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Doha Is the Only Option for Advancing Trade

Authors: Jagdish N. Bhagwati, Senior Fellow for International Economics, and Robert E. Baldwin
December 18, 2003
Financial Times

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Robert Zoellick's love affair with preferential trade deals suffered a serious setback at last month's ministerial meeting on the Free Trade Area of the Americas in Miami.

The patchwork deal that emerged from Miami was little more than a face-saving formula. Notwithstanding yesterday's announcement of trade agreements between the US and four Central American nations, it is clear that the US trade representative's strategy of going for bilateral and regional deals faces serious difficulties.

The consequence is that the Doha round has resurfaced as a serious option for advancing world trade, despite the premature reports of its demise at the Cancun meeting of the World Trade Organisation in September. We would argue that Doha must be seen not just as an option but as the only option if we are to make further progress in liberalising that part of the world trading system where protectionism is most entrenched: agriculture. That makes it all the more important that the overwhelming political support for the Doha round, expressed at the WTO's general council meeting this week, is translated quickly into meaningful negotiations.

Part of the reason for the failure of the Miami talks was that politics intrudes into the choice of trade partners and the agendas covered by bilaterals and regionals. Mr Zoellick has always refused to admit this, even as the US has used bilateral deals to favour loyal allies (such as Australia) and punish fickle friends (such as New Zealand). The reality is that domestic and international politics create roadblocks to trade liberalisation.

That was clear during the US negotiations with Mexico over the North American Free Trade Agreement. Many protectionists focused on Mexico's problems, regardless of whether these had anything to do with trade. They alleged that free trade with

Mexico would not be "fair" trade. A variety of non-trade issues became part of the talks: the state of Mexico's environment, its labour standards, its intellectual property law and the state of its democracy. In the end Nafta survived, but barely, and trade negotiations since then have been taken prisoner by US lobbies, good and bad, that seek to advance their agendas by pretending that they are "trade-related".

But the FTAA has been afflicted instead by international politics. Brazil evidently sees it as an extension of Nafta, with the US playing the hegemon. Brazil favours instead an expansion from the Mercosur customs union, which it dominates. At Miami, this political agenda set Brazil against the US and its allies, Canada and Mexico. Perhaps Luiz Inacio Lula da Silva and his advisers were getting their own back on Mr Zoellick for his remark in 2002 that, if he was opposed to the FTAA, the Brazilian president was free to trade with Antarctica.

But the main problem with bilateral and regional deals is that they simply cannot deal with the issue of removing agricultural subsidies. How can production subsidies, which have proliferated in the US and Europe, be cut preferentially? It is impossible. At the same time, cutting export subsidies preferentially for one's free trade association partners, though technically possible, is out of the question politically. Why? Because such a move would turn the political logic of preferential trade deals on its head. Reducing tariffs for members of an FTA lowers the competitiveness of non-members, which continue to face tariffs when they sell into FTA markets. That provides a strong incentive to sign FTAs. But if FTA members cut their export subsidies, the competitiveness of non-members, which maintain their subsidies, increases instead in FTA markets.

Ironically, even under the lax discipline of WTO rules - which allow FTAs under specific conditions - the US itself has long taken the position that FTA members should not be allowed to exempt large sectors, such as agriculture, from their ambit. To pursue FTAs - which, owing to the difficulties outlined above, are likely to exempt protectionist agricultural subsidies - is not exactly consistent with the spirit of that position.

If the world's trading nations are to attack agricultural subsidies, going down the bilateral path is not merely unwise; it is also impractical. There is no escaping Doha.


Jagdish Bhagwati is university professor at Columbia University and senior fellow at the Council on Foreign Relations. Robert Baldwin is emeritus professor of economics at the University of Wisconsin