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“Agree on a deadline: February 2012”
– by Jagdish Bhagwati
“Leaders like Britain’s Prime Minister David Cameron and Germany’s Federal Chancellor Angela Merkel have urged Obama to step forward on Doha – to no avail.” G20 summit in Cannes last month
Who is most responsible for failure to make progress in the Doha Round?
Today, the finger has to be pointed at US President Barack Obama. He has simply abandoned any statesmanlike role on closing Doha. For almost a year, he has refused even to mention Doha as if he did not want to utter a four-letter word. Leaders like Britain’s Prime Minister David Cameron and Germany’s Federal Chancellor Angela Merkel, who appointed me and Peter Sutherland, the former director general of the WTO, as co-chairs of the High-Level Expert Group on Trade last year, have urged Obama to step forward on Doha – to no avail. It is ironic that Obama won the Nobel Peace Prize. The Nobel Committee in Norway hoped he would shift the USA back to multilateralism, but on Doha, which is the one big multilateral issue within his grasp, he has failed so far. Indeed, his recent Jobs Bill campaign is pointing in a protectionist direction.
In view of the global financial crisis, such steps are tempting. Many governments are interested in exporting labour market problems by making exports cheaper. What is your view on the “currency wars”?
The global financial crisis has led to a global macroeconomic crisis. It is the latter that leads to pressures to push up exports and to reduce imports. Since there is inadequate world demand to create full employment, the temptation is strong to divert whatever world demand there is to your own nation’s industries. The great economist John Maynard Keynes saw this perfectly well in the aftermath of the great depression of the 1930s. He even argued that protection made sense at a time of recession. But Joan Robinson, my great teacher at Cambridge University, pointed out that others could retaliate with their own protection, so that one would have nations fighting over who got most of the inadequate world demand. She spoke of a “beggar my neighbour” situation that hurts all parties involved. The same goes for what are supposedly “competitive devaluations”. The better solution would be to stimulate global demand through government spending.
But who could stimulate global demand through government spending?
The US government believes that Germany and China should do more to add to world demand. It also believes that the Chinese Renminbi is being held down artificially so that the Chinese are indulging in an aggregate-demand-diverting currency policy. The Chinese are considered to be double offenders: they do not help to reduce the inadequacy of world demand and they divert the inadequate world demand to themselves. Hence, some prominent economists like Fred Bergsten, my student Paul Krugman and the Financial Times columnist Martin Wolf regrettably argue that it is right to retaliate by way of import tariffs and export promotion. The problem is that the nations concerned are likely to retaliate with their own protectionist measures, reproducing the Joan Robinson scenario. This is especially so as many governments think that the USA caused the crisis and therefore is responsible for resolving it.
You just mentioned Germany too, but our government is not prepared to boost global demand through deficit spending, arguing that doing so would only lead to inflation.
Well, different nations have different histories and cultures. Germans will not forget their past experiences of hyper-inflation. So in view of high debt-to-GNP ratios, they hesitate to raise public spending. These concerns cannot be dismissed summarily. Nonetheless, Germany is one of the few big economies that can actually afford to raise spending at this time of obviously inadequate global demand. German macroeconomic policy, given the deepening Euro crisis, will require an expansionary shift in any event. Within the Eurozone, the choice is now going to be between growth and disaster, and growth cannot be achieved with deflationary policies spreading within the “Club Med” countries and from them to countries like France. Turkey used to be the “sick man” of Europe. Then Greece became the sick man of Europe. Now, unless Germany provides a lead, Europe will become the sick man of Europe!
Trade liberalisation would create a bigger, global market, which would help to increase demand somewhat. The Doha Round is not moving ahead, but many countries are busy negotiating and concluding bilateral free trade agreements. Doesn’t that help to some extent?
No, it does not. Even the term “free trade agreement” is wrong. Thanks to my insistence, scholars now generally speak of “preferential trade agreements” or PTAs. PTAs are discriminatory and protectionist against non-members because they put non-members at a disadvantage in the PTA markets. PTAs, moreover, fly in the face of reality of the contemporary world economy. Today, components for almost any product come from anywhere in the world. It is virtually impossible to decide “which product is whose”, a requirement for granting PTA members preferential market access. That is what leads to what I have called the “spaghetti bowl” of different trade barriers applied to the same imported product depending on arbitrary designations of the source from where it is supposed to be coming. It is revealing that politicians and media pundits stick to the term FTA – their ignorance is in inverse proportion to their confidence in themselves.
