The legacy of Doha: spaghetti bowl trade
Sunday Herald, Scotland
The legacy of Doha: spaghetti bowl trade
By Ian Fraser
30 July 2006
In the end Doha died not with a bang but a whimper, with media coverage of its collapse being squeezed off the front pages by the escalating crisis in the Middle East. Yet, even though last Monday’s “suspension” of the Doha Development Agenda (DDA) talks on global trade may seem much less dramatic than the current conflagration in Lebanon, the repercussions for global business and economics could be even more stark.
Named after the Qatari port city in which talks were inaugurated in the wake of September 11, 2001, the DDA was an attempt by the world’s developed nations to show that they cared about poorer countries. Based on the assumption that terrorism must in some way be fuelled by economic disparities, the idea was that giving poorer nations a leg-up and levelling the global playing field for trade would go some way to reducing their grievances against the West, and eradicate at least one of the motivations of future terror attacks.
It was also aimed at avoiding the “spaghetti bowl” of one-on-one bilateral trade agreements that may now follow in the wake of Doha’s demise.
As part of the Doha declaration of November 2001, participating states embarked on a five-year journey aimed at resolving disputes on agricultural trade, transparency in governmental procurement and the trade aspects of intellectual property rights. As the talks have wended their way over the past half-decade in places as diverse as Cancun, Hong Kong, Paris and Geneva, the world’s richest nations led by the US and the European Union made several important commitments. On condition that Doha bore fruit, they agreed to end agricultural export subsidies by 2013 and to allow imports from the world’s poorest nations almost duty-free and quota-free.
As a means of kick-starting the round, the rich nations pledged to ensure any final deal would be made to work for both rich and poor countries. Unfortunately, however, they seem to have failed to work out how such bold words might be made to work in practice.
The talks are relevant to Scotland not least because they would have brought clear benefits to Western multinationals and Scottish-based exporters by giving them improved market access to many emerging economies. But last weekend they collapsed amid some bitter international back biting. Last Monday the talks were formally “suspended”.
Despite the earlier commitment to resolving their differences made the previous weekend at the G8 summit in St Petersburg, the six core negotiating groups (the US, the EU, Brazil, India, Australia and Japan) had by last weekend lost all appetite for compromise. One of the few things they could agree on was that the current round of talks should have reached a consensus on farm issues by the end of 2005. Paradoxically, this one element of common ground also hastened the talks’ collapse, as ultimately both the EU and US proved reluctant to dismantle their expensive agricultural support programmes. The situation was made worse by the unwillingness of developing nations led by India and Brazil to slash their tariffs on manufactured imports.
It wasn’t long before the blame game started. The US accused Brazil and India of wanting to keep up to 98% of their own agricultural trade insulated from foreign competition. America also accused the EU of using food standards as a pretext for putting up the barricades to foreign products.
Exasperated, EU trade commissioner Peter Mandelson laid the blame squarely at the door of the US, which, he said, had failed to give any ground on farm subsidies. “If the US continues to demand dollar-for-dollar compensation in market access [cutting agricultural tariffs] for reducing domestic support, no-one in the developing world will ever buy that, and nor will the EU either,” he said.
The US trade representative Susan Schwab retorted: “[Monday’s] statement by the EU alleging that the US failed to show flexibility and attempting to divert the blame for the stalemate is false and misleading. The countries that have tended to be finger-pointing at this point are the ones that are reluctant to act in terms of market access.” Kamal Nath, India’s commerce and industry minister said the talks were “between intensive care and the crematorium”.
So, as the dust starts to settle on Geneva, the question on the lips of exporters and multinationals is: where do we go from here? With the talks only “suspended”, more optimistic business commentators believe that after a few weeks of “cooling off” the feuding parties will be persuaded to come back to the negotiating table and ultimately iron out their differences.
Senior Scottish business figures are this weekend hoping this will be the case . Iain McTaggart, general manager of the Scottish Council for Development and Industry, says: “We would urge the government and EU negotiators to do everything in their power to get these talks back off the ground. A multilateral trading system and the conclusion of the Doha round is the best hope we have for worldwide economic progress, particularly in the wake of the G8’s commitment to helping the poorest nations. If whatever follows this collapse looks likely to be harmful to the interests of Scottish exporters, we will definitely be making representations to the Holyrood and Westminster governments.”
