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Uncertain Trade Winds

Prepared by: Lee Hudson Teslik
February 15, 2007

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The history of the Doha round of trade negotiations is full of false starts. But when negotiations ground to a deadlock last summer, the significant liberalizations the talks had targeted were pronounced all but dead. The United States and the European Union weren’t willing to make large enough cuts in their agricultural subsidies and tariffs. Likewise, major developing nations like India and Brazil showed no further inclination to drop trade barriers and expose their economies to Western competition. With this in mind, last month’s statement from trade ministers at the World Economic Forum at Davos resurrecting the Doha negotiations was celebrated as a breath of fresh air, but also raised some eyebrows. Skeptics point out that the plans are short on specifics (BBC), and the uncomfortable question remains whether any of the parties will be willing to break the stalemate.

The answer is by no means clear cut, says Jagdish Bhagwati, CFR’s senior fellow for international economics. In a recent interview, Bhagwati points out that the ministers won’t be starting from scratch. Doha’s modest accomplishments thus far have “cleared the decks,” he says, so that talks can focus more directly on central debates like the one over agriculture. But those core issues will still be devilish to resolve. Despite a proposal by President Bush to make substantial cuts in U.S. agricultural subsidies, the United States still offers its farmers massive supports, by global standards, while demanding that European countries lift similar programs and that developing nations open their doors to U.S. companies. Bhagwati describes U.S. officials as “minimalists in terms making concessions in the farm sector” but “maximalists in making demands on others in terms of agriculture.” A number of EU nations also face formidable domestic pressures that could undermine a deal. The most entrenched is France, whose public strongly supports maintaining agricultural tariffs and whose politicians will have only so much political wiggle-room ahead of its April 22 presidential elections. The French trade minister recently said she “wasn’t specially optimistic” (AFX) about renewed Doha talks.

Yet another monkey-wrench is the likely expiration this summer of President Bush’s fast-track trade promotion authority (TPA). This grants the president power to negotiate trade deals without congressional review and is considered a critical tool in the effort to pass a meaningful Doha deal, as explained by this Business Roundtable briefing. The U.S. Trade Representative Susan Schwab is lobbying congressional Democrats to renew TPA (AP), but as CFR Senior Fellow Edward Alden argues in this Financial Times op-ed, Bush may have to “pay heavily to get what he wants.” Nor is it certain that Congress would pass a deal, even if one is negotiated before TPA expires. Rep. Barney Frank (D-MA), the chairman of the House Financial Services Committee, said at a February 15 committee hearing he thought Congress was unlikely to approve a deal.

The big unknown is what happens if Doha fails. The most immediate effect could be a surge in bilateral trade deals, though they are already on the rise, as this CFR Backgrounder outlines. A breakdown of multilateral trade efforts could spell frustration for the WTO; this research paper (PDF) by the British House of Commons envisions a boost in the number of WTO dispute cases, particularly over issues like agricultural subsidies that could have been addressed within the Doha talks. The biggest loss could be felt by the developing world. When Doha kicked off, a World Bank report (PDF) estimated that lifting barriers to trade could lift 300 million people out of poverty by the year 2015. Richard Holbrooke and Stuart Eizenstat write in a February 15 op-ed in the Wall Street Journal that Doha’s failure would “lead the United States and the European Union to negotiate more bilateral free-trade agreements with key countries, but not with sub-Saharan Africa and other poor markets.” The writers conclude: “For Africa, this may be the last best chance” (Subscription required).

Backgrounder: Congress and Trade | CFR Critical Policy Choice: U.S. Trade Strategy

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