[Pen-l] Dani Rodrik: The Doha trade talks were never about development

[ravi <ravi@xxxxxxxxxxxxxxx>]

http://www.guardian.co.uk/commentisfree/2008/aug/08/wto.internationalaidanddevelopment?gusrc=rss&feed=networkfront

Don't cry for Doha

The latest round of trade talks were never really about development.  
So their collapse doesn't change anything

Will they or won't they? Will the world's trade ministers eventually  
sign a new multilateral trade agreement that reduces agricultural  
subsidies and industrial tariffs, or will they walk away empty-handed?  
The saga has been ongoing since November 2001, when the current round  
of negotiations was launched in Doha, Qatar, with numerous subsequent  
ups and downs, near-collapses, and extensions.

The latest round of talks in Geneva has once again failed to produce  
an agreement. Judging by what the financial press and some economists  
say, the stakes could not be higher.

Conclude this so-called "development round" successfully, and you will  
lift hundreds of millions of farmers in poor countries out of poverty  
and ensure that globalization remains alive. Fail, and you will deal  
the world trading system a near-fatal blow, fostering disillusionment  
in the South and protectionism in the North. And, as the editorialists  
hasten to remind us, the downside is especially large at a time when  
the world's financial system is reeling under the sub-prime mortgage  
crisis and the United States is entering a recession.

But look at the Doha agenda with a more detached set of eyes, and you  
wonder what all the fuss is about. True, farm-support policies in rich  
countries tend to depress world prices, along with the incomes of  
agricultural producers in developing countries. But for most farm  
products, the phasing out of these subsidies is likely to have only  
modest effects on world prices — at most a few percentage points. This  
is small potatoes compared to the significant run-up in prices that  
world markets have been experiencing recently, and it would in any  
case be swamped by the high volatility to which these markets are  
normally subject.

While higher world farm prices help producers, they hurt urban  
households in developing countries, many of which are also poor. That  
is why the recent spike in food prices has led many food-growing  
countries to impose export restrictions and has caused near panic  
among those concerned about global poverty.

It is hard to square these fears with the view that the Doha trade  
round could lift tens, if not hundreds, of millions out of poverty.  
The best that can be said is that farm reform in rich countries would  
be a mixed blessing for the world's poor. Clear-cut gains exist only  
for a few commodities, such as cotton and sugar, which are not  
consumed in large quantities by poor households.

The big winners from farm reform in the US, the EU and other rich  
countries would be their taxpayers and consumers, who have long paid  
for the subsidies and protections received by their farming  
compatriots. But make no mistake: what we are talking about here is  
domestic policy reform and an internal redistribution of income. This  
may be good on efficiency and even equity grounds. But should it have  
become the primary preoccupation of the World Trade Organisation?

What about industrial tariffs? Rich countries have demanded sharp cuts  
in import tariffs by developing countries such as India and Brazil in  
return for phasing out their farm subsidies. (Why they need to be  
bribed by poor countries to do what is good for them is an enduring  
mystery.) But here, too, the potential benefits are slim. Applied  
tariff rates in developing countries, while higher than in advanced  
countries, are already at an all-time low.

According to World Bank estimates, complete elimination of all  
merchandise trade restrictions would ultimately boost developing- 
country incomes by no more than 1%. The impact on developed-country  
incomes would be even smaller. And, of course, the Doha Round would  
only reduce these barriers, not eliminate them altogether.

The Doha round was constructed on a myth, namely that a negotiating  
agenda focused on agriculture would constitute a "development round."  
This gave key constituencies what they wanted. It provided rich- 
country governments and then-WTO Director General Mike Moore with an  
opportunity to gain the moral high ground over anti-globalization  
protesters.

It gave the US a stick with which to tear down the EU's common  
agricultural policy. And it was tailor-made for the few middle-income  
developing countries (such as Brazil, Argentina, and Thailand) that  
are large agricultural exporters.

But the myth of a "development" round, promoted by trade officials and  
economists who espouse the "bicycle theory" of trade negotiations —  
the view that the trade regime can remain upright only with continuous  
progress in liberalisation — backfired, because the US and key  
developing countries found it difficult to liberalise their farm  
sectors. What ultimately led to the collapse of the latest round of  
negotiations was India's refusal to accept rigid rules that it felt  
would put India's agricultural smallholders in jeopardy.

More importantly, the fears underlying the bicycle theory are wildly  
inflated.

We live under the most liberal trade regime in history not because the  
WTO enforces it, but because important countries — rich and poor alike  
— find greater openness to be in their best interest.

The real risks lie elsewhere. On one side is the danger that today's  
alarmism will prove self-fulfilling — that trade officials and  
investors will turn the doomsday scenario into reality by panicking.  
On the other side is the danger that a completed "development round"  
will fail to live up to the high expectations that it has spawned,  
further eroding the legitimacy of global trade rules over the longer  
run. In the end, it may well be the atmospherics — psychology and  
expectations — rather than the actual economic results on the ground  
that will determine the outcomes.

So don't cry for Doha. It never was a development round, and  
tomorrow's world will hardly look any different from yesterday's.

_______________________________________________
pen-l mailing list
pen-l@xxxxxxxxxxxxxxxxxx
https://lists.csuchico.edu/mailman/listinfo/pen-l