Let the Doha Round fail [Archives:2005/897/Business & Economy]

November 24 2005

Imagine that the world's trade ministers simply walk away from their forthcoming Hong Kong meeting of the World Trade Organization (WTO) with this simple declaration: “We failed to reach an agreement; we'll try to do better next time.” This would bring the so-called Doha “Development” Round to an unsuccessful conclusion, but it would be no disaster.

Talk to World Bank and WTO officials, and you will get an earful of inflated claims about the benefits that a successful Doha round would bring. These officials often make it sound as if the livelihood of hundreds of millions of poor people in developing nations hangs in the balance. Look closer at these claims, and you find that they are built on sand.

The World Bank's most recent estimate is that complete trade liberalization (including in manufactures and by developing nations themselves) would produce a net gain to the developing world of half a percentage point of their income. But that hasn't stopped the Bank doing its best to hide this meager impact behind impressive-sounding claims.

The fact is that the world economy is more open today than it has ever been, and will remain so even if the Doha talks collapse. Most developing nations have opened themselves significantly to foreign trade and no longer employ the most damaging policies of the past (such as quantitative restrictions on imports).

The political balance in these countries has tilted decisively in favor of pro-trade groups with an outward-looking orientation. In the advanced countries, trade barriers for manufactured goods and many services are at a historic low. It would be hard to identify any poor country whose development prospects are seriously blocked by restrictions on market access abroad. Any country with a sensible development strategy has the opportunity to make its economy grow, with assistance from trade.

But what about agriculture? Don't the farm subsidies and other forms of support in the United States and European Union undercut the livelihood of millions of poor farmers? Wouldn't phasing them out make a big dent in world poverty?

The reality is that the global impact of agricultural liberalization in rich countries would be relatively small and highly uneven. These policies may hurt agricultural producers elsewhere, but they also benefit poor urban consumers. The balance depends on the poverty profile of individual countries and on whether they are food exporters or importers.

Of course, there would be some big gainers from agricultural reform, but they are chiefly consumers and taxpayers in rich countries. Some large middle-income food exporters (such as Brazil and Argentina) would also reap gains. Such outcomes are not unimportant, but they represent a far cry from the picture painted by free-trade fundamentalists.

Indeed the only serious risk from the Doha round's “failure” is that rich countries would take their own rhetoric seriously and react in unproductive ways that prove self-fulfilling. The US, in particular, could intensify its pursuit of bilateral deals, by which it is able to impose increasingly inappropriate policy priorities on smaller nations.

The silver lining in an amicable break-up of the trade talks is that it would give negotiators a chance to focus on issues that are of much greater significance to developing nations. The next time around, trade talks should take up the two most glaring omissions to date:

– A comprehensive effort to enhance the mobility of temporary workers from poor countries to rich countries. This is where the gains from liberalization would be the largest, because it is here that the barriers are the highest.

– Creation of a “policy space” for developing countries in WTO agreements. Developing nations' pursuit of growth-promoting trade and industrial policies are increasingly running afoul of restrictive WTO rules. Growth superstars such as South Korea, Taiwan, China, and many others would not have been able to adopt the growth strategies that they did if today's WTO strictures had applied to them. Trade officials must acknowledge the lessons from these countries' experience and reform the rules accordingly.

There remains a possibility that trade negotiators will patch together a last-minute deal in Hong Kong and emerge claiming victory. We will then end up with an agreement that will have been wildly oversold and is certain to lead to disappointment in the future – especially in developing nations. We will also have given up the opportunity to have a real development round next time around.

Sometimes there is no success like failure. The Doha round is a case in point.

Dani Rodrik is Professor of Political Economy at Harvard University's John F. Kennedy School of Government.

Copyright: Project Syndicate, 2005.