The Beginning of The End

Pascal Lamy, director general of the WTO, suspended the Doha trade round recently when trade negotiations between six key members broke down in Geneva.

Lamy’s idea was to get the EU, the US, India, Brazil, Japan and Australia to reach a consensus first before involving other members.

The US was blamed for not showing enough flexibility on the issue of farm subsidies. In retaliation, US trade representative Susan Schwab said a no deal was better than a half-hearted ‘Doha lite’ one. She blamed the EU and emerging economies for not giving up enough to justify what she claimed were substantial cuts in America’s farm bill.

The Doha round of trade talks is centred on reducing poverty and income inequality between countries by liberalizing international trade. Rich countries want poor countries to open up their markets to services and industrial production. Poor countries want rich countries to do the same for agricultural goods.

The WTO’s strength, is also its weakness: All members have veto power over any decision. This means that while no one state is more powerful than any other, decision making is a long and tedious process.

Critics have been quick to suggest that the collapse of the Doha round marks the beginning of the end of globalisation. It is unfeasible to expect all 149 members to reach any compromise if six of them aren’t already able to do so.

Bilateral and regional trade agreements are the clear winners in this debacle. India has announced plans to collaborate with Japan and with the EU. South East Asia is expected to experience a stronger EU presence as well. By the end of the year, the EU hopes to begin negotiations on a free trade agreement with six Central American countries.

This may seem a more manageable alternative to multilateral trade. However a report in The Economist suggests this may not be as easy as it seems. Too many bilateral deals within a region, each with different conditions, may complicate matters.

Furthermore, bilateral and regional deals may be in danger of being exclusive to rich and emerging countries only. Poor countries such as those on the African continent most in need of poverty reduction may be excluded from this rich man and potentially rich man’s club.