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Key
meeting on the Doha Round
By
Jonathan
Power
TFF Associate
since 1991
Comments to JonatPower@aol.com
June 28, 2006
LONDON - In Arthur Conan Doyle's
"The Hound of the Baskervilles", Sherlock Holmes lectures
Watson on the unlikely subject of free trade.
Says Holmes: "Capital article this
on free trade. Permit me to give you an extract from The
Times. 'You may be cajoled into imagining that your own
special trade or your own industry will be encouraged by
a protective tariff, but it stands to reason that such
legislation must in the long run keep wealth away from
the country and lower the general conditions of life in
this island.'"
"What do you think of that,
Watson?" cries Holmes in high glee, rubbing his hands
together with satisfaction.
That was written in 1901. And in
2006 we are still arguing the toss. And at the heart of
the argument is how to deal with the fast growth of
imports from the low cost, developing world.
This week is showdown time over the
latest of the world's great trade negotiating efforts,
the Doha Round. President George W. Bush in Vienna last
week seemingly threw down the gauntlet to the European
Union, hinting that the U.S. is going to accept limits on
its controversial agricultural subsidies and will
moderate its demands for further access to foreign
agricultural markets. If Europe matches this with an
agreement to accept bigger cuts in farm tariffs than it
has so far proposed a deal could be on its
way.
Still, even if this central deal
between the world's top trading nations is done where
does that leave the poorer nations? Long proponents of
freer trade they are always in danger of being scissored
by the world's two leading trade blocs.
There is an important story of
historical evolution. Many of the leaders of the newly
independent countries of the 1950s and 60s came to
political maturity during the 1930s when the Great
Depression convinced them that there was no future for
their countries as exporters of raw materials. That was a
recipe for dependency and vulnerability. This early
experience was compounded by dramatic fluctuations in raw
material prices in the aftermath of the Korea War.
Autarchy seemed a better option than the vagaries of
trade.
But during the buoyant late 1960s
these leaders began to change their minds. The sharp oil
price rise of 1973 and the debt they incurred because of
it convinced many of them that exports were a
life-and-death issue. But although with agricultural
products and labour intensive industries they have long
had a comparative advantage, decades of pushing to reduce
the protectionism of the developed countries with their
high cost farmers, textile and shoe manufacturers
sheltering behind tariffs and subsidies has produced only
modest progress.
The evolution of thinking in the
Western industrialized world has followed a different
course. In the 1960s the West uniformly pushed for free
trade. But by the 1970s and 80s it had produced strong
business, agricultural and political lobbies that
resisted progress on freer trade at every opportunity.
They are able, as they do now with the Doha Round, to
make it extremely difficult for freer trade to
advance.
An interesting chapter of the
annual report of President Reagan's Council of Economic
Advisors in 1982 observed with devastating honesty that
the developing countries are "justified in claiming that
world trade system discriminates against them." Nothing
since then has changed enough to alter that harsh
judgement.
Both Europe and America try to take
the sting out of their protectionism by pointing out how
generous they have been with trade preferences for the
really poor nations. These give an advantage to the likes
of Africa, Central America and Bangladesh, but usually at
the expense of other more developed Third World
nations.
A new study by the International
Monetary Fund shows that for many of the poorest
preferences are less generous that it appears because so
few products are covered and there are over-complex rules
of origin. In truth, they will benefit from the general
lowering of multilateral tariffs, as is being discussed
in Doha. Only the African countries might lose out. But
the answer for that is to abolish totally all rich world
tariffs on African exports.
If the African countries want to be
clever and at the same time shame the EU and the U.S.
they should announce that they will abolish their own
import tariffs if the two blocs end theirs - another
recent IMF study finds that developing countries could
increase their export earnings by reducing their own
tariffs.
Sherlock Holmes would not be
surprised. It has taken an inordinate amount of time for
the penny to drop among those with a less inquiring mind
than his.
Copyright © 2006 By
JONATHAN POWER
I can be reached by
phone +44 7785 351172 and e-mail: JonatPower@aol.com
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