment of public enterprises, credit subsidies and tax incentives for priority industries, and export promotions, including duty-free access to inputs and capital goods. Under the WTO regime, however, most of these strategies are now prohibited. Friedrich List, the 19th century German economist, observed in his The National System of Political Economy (1885) that:
"It is a very common clever devise that when anyone has attained the summit of greatness, he kicks away the ladder by which he has climbed up, in order to deprive others of the means of climbing up after him. In this lies the secret of the cosmopolitical doctrine of Adam Smith." The WTO rules do not allow developing countries to make the selective liberalisation of trade in accordance with their own priorities set by "their respective needs and concerns at different levels of economic development."
Rather, the WTO regime as the "single undertaking" resulted not only in the curtailment of developing countries' freedom of choice under special and differential (S&D) treatment in GATTT, but also in the eventual forced convergence in standards of conduct for developing and developed countries through the IMF, the World Bank and OECD.
Under these circumstances it is not difficult to appreciate why the Doha Round collapsed the way it did. Developing countries refused to be cajoled by developed countries to promote the latter's interest at the expense of the former's interest.
Business Recorder [Pakistan's First Financial Daily]
