The Observer, UK

Uncle Sam faces a world trade backlash

As developing nations blame the United States for stalling the Doha talks, it grows more vulnerable to commercial boycotts. Oliver Morgan reports

30 July 2006

America may blame the rest of the world for the breakdown of the world trade talks, but the rest of the world blames America. In fact, for emerging economies, the collapse is another reason to hate Uncle Sam - a dislike that could have deep ramifications for US Inc.
For decades, poor nations have railed against the austere economic policies imposed by the International Monetary Fund and the World Bank - institutions dominated by Americans. What’s more, US farm subsidies worth hundreds of millions of dollars lower commodity prices and see produce dumped on overseas markets.

Now that the US is in the dock for blocking a trade round designed to help the developing world haul itself out of poverty, US experts believe there could be further damage to its reputation overseas.

Andrew Kohut, president of the Pew Research Centre, an independent Washington-based polling organisation, says: ’This reinforces the view that America is conducting its foreign policy - in this case trade - in its own interests. Our surveys show one of the biggest criticisms of foreign policy is its unilateralism.’

The US in general - but Bush in particular - has been criticised for unilateralist tendencies. Bush’s first presidential term saw him attacked for his agricultural policy and the tariffs he introduced to protect the domestic steel industry, and Kohut believes the Doha failure will add to the bad feeling over these issues. In addition, he says: ’American policies are seen to increase the gap between rich and poor countries, and [the trade talks collapse] speaks to that fear as well.’

But he adds that US priorities may remain unchanged because of the lack of profile these issues have at home. ’The world is more sensitive to what we do in trade than Americans are. When steel tariffs were in place, we did a poll across Europe and most people in Europe were aware of them and critical; most people in America were not aware at all.’

If this is true, then criticism of America - over the collapse of Doha, as with other ’unilateralist’ actions - may intensify because the US electorate appears so indifferent to it. But will this kind of anti-Americanism translate into a more dangerous kind: the sort that might harm its commercial interests?

In the developing world, there are already examples of US products being boycotted: the Indian state of Kerala has shunned Coca-Cola for years. India and the US are also at each other’s throats over America’s tough response to what it regards as the ’dumping’ of shrimp exports on to its markets by India and other developing nations.

Meanwhile, Russian President Vladimir Putin is planning to prevent US companies Chevron and ConocoPhillips from developing the enormous Shtokman gas field. And sales of iconic US brands such as Marlboro and Coke and McDonald’s fell in countries such as France and Germany in the aftermath of the Iraq invasion.

Does the failure of the Doha round increase the likelihood of an anti-American backlash? Stuart Eizenstat, a former adviser to Presidents Carter and Clinton, believes the link between US policy and brands is too simplistic: ’People separate out American investment, job creation and consumer products, which are attractive, from trade talks.’ But he says of the Doha failure that ’everyone is a loser,’ and points out that with the US a prime proponent of opening markets (and given its pledge at the G8, along with other nations, to make concessions to get a deal), the whole affair has been ’a blow to American leadership’.

Eizenstat believes the breakdown cannot be blamed on the US, but that it was always going to be difficult to see US negotiators pressing for a deal when there was no pressure on Capitol Hill for concessions on agricultural subsidies.

That is true now, and perhaps will remain the case after the November mid-term elections. Bush’s Congressional mandate to pursue trade talks expires next summer; if he wishes to restart talks he must act quickly. Indian sources in particular believe he might - and for this reason they will not speculate on what could happen after the breakdown.

One predictable outcome of the breakup in multilateral talks is that the focus will now switch to the hundreds of bilateral dialogues that will have to constitute the bulk of international trade negotiations while the World Trade Organisation picks itself up

There are differing opinions on how this will affect the US. An EU official says: ’Since Bush became president, the US has concluded 12 bilateral agreements, there are six ready for signature and 11 others under negotiation. That is a sign of what the US is about in terms of trade policy. It likes bilateral agreements.’ Why? Because bilaterals tend to be more favourable to stronger negotiating parties than multilaterals, where exceptions and riders are less acceptable in final agreements.

However, while the US pursues its own bilateral agenda, so do developing nations. While India refuses to link the two issues, its trade minister, Kamal Nath, does emphasise his country’s own bilateral talks with the EU and Japan in the aftermath of Doha.

Brazil also has its own ideas. As one of its officials says: ’Brazil, like everybody else, is involved in bilateral talks. You will see a proliferation of these kinds of deals, and you could see America being left out of it a bit.’

But the Indian response to the breakdown is less robust - thanks, perhaps, to the hope that talks will restart: ’Of course there are bilateral issues with America such as anti-dumping. But we are clearly able to separate our bilateral relationship with America from our negotiations in the multilateral arena.’ India, it seems, follows the Eizenstat doctrine.

However, as the Brazilians point out, America was being offered valuable concessions from developing countries for the first time - on tariffs on industrial goods and services - that were simply overshadowed by the agricultural issues. It is to the US’s detriment that these have been lost.

And, they say, India, China and to a lesser extent Brazil are becoming more powerful. The balance is not going to change overnight, but as it shifts, the interest of America in a credible multi-lateral body like the WTO that can also resolve disputes, such as Boeing/Airbus, becomes stronger.

Kohut would probably agree. As he says: ’The long-term impact [of this kind of failure] is that it becomes more difficult to convince people to go along with you.’