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Collapse of the WTO trade talks: A pity, and potentially a problem, but not a disaster

Written by Sheila Page

Is the first WTO Director-General Peter Sutherland right to call the collapse of the trade talks a ‘disaster’?  It would certainly have been better for world trade, world income, and most people in developing countries if the Doha negotiations had succeeded in producing a significant liberalisation in trade rules. Even an agreement on a settlement which did no more than ‘bind’ countries not to go back on the de facto liberalisation which has happened outside trade negotiations would have been helpful.  Although it would not affect current trade, it would have reduced the risks of trading.  But it has been clear for at least five years that a ‘big’ agreement was not possible, so the claims that several hundred billion dollars worth of potential world trade gains have been lost this week are not realistic.  (And with world trade now at about $14 000 billion, even $100 billion is a trivial percentage.)  The failures in 2006 and 2007 to reach a settlement that would effectively be no more than a standstill demonstrated that it would not be easy to succeed in 2008. Nothing had changed in trading interests; the economic and political climates were less favourable with increasingly uncertain prospects for economic growth while the US and India face elections, and France and Italy have more protectionist governments. It should have been clear that no agreement was likely, so has the formal breakdown made things worse?

This depends partly on whether countries are seriously disappointed and angry, and therefore ready to lash out against each other with trade weapons, or simply accept that this was not the time for a settlement. There was no real desire for a strong settlement and little expectation of even a small one.  The unspoken problem throughout the negotiations has been that the talks started almost by accident:  the previous trade round required that ministerial meetings be held every two years and that agriculture and services be re-examined by 2000. So first Seattle (in 1999) then the Doha ministerial meeting (in 2001) had to happen. Doha was the first major international meeting after 9/ll.  The start of the Round was partly administrative inertia and partly a desire to show international solidarity. By 2008, countries knew that any agreement would have been only a limited one so there can be little real disappointment. The issue over which the breakdown occurred, the circumstances under which developing countries could take action when there is a surge of cheap food imports, was a purely hypothetical one in the current economic situation of high food prices and food shortages.  If there had been a strong desire on the part of any of the countries involved for agreement, this could have been resolved.  There is certainly temporary anger and frustration, and some personality clashes, but the corollary of the disadvantage of imminent elections is that the personalities will change, and the anger is (as far as can be judged from outside) less than after the 2003 breakdown in Cancún.  That produced only talk, and the arguments faded in 6 months.

If there is disappointment or resentment, what could happen?

The fact that negotiations were going on may have made countries hesitate before introducing trade restrictions against each other because these would make the negotiations more difficult. Countries will no longer face this political constraint to action, but the economic ones (trade protection always damages some interests at home) and the legal ones (existing WTO rules) remain. There is a real risk that countries will use any flexibility they have to raise tariffs or subsidies, or to take targeted action like anti-dumping investigations. This is a particular risk in a world recession.

The negotiations were also expected to make countries more hesitant to take formal disputes against each other to the WTO legal processes.  In fact, disputes have in fact increased in recent years: the talks were probably not much of a constraint, so there is unlikely to be much change.  Disputes will continue, but they would have done even with a successful negotiation.

The failure of the negotiations could make countries less committed to the WTO, and therefore less willing to observe the rules or to accept dispute judgements against them.  One European Commission spokesman has already suggested that the EU may be less willing to comply with a ruling on bananas. But all countries that might have this attitude also want other countries to comply with disputes which have gone in their favour, so while foot-dragging is possible (and not new:  the banana dispute is more than 15 years old), outright rule breaking is unlikely.

Countries will certainly try to reach agreements in more limited negotiations, with only a few participants, but these have not succeeded in the past among major countries.  Some depend on WTO agreements as a basis for discussions (for example in negotiations about a new Food Aid Convention  the negotiators  were explicitly waiting for a new WTO agreement; the EU’s negotiations with South America assumed that the agriculture side would be settled in the WTO).  To reach significant results, the negotiations have to include precisely the same countries between which agreement was not possible in the WTO: the EU may be able to reach agreements with the Caribbean, but not with Brazil.  The US can reach agreements with Central America, but not China or India. 

What happens next?  It would be best for the negotiations to be formally ended.  There is no hope of serious negotiation on the present basis for the next two years, and the negotiating objectives which were set in 2001 (in some cases in 1999) already fail to reflect the interests of countries in 2008. Services like banking, law, tourism, and labour movements are the fastest growing area of world trade, but were relegated to a short Sunday meeting in this month’s negotiations.  In a few years, when the alternative negotiations have failed, there may be a real will to start global negotiations with a fresh agenda. This does carry the risk that any growth in protection or weakening of WTO rules may have started to have damaging effects, but this seems acceptably small, and could bring forward the will to negotiate. 

For a view from Massimiliano Cali, visit his latest blog: Is the WTO no-deal a big deal?