TCS Daily

Doha's Message: No Free Ride to Growth

By Alan Oxley - July 25, 2006 12:00 AM

Reality finally bit. The Doha Round talks have been put off indefinitely. This is the second best result: There was no deal worth doing in the Doha Round right now.

Susan Schwab, the US Special Trade Representative blames Peter Mandelson, the EU Trade Commissioner. He blames her back. And Pascal Lamy, the Director General of the EU, blames them all. Oxfam blames the rich countries and dissembles now that the WTO cannot help poor countries.

There will be anxiety about how much this harms the WTO trading system. In a very important way, it won't. The foundation of the WTO system is its network of legal obligations not to increase trade barriers once they have been cut. It is buttressed by a compulsory system of compliance and arbitration.

Worldwide, tariff barriers average only four to five percent. Wealthy countries have committed legally not to increase those barriers. Average tariffs among developing countries are about seventeen percent, although most have bound them in law at higher levels. Most non-tariff barriers in trade have been removed and countries have committed not to use them again.

The general picture is that most world trade is open and bound under the rules and commitments of the WTO.

The failure of the Doha Round does not alter that situation. The aim of the Doha negotiations was to mop up, reduce the few remaining pockets of high levels of protection (for example in agriculture), and advance the process of reducing global barriers to restrictions in trade in services, a relatively new area for global trade liberalization.

The aim of the Doha Round was dressed up. It was technically styled the Doha "Development" Agenda and declared as advancing growth in developing countries. In truth, they did not need a new round of negotiations for that. It is open for any country at any time to reduce its trade barriers, log that with the WTO system, and commit under its rules in future not to raise those barriers.

This is real value of the WTO system. Governments can use it to create an international legal obligation to keep tariffs low and make it difficult for successors to restore higher tariffs. This system works. And it is why anti-globalization NGOs like Oxfam and WWF dislike the WTO so much.

What was on the table in Geneva was a deal not worth doing. In fact it would have harmed the WTO. Developed countries invented their own measure of how the Doha Round would help their "development": the US and the EU open their farm markets to exports from developing countries, but developing countries would not reduce their own protection. They even proposed amending WTO rules to remove obligations on them to cut tariffs. They had constructed an "anti-development" agenda.

This was based on the dumb economics being pushed by Oxfam and other NGOs. It overlooked a fundamental point. No one can export to a foreign market unless they are competitive. Most developing countries had high levels of protection, including of farming. With uncompetitive domestic industries, they would not be able to export to the EU and the US. The benefits would fall to the world's most competitive agricultural producers -- Australia, Argentina , New Zealand, Brazil, not the poorest -- Benin, Bangladesh or Papua New Guinea.

All that said, Lamy, Mandelson and Schwab have made an important mistake by not setting a new date to conclude the Round. What is needed now is intense global pressure on the EU to reduce the protection of its farmers. If a deadline were set three years out, it would have created the opportunity for that.

Now the EU can sit back and say everyone was at fault.

The message for the developing countries however cannot be clearer. There are no free rides to growth. It can only be achieved when markets are allowed to function freely. This requires action by them, not by someone else. Now that the chimera of agricultural liberalization in the EU and the US delivering a boost to growth has disappeared, with luck, they will work out that the solution to increased growth lies in their own hands.

Alan Oxley is a former Chairman of the GATT, the predecessor of the WTO.

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