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A Blend of Strong Measures Puts Trade Talks Back Together

Author: Jagdish N. Bhagwati, Senior Fellow for International Economics
December 19, 2005
Financial Times

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As the World Trade Organisation meeting neared the end on Sunday, the resolve of negotiators to agree on a declaration on which the completion of the Doha round next year might be based was manifest. Six days and sleepless nights in Hong Kong characterised their determination not to fail.

As the draft agreement said: "You don't close divergences by taking time off to have a cup of tea", a metaphor rich in allusion to the magical "China drink" that the Dutch East India Company introduced to Europe in an earlier age of globalisation. The interesting questions now are: why did the meeting not end in failure and where do we go from here?
Most strikingly, the protesters, carrying placards that screamed "Sinkthe WTO", failed in their objective. The violence at the end threatened a return to the chaos of Seattle in November 1999, when demonstrators wrestedthe opportunity to launch the WTO's first round of multilateral trade negotiations from the hands of delegates. But these tactics did not work this time. Hong Kong was prepared where Seattle was not. The opening of the Seattle meeting had been postponed by bomb threats and the demonstrators had blocked delegates' access to theconference hall, but the Hong Kong demonstrators never managed that. The size of the demonstrations was also nowhere near the scale that Seattle witnessed. Indeed, even the last World Bank and International Monetary Fund meetings this year saw demonstrators in a sorry state. Many focused instead on protesting against the Iraq war, seeking to get at the World Bank indirectly by attacking Paul Wolfowitz, its president.

It is now evident that the protesters and the non-governmental organisations are no more a monolithic bloc than are the negotiating governments. The South Korean farmers who constituted the majority of demonstrators in Hong Kong were protesting against the reduction of agricultural protectionism in South Korea, a member of the Organisation for Economic Co-operation and Development. Likewise, Jose Bove, the French anti-globalisation farmer who featured prominently in the protests, is a defender of European Union agricultural protectionism. They were pitted against the British charities, such as Oxfam and Action Aid, whose anti-protectionist agitation is doubtless coloured by the fact that Britain is the loser in the EU's common agricultural policy.

But if these groups no longer had the coherence that could kill the Hong Kong meeting, the negotiating governments had every incentive to save it. Those among us who thought that there were arguments for cautious optimism at Hong Kong, and for the Doha round's success, turned out to be right. The previous ministerial conference in Cancun had taken out the contentious Singapore issues - competition policy, investment and transparency in government procurement - and paved the way for a reform of the agreement on trade-related aspects of intellectual property. But in Hong Kong, there was more progress on the key issues still before it.

First, on agriculture, an agreement to eliminate export subsidies - which amount to no more than about Dollars 5bn (Pounds 2.8bn) anyway - was much desired. The EU correctly insisted that food aid, which is obviously trade-distorting, be included, as should most forms of export credits and even state trading practices in so far as they distort trade. With the support of India and China, which have generally refrained from targeting the EU, an agreement was reached to eliminate export subsidies, not by 2010 but by the end of 2013. This is a big addition to the early harvest for the Doha round.

Second, while there is no commitment on the rest of trade-distorting agricultural subsidies and on tariffs and quotas - though progress has been made on who should cut subsidies more - and on the reciprocal concessions by Brazil and India on market access in manufactured goods, no line has been drawn in the sand either against commitments to such concessions in the further negotiations.

There is every indication that India will play ball: its socialist and communist opposition is tied up with opposing privatisation and labour reforms. Indian industry has come of age and has now moved, thanks to its success in information technology, from a defeatist embrace of protectionism to a "can do" attitude. Manmohan Singh, the Indian prime minister, and Kamal Nath, his commerce and industry minister, both see protectionism as a relic of the past. Brazil and the Cairns Group of agricultural exporters recognise that the success of the Doha round is their best hope of getting trade-distorting subsidies and trade restrictions on market access removed. Given the high value they attach to the reform of agriculture in the trading system, surely they are prepared to make concessions in market access for manufactured goods. There is plenty of indication that they will do so.

Third, the 50 least developed countries have now been bought off with duty-free and quota-free access on 97 per cent of import lines by the EU, Japan and the US by 2008. In truth, this is an approach that is harmful to these countries in many ways. The preferences it implies are a wasting asset: their value, already small, declines as most favoured nation tariffs decline. Besides, it cynically helps these countries' exports at the expense of their poor competitors in the developing countries just above the qualifying line. Yet, the least developed countries are keen on this folly and since their consent is necessary before Doha can conclude, that is one more obstacle removed.

Fourth, the declaration endorses what many of us have argued for some years now: that aid should be given for trade to enable the poor countries to take advantage of the improved opportunities resulting from the reduction of trade barriers, both abroad and at home. Offers in that direction were made by the EU, US and Japan. I am glad to see that my suggestion that Pascal Lamy, the WTO's director-general, set up a task force to channel these funds in appropriate ways has been endorsed.

So, we have now taken significant steps towards the conclusion of the Doha round. The urgency of reaching the contours of the final agreement by the end of 2006 (because of the expiry of fast-track authority in the US) has led the 149 governments, which have little doubt about the value of the Doha round, to set April 30 as the new deadline. We can fully expect that the governments, and the WTO secretariat, will be consuming a lot of tea as they make this final dash to a successful completion of Doha.

The writer is university professor of economics and law at Columbia University and senior fellow in international economics at the Council on Foreign Relations. He is the author of In Defense of Globalization (Oxford).

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