India Blamed for Doha's Death
India led the charge to kill Doha, say the western government officials and commentators about the failure of the latest round of World Trade Organization (WTO) talks in Geneva to conclude a wide ranging agreement on world trade. Backing India's demands, including right to impose food import tariffs and end to agriculture subsidies in US and Europe, were Brazil, China and other developing nations in Asia. Africans were angry that their trade issues, particularly cotton, were not even discussed as the negotiators from developing giants fought pitched battles with their counterparts in developed nations.
"The way the Doha Round collapsed is a preview of what we're likely to see in other negotiations," said Kimberly Elliott, a senior fellow for the Center for Global Development, a Washington think tank, told the Wall Street Journal. "Emerging markets [such as China and India] are taking a big role," she said, sometimes elbowing out even poorer nations. Other important multilateral negotiations underway include carbon emission reductions which are likely to see similar discord between developed and developing nations.
By all accounts, the key reason for the Doha collapse was the failure to reach agreement on agriculture tariffs by developing countries and farm subsidies by US and Europe. Both sides were looking to protect their farmers from the downside of free trade. To learn more about the political power of US corporate farm lobby, please read my recent post "The US Food Aid and the Farm Lobby". Neither side could muster the courage to face the wrath of their powerful domestic lobbies in reaching a comprehensive agreement that would dramatically increase trade for a whole range of goods and services and significantly cut tariffs. There is a lot of interest by western companies in selling a broad range of luxury goods, financial services and high-tech products in emerging markets. The developing world would benefit by lowered tarriffs and easier access for their goods and services to markets in US, Europe, Japan and South Korea.
Mr. Pascal Lamy, the director general of the world trade organization, said negotiators' positions had converged on 18 of 20 topics on their "to-do list." But they couldn't narrow the gaps on the 19th, a safeguard mechanism sought by developing countries that would let them temporarily raise tariffs when food imports surge and severely lower prices for domestic farmers, according to Mr. Lamy. In particular, China and India wanted the trigger for such tariffs to be a 10% increase for imports, and the U.S. wouldn't settle for a threshold lower than 40%, The Wall Street Journal reports. Once "it became clear that the differences were irreconcilable," Mr. Lamy said, "the remaining issues, including cotton, were not even negotiated." The agreement on cotton was of particular interest to cotton producers in Africa. A successful agreement on cotton would have been felt most keenly in the West and Central African countries of Benin, Burkina Faso, Chad, Mali, and Togo, where cotton accounts for up to 60 percent of exports, as well as other African producers such as Uganda and Tanzania.
Venting his frustration at the failure, Lamy said to reporters, “What members have let slip through their fingers is a package worth more than $130 billion in tariff-saving annually by the end of the implementation period, with $35 billion saving in agriculture and $95 billion in industrial goods".
Prior to the collapse, Pakistani delegation led by Commerce Minister Mr. Ahmad Mukhtar, appeared to be hoping for significants benefits to flow to Pakistan from the success of Doha.
Before hitting the food import tariff deal-breaker, there was a weeklong meeting of 35 trade ministers of leading countries, including Pakistan, which produced significant agreements. Dr. Manzoor Ahmed, Pakistan’s Ambassador to WTO, told Dawn that it has been agreed that the US would cut its allowable subsidies by 70 per cent from $48 billion to $14.7 billion while EU has agreed to cut them by 80 per cent.It has also been agreed that developed countries could cut their agricultural tariffs by an average of 60 per cent.
A few days ago, Dr. Manzoor Ahmad also told Dawn that the most important area for Pakistan’s concern was cuts for tariffs on industrial goods. It had been agreed that all tariffs in developed countries would be brought below 6.5 per cent under the proposed package. Thus, current tariff of 19.6 per cent on export of cotton shirts would be reduced to 5.6 per cent or by over 70 per cent. For knitted shirts of man-made fibers where Pakistan could only manage exports of only two million dollars because of high tariffs of 32 per cent, this would now come down to 6.4 per cent, he said prior to Doha's collapse.
There would be many such new market opportunities for Pakistani exporters, the Pakistani trade rep hoped and added similar opportunities would arise in case of EU where Pakistani exporters would pay tariffs of eight per cent and 12 per cent on most of their exports. All these tariffs would be reduced to below five per cent, he said. On top of that generalized system of preference (GSP) of 20 per cent would likely stay. This would imply a reduction of over 50 per cent in duty on our exports to the EU, Dr Manzoor said and added in many other countries, such as Canada and Australia, also there would be many openings for Pakistani products.
All of Pakistani delegations' hopes and those of other developing nations were dashed, at least for the moment, with the collapse of Doha. There was also regional discord on display among South Asia nations as Bangladesh delegate complained about unfairness. He said, "We ask the Chair to apply the same methodology that was applied for selecting the tariff lines for Pakistan and Sri Lanka, and then give us the tariff lines that come up for Bangladesh." Bangladesh representative continued, "We strongly believe that same and equal methodology should be used, and we will accept the tariff lines that will be selected after application of that methodology".
