The end of a deal in Geneva

The end of a deal in Geneva

The prognosis for another round of trade liberalization was never good. One summit after another witnessed “collapse" of trade talks, almost always on the same set of issues. When late last week, Pascal Lamy, the director general of the World Trade Organization said that “this is a grave situation for the (Doha) Round and for all of the efforts and aspirations it embodies," he was only saying what has been evident for many years now.

The proximate cause for the dead end is the issue of tariffs on chemicals, industrial goods and electronics. The US has complained that developing countries such as India, China and Brazil are not reducing these sufficiently. The latter say they’ve already done enough— and that too unilaterally. This is nothing but an excuse to finish and already asphyxiated deal. All sides are to be blamed.

In retrospect, one can say the world was not prepared for such a deal even if its need has never been more evident. Agriculture is a good example of how hard held positions are meaningless in the face of changing circumstances. Rich countries are willing to cut subsides for their farmers. Even then, subsidies would amount to billions of dollars and would certainly distort global trade in agricultural commodities. Developing countries fear for the livelihood of their farmers if trade in these commodities is liberalized. Both positions are of doubtful validity.

Since 2001, when the Doha Round was launched, the global food scenario has changed dramatically. Today, galloping food prices have the potential to impart an economic shock on poor countries. If anything, cheap subsidized foodstuffs will benefit poor countries. And the world hardly able to keep up production of food to match demand. Cheap US and European food can douse inflationary fires that have been lit across the world.

It is fine for developing countries such as India to harp on the survival of their farmers. But have they done anything to end the structural crisis that plagues agriculture? The slow pace of agricultural growth in India since 2001 and the sclerotic level of public investment in the sector clearly shows that farmers’ welfare has only served as a good excuse at fora where trade negotiations are held.

In the absence of a multilateral, rule-based, trading agreement, it will be every country for itself. Bilateral and regional trade agreements will become a norm. This will be an asymmetric contest of wills in which the losers will be the poor countries.

There is no doubt that the US and other countries too are culpable in bringing down the Doha Round. The purpose of this round was to make poor countries partners in global trade. The niggardly behaviour of rich countries has ended that dream.

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