Will they or won't they? Will the world's trade ministers eventually sign a new
multilateral trade agreement that reduces agricultural subsidies and industrial
tariffs, or will they walk away empty-handed? The saga has been going on since
November 2001, when the current round of negotiations was launched in Doha,
Qatar, with numerous subsequent ups and downs, near-collapses, and extensions.
The most recent round of talks in Geneva was another failure to produce an
agreement. Judging by what the financial press and some economists say, the
stakes could not be higher.
Conclude this so-called "development round" successfully, and
you will lift hundreds of millions of farmers in poor countries out of poverty
and ensure that globalization remains alive. Fail, and you will deal the world
trading system a near-fatal blow, fostering disillusionment in the South and
protectionism in the North. And, as the editorialists hasten to remind us, the
downside is especially large at a time when the world's financial system is
reeling under the subprime mortgage crisis and the United States is entering a
recession.
But look at the Doha agenda with a more detached set of eyes, and you wonder
what all the fuss is about. True, farm-support policies in rich countries tend
to depress world prices, along with the incomes of agricultural producers in
developing countries. But for most farm products, the phasing out of these
subsidies is likely to have only modest effects on world prices - at most a few
percentage points. This is small potatoes compared with the significant run-up
in prices that world markets have been experienced over the past year, and it
would in any case be swamped by the high volatility to which these markets are
normally subject.
While higher world farm prices help producers, they hurt urban households in
developing countries, many of which are also poor. That is why the recent spike
in food prices led many food-growing countries to impose export restrictions
and has caused near panic among those concerned about global poverty.
It is hard to square these fears with the view that the Doha trade round could
lift tens, if not hundreds, of millions out of poverty. The best that can be
said is that farm reform in rich countries would be a mixed blessing for the
world's poor. Clear-cut gains exist only for a few commodities, such as cotton
and sugar, which are not consumed in large quantities by poor households.
The big winners from farm reform in the United States, the European Union, and
other rich countries would be their taxpayers and consumers, who have long paid
for the subsidies and protections received by their farming compatriots. But
make no mistake: What we are talking about here is domestic policy reform and
an internal redistribution of income. This may be good on efficiency and even
equity grounds. But should it have become the primary preoccupation of the
World Trade Organization?
What about industrial tariffs? Rich countries have demanded sharp cuts in
import tariffs by developing countries such as India and Brazil in return for
phasing out their farm subsidies. (Why they need to be bribed by poor countries
to do what is good for them is an enduring mystery.) But here, too, the
potential benefits are slim. Applied tariff rates in developing countries,
while higher than in advanced countries, are already at an all-time low.
According to World Bank estimates, complete elimination of all merchandise
trade restrictions would ultimately boost developing-country incomes by no more
than 1%. The impact on developed-country incomes would be even smaller. And, of
course, the Doha Round would only reduce these barriers, not eliminate them
altogether.
The Doha Round was constructed on a myth, namely that a negotiating agenda
focused on agriculture would constitute a "development round". This gave key
constituencies what they wanted. It provided rich-country governments and
then-WTO director general Mike Moore with an opportunity to gain the moral high
ground over anti-globalization protesters. It gave the United States a stick
with which to tear down the European Union's common agricultural policy, and it
was tailor-made for the few middle-income developing countries (such as Brazil,
Argentina, and Thailand) that are large agricultural exporters.
But the myth of a "development" round, promoted by trade officials and
economists who espouse the "bicycle theory" of trade negotiations - the view
that the trade regime can remain upright only with continuous progress in
liberalization - backfired because the United States and key developing
countries found it difficult to liberalize their farm sectors. What ultimately
led to the collapse of the latest round of negotiations was India's refusal to
accept rigid rules that it felt would put the country's agricultural
smallholders in jeopardy.
More importantly, the fears underlying the bicycle theory are wildly inflated.
We live under the most liberal trade regime in history not because the WTO
enforces it, but because important countries - rich and poor alike - find
greater openness to be in their best interest.
The real risks lie elsewhere. On one side is the danger that today's alarmism
will prove self-fulfilling - that trade officials and investors will turn the
doomsday scenario into reality by panicking. On the other side is the danger
that a completed "development" round will fail to live up to the high
expectations that it has spawned, further eroding the legitimacy of global
trade rules over the longer run. In the end, it may well be the atmospherics -
psychology and expectations - rather than the actual economic results on the
ground that will determine the outcomes.
So don't cry for Doha. It never was a development round, and tomorrow's world
will hardly look any different from yesterday's.
Dani Rodrik is Rafik Hariri professor of international political economy
and faculty co-chair of the MPA/ID program, Harvard University, John F Kennedy
School of Government.
(Published with permission of the Global
Policy Innovations program at the Carnegie Council for Ethics in
International Affairs. Copyright 2008 Project Syndicate.)
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