By Zhang Ming
Six key members of the World Trade Organization (WTO) -- the US, the EU, Japan, Australia, Brazil and India -- decided to bring an end to the Doha Round of trade talks on July 24. It ended a two-day ministerial meeting on which six important economic players were unable to bridge their disputes and, therefore, failed to reach an agreement.
The Doha Round, started at the Fourth WTO Ministerial Conference in Doha, Qatar, in November 2001, was supposed to conclude on January 1, 2005, but failed to meet the deadline. This was because the WTO members could not reach a consensus on agriculture matters at the Cancun Ministerial Conference, Mexico, in September 2003, thus beginning a lengthy impasse.
At a meeting held in Geneva on August 1, 2004, trade representatives of the WTO member states agreed to allow the Doha Round go on until the end of 2006, offering more time for the members to patch up their differences.
But the failure to reach an agreement on farm subsidies on the part of the US and the EU very much eroded the confidence of the WTO members and, in turn, helped precipitate the end of the Doha agenda.
Two primary factors lie behind the breakdown.
First, the developed countries have employed double standards at the negotiating table.
On the one hand, these nations were reluctant to cut down on the subsidies to their farm producers and put a brake on their agricultural-product dumping in the developing world. On the other hand, they pushed developing nations to acquiesce on matters such as tariffs, policies on investment and competition, and transparency in government procurement.
Second, the stances of developed countries on the reduction of farm subsidies are widely inconsistent owing to lobbying by domestic interest groups. The US and the EU, for example, constantly wrangle over the reduction of subsidies.
The devastating effects of the Doha Round's breakdown on global trade should not be underestimated. People's enthusiasm for free trade, for instance, is dampened and could turn into indifference.
But the conclusion of the Doha Round talks does not necessarily mean the end of global free trade.
The examples set by East Asian economic entities such as Hong Kong and Singapore demonstrate that bilateral open markets bring greater benefits than those brought by multilateral trade talks.
The negative impact of the booming bilateral trade in the long and medium term is that countries will gradually have less and less confidence in multilateral trade and, therefore, turn increasingly to bilateral dealings.
Since the breakdown of the WTO Seattle conference in 1999, many countries have rushed to sign bilateral trade pacts with each other. China, Japan and South Korea, for instance, have respectively signed free trade agreements with ASEAN (Association of Southeast Asian Nations) or its member states.
True, bilateral deals can indeed promote free trade. But this kind of free trade creates winners and losers while bringing benefits to the parties involved.
Moreover, only two players take part in the trade tango. In such a scenario, the developing nation is put in a disadvantaged position in talks with the developed country. Many a time, the weaker player has to give up many interests before it can draw an opening-the-market promise from its developed big brother.
By contrast, however, multilateral trade talks effect a platform on which multiple players interact with one another and maneuver to make the most from talks. The developing nations, which outnumber the developed ones, have the numerical advantage and can have their weak individual economic strength bundled together to form a much stronger partnership. This can redress the unfavorable situation in which they find themselves when conducting bilateral trade talks with their powerful counterparts.
In other words, the boom of bilateral trade talks stemming from the Doha Round's bankruptcy renders it more difficult for developing countries to safeguard their interests at trade negotiations in the long term.
In view of the fact the WTO is all about establishing a worldwide multilateral trade regime, the breakdown of the Doha Round will largely undercut the trade organization's status and prestige. Regional trade bodies will gain ascendancy. In this scenario, trade policies of different countries would either tilt increasingly towards liberalization or become more protective, which adds more uncertainties to the landscape of world trade as a whole.
For developing countries, which are at the bottom end of the global production chain, the bankruptcy of the Doha Round potentially means mammoth income losses. These countries, primarily farm-produce suppliers, rely heavily on trading agricultural produce for manufactured goods.
Things seem to be going against them. The agricultural produce provided by the least developed countries are the least price-competitive owing, largely, to the fact that the most developed nations funnel great amounts of money into subsidizing their farm produce. This allows low-priced farm produce from developed countries to elbow out produce from lesser developed countries.
Overall, the failure of the Doha Round makes the economic prospects of the developing world and the least developed countries in particular all the more gloomy.
(The author is a researcher from the Institute of World Economics and Politics affiliated to the Chinese Academy of Social Sciences.)
(China Daily August 3, 2006)