Doha Round, RIP?

Another attempt""the fifth""to breathe life into the Doha Round of trade talks has failed. The effort lasted just about 24 hours""it started on Sunday and ended on Monday. The round has now been indefinitely suspended. This has led a wag to suggest that the process of untangling it has been like trying to take out chewing gum stuck in hair""a worsening situation that leaves only one option: cut. At issue is the degree to which America subsidises its agriculture. It is around $160 billion, one way or the other. This makes its prices competitive in the world market. (It should be noted that when it comes to subsidies to agriculture, the EU is no slouch, either.) At present around 20 per cent of US farm income is accounted for by exports. The US wants to increase this. So it has been telling other countries that they should reduce import duties on agricultural products. These others have said "you cut your subsidies and we will cut our duties". At this stage, American and European interests have converged and together they have expanded the game by telling the developing countries that if they cut their import duties on non-agricultural products (the famous NAMA), they might cut their agricultural subsidies. America has, in fact, made a beginning in reducing its subsidies. But the EU, thanks to France, has not. According to Peter Mandelson, the EU trade commissioner: "If the US continues to demand dollar-for-dollar compensation in market access (cutting tariffs) for reducing domestic support, no one in the developing world will ever buy that and the EU will not either." Kamal Nath said of the US: "Everybody put something on the table except one country who said 'we can't see anything on the table'."

In other words, it is curtains for the Doha Round, and just as well, perhaps. From the very beginning it was clear that this round wasn't going very far. Globalisation and the resulting income disparities within countries have produced domestic political pressures that make cooperation in such matters extremely hard. For example, how do you tell 300 million Indian subsistence farmers, already struggling to survive, that cheap imports are good for them? So the wrangling had been going on for the last five years. The saving grace now is that the American President's authority, granted by the US Congress, to negotiate a trade deal expires next year. There is no chance as yet of that authority being renewed. When the pre-eminent power in the world sees no major benefits in multilateralism, it is bound to scuttle it. Trade is only the latest example of it. The process started years ago with the cutting down to size of the UN.

What next, then? It is hard to say but there will probably be a two-pronged movement towards increased bilateralism and regionalism. This will mean short-term gains for the vested interests (half of America's farm produce is corporate) and the politicians, and medium- and long-term welfare losses for everyone else. However, it would be wrong to focus narrowly on the spaghetti bowl effect of regional trade agreements. That will be there for sure, but it should be seen as a consequence of globalisation, not as a retarder of it.