Pascal’s trade pensees

Hindustan Times, February 01, 2013
Officially, the world hasn’t given up on the World Trade Organisation’s Doha round of negotiations, but no one is holding their breath. It’s now entering its twelfth year and success seems even further away now than when it began.

Of course, the earlier round of global trade talks, the Uruguay round, took eight years to complete and didn’t have to face a global financial crisis, a set of emerging powers and near-recessions in three of the four biggest trading nations (the European Union being counted as one entity). So perhaps we shouldn’t give up all hope.

In theory, a WTO round can last from here to eternity so the round could remain open until circumstances change.

But what is the key cause of the Doha stalemate?

Pascal Lamy, the outgoing director-general of the WTO, was in New Delhi as a guest of Pradeep Mehta’s Consumer Unity and Trust Society International and gave his view. In his view, the main problem was the emerging powers like China, India, Brazil and so on.

The international system didn’t really know how to fit them in and they, on their own part, weren’t sure what kind of multilateral animal they themselves were.

Skipping his views on the globalization governance deficit and multi-localised global production – the kind of weltanschauung stuff that French bureaucrats like to put out, Lamy said the “gridlocks lies in the question of this balance – the emerging markets and China versus the United States, Japan and the EU.”

As Lamy explained, “the West says that emerging countries have emerged,” so they should accept the trade disciplines and rules of the developed world. The emerging countries feel this cannot be. “While China and India are not Senegal and Botswana, they are also clearly no the US or the EU.”

And this inability to find a seat for them on a two-speed cycle like the WTO “is where the system is clogged.”

Thus the US tells China that it must lower its tariff on manufactured goods, says Lamy. China offers to cut its present 10% rate to 6%. But the US says it must go to Western levels, 0.1%. China, says Lamy, refuses to accept “commitments equal to other Western nations.”

For the emerging countries this is not just about WTO commitments, says Lamy, in the back of their head is the fear that if they accept developed world disciplines in trade then this will extended to other international regimes like climate change, intellectual property and so on. And this Beijing, New Delhi, Brasilia and Jakarta cannot agree to.

Lamy had a nice phrase to summarize this. “Are emerging countries rich nations which happen to still have a lot of poor people? Or are they poor countries that happen to have sizeable numbers of rich people? If the first, then the main principle guiding them in trade talks would be reciprocity with a little flexibility. If the second, then it would flexibility with a little reciprocity.”

No one can figure this out, so gridlock ensues. Not only in the WTO, but also climate change and almost any major multilateral negotiations.

Lamy, who has only until this summer in the WTO hot seat, proposed a three-point solution to this dilemma. One, “the emerging countries should accept that as they develop they will increase the level of their commitments to those of Western countries. That they will slowly rise upwards to this point.”

Two, rich countries should accept their responsibility in creating and building in a lot of unfairness, especially in agriculture, into the existing trade rules. “Inequities remain,” says Lamy, and need to be acknowledged by the West. Three, both of these groups should work together to build the capacities of the least developed countries.

The first one would be a perfect solution. I am not sure how easy it would be to implement. The emerging countries come in all sorts of shapes and sizes, they are far from homogeneous.

The result would be a potentially very confusing 50-speed bicycle. The second would be a nice moral confession of sin, but would be almost impossible to convert into actual policy. How long has everyone railed against the nonsense of the tariffs and subsidies that distort the farm trade – without any effect? The last sounds like an overseas aid programme run by 30 governments.

However, Lamy is right to argue that the emerging countries have adopted “the software of global capitalism.” All of them more or less follow the paths of economic growth that were laid by the Western governments. “They can’t say ‘I buy the system but I don’t buy the rules,’” he said.

And I don’t get the impression that any of them really stray too far from these rules. China is hardly the rogue state of Mao’s era. India has irreversibly shed its economic isolationism. The problem is less the rules than the commitments to free trade, cooperative security and the like which require coherent domestic policies and administrative capacity of a certain quality. Those are, for many emerging countries, still roads under construction.

Time, perhaps, for the emerging countries to talk about themselves about this problem. The global gridlock blocks their own maturation process, feeding on itself. Learning about each other may help them define themselves and determine how many extra speeds the world cycle needs to add.

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