Dead as a Doha

Some of the gains of the trade talks will be made anyway, even if through bilateral deals

In 2001, in tiny Qatar8217;s capital city of Doha, a process began that came to a shuddering, final stop on Tuesday. The Doha round of trade talks, which were supposed to lead to a grand compromise freeing trade everywhere, was pronounced dead. When something as huge and complex as these negotiations fail, accusations and counter-accusations are traded, narratives of responsibility wrought and pronouncements of doom intoned across the world. Some of them are accurate, some exaggerated, and plenty simply untrue. Enough enter the public consciousness and are accepted as truth as time passes to warp and distort future stands. It is essential, as early as possible, to try and tell them apart so that that process doesn8217;t take hold.

Getting 153 countries to agree on anything would always be difficult, we have been told. That simply isn8217;t a useful way of looking at it. It8217;s not the countries that are difficult to coordinate; it8217;s interest groups within and across those countries. The current talks in Geneva, for example, started with about 30 key players. It was then narrowed down to seven: the US, India, Brazil, the EU, Japan, China and Australia. This wasn8217;t because these countries were the most stubborn, but because most of the others felt they could trust one or more of those to represent their own interests fairly: African cotton producers, for example, could trust India8217;s negotiators because there were correspondences between what African producers wanted and what domestic constituencies in India wanted. Reports saying India was 8220;the only holdout8221; should thus be ignored, as eliding over that basic point. What was difficult was not summoning consensus among all countries, but among three or four large blocs.

The eventual problem was the point at which 8220;special safeguard mechanisms8221; would cut in, allowing developing countries to respond to a sudden flood in agricultural imports by putting up emergency tariff barriers to protect their subsistence farmers. The complaining about SSMs ignores three points: first, losses from the implementation of such provisions would be a fraction of what the agricultural exporters in developed countries would earn from market access; second, most countries already have them, but use them very rarely; and third, there are built-in restrictions on their use, because it is usually politically necessary to keep food prices low.

We will also hear a lot about the specific cut-offs for SSMs: was 40 per cent too high? Was 10 per cent, as India and China demanded, too low? Dismissal of this as 8220;trivial8221;, as some have done, is ridiculous: economic losses may have been small, but the relative number of lives at stake was not. Among the factors being glossed over in the frantic spin emerging from Geneva is that these are increases in quantities of agricultural imports, not in their prices: when the concern is insulating subsistence farmers from catastrophic risk, prices are relevant, so the bar for quantities should be lower to allow governments to respond to price changes that do not exactly track quantities. In any case, suggesting that intervention can wait till exports have already flooded in is economically illiterate: even discreet measures take time to work.

Developing nations are being blamed for not responding adequately to 8220;brave8221; moves by the US. US trade representative Susan Schwab offered to cap the domestic farm subsidy bill at 15 billion, from a previous maximum several times that. This is not as generous as Schwab made it sound: the amount barely crossed 7 billion last year. More, Schwab represents a president deeply unpopular with Congress 8212; which means that the latter, which approved an absurdly bloated farm bill last year, has taken away his negotiating power. She could hardly make offers Congress might not approve. Amusingly, this apparently led Commerce Minister Kamal Nath to call her an 8220;impostor8221; at one point. One would think that a member of a cabinet that has just faced a confidence vote over domestic opposition to international negotiations would have a little more empathy.

There will be some praise for India8217;s toughness at the negotiating table. Toughness, however, is not an end in itself, and it will remain an open question for some time as to whether this was the best window of opportunity for India and China. Food prices were high, meaning dismantling Western subsidies was easier; and, if Obama becomes president, there is a possibility that the wing of the Democratic party that has been captured by labour unions and trade-sceptics will take over. This would be a disaster: one thing that the US can be praised for is keeping so-called 8220;environment and labour standards8221; 8212; which effectively wipe out poorer nations8217; comparative advantage 8212; off the table. If the Democrats put them back on, no deals are ever likely to be made.

Finally, the cloud of gloom settling over the markets, promoted by some analysts, is pointless. Yes, the world could have gained much. But some of the gains will be made anyway, even if through bilateral agreements. Bilateral agreements create difficulties for smaller companies that have to wade through a thicket of rules, and they disadvantage smaller countries. It8217;s difficult to imagine Paraguay persuading the US to change its policies in return for trade concessions. However, a large part of the gains from trade depends on political will, and will be carried through, whether in a bilateral or multilateral setting, if that will exists.

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Another advantage is that it will finally be accepted that global governance is in crisis. A new paradigm for creating international and transnational consensus is needed. The universally acknowledged truth that gains to trade exist does not change the fact that freer trade benefits some interest groups and takes away from others. Those losing must be compensated. What is perhaps doomed is the attempt to agree on compensations for domestic groups through international negotiations, using the blunt tools available 8212; tariffs and restrictions. If domestic redistribution or protection from risk is not directly arranged for by governments, we must start thinking differently: those side payments to losers should be put on the table and directly discussed. Doha may have gone down in flames, but the desperation it engenders will be useful only if something wholly different arises from its ashes.

mihir.sharmaexpressindia.com