The breakdown in the WTO – who’s to blame?

Please note that this is an English version of a Danish comment posted two days ago.

Since the Word Trade Organization in Doha on the 25th of November 2001 agreed on initializing a new round of negotiations, the 149 members of the organization have engaged in intense negotiations with the intention of liberalizing world trade. Monday this week, it nevertheless became clear that the negotiations had finally broken down. Very rapidly thereafter, EU chief negotiator Peter Mandelson went in the media, accusing the United States of having engineered the failure. The US, of course, was almost as fast in blaming the protectionist stance of the EU, and developing countries all over the world have blamed both single countries as well as the entire developed world. While all member states officially lament the breakdown – not least developing countries as the Doha Round was intended to be a ‘Development Round' – it is also clear that all members have by now engaged in a blame game, accusing other countries while painting a picture of themselves as honest, flexible and entirely without responsibility for the failure. For a less than perfectly informed public it is therefore virtually impossible to see through the haze of mutual accusations in order to identify the culprit.

Kim Lind of the Danish Research Institute of Food Economics and I have followed the Doha Round negotiations closely since its inception, and have for that purpose developed statistical tools with which to measure the distance between negotiation partners. With that tool, it is also possible to assess how free trade oriented or protectionist the negotiation positions of single member states have been in the area of agriculture, which was the main topic of negotiation. Our tool and its application have not been particularly popular with all parties as it has clarified which countries have had protectionist intentions and in which specific areas they have differed the most. The reason is rather simple: one of the strategies member states use to push their agendas has been to make the negotiations intransparent. This strategy in particular harms developing countries that do not have the organizational and financial means to conduct solid negotiation analysis. These countries have therefore found it difficult to navigate through the muddy waters of the Doha Round. Consequently, providing developing countries with access to a fairly simple overview of the negotiations and the agenda of single countries was one of the main aims of our negotiation analyses. That aim is now superfluous, yet our tools can now be brought to use in order to have an informed debate on the reasons for the breakdown of the Doha Round. In other words, who were unwilling to yield?

Reorganizing our overall measure of ‘free trade orientation' on a scale from 0 to 100 provides a simple impression of which countries wanted how much in terms of liberalization. The score ‘0' on the index is given to an imaginary country that wants the WTO to acknowledge its full right to close its markets to international competition while the score ‘100' is given to a country with the aim of eliminating all forms of production support and barriers to world trade. The index indicates that the median WTO member received a score of 64 in the Doha round, clearly showing that the majority of the membership preferred a substantial liberalization of world trade. At the bottom, Norway received a score of 33 while Colombia at the top of the index had a score of 80. As both countries were by and large without actual influence, the real question instead is where the key players – Brazil, Canada, the EU, India and the US – are placed on the scale.

Starting with the two most influential developing countries, our index shows Brazil receiving a score of 74 while India receives 62. Brazil, a major exporter of food, hence seems to have been one of the strongest proponents of liberalizing world trade and the country even strengthened its position on agricultural trade during the Doha Round negotiations. India, on the other hand, would appear relatively average, yet the country made rather substantial efforts to avoid any real liberalizing agreement in the ongoing parallel negotiations on industrial tariffs. The giant country was obviously not prepared to give up its protectionist position in the area in which most developed countries wanted concessions in return for liberalizing agricultural trade. On the other hand, commentators have also emphasized that Brazil may have been too ambitious on behalf of the developed countries, in particular when negotiating developed countries' reductions of tariffs and subsidies in agriculture.

Turning to the developed countries, the score of Canada is 68, that of the US is 72 while the EU only received a miserly 42 – we were even careful not to treat the union too harshly. As such, the picture here is slightly less complex. While the Canadian position early on emerged as a compromise candidate – indeed, Canada has in all our analyses been the country that most negotiation partners could agree the easiest with – the US strategy was rather opaque during the first years. It was often difficult for both member states and analysts to understand what exactly the US desired from the WTO. That nonetheless changed in time, as President Bush brought forward a proposal that can perhaps best be summarized as this: "We are willing to make substantial cuts in agricultural support and tariffs as long as the European Union as prepared to follow". The American proposal was unambiguous and would have lead to a significant liberalization of world trade, which would be to great benefit for developing countries. At some level, it was thus a courageous proposal, yet on another level the proposal was entirely for free.

