A Trade Fiction

World leaders gathering at the UN 2005 World Summit Sept. 14-16 will hail the imminent and successful conclusion of the Doha Round of trade negotiations as one of the most significant achievements of international cooperation in recent times. They will surely applaud the fact that a few months prior to December's WTO ministerial meeting in Hong Kong only minor details of the negotiations remain to be settled. Of course, getting this far hasn't been easy, as shown by the additional year of talks needed to reach agreement on the crucial issues.

The Road to Success

As expected, agricultural reform was the toughest row to hoe. It took great courage on the part of political leaders of the major developed economies to overcome what had looked to be an insurmountable hurdle. In dismantling their massive agricultural protectionism, they at last put the interests of the majority of their populations above those of privileged groups within their farm sectors who traditionally have enjoyed the bulk of farm subsidies. Leaders in rich countries finally acknowledged that the small and declining contribution of their agricultural sectors to their GDP and employment levels hardly justifies--if it ever did--the more than $240 billion per year that OECD countries pay through taxes and higher food prices to support their farm activities. By slashing farm tariffs and subsidies these countries will now enjoy lower prices on farm products and more money to use for other priorities. Wisely, they will continue to support their small farmers' incomes but without distorting agricultural markets.

Poor countries will benefit because they not only will have better access to bigger markets but also will receive aid--part of the deal--to improve their basic infrastructure and develop their export capacity. Many of these countries, mainly in Africa and the Caribbean, had been opposed to changing the status quo for fear they'd lose their preferential access to either EU or U.S. markets, which was a provision of regional trade agreements. That opposition was overcome when donor countries decided to include in the newly created "aid for trade" fund the rather modest resources required to compensate poor countries for the loss of their existing trade preferences.

Once the EU, U.S. and Japan bit the bullet on real farm reform, the rest of the round's negotiations were easily resolved. Developing countries' resistance to opening their own markets more decisively was softened markedly. This moved rich countries to commit to removing their remaining tariffs on nonfarm products within a few years. The liberalizing mood has even translated into an agreement that will make less likely the use and abuse of antidumping and safeguard actions that, to be frank, are most often merely protectionism of vested interests disguised as fair public policy. The round is also delivering on services liberalization. Developing countries have offered to open up service sectors formerly closed to foreign competition and investment, while developed countries have agreed to adopt more liberal policies toward the temporary migration of foreign workers who provide services in spheres affected by labor shortages.

The Doha Round will bring about significant income gains for both developed and developing countries. According to some conservative calculations global income from merchandise liberalization alone will be boosted by $300 billion per year by 2015. Potential gains from freer trade in services could be much larger than that figure--by up to a factor of five. As originally intended, the round will be contributing to the achievement of the Millennium Development Goals that were adopted five years ago by the international community in order to cut in half by 2015 the proportion of the world's people living in extreme poverty and suffering hunger.

Thanks to the vision and fortitude of the leaders of the major trading countries, the Doha Round has paved the way for a multilateral trading system that sometime in the foreseeable future will deliver the total removal of barriers to all merchandise trade, a substantial liberalization in services and universal enforcement of the principles of reciprocity and nondiscrimination. With such a system economic interdependence among all countries will be enhanced, which will foster economic prosperity, as well as peace and security.

Awakening to Crude Reality

Unfortunately, all of the above is pure fiction. In practice the Doha negotiations have been a tale of failure to reach agreement on most issues on the agenda. It seems that countries came to these talks with the aim of creating loopholes to avoid obligations rather than undertaking serious trade liberalization. Regarding agriculture, trade negotiators have deadlocked on issues such as products to be exempted, formulas to avoid effectively lowering tariffs and opaque schemes to preserve subsidies. With rich countries holding rigid on farm protection and developing countries remaining reluctant to open up their own markets, it's no surprise that progress is practically nil on the other topics under discussion. Except for a few rare moments, the leadership needed to move the round forward has been absent. The chances for a meaningful WTO ministerial meeting in December are, in fact, close to zero. As things now stand, the Hong Kong gathering will end either in another impasse, as happened in Cancún two years ago, or in an empty commitment to keep talking next year.