Wednesday, July 30, 2008

Why the Doha Round of talks died

Many world capitals are expressing their disappointment at the collapse of WTO talks that would have created a landmark global trade agreement.

Fingers are pointing at the regular three who seem to butt heads at global economic talks ... the US and the Asian powerhouses, India and China.

Australia's PM, Kevin Rudd, stayed up until the early hours of the morning playing desperate diplomacy by phone with world leaders, attempting to salvage a last minute deal. He failed. Indeed, so has the world. The EU also expressed bemusement at the collapse of the talks, but stopped short of conceding a complete end to hopes of a global free trade agreement.

The failure of the talks will increase pressure on national economies to deal with the current global crises such as oil, soaring food prices, and the credit crunch. Nonetheless, it will encourage nations to pursue their own bilateral free trade agreements and form trade blocs. Whether that increases instability and fails to bridge the poor-rich divide remains to be seen.

Australia and Chile showed no signs of wasting time as they quickly ratified a bilateral free trade agreement in the face of the collapsed WTO talks.

Below is a very insightful article in regards to the 'why' the talks failed, alluding to the inevitable impacts of globalisation.

Why the Doha Round of talks finally died

Carl Mortished
July 30, 2008
The Times

The bricks are crumbling in the house of global trade and the Brics, those fashionable emerging markets of Brazil, Russia, India, China, are crumbling, too, wracked by inflation, slackening growth and the flight of hot money.

In Geneva, Kamal Nath, the Indian Trade Minister, was gritting his teeth, doing his best to justify a wrecking operation that has earned him brickbats from all round. He has brought to an end a seven-year struggle for a global trade agreement that would open borders and reduce subsidies and he knows it.

However, he was not looking at his negotiating partners, the Brazilian, American, European and Argentinian ministers. He had his eyes fixed on Delhi, where the Indian Reserve Bank Governor was raising interest rates and signalling an economic slowdown.

Mr Nath's problem was the wretched farmers, not the East Anglian sugar barons or the American cotton kings, so often the butt of abuse. There is another group of farmers who wallow in subsidies, wreck government budgets and who demand high tariff walls to keep out imports of cheaper food.

These are India's peasantry and their political power is being felt on a global scale. Mr Nath could not afford to ignore them: India's rural population numbers 600 million, the last BJP Government was brought down for ignoring them and this Congress Party Government is unlikely to make that mistake.

The Indian farmers' demand for protection against import surges was the main obstacle to the tariff-cutting deal that failed in Geneva.

Mr Nath insisted on a “special safeguard mechanism” for certain agricultural products, notably pepper and oilseeds, that would allow India to impose swingeing tariff increases in the event of import surges.

It was a bizarre but alarming sideshow to the main thrust of the Doha Round of talks - a complex quid pro quo in which the emerging markets of Latin America and the Far East sought to trade access to EU and US agricultural markets in return for opening their doors to more American and European manufactured goods and services.

The Indian Trade Minister was casting himself in the guise of peasant victim, perched precariously on a bullock cart, accusing rich nations of “looking for commercial interests and enhancing prosperity rather than looking for content which reduces poverty”.

But India was opposed not just by the United States but by a host of developing nations in Latin America, including Brazil, Uruguay and Argentina, which see Asia as their prime export market for meat, grain and oilseeds. Rice-exporting Thailand was also unhappy about the Indian demand.

In its favour, India has been joined by China - another nation with a big hinterland of peasant poverty - which wants protection for its rice and soya bean farmers, and a host of smaller developing nations riding on their coat-tails.

The trade row finally destroyed the fiction beloved by development charities and poverty lobbysits that we live in a world divided between North and South, or rich and poor.

Instead, we live on a globe of powerful and conflicting interest groups - Asian peasants versus Latin American farm labourers, for example. Within the WTO, factions are appearing, combining and dissolving at a rapid rate. Among some of the powerful interest groups that emerged three years ago to take on the consumer giants of Europe and America, cracks are opening.

The Group of 20, an emerging market body dedicated to attacking EU and US farm tariffs and subsidies, has lost cohesion. India has split with the Latin American pro-farm trade group. It now leads a Group of 33 nations, including many Caribbean states, angling for more protection for their rural populations.

