Why Brazil and India are not to blame for Doha collapse

Why Brazil and India are not to blame for Doha collapse

Wednesday 1st August 2007
When Brazil and India walked out of global trade talks with the US and the EU in Potsdam last June, ending prospects for a swift conclusion to the Doha Round, they triggered the usual hand-wringing about rising protectionism and the uncertain future of the multilateral trading system that accompanies such setbacks. In the finger-pointing that followed, US officials even went as far as accusing Brazil and India of putting their narrow self-interests above those of other developing countries.
But the pundits’ and politicians’ dire warnings of a protectionist spiral back to the dark days of the 1930s are exaggerated. Sure, the breakdown of the World Trade Organisation (WTO) negotiations comes at a time when anti-free trade sentiments are on the rise in developed countries. And the expiration of the US fast-track authority, which limits Congress to voting yea or nay to any trade deal, hampers Washington’s ability to move multilateral – or bilateral – trade negotiations forward.
However, the economic benefits of the Doha Round – which was launched in 2001 to show solidarity and a commitment to globalisation in the wake of the 9/11 terrorist attacks – have been oversold. The World Bank has revised its estimates of Doha’s gains downwards to a relatively paltry $96bn (£47.4bn, e70.2bn) by 2015, or just 0.2% of global gross domestic product (GDP). And most of those benefits would accrue to high-income countries. Even the full liberalisation of global merchandise trade would result in an increase in global income of just $287bn by 2015, the equivalent of 0.7% of global GDP.
While these figures are obviously not to be scoffed at, and freer trade remains an extremely worthy goal, such gains are not exactly massive. Just as important, the reasons for the breakdowns in talks are often mischaracterised. Far from turning their back on free trade, Brazil and India ended the talks after concluding that the agricultural concessions offered by the US and European Union paled in comparison to what they were demanding of developing countries in terms of industrial market access.
Brazil and India, backed by other developing countries, wanted the US to cut its ceiling on trade-distorting agricultural subsidies to between $10bn and $11bn, and the EU to slash its subsidies by 80%. The US, however, only offered to reduce its cap on subsidies to $17bn annually, even though the current level of agricultural subsidies is approximately $11bn a year.
For its part, the EU indicated that it would only be willing to cut its tariffs by 60%. In exchange for these limited concessions, the US and EU asked India and Brazil to reduce industrial tariffs by more than 60%, much more than the approximately 25% by which the US and EU were willing to cut their own tariffs.
It is no surprise, then, that the talks broke down. The US and EU blamed India and Brazil’s refusal to agree on industrial tariff cuts for the failure of the negotiations, while Brazil and India responded that they were being asked to give up too much for too little. On 17 July, the heads of the WTO negotiating committees issued compromise proposals that all parties were to consider before talks resume in September.
On Monday, 10 Downing Street said Gordon Brown wants world leaders to remain “fully engaged” on liberalising trade and that he had talked with the leaders of Brazil, China, India and South Africa recently, urging them to give it “top priority”.
But as the Doha Round negotiations peter out and – regardless of what Brown may say – the political will required to achieve a deal drains away, globalisation is no longer being seen by the bulk of public opinion to benefit key constituencies: workers in rich countries and farmers in poor countries. The spirit that motivated Doha at its inception six years ago has largely evaporated.
The biggest risk, of course, is a rollback of the gains achieved so far. There are no indications of governments seeking to exit the multilateral trading system. But political attitudes in the US, especially in this long drawn-out presidential election season, are turning against free trade. Congressional Democrats are blocking a bilateral free trade agreement with South Korea on the grounds it does little to open that country’s car market. The approval of other US bilateral free trade agreements, with Morocco, Panama and Peru, have also been held up by Congress.
Even more worrisome, though, is the recent trend of countries turning to the WTO’s dispute settlement system to press their trade liberalisation goals. In July, just weeks after the Potsdam talks collapsed, Brazil filed a WTO complaint against the US alleging that US agricultural subsidies have exceeded the $19.1bn limit agreed with the organisation. Canada filed a similar WTO complaint in January 2007.
A series of adverse rulings at the WTO could prompt Congress to reconsider their support for the organisation and the multilateral approach as a whole. Significantly, Brazil has already won two landmark WTO cases – one against US cotton subsidies and the other against EU sugar subsidies. The trend towards countries resorting to WTO complaints to force trade open may be one that the US, with its continued unwillingness to budge on its indefensible agricultural policies, cannot stem.