Poor Relations: Another Doha Round Deadline Nears …

Listener: 6 May, 2006.

Keywords: Globalisation & Trade;

In November 2001, trade ministers in Doha in the Arabian-Persian Gulf declared the next trade negotiations round to be a “development round”, aiming to enable the poor countries to experience “growth, development and prosperity”. But there were conflicting reasons for their vision.

The “Poor Countries” have long believed that the trading practices of the “Rich Countries” damaged their economies. The Rich’s limiting of access to their markets and domestic subsidies denied the Poor lucrative exporting opportunities, while export subsidies depressed the Poor’s returns elsewhere. Even the tariff structure can cause damage. A zero tariff on copper and a low one on copper products penalised adding-value activity in the copper-exporting country.

Meanwhile, the Rich Countries observed the high and distorting protection and subsidies in the Poor Countries and believed that it would be beneficial if the Poor Countries eliminated them.

So there were quite different reasons for the Doha Round to be pro-development. The Poor thought it should change the Rich’s practices: the Rich, although not denying that some of their practices had to change, thought the Poor should dramatically change theirs.

A recent book, Fair Trade for All: How Trade Can Promote Development, by Joseph Stiglitz and Andrew Charlton, argues there is justification for the Poor’s resistance to wholesale reform. (But, like this columnist, they favour trade liberalisation, supporting export-oriented growth strategies, especially for small countries.)

The simplest justification is that many depend upon Customs revenue to balance their budgets. They lack the sophisticated bureaucracies that we take for granted, which can administer effective income and sales taxes. If tariffs were cut, their loss of revenue would unbalance the budget, which would be inflationary or require cutting government expenditure at a time when more would be needed to ease the adjustment. (In the