WHY A WTO DEAL MATTERS

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STOCKHOLM, Oct 17 2007 (IPS) - The Doha Round of multilateral trade negotiations are in much the same place that they were last fall. The central issues keeping the talks at a stalemate continue to be the lowering of agricultural subsidies by developed countries and the reduction of industrial tariffs by developing countries. This type of headline we have read during each of the last few years, and some observers argue that multilateral trade negotiation are not that important after all. World trade is growing anyway, economic growth is strong and tariffs on industrial goods in the developed world are already fairly low, writes Mats Hellström, former Minister of Trade and Agriculture of Sweden But the Doha Round does matter – for two reasons. First; when the rules are not adapted to new circumstances, protectionism takes new forms. In particular subsidies harmful to consumers and taxpayers proliferate and expand to new fields. Second, there is an even stronger reason for wishing the Doha Round to succeed. Since the mid-nineties there has been a dramatic change in the structure of world trade. All through modern times before that, the bulk of trade has flowed to and from and between North America and Europe. Africa, Latin America and Asia have been peripheries in this sense. Totally new is, that there is now a critical mass for South-South and East-East trade.

This type of headline we have read during each of the last few years, and some observers argue that multilateral trade negotiation are not that important after all. World trade is growing anyway, economic growth is strong and tariffs on industrial goods in the developed world are already fairly low.

But the Doha Round does matter – for two reasons. First; when the rules are not adapted to new circumstances, protectionism takes new forms. In particular subsidies harmful to consumers and taxpayers proliferate and expand to new fields.

The sad saga of the perverse agricultural policies of the European Union (UE) is well known. Some time ago Patrick Messerlin pointed out that the bulk of the subsidies that are supposed to preserve the rural culture of France benefit the food industry instead of reaching needing farmers.

During the long-lasting trade conflict on agriculture, however, the US has expanded what they initially called their “war-chest”. Commercial-scale farms now receive the bulk of farm subsidies ­ with incomes three times the average US household.

Protectionist competition is also expanding into new fields, with ethanol the prime candidate. The environmental gain from biofuels is small compared with their subsidy cost ­ which is hardly surprising, given the farm lobby interest to raise grain prices ­ and thereby increasing consumer food costs.

Even the expanding services are now part of the game. It has been estimated that the US superiority over EU in productivity in the service sector can basically be attributed to the modern Wal Mart system. It so happens however, that Wal-Mart is subsidized in the US with more than 1.2 billion dollars of public money – so certainly the American state is moving its activities into new arenas!

Second, there is an even stronger reason for wishing the Doha Round to succeed. Since the mid-nineties there has been a dramatic change in the structure of world trade. All through modern times before that, the bulk of trade has flowed to and from and between North America and Europe. Africa, Latin America and Asia have been peripheries in this sense. Totally new is, that there is now a critical mass for South-South and East-East trade.

The rise of the economy of China is of course the most important ­ but certainly not the only ­ determining factor. China has for example in a short time become the world’s largest consumer of steel, coal and cement, and number two after the US in oil consumption. It is a more important trade actor than most of the western powers, and only recently became a member of the WTO.

In fact, during the current Doha Round negotiations the reluctance to lower tariffs of some developing countries is caused more by a fear of competitive imports from China than by their economic relations with the West.

Given this upsurge of emerging, new strong economic powers, a failure of the global Doha Round could shake the credibility and the strength of the multilateral trade rules system, which could in turn put unbearable strains on the world economy. Here, history certainly has something to teach us.

In the 19th century Germany grew as a rival dominant economy to Great Britain ­ with different rules, with less free trade and a more protectionist design.

This asymmetry with uneven relations was one of the – certainly many ­ factors that led to the outbreak of the First World War.

In the 1920s the economy of the United States had grown to become as important as an international economy as Europe. But fairly different economic policies were pursued on the two continents. This asymmetry was one factor that propelled a severe recession into deep depression with nefarious social, political and military repercussions.

A future with competing and strong emerging economic powers with asymmetrical economic policies and practises leading to protectionist reactions in different parts of the world could be even more economically devastating than the examples from history, given the strongly intertwined character of the globalised economy.

In the future such asymmetry could spawn other types of conflicts, given for example the intense commodity and energy chase. And the new Asian economic powers are not party to the stabilising international security policy arrangements maintained by the “old” western nations.

All of these factors argue strongly for upholding and developing a respected, multilateral system based on common rules. What is needed, in short, is to bring the Doha-Round of the WTO to a successful conclusion. (END/COPYRIGHT IPS)