TCS Daily


What's New About Global Trade

By Daniel Drezner - September 9, 2003 12:00 AM

As the Doha round of World Trade Organization talks creeps towards its nominal halfway point in Cancun this month, some questions naturally arise. To paraphrase one of the four questions from Passover: "What makes this round of trade talks different from previous rounds?" The short answer is, the Quad has been torn down.

 

In the trade talks of yore -- i.e., the Cold War era -- four entities dominated global trade talks: the United States, the European Union, Japan, and Canada. For every successive round of GATT talks (GATT is the WTO's predecessor), the trade negotiators from these countries would hash things out in a quiet room and then present their agreement as a fait accompli to the rest of the membership. In theory, the GATT/WTO operated on a consensus-based decision-making system. In fact, when the four biggest trading powers in the world agreed, the consensus was dictated to the rest of the world. The last time the developing world tried to make its voice heard on trade issues -- the execrable New International Economic Order of the 1970's -- they had zero impact on the global trade regime.

 

A funny thing has happened on the way to the Doha round, however -- non-Quad members are starting to clear their throats and make their voices heard. Last month, Brazil, India, and China all blasted a provisional agreement between the United States and the European Union on reducing agricultural subsidies. These countries noted -- correctly -- that the US-EU agreement achieved little in the way of genuine reform. These countries followed up their criticism with a counterproposal that would eliminate all export subsidies. The United States recently cut a deal with developing countries to permit the importation of generic copies of patented drugs in cases of national medical emergencies.

 

It's not just large developing countries that are acting ornery. Costa Rica and Ecuador were among the countries that crafted the counterproposal on agricultural subsidies. Even lowly Mozambique is exhorting the African Union to push the US and EU to lower barriers to trade in sugar.

 

Why are the developing countries in such an uproar? In part, it's because the last round of talks left such a bad taste in their mouths. While the 1986-1993 Uruguay round did promote trade liberalization, it deferred the reduction of barriers in the two sectors vital to LDC economies -- agriculture and textiles. Most barriers to textiles will be phased out in 2005, but the increase in rich country agricultural subsidies illustrates the difficulty of liberalizing traditional sectors of developed markets.

 

Furthermore, the Uruguay agreement required developing countries to enforce intellectual property rights more strenuously than they had in the past. There are valid reasons to push for the enforcement of intellectual property rights, but the costs of implementing such rules impose a significant burden on developing country budgets. These countries are understandably wary of getting burned again at the negotiating table.

 

Needless to say, the increased activity of the developing countries has roiled some members of the Quad. European Union officials are particularly exercised. The EU agriculture commissioner derided the developing countries for their agriculture proposal, observing: "If they want to do business, they should come back to mother earth. If they choose to continue their space odyssey they will not get the stars, they will not get the moon, they will end up with empty hands."

 

Will the recent wave of developing country activism flame out like it did in the seventies? Not likely. First, there are simply more participating developing countries. In 1978, at the peak of the New International Economic Order, there were 89 GATT signatories. In 2003, there are 146 WTO members, and increase of over 60%; almost all of new members can be categorized as emerging markets. Agreement among the Quad is no longer a sufficient condition for there to be a consensus among the WTO membership.

 

Second, in contrast to thirty years ago, in the current negotiations the emerging markets have accepted the idea that free trade lifts all economic boats. In fact, some developing countries have embraced the power of free markets with a greater zeal than some developed markets.

 

Third, the developing countries are expanding their contacts within the developed world. On September 4th, the heads of the IMF, World Bank, and OECD issued a joint declaration urging the developed world to make the necessary concessions to push the Doha round to completion. They observed:

 

Donors cannot provide aid to create development opportunities with one hand and then use trade restrictions to take these opportunities away with the other-and expect that their development dollars will be effective....

 

Agriculture is of particular importance to the economic prospects of many developing countries, and reforming the current practices in global farm trade holds perhaps the most immediate scope for bettering the livelihoods of the world's poor. Yet, developed countries impose tariffs on agriculture that are 8 to 10 times higher than on industrial goods. Many continue to use various forms of export subsidies that drive down world prices and take markets away from farmers in poorer countries. In every sector except agriculture, these same countries long ago agreed to prohibit export subsidies. Agricultural support costs the average household in the EU, Japan, and United States more than a thousand U.S. dollars a year. Much of this support depresses rural incomes in developing countries while benefiting primarily the wealthiest farmers in rich countries, and does little to accomplish the environmental and rural community goals that developed countries strive to pursue.

 

The notion that trade is the best way to help developing countries has also caught on among significant parts of civil society in the OECD countries. OxFam has taken developed countries to task for maintaining high barriers to agricultural imports. The Guardian has even set up a blog to campaign for removing agricultural subsidies.

 

The biggest difference, however, is the role of the United States. The Bush administration has displayed a rhetorical commitment to completing the Doha round. The recent deal on generic medicines is certainly a positive sign. The administration has also indicated that their position is closer to than emerging markets than other members of the Quad.

 

Beyond the economic commitment to freer trade, there's a political bonus to the U.S. for supporting agricultural liberalization. Many Europeans try to paint the U.S. as a global bully in world politics. In the global economy, however, the big bad wolf is the EU. The growing assertiveness of developing countries in the WTO represents an opportunity for the United States. If the Bush administration is smart, they can get what they want in the Doha round and look like a hero to the developing world in the process.

 

Daniel W. Drezner is assistant professor of political science at the University of Chicago. He keeps a daily weblog at www.DanielDrezner.com.
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