Unfortunately, the emerging market powerhouses are looking a bit sickly. Their stock markets are plummeting and their economies are gripped by inflation and stuttering as export trade begins to slow. The clamour for protection from those who were beginning to see the benefits of trade has drowned out those who argued for compromise.

It is small wonder that India and China are championing the cause of peasants, because governments in both countries fear the wrath of rural communities suffering from rising fuel and food prices and the cost of credit.

The solution preferred in Delhi and Beijing is protection, but it is costly and India is already paying dearly for it. The country's budget deficit doesn't look too bad at 3 per cent of GDP, but that excludes fuel and fertiliser subsidies. Add those and the deficit is a shocking 7 per cent of GDP. Yet the Government has no choice but to pay to keep peasants on the farm. The average of India's maximum agricultural tariffs is more than 100 per cent and Mr Nath argued yesterday for measures to let it go higher still.

China, too, is ruled by the economics of the farm, not factories of Guangdong. According to Standard Chartered, the cost of food, which absorbs more than a third of income, is beginning to hit spending. Food is crowding out consumer goods, exposing the risk that China's factories will struggle to find domestic buyers to replace insolvent Americans.

There are no Brics, the world is coupled; exports represent 40 per cent of Chinese GDP and it is clear that politicians in Beijing and Delhi fear a slowdown that will shut down factories, reduce the safety valve of migration to the cities, transforming the rural migrant into a potential constituent of a mob.

It is political fear that ended the trade talks in Switzerland, fear of the countryside rampant.

[Antoun]: Another short, but decent article on the same lines:

Where now for global free trade?

Owen Fairclough,
July 30,2008
France 24

It was the seven-year itch that proved too painful to scratch any longer. The on-off Doha round of talks that ran since 2001 finally ran out of steam in Switzerland.

The end was marked by an air of weary resignation - testament perhaps to the toll that nine days of talks took on those who slugged it out in Geneva.

There was genuine upset among many ministers that a single technical issue - special import safeguards to protect developing countries - torpedoed the talks.

Only the most punch-drunk boxers think about the next fight when they're lying on the canvas after a fifteenth round knockout, and those gathered in Geneva didn't oblige. Instead the assessments were brutally bleak: Brazil's foreign minister Celso Amorm reckons it could be at least three or four years before anyone has the appetite to mention global free trade deal.

Even EU Trade Commissioner Peter Mandelson, one of the ardent fans of free trade, doesn't see any prospect for resolving the core areas of lowering agriculture and industrial import tariffs in the near future.

Of course, it's easy to be alarmist when tempers are running high and fuses have been shortened by so many hours cooped up in the Green Room - the WTO's theatrical term for the candid discussions that unfolded over the past week and half.

Let's not forget that the Doha round collapsed in Cancun, Mexico, in September 2003. But by July the following year, the talks were back on.

The difference now is that those talks were held in a booming economic climate. The Geneva talks were conducted against a backdrop of rocketing food and oil prices, with some of the world's richest countries heading for recession.

No one's much in the mood for worrying about how the rest are faring: governments necessarily need to look after their own.

There's also a more immediate problem than trying to get everyone to open their diaries for a new Doha date. As the Geneva talks were biting the dust, Chile's foreign minister, Alejandro Foxley, was in Australia to wrap up an 850 million dollar free trade deal. It'll provide the two countries with tariff-free trade in raw materials like metals and products like wine.

Both Chile and Australia have been on-message with the WTO, lobbying other countries to open up their markets. But Foxley's suggestion that countries like Australia, Chile, South Korea, Canada, Mexico and Brazil could press ahead with their own trade deals should set alarm bells ringing in Geneva.

"There is something to be said that a group of countries like this should go ahead in trying to generate a result, better certainly that the one that was not achieved in Geneva," Foxley told reporters.

It's the kind of trade deal that flies in the face of the WTO's multilateral rhetoric. And as the global credit crunch exposes the perils of globalisation - for financial markets at least - the very concept of mulilateralism is likel

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