TCS Daily

Doha's Broken Promises

By Tiziano Buzzacchera - June 6, 2006 12:00 AM

At the end of May, Paris hosted two important meetings of the Organization for Economic Cooperation and Development: a ministerial council and a forum on "Balancing Globalization". Both events dedicated much time to the discussion of how to deliver prosperity through market-oriented trade reforms. Indeed, the Doha Development Agenda dominated the debate. After all, the presence of WTO Director-General Pascal Lamy at the Council was no accident. His report on the status of WTO negotiations on the Doha Agenda helped refocus the spotlight on the DDA dispute, stalled after an April 30 deadline for resolving it had been missed. Now, the new deadline is the end of this year.

Naturally, ministers declared that a solution must be found in the coming weeks. EU trade negotiator David O' Sullivan was particularly lyrical. "We are looking at the possibility of a truly historic breakthrough, generating and binding a substantial and real reduction in overall trade distorting farm support as well as eliminating of all export subsidies," he said. "The EU will substantially reduce its overall spending, and set in stone, and so should other OECD members. Without a WTO deal, this chance in a lifetime will be lost."

Unfortunately, it is unlikely the trade negotiations will come to a good end. First of all, there is a real problem of interest. Local companies, trade unions and farmers fear global competition. This affects the attitude of politicians towards free trade, since their careers depend on the electorate. This problem becomes acute because of WTO multilateralism: everyone is hostage to everyone else. Another obstacle is the principle of the "single undertaking". As the WTO declares, virtually every item of the negotiation is part of a whole and indivisible package and cannot be agreed separately. "Nothing is agreed until everything is agreed."

Of course, there is some merit to the multilateral argument. In an age of terrorism and conflict, a global agreement on trade would represent an important signal of commitment to peace. In fact, trade is a synonym for peace. Moreover, free trade would eradicate poverty, which is a relevant (although not fundamental) ingredient of the terrorist cocktail. We also have to contemplate the economic side of this hypothetical agreement. According to a study by Kim Anderson, Will Martin and Dominique van der Mensbrugghe, released by the World Bank, the Doha trade liberalization would generate a gain of $287 billion in income per year by 2015. Two-thirds of this gain would accrue to the high-income countries (so why do we keep moaning about it?), but developing countries would face an average increase of 1.2 percent of national income, twice the high-income countries figure (0.6 percent).

However, as Carlo Stagnaro wrote in TCS Daily, the problem does not concern Doha, but rather WTO members domestic policies. Take, for instance, the EU, which is increasingly becoming an eminent statist "third way", clearly not committed internally to free trade. The logic of multilateralism is not the key to open the coffer of free market, but the way to preserve the status quo. The European Union needs free-market reform first, and then global agreements. European politicians could show their admiration for free trade by abolishing the Common Agricultural Policy: subsidies, duties and a fixed minimum price are perfect tools to create distortions in the market. In fact, the prices of agricultural products in Europe, according to an estimate of the Swedish think-tank Timbro, are 30 to 80 percent higher than elsewhere. The price of sugar is three times higher in the EU than in the rest of the world.

In the end, it would be great if Doha targets were honored, but, in case of failure, we'd better proceed on our own. It's a matter of respect for consumers, poor countries and, above all, our freedom.

Tiziano Buzzacchera's writings have appeared in several Italian newspapers, including L'Indipendente, Il Domenicale and Ideazione.


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