Prospects for Trade Deal Near Collapse

April 27, 2006

Success for the “Doha Round” of trade negotiations appears to be getting more and more remote. Several recent events have increased the likelihood that the talks – named after the city in Qatar, where they were launched in 2001 – will not achieve the hoped for goal of assuring insurers and financial providers greater access to global markets, particularly in developing countries.

The departure of highly respected U.S. trade negotiator Robert Portman and his replacement by Susan Schwab (See IJ Website April 24) seemed a signal to the rest of the world that the Bush Administration’s support for further trade reforms has lessened.

Although this has been vigorously denied in Washington, signs point to reluctance, both in the U.S. and Europe, to make any firm commitments to reduce agricultural subsidies and open their markets to products from developing countries. The problem of agricultural reforms has halted progress since the failure of the Cancun summit meeting in 2003, when differences between the developed and the developing and poorer nations prevented any agreement.

A World Trade Organization (WTO) meeting, scheduled to be held in Geneva this week, has been postponed. As a consequence the WTO will miss the April 30 deadline, which had been set to reach final agreement on agricultural subsidies. No new date has been set, but WTO Chairman Pascal Lamy indicated that he expected negotiations to resume. Portman said he and Schwab would go to Geneva next week to try and restart the stalled talks and to reach an agreement “as soon as possible.”

That assumes there’s still a possibility to do so, but support for the reforms seems to be going in the opposite direction. French Trade Minister Christine Lagarde reacted to the postponement of the Geneva meeting with the “suggestion” that the trade talks might have been too ambitious to begin with and should be scaled back.

The current high global energy prices, which most analysts expect to continue, along with an increasing public sentiment in both developed and developing countries that trade liberalization is equivalent to globalization, has led to a marked decline in support for further initiatives to open markets. Upcoming elections in France and the U.S. may also have dampened government enthusiasm for any change in agricultural policy that could alienate rural voters.

The underlying problem appears to be a lack of belief on the part of the public in the developing world, and to some extent the richer countries as well, that further trade liberalization is a good thing. That premise is based on the idea that freer global trade benefits everybody. For many people it’s analogous to the idea that reducing taxes on the rich eventually trickles down to help those less fortunate – the “rising tide lifts all boats” theory.

As outsourcing continues and manufacturing plants move to countries with cheaper labor costs, jobs become harder to find. This leads fewer and fewer people to believe that further globalization benefits them. They want protection, not more open markets, and the politicians are listening to them. As a result the prospects for a successful completion of the Doha Round appear increasingly remote.

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