The Doha collapse has revived the angry rhetoric that has often characterized the WTO standoffs in recent years, arguments that have tended to embrace the urgent geopolitical issues of the day. U.S. trade representative Susan Schwab told the Wall Street Journal that "in the face of the global food crisis, it's unconscionable that this came down to how much countries could raise their barriers to imports of food." Indian trade and commerce minister Kamal Nath, expressing a view felt widely among developing-country negotiators incensed at what they see as excessive, insensitive U.S. demands, said "it's unfortunate that in a development round" -- a major theme of Doha -- "we couldn't agree to an issue of livelihood and security." Mr. Lamy, Le Monde adds, declined to engage in what he called the "accusation game" and said he would consult with WTO members on what to do next.
Free trade advocates argue that the trend toward freer trade is essential for continued growth of the world economy. In 1990, trade represented about 40% of world GDP, according to the World Bank. By 2004, trade exceeded 55% of world GDP, and the global economy had expanded by 50%. The five fastest-growing countries from 1990 to 2004 were Albania, Bosnia and Herzegovina, China, Ireland and Vietnam, and all of them had annual double-digit increases in trade. Meanwhile, the countries that traded the least -- Iran, many African countries -- have stagnated.
Lamenting the demise of Doha, the Wall Street Journal editorial singles out Kamal Nath, the Indian Commerce Minister, for the harshest criticism. The Journal editorial says, "The real battle is between those who want to expand this era of global trade and prosperity, and those who want to carve out their own protected niches."
The Journal editorial goes on to say, "The latter seems to include Indian Commerce Minister Kamal Nath, who is the main villain in this week's failure. He preened as a Third World hero by refusing to open his country further to farm imports, insisting on a "special safeguard mechanism" that would have let countries jack up their tariffs if imports rose too rapidly. He claimed this would protect the "livelihood of millions of farmers" in India. But the rise of India's middle class has coincided precisely with the move of millions from the countryside to cities, as well as India's growing engagement with the world economy. More Indians will stay poorer longer because of his obstinance."
Not everyone is unhappy with the collapse of Doha. The critics of free trade hail Kamal Nath as a hero. Reuters reports that anti-globalization groups welcomed the collapse of talks on a new world trade treaty as a triumph for farmers, workers and the poor around the globe and a blow against "big business." And even mainstream labor and farm groups argued that the deal on the table at the World Trade Organization (WTO) Doha round negotiations over the past few days was so bad that it was just as well that it had been abandoned. "Victory for small farmers, workers, civil society and developing nations," declared the US-based Public Citizen group, which for over a decade has campaigned against the WTO and its drive to liberalize international trade. Public Citizen group is just one of many NGOs that have organized and gained strength over the last decade. This new breed of NGOs opposes what is perceived as the corporate-led globalization efforts to serve the interests of the big multi-national corporations rather the ordinary people in developing and developed countries.
Here's a video clip of Pascal Lamy announcing the failure of WTO Talks in Geneva on July 30, 2008:
Pakistan Trade Policy Review 2008
When market economists get caught up in small ups and downs in data releases, they tend to miss the big picture. One major trend that has not received the attention it should is the significant decline in the value of global trade in 2015 for the first time since the global financial crisis. The question to answer then is whether this is a cyclical phenomenon - slow global growth is likely to mean lower imports and exports or a change in trend. The latter would indeed be worrying, as expansion in trade has been an important driver of global productivity gains. To quote noted economist Gavyn Davies, "the expansion of global trade seems to have lost its mojo".
Let's look at some numbers. According to the International Monetary Fund, world exports in goods and services (measured in US dollars) declined by 10.9 per cent while exports of goods alone declined by 12.5 per cent in 2015. The World Trade Organization (WTO) database shows a marked moderation in the annual growth in world trade volumes, which has fallen steadily from 4.2 per cent in the fourth quarter of 2014 to one per cent in the same quarter of 2015.
This decline is somewhat conveniently attributed to three factors: the rise in the US dollar (that makes values in other currencies translate to less in US dollars), the fall in commodity prices and the replacement of outsourcing with domestic production, particularly by firms based in China. A recent report from the think tank Centre for Economic Policy Research ("The Tide Turns? Trade, Protectionism and Slowing Global Growth" by Simon J Evenett and Johannes Fritz), rejects the interpretation that these are the only factors affecting global trade.
According to them, world export volumes are currently two per cent below their peak, breaking the upward trend apparent since the global economy emerged from the crisis in 2010. Global trade is not just slowing down, it is falling, too. And this cannot be explained by either commodity prices or exchange rates. After decomposing the recent fall in trade values, the authors find that while the collapse in commodity trade stands out, trade in other categories including intermediate, capital and consumer goods also stand at 10 to 20 per cent off their peaks in 2014.
Another hypothesis is that the fall in global trade is actually the result of improved efficiency - companies are reconfiguring their supply chains, buying more of local components, keeping their inventories tight. The report takes a step forward and segregates manufactured products into two categories: ones where parts and components are included within the category and others that are essentially final goods. The contraction in trade involving parts and components is substantially less than the decline in final goods trade. This, the authors believe, casts doubt on the importance of supply chain reconfiguration as a critical explanation of the fall in global trade.
Instead, they find that the products whose exports have fallen are the very same products where G-20 countries have imposed trade restrictions since the beginning of 2014. They argue there has been a rise in the worldwide spread of protectionist measures, with a variety of measures being used to protect domestic businesses. In addition to tariff hikes, these include measures such as subsidies and bailouts, localisation requirements as well as measures against import surges.