Managing Globalization: Why Trade Talks Do Little for the Poorer Countries

This week the Doha Development Round of trade negotiations took yet another stumble as the major powers failed to set a framework for a new pact. Slim hopes remain for a deal, but some researchers have been asking whether, at this point, developing countries really have much to gain. For the poorest, the answer may well be no - yet there's little agreement about why.

A few years back, committed free- traders promoted research by the World Bank stating that a complete opening of world markets could release hundreds of billions of dollars in annual economic gains. These days, no one is expecting that sort of dramatic change to come out of the World Trade Organization talks, even if they do someday succeed.

Rather, under the kinds of arrangements discussed in Hong Kong and more recently in Geneva, global production may increase by just about one-tenth of 1 percent. In this scenario, the main winners are likely to be the emerging economies that are already doing well - not their poorer counterparts.

Two recent studies, one by a team at the Carnegie Endowment for International Peace and another by a team using the World Bank model, supply the details. The Carnegie study predicts that China, Southeast Asia and India will gain around half a percentage point of gross domestic product annually. There would also be substantial expansions in Central America and the Caribbean. But in sub- Saharan Africa and particularly East Africa, economies would actually shrink.

The World Bank research offers fairly comparable results. There is virtually nothing for poor countries in Africa, especially if wealthy economies are allowed to maintain protection for certain products, often the ones that poor countries are most able to export.

Despite the similarity of the results, there is disagreement between the research teams on why the poor countries' prospects are apparently so dim. Will Martin, lead economist in the World Bank's research group, says poor countries can't win unless they open their own markets - something they have been specifically exempted from doing under the current negotiations.

"The main reason is not that the round is slanted against the developing countries, but rather that it's slanted towards them in a political sense," Martin said. "For developing countries to have smaller cuts in protection generally means smaller benefits."

Martin explained that tariffs maintained by poor countries result in higher prices in their domestic markets, which hurts consumers and doesn't necessarily benefit producers.

"They're particularly unfortunate," he said of the tariffs, "because they're focused on products that are staple consumer products for poor people." Moreover, he added, "if you consume what you produce, there's no benefit from the higher price."

Sandra Polaski, who led the Carnegie team, took a different stance. "They aren't thinking in terms of the overall domestic economic equilibrium in those countries," she said of the World Bank group. "You lower your tariffs, and you will get imports from wherever in the world of wheat, soy and cotton, at a much lower price."

That flood of imports could occur too quickly for the local economy to adjust. Farmers would be unable to compete, and there wouldn't be enough time for them to find new jobs.

"It can take 20 or 30 years under the best of circumstances to move a quarter of your population off the farm and into cities," Polaski said.

Instead, she argued, the poor countries need unfettered access to wealthier markets: "The low-income countries actually need to have a strong and predictable preference program, where they can have duty-free, quota-free access to the rich-country markets."

Polaski said that while the European Union seemed ready to accept this kind of regime, the United States was holding back on certain products.

The American negotiating position, however, throws the blame back at other countries. Officials say that they actually want complete liberalization - putting those multibillion-dollar gains back on the table - but the other members of the WTO don't share their ambition.

"What all these studies show is the closer you get to free trade, the more benefits you have, the more broad they are," said Jason Hafemeister, the U.S. deputy assistant trade representative for agriculture. "The criticism of the U.S. is that we're the only ones pushing for this outcome. We have other countries saying, 'The U.S. is screwing this up because you're too ambitious.'"

Much of this debate comes back to a strain of thought that has gradually been resurfacing in trade circles: that the best way for a poor country to grow wealthy is to protect its own markets from imports while being able to export without restraint. South Korea is often used as the case in point.

"Korea had a very sweet deal from the world," Polaski said. "It was able to protect its agricultural and its infant industries, and to have access to world markets. If that was the deal on offer at the WTO, all the developing countries would sign up to it."

But Martin said protectionist trade regimes in poor countries were usually oriented less toward development and more toward lining the pockets of government cronies.

"I think it's fair to say that protection regimes are by and large not put there by Mother Teresa to help the poor," he said. "They're put there by people with power and influence."