More WTO Stuff

In July the director-general of the World Trade Organisation (WTO), Pascal Lamy, tried to get six countries –the US, the EU, Australia, Brazil, India and Japan –to reach a consensus on trade deals.

Lamy saw no point in broadening trade talks to all WTO members unless these six countries were in unison. It was hoped that the six of them would settle their differences first before involving everyone else.

To no one’s surprise, these negotiations failed. The WTO resolved to suspend the Doha round of global trade talks as the US and the EU continued to argue over who had made the smallest reduction in agricultural subsidies.

The WTO has been associated with globalisation as it is the sole international agency responsible for monitoring global trade. Its purpose is to reduce poverty and income inequality between nations through promotion of free trade and abolishment of protectionist barriers.

The breakdown of these negotiations has led sceptics to point out that multilateralism and globalisation were never destined to succeed. There are 149 member countries in the WTO, each having veto power over any decision. This privilege ensures that individual state sovereignty is not undermined but it also leads to a very difficult and complicating decision making process.

Nonetheless, it is farfetched to anticipate that global trade will come to a grinding halt. Regional and bilateral trade agreements such as the existing AFTA and NAFTA ones will remain, if not grow in number.

Following the failure of the Doha round, Indian Minister of Trade Kamal Nath announced plans to pursue bilateral trade agreements with Europe and Japan. By the end of 2006, the EU hopes to begin negotiations on a free trade agreement with six Central American countries.

But if globalisation is to get back on track, then it is absolutely essential that industrialised countries are aware of the hypocrisy of their actions. OXFAM, a UK-based charity to aid poverty reduction, estimates $13 billion worth of European and American subsidies are illegal under WTO rules.

Let us assume the intentions of rich countries are indeed to aid and develop poverty-stricken ones.While they expound the virtues of free trade and pressure developing countries to open up, they have failed to take note of two crucial factors.

Firstly, the case for protectionism in the developing world is in fact justified. The industrialised world does not seem to remember that they themselves achieved economic success on the back of protectionist measures.

It is historically proven that countries from 18^th-century Britain to present-day China have protected new domestic industries and only gradually opened up when these matured.

Protectionism is in fact a key factor to the rapid industrialisation of a country. To expect a sudden removal of barriers to entry in developing countries while domestic trade is still in its infancy is a clear example of double standards.

Secondly, all charitable funds and efforts channelled towards development of poor nations have been undermined by domestic trade barriers imposed by rich countries.

According to the World Bank, agricultural subsidies in industrialised countries amount to $350 billion -five times the amount they provide for development aid. On average, the world’s two billion people living on $2 a day or less face twice as many trade barriers as rich people.

Economist Robert Wade wrote in The Guardian recently that free trade, if pushed onto unwilling and unready nations, would not aid development and growth. Instead, developing countries would be forced to specialise in existing industries only and as a result would have no opportunity to diversify into newer sectors.

The growth of developing countries depends on their diversification into higher-value added activities he wrote. The 2.5 billion people whose main income source is agriculture need to know they have economic mobility. Cotton growing countries should be allowed to progress to textile production and develop a service sector of their own.

This means developing countries must be given time to grow. They should be allowed to protect domestic services and industrial production for a time period agreed with by industrial countries.

At the end of the stipulated time period, developing countries should then begin a process of removing protection in services. The World Bank estimates that developing countries could gain nearly $900 billion in annual income from elimination of their barriers to trade in services.

If our initial assumption was true and rich countries really do want to close the inequality gap between themselves and their developing counterparts, they need to take the lead by removing agricultural subsidies –to a substantial effect.

Farmers from poor countries are unable to compete with vastly subsidised exports from the EU, US and Japan. In these countries, dieing trades should be left to die with a shift of focus onto the industrial and service sectors.

Allowing domestic agricultural industries to die a natural death may seem like rich countries are shooting themselves in the face. But this would not be the case if that assumption was true.