Iain McMillan, director of CBI Scotland, says: “Irretrievable failure would entail substantial losses for business globally, not least in Scotland, where more than one-quarter of the economy is built on exports.
“We should not regard the collapse of these trade talks as inevitable. We would urge the relevant players to get the talks moving again. The most likely alternative is mounting protectionism and reductions in world trade, which would not be good news for anyone.”
McMillan believes Scottish exporters will find it much more difficult to build their sales in emerging economies, such as Brazil, Mexico, India and South Africa, in the event of total stalemate. These countries would find it easier to keep “exorbitantly” high tariffs on a range of key imports as well as severe restrictions on services providers.
He says: “Non-tariff barriers, those complex behind-the-border obstacles, would stay untouched. Meanwhile, all sorts of distortions would remain in global trade that no country could challenge, because WTO rules would continue to reflect the trading environment of a bygone era.”
David Watt, Scotland director of the Institute of Directors, says: “This collapse was not unexpected but still comes as a severe disappointment. It is particularly bad news for Scotland since our economy is disproportionately dependent on exports.”
If Doha’s collapse does make it harder for exporters, McMillan warns that it comes at an unfortunate time for the wider UK economy.
According to the CBI Industrial trends survey, published last week, British manufacturers increasingly believe that their future prosperity depends on export success. The survey revealed that a balance of 13% of manufacturers thought export orders would rise over the next three months. In the previous quarterly survey only 2% were that optimistic
With little prospect of a final Doha agreement - or even of the so-called “Doha-lite” agreement that would fail to give US farmers the significant new access to export markets they are demanding - being reached before the end of this year, there is a real danger that countries will turn their backs on the WTO and enter a confused mass of bilateral and regional trade agreements. Such a “spaghetti bowl” of one-on-one bilateral trade agreements is likely to harm future global prosperity and give rise to protectionism and “beggar thy neighbour” trade policies.
Furthermore, such deals tend to benefit the stronger trading nations, which have greater resources to negotiate more favourable terms for themselves. The risk is that poorer nations will find themselves being bullied into signing deals that they cannot afford to deliver. And of course a spaghetti bowl - with a chaotic web of alliances - also makes life a whole lot more complicated for exporters and multinational corporations.
McMillan says: “A confusion of overlapping trade regimes, of varying scope and with differing rules and standards, would undermine the whole world trade system.”
But that may well be where we are headed. Several emerging economies have already stated they will seek to capitalise on Doha’s collapse by pursuing bilateralism.
India’s trade and commerce minister Kamal Nath last week said his country is already pursuing bilateral deals with the EU and Japan. And Taiwan detects a “window of opportunity” to establish a free trade agreement with the US.
With Doha in abeyance, it believes many of the US’s army of trade negoti ators will have time on their hands. Taiwan’s deputy economic affairs minister Steve Chen last week said: “We feel both countries can take this opportunity to carefully examine the benefits of a Free Trade Agreement and seek to take advantage of this golden opportunity to initiate this process”.
However, Bernard K Gordon, professor of political science at the University of New Hampshire, warns that such arrangements are fraught with danger for weaker nations.
“[Such deals] prove a Faustian bargain for the developing nations, because they cannot negotiate effectively with the larger richer and thoroughly staffed global giants. Even savvy economies such as Australia and Singapore, in FTA dealings with the US, provide ample warning. They accepted distasteful conditions as the price of an agreement,” says Gordon.
An additional risk is that otherwise innocent product categories get “caught in the cross-fire” of future trade spats in such an environment. The SCDI’s McTaggart warns there could be a repeat of the way in which the US imposed quotas on imports of Scottish cashmere during the “banana wars” of 1999.
“When states fall out, they sometimes arbitrarily target particular industries,” he says.
A more serious danger is that the Doha collapse could jeopardise the very future of the World Trade Organisation. In its 11-year life the Geneva-based organisation is seen as having done a creditable job of settling global trade disputes and creating a framework for free trade and globalisation.
British-born Philippe Legrain, a former Economist journalist and author of Open World: The Truth About Globalisation, says: “The WTO now risks going the way of the League of Nations in the 1930s and becoming an ineffective sideshow.”
And we all know what that led to.
So, let us hope that Mandelson is right when he says: “Doha will remain a central priority of European trade policy. We will work to bring it back to life.”
