Does anyone remember that at the last meeting of the World Trade Organization the trade representatives of the participating countries made a formal commitment to reach a final deal on cutting agricultural and industrial tariffs and subsidies by April 30th of this year? Well, the deadline just passed and the Doha Round of global trade talksas the multilateral negotiations are calledis not making any progress.
In fact, the Doha Round, created to advance global growth and development by lowering trade barriers, has not made any meaningful progress since its launch in the traumatic, post-9/11 days of November of 2001. Whatever (little) progress there has been in trade liberalization since the talks began has come from bilateral agreements. For the past five years, the Doha Round negotiations have continued all over the world, including four major international gatherings in Cancun, Geneva, Paris, and Hong-Kong. Yet, the best one can say about these meetings is that both rich and poor countries (if I may use this simplistic division) have become pretty sophisticated at appearing to be making concessions they are not really making at all.
If the talks remain stalled, there will be major complications, such as the “fast-track” authority that currently allows the President of the United States to negotiate trade deals without interference from Congress, due to expire a year from now. And it is unlikely to be renewed considering the isolationist and protectionist mood of a large part of the body politic in this country.
Bureaucrats tend to make things hard to understand for us commoners, but what is at stake is extremely simple. Poor countries want to export more farm products to rich countries that currently protect their farmers and rich countries want to export more manufactures and services to poor countries that currently hamper their access. In between, there are those, like China, who side with the rich countries on industrial matters (they want to build cars in developing countries) and with the poor countries on agricultural issues (they want fewer obstacles for their exports to the EU), but want to keep some of their own trade barriers.
Both rich countries and poor countries have been playing games with each other, as well as with the public. Rich countries are offering to eliminate 97 percent of their tariffs, which sounds wonderfulexcept that the remaining 3 percent accounts for a huge portion of their markets. Poor countries in return are offering to open their markets to foreign investment under clearer guidelines, but insisting on retaining subtle restrictions that will amount to maintaining the current situation.
As if this were not enough, the European Union (EU) does not even have a consensus position on international trade. For example, France, where the farm lobby is particularly strong, does not agree with the common EU position on tariff elimination, which France considers too generous.
The fight between the U.S. and the European Union is another cause of the stalled trade talks. The U.S. has been pushing the EU to reduce farm subsidies by 75 percent, but the EU is offering to reduce them by only 47 percent. The EU accuses the U.S. of not reducing its own farm subsidies, while the U.S. insists (correctly) that European farm subsidies are twice as high as those in the U.S.
The major players at the Doha Round will claim that some progress has been made because of the agreement reached on the elimination of export subsidies by 2013. This is another clever trick. Export subsidies are not the problem. Export subsidies account for a tiny percentage of all farm subsidies and, in any case, an export subsidy simply means that the exporting country is forcing its citizens to make its exports cheaper for consumers in the importing country. Thank you very much.
The great challenge in world trade is not to make imports more expensive but less expensive. Domestic protection is what stands in the way. A rich country like the U.S. should not be forcing its citizens to pay twice as much as the rest of the world for the sugar they consume. A poor country like Brazil should not be forcing its citizens to pay more for the cars it manufactures by placing trade barriers on cars imported from China, which is becoming a major auto exporter.
In a rational world, every country would simply eliminate its trade barriers and subsidies unilaterally. In the real world, we tend to complicate matters so much that we eventually need to create a labyrinth like the Doha Round global trade talks in which we keep going around in circles without finding a way out. All we need to do is stop treating trade negotiations as if they were part of a war settlement in which each country seeks to aggrandize its territory at the expense of everybody else. In matters of trade, things work in exactly the opposite way: the more territory you concedethat is, the less protection you maintainthe bigger the size of your country’s power.
Alvaro Vargas Llosa
Alvaro Vargas Llosa is Senior Fellow of The Center on Global Prosperity at The Independent Institute. He is a native of Peru and received his B.S.C. in international history from the London School of Economics. His weekly column is syndicated worldwide by the Washington Post Writers Group, and his Independent Institute books include Lessons From the Poor: Triumph of the Entrepreneurial Spirit, The Che Guevara Myth and the Future of Liberty, and Liberty for Latin America.
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