If the case for multilateral free trade is so strong, why aren’t policymakers making it?
Part of the answer is that PTA proliferation is diverting attention away from Doha. Ambassador Ron Kirk, the US trade representative, often says that no lobby in the US asks him about Doha; they concentrate on the PTAs. Ethnic lobbies and bureaucrats, who get attached to the countries they were posted in, want PTAs for “their” countries, especially if another ethnic group or country already has one. Lobbies like the labour unions, moreover, know that, when hegemonic powers like the USA or the EU sign a PTA with a politically weaker nation, they can impose trade-unrelated demands like labour standards on those weaker partners. They cannot do that with bigger countries like India and Brazil. Both countries have declared they will continue to reject any agreements that include non-trade matters.
But other governments cave in to the demands from Washington or Brussels?
Yes, of course, I’ll give you a telling example. The latest US-Colombia Free Trade Agreement forbids anti-union activity by employers and even makes it criminal. You can be sure that the US, prompted by the unions, will indeed take Colombia to court over such matters. But if the agreement were symmetrically applied to the US, the jails in the US would be filled with Republican politicians and CEOs who are well known for their anti-union activities, and even proud of that reputation. Only about 10 % of the workforce in the USA is unionised, and Washington pretends to be a champion of labour rights nonetheless. This is ridiculous.
But why do business lobbies not do more to promote free trade, given that it would boost global growth.
Business lobbies see that they can use PTAs to capture markets for themselves. In their view, a dollar spent on opening Mexico bilaterally for US exports is better than a dollar spent on opening Mexico on a multilateral basis because then companies from the EU, Japan, China or wherever would benefit as well. It is irritating how much energy the Obama administration invests in PTA negotiations instead of promoting the WTO. On top of holding PTA talks with South Korea, Colombia and Panama, Washington has launched what it calls the Trans-Pacific Partnership (TPP) initiative, lining up eight small and pliable countries like Vietnam, Singapore and New Zealand to advance an extensive agenda of American lobby demands. The propagandistic talk is of “a trade agreement for the 21st century”. Such rhetoric is completely misleading.
It is sometimes argued that bilateral trade deals are easier to achieve than a multilateral agreement on Doha.
Yes, that is part of the anti-WTO mythology. But it does not make sense. The Doha Round is in its 11th year; and the US-Colombia FTA took 12 years to complete. The EU has been negotiating what it calls Economic Partnership Agreements with various groups of countries in Africa, the Caribbean and the Pacific since 2002. The talks began right after the WTO’s Doha summit. Nonetheless, the EU has not gotten far in Africa or the Pacific. It is foolish to pursue PTAs instead of a multilateral agreement, and this approach certainly does not speed up progress in any meaningful way.
What kind of political action by whom might yet re-start the Doha Round? The G20 keep talking about it, but nothing much has happened.
Many of us have been trying to get President Obama back into the Doha game. The G20 is too focused on the Euro situation to provide any nudging on Doha. Anyway, its origin in finance ministers’ meetings means that other issues receive only notional mention. We really need key leaders of the world – the heads of state or government from the UK, Germany, France, Australia, New Zealand, India, Indonesia, Turkey, Brazil and the Scandinavian countries – to act jointly and put pressure on Obama. They must make it clear, with determination, that this is an urgent matter.
And what would happen next?
Well, there is no reason why the WTO Ministerial Meeting in Geneva this month should not agree on a deadline – February 2012, for instance – to finalise the Doha Round. WTO members should commit to enforcing everything they already agree on as well as decide to start a new round to tackle all the other issues. That is how the Uruguay Round was closed in 1994, and it transformed the GATT, the General Agreement on Tariffs and Trade, into the WTO. I have also urged UN Secretary General Ban Ki-moon to take an initiative, endorsing Doha. He has so far avoided trade and immigration issues, both of which are extremely important, whereas Kofi Annan, his predecessor, was bold and forthright on them. Robert Zoellick, the head of the World Bank recently came out in support of Doha; let us hope that Christine Lagarde of the International Monetary Fund, OECD Secretary General Angel Gurría, UNCTAD Secretary General Supachai Panitchpakdi and other leaders of international organisations will join in.
Questions by Hans Dembowski.