Doha146;s collapse is good and bad

There is a puzzle here. Not more than 2 per cent of the population in industrialised countries works in agriculture. The proportion of GDP from agriculture is no different. Contrast this to the likely effects of agricultural liberalisation in developing countries where at least half, if not two-thirds, of the population is dependent on agriculture for a livelihood. There isn’t a comparison. And the number of people adversely affected by TRIPS? Let us not even begin counting because the number will be very large indeed. Given developed countries’ intransigence, it’s just as well that there has been no deal, where concessions would have come only from developing countries.

The failure of the Doha Round, however, has two negative repercussions for developing countries and that’s where the bad news begins. It implicitly strengthens regional trading areas, and economic unions, to the benefit of the members inside the group but to the detriment of countries on the outside. This is because a member country X in the union may be able to trade its more expensive and inferior goods with other member countries while denying access to a more efficient producer country on the outside, which has to deal with trade barriers. So, for example, as part of the EU, Hungary may export a particular commodity at a higher price to other EU countries than say the Philippines, which produces the same commodity at a lower cost and maybe with better quality. But the Filipino producer will be defeated by the trade barrier which exists only for him. This is also known as trade diversion and normally increases inefficiency in global trade.

The absence of a strong multilateral framework also strengthens the hand of powerful countries to negotiate bilateral agreements with weaker countries. This is the second worry for developing countries. Many of them may be arm-twisted into signing such agreements which would commit them to much more liberalisation than under a multilateral framework. Some very poor countries may sign up to unfair bilateral agreements as a condition for receiving economic aid. It is likely that these bilateral agreements, when proposed, will venture into areas like investment policy, competition policy, labour standards, and environmental standards, all of which had been excluded from the agenda of the WTO, much to the relief of developing countries.

The introduction of these non-trade issues into bilateral trade agreements would only raise the barriers to trade for firms and products from developing countries. Firms from developing countries are clearly not on a level playing field with their competitors in the industrialised world. It makes little sense to pit a heavyweight boxer with another in the flyweight category. If you think this is an exaggerated fear, you need only look at the North America Free Trade Agreement, which has many of these rules as part of the agreement. Most bilateral agreements tend to be WTO plus.

So what might developing countries do to maximise their benefits? For one, they could negotiate ‘bilateral’ trade deals as a regional group rather than as a single country. Or they could stay away from such deals, especially those with ‘WTO plus’ clauses. At the same time they must make a concerted effort to keep multilateralism alive over the long term as that is their best hope for the best deals. Last but not least, developing countries should cooperate with each other, lowering trade barriers between themselves. At least the competing boxers are more likely to be in the same weight category.

The writer is a research scholar in economics, Trinity College, Cambridge