WHEN the Middle East is ablaze, oil prices near record highs, the American economy cooling and the climate warming, it is hard to get excited about the beaching of trade talks. After all, globalisation is unstoppable: so what if a few technocrats in Switzerland packed up their briefcases and went home?
So a lot. Such attitudes were behind the wrecking of the Doha round of trade talks this week. This disaster, born of complacency and neglect, signals a defeat of the common good by special-interest politics. If the wreck is terminal—and after a five-year stalemate, that seems likely—everyone will be the poorer, perhaps gravely so.
It is not just the narrow business of the Doha round (if narrow is a fit adjective for an ambition to lift millions out of poverty, curb rich countries’ ruinous farm support and open markets for countless goods and services) that is at stake. In the long run, the lack of commitment to multilateral trade that sank the Doha round this week will also start to corrode the trading system as a whole.
The world’s most successful confidence trick
Old hands will find that alarmist. Trade talks always seem to break down before they succeed: the Uruguay round was supposed to be over in four years and dragged on for a painful eight. Farm trade, the cause of this week’s collapse, has always been particularly contentious. Anyway, although a global deal may have been lost, regional ones between small groups of countries are doing the job at twice the speed and with half the fuss. The gains of previous trade rounds have been banked, and nobody is going to risk the prosperity created as China, India and others join the global economy by undermining trade.
Old hands need to look with new eyes, for this week’s debacle constitutes the biggest threat yet to the post-war trading system. It marked the trade diplomats’ surrender to the confidence trick on which the system is founded. And it betrayed a reckless disregard for the value not just of the Doha round, but also of the smooth working of world trade.
The benefits from free trade come more from imports than from exports. Imports of cheaper or better goods give consumers more for their money and, through competition, raise domestic productivity. Multilateral liberalisation is a sort of jujitsu that uses exporters’ determination to get into foreign markets to overwhelm domestic lobbies that would sooner keep home markets closed. The trade diplomat’s incantation that to open his market is a “concession” granted in exchange for an opening somewhere else is economic nonsense spouted for domestic political purposes. But it is remarkably fruitful nonsense because, within the World Trade Organisation, any concession to one trade partner is automatically extended to all members. This trick has helped the world enjoy decades of prosperity.
Doha added a fiction all of its own with the idea of a “development round”, seen as a clever way of giving grubby trade some moral appeal. But both tricks have now backfired, by persuading rich-country participants that, rather than boosting their own economies, they were sacrificing their national interests to those of foreigners.
No one country is to blame: many of the participants are culpable. India wanted fewer farm subsidies and lower tariffs but was unwilling to reduce barriers to farm goods and industrial products; the EU wouldn’t cut its farm tariffs; America, the animating spirit behind earlier trade rounds, declared that a bad deal was worse than no deal at all—and meant it. The underlying rationale of unilateral trade liberalisation had been buried and forgotten long ago.
Which is why trade diplomats are looking to regional agreements as a better way to do business (see article). Such deals are certainly easier to pull off. A decade ago they were a rarity but now just about every WTO member is part of at least one.
In narrow terms, the merit of such deals depends on whether they create trade or divert it. But their broader effect may be damaging. Bilateral deals are complex and tend to be bad for poor countries. In multilateral deals, poor countries can piggyback on powerful countries’ negotiating clout; in bilateral deals, they’re on their own. And the more bilateral deals are in place, the harder it will be to pull off a multilateral one.
Those reckless wreckers
Is Doha’s collapse just a failure to advance, rather than a reversal? Probably not. True, the seas of world trade are calm. Trade has been growing much faster than global GDP. High commodity prices and robust growth mean that the call for protection is low. But although the system will not fall apart overnight, with the years, the rust will set in.
Next year, the American president will lose the power that Congress has granted him to negotiate trade deals without them being picked to pieces by the legislature. That will make it hard to revive Doha. Rows about farm trade could be aggravated by next year’s American farm bill. The ill will evident this week could spread if American and European manufacturers start to shed lots of jobs in a downturn. Western complaints about the piracy of intellectual property could sharpen rows with developing countries.
What’s more, the WTO’s crucial trade-disputes procedure could easily come unstuck. After this week’s failure, next time the WTO rules against America, Congress will not take the offence kindly. Put all of these together, and it is easy to see how easily the whole trading system, not just one round of talks, could be wrecked.
The Doha round was launched after the attacks of September 11th 2001 as proof that a prosperous and united world could rise above Islamist terrorism. This week, faced once again with violence that they seem powerless to halt, political leaders had it within their scope to make the world better off. They failed.