| After the latest batch of World Trade Organization talks broke off without progress in late July, many of the trade negotiators involved expressed the opinion that there was little hope of the talks being revived. Things appeared so deadlocked that no future date was set for the resumption of talks, and it seemed that the Doha round, begun in Doha, Qatar in November 2001 was in jeopardy of stalling.
"It is definitely between intensive care and the crematorium," said India's Trade Minister Kamal Nath describing the state of the round. But, while British PM Tony Blair's snap visit to Washington last week failed to bring about the intended ceasefire in the Middle East, it did manage to put a glimmer of hope back into the dying round. Blair and U.S. President Bush, pledged to get trade negotiators back together as soon as possible, and the timing is crucially important as the authority to negotiate trade deals granted to Bush by the U.S. Congress expires in 2007. In the international turmoil following September 11th, Congress gave the president the authority to fast track a trade deal without its approval. If this deadline is reached without a deal being finalized it would make it much more difficult for America to sign any deal, and without America there is going to be no deal at all.
At first sight, a combined initiative between Bush and Blair would appear to be exactly the kind of powerful kick-start needed to rekindle the talks, especially given that the EU and the U.S. have received the majority of the blame for the impasse, including from each other. Both America and Europe are demanding freer access to the growing consumer markets of the developing world, while both are unwilling to lift enough protection from their agricultural sectors to convince the developing countries, represented by the G20 developing nations, that they are receiving a fair trade. Many developing nations feeling that they have signed unfair trade deals in the past are sticking to their guns, maintaining that no deal is better than a bad deal. Canada, while not a major player in the negotiations, is playing the same cards as other developed nations, wanting free trade where it's easy, while maintaining protection for our most heavily managed farming sectors.
However, getting the talks started again is the easiest challenge facing the pair if Doha is to be a success. With the media latching onto the recent plummet in Bush's approval rating, and Blair facing calls for resignation, mustering the political will to make concessions to the developing nations on Doha may be more than either of them can handle at this point.
The premise behind free trade is simple. Think of two individuals trading with each other. They would never exchange goods with each other unless each party stood to gain from the transaction. Therefore, government interference through tax or restriction will only serve to prevent or reduce the gains from an exchange where both parties stand to benefit.
However, trade between international economies is far more complicated. While free trade is by its very nature welfare enhancing to both economies there are often losers when borders are opened up. The reluctance of America and Europe to remove protection from their farming sectors is evidence of that. While America and Europe have gained an advantage over most of the developing world in areas such as technology, many of their farming sectors have long been defended from the pressures of cheap farm labour and land in developing nations. American manufacturing companies have much to gain from buying cheap cotton from the developing world, farmers in those nations have much to gain from selling to America, and there are gains for the American public in the form of cheaper products and lower taxes because of less spending on farm subsidies.
On the other hand, the American cotton farmer, who cannot compete with the producers abroad, is in a very uncomfortable position. In the textbook example of free trade the American buyers gain, the foreign seller gains and, since the economy grows from the gains, the government takes a portion of the profits and distributes it to the domestic farmers who lost out, helping them to plant different crops or training them to enter a new job in which America is more efficient than its competition. However, in an economy encompassing millions, this redistribution is complicated and costly, cutting into the gains of trade, especially in developing nations where there is a lack of governmental organization and infrastructure, and often the losses are more than economic. Using the economic profit from trade to train farmers to enter an industry in which America is more competitive sounds easy enough, but even if the farmer has just as much money in his pocket in the long run he faces a change in lifestyle that may be unwanted.
This is where the political bravery of Bush and Blair is needed to bring Doha to fruition. Because while there are to be losers, at least in the short term, there is no denying that there are gains to be made. In an international community that has put much of its effort in recent years toward development and the reduction of poverty, gains are what matters.
The fact that economic benefits are to be had from free trade is not lost on world leaders, but the conflict over free trade takes place where economic truth squares off against political reality. Gains in the western world from free trade may be immense, but those gains will be spread out across a number of industries and millions of consumers. Much of the losses will be concentrated amongst a small but organized minority, like those in the farming industry, who see their lifestyle being threatened. One hundred million people saving a dollar on consumer goods equals one hundred million dollars for the economy, but it is hardly enough to get those people rushing out into the streets, whereas one thousand farmers losing ten thousand dollars each, only a fraction of the total economic gain, is enough to send those farmers riding on their tractors towards Washington or Ottawa in protest.
What's at stake should Doha fail goes far beyond the billions of dollars in economic gain that have been estimated. The Doha round was supposed to be the development round, and a fair deal for the developing nations at the WTO has the potential to lift many (some estimate millions) out of poverty in the developing world. Doha seemed, at last, to be the round that gave many poor nations a hand up. If the round fails it could be years before development is back on the agenda, and the future of the entire WTO could even be at stake, with its effectiveness in doubt should the round fail. What most nations are proposing should that happen is moving toward bilateral trade deals between individual countries. This will create a tangled web of trade deals for each country, adding complications and bureaucracy, and with developing nations forced to go it one-on-one in negotiations with the world’s economic powers a fair deal may be harder to achieve.
A fair deal at Doha could bring much benefit to the world, and a failure to move things forward would be a tragic waste of opportunity. The only question is, does Bush, Blair or any other world leader have the will or the might to make it happen, and are they willing to accept that the gains of Doha are not going to come without a cost?
Jesse Keith has degrees in engineering and economics from the University of Calgary. |
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