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Friday, February 21, 2014

Derailed Doha Talks: What Next?

Riding a bicycle has never been easy, particularly for a new practitioner. But hope is the spark of life. The bumped new cyclist does not give up. He gets up, jumps onto the seat again, and starts pedaling afresh. But there must be someone around, may be an uncle or a brother, to hold it from behind so as to ensure that the bicycle doesn’t fall while the kid is pedaling it forward.

After all, if the ultimate goal of the World Trade Organization (WTO) is to maximize the “gains from trade” for all its member countries through the best possible allocation and enabling the best use of world’s finite resources under a well-designed multilateral trading system that is governed by a set of agreed upon rules, one must confess that WTO is a kid—a kid just learning riding a bicycle.

No doubt, WTO has passed through many curves, overcome many bumps, and indeed, bagged success too. Yet, as Fred Bergsten of the Peterson Institute for international economics theorized, trade liberalization is like riding a bicycle. And, the bicycle theory states that one cannot stand still. Unless one moves forward, the bicycle will lose its equilibrium and the rider will fall off it.

And that’s just what happened in Geneva. After nine days (and nights) of intensive talks, the trade ministers of different countries managed to clear 18 out of the 20 agenda items set before them by the untiring WTO’s Director General, Pascal Lamy, yet failed to ‘converge’ on the remaining two items namely—Special Safeguard Mechanism (SSM) in the context of import of food items into developing countries and subsidies to agriculture in the developed world, particularly the US, perhaps, under the pressure of their respective domestic compulsions. There was no uncle or brother behind the bicycle to hold it from falling, or if there was, they had coolly taken their hands off as the kid was pedaling. The net result is: ministerial talks in Geneva have failed again. 

No point in entertaining a blame game. It doesn’t matter whether it is the US or the combine of India and China that was responsible for the fall of the bicycle, for both had taken their hands off the bicycle. What therefore matters most here is: How serious are the developed countries in enhancing  ‘reciprocal altruism’? Or, how committed are they to “minimize the dominance and maximize the use of reciprocity that ensures gain in trade, making everyone in the game better off?” 

After all, it is the basic instinct of mankind “to trade, to barter, to exchange one thing for another.” Thus, it becomes essential that the mutual reciprocity of trade should become an act of mutual and enlightened self-interest in pursuit of the “gains from trade”—direct gains such as economies of scale, lower production costs, lower consumer prices, broader consumer choices, and bigger markets; and indirect gains such as improved efficiencies among domestic manufacturers owing to increased competition, transfer of technology, and high level of innovation, leading to continuous improvement in technology. Interestingly, as John Stuart Mill observed, it is the intellectual and moral effects of trading which are more important than even that of economic gains. 

As against these basic requirements, what happened in the last week of July in Geneva was the failure of the developed world to show solidarity with the concerns of the developing countries, that too, when the stakes involved under the conflict is just one-tenth of 1% of global GDP. Incidentally, when the Doha round talks started, agricultural liberalization was an issue of the developed world, but today the US is demanding significant expansion of access to the agricultural markets of the developing countries. Nor could it display a shining example of its commitment to trade liberalization: it has increased its allocation for farm subsidies from the current level of $9 bn to $14.5 bn, which is sure to hit the exports of sub-Saharan cotton growers badly.

Looking at the prophesied difficulties of developed countries in selling the idea of genuine liberalization—reducing their farm subsidies that are required to encourage agricultural exports from developing countries—one wonders how they are expecting the developing countries to sell the ‘structural adjustments’ required in terms of opening up of markets for their agricultural products, that too, at the cost of the welfare of their teeming millions of small and marginal farmers. Moreover, in today’s context of soaring food prices, it is all the more difficult for developing countries to effect structural changes unless there is a matching gain elsewhere. Indeed, basic economics dictate that as new supplies from external world make inroads into traditional domestic markets of developing countries, there arises a dire need for increased opportunities for exports from these countries to offset the pressure towards more protectionism.

It’s not that this simple equation is not known to the developed countries, but apparently the principle of ‘reciprocity of altruism’ is given a go-by and instead, they are obviously preferring the art of ‘dominance’ as a tool to garner trade gains for themselves. And the victim is ‘multilateralism’ at the expense of which bilateralism has in the recent past become rampant. Which means, today’s world is more tilted towards open economy. All that is required is to keep pedaling, so that the bicycle moves forward equally benefitting all the 145 countries.

(September, 2008)


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