The reason that the US proposal was costless is that the Americans most probably were aware that chances were very low that the EU would accept. As the EU score on our free trade orientation index suggests the union was from the very beginning the second most protectionist member state – only Norway appeared less intent on liberalization although its influence in the WTO was understandably minuscule. What is even worse, contrary to many other member states the EU never changed its overall position. The union may have brought forward a number of complex proposals but their effects could in all cases be rejected as de facto liberalizing since all proposals had a common structure: the union offered liberalizing one area but always in return of concessions in another specific area that would render the former liberalization worthless. The energetic efforts of the EU team at the WTO was thereby directed at signalling that the union was ready to accept moves towards freer trade and less production support while at the same time trying to avoid obligations on a number of so-called ‘sensitive products'. Had other member states accepted the proposals, it had meant that the union could have lowered tariffs on a number of goods that are hardly produced in Europe while maintaining substantial protection and support for European agriculture.

The EU therefore emerged as the main protectionist force in the WTO. The last question in search of an answer is what the likely consequences are of the breakdown of the trade talks in the WTO. International economists can answer that question with a great degree of precision by assessing what benefits would have arisen from having a truly liberalizing agreement. First of all, trade is one of the main determinants of economic growth and thus of effective poverty reduction. Much damage is therefore done to developing countries by maintaining the current level of protection from international competition in the one area – agriculture – in which they typically have large comparative advantages. Adding insult to injury, this is the area in which most of the world's absolutely poorest people work. Second, the breakdown
means that EU consumers w
ill for years to come still have to endure paying higher prices for goods that could have been bought at lower prices and often at higher quality in the world market. Calculating the sum of direct costs – agricultural support is paid through taxes – and indirect costs arising from the lack of competition reveals that this is not a minor problem. The EU common agricultural policy, which would have had to undergo thorough reform had the negotiations ended in a deal, incurs an additional cost on typical Danish and British families with children roughly the size of an entire monthly pay check! Hence, all Europeans would have become markedly richer had the WTO negotiations resulted in a deal. The lack of a deal also brings other costs, as a higher degree of openness to trade is also associated with, e.g., higher quality production, a large variety of goods, and less corruption in poor countries.

In total, a number of countries must share responsibility for the breakdown. Brazil and other Third World food exporters probably were too ambitious on behalf of the developed countries, India refused to accept more competition in its comparatively weak industries, and the US position remained opaque while the country for too long hid behind the protectionist positions of other member states. However, the bottom line is that the main culprit – the member bearing most of the responsibility – is the European Union. The problem continues to be that the official policy of the union is controlled by Southern European countries with strong agricultural lobbies – and the policy is therefore rather clearly dictated by Paris. French top politicians have throughout the negotiations ‘protected' French farmers against cuts in tariffs or support measures – Jacques Chirac and Dominique de Villepin both went on air in national media to ensure their voters that France would veto any liberalization – which makes the country the Global Public Enemy Number One. Yet, another part of the story that needs to be told is that other EU members also made an indirect effort. The EU as a whole and traditionally liberalist countries such as the UK and Denmark in particular are all accomplices. We are guilty of both crimes and misdemeanours but the worst crime of them all is that we are actively preventing poor countries from gaining extra opportunities to lift themselves out of deep poverty. If justice exists in this world, future historians will not look kindly on today's political letdown.

 

4 Comments

  1. Are these statstical tools you mention available anywhere? Good job anyway.

  2. I too came from MR. A nice effort. It would be even better if you presented it as a table or graph. Thanks.

  3. Good call!, as people used to say. I found you through Marginal Revolution and have taken the liberty of using it at my blog: “La Benevolencia del Cervecero”

  4. Christian Bjørnskov

    31. juli 2006 at 10:44

    To MatteoYes, the statistical tools are presented in a working paper as well as a couple of publications. The link to the working paper is:http://www.kvl.foi.dk/upload/foi/docs/publikationer/working%20papers/2002/2.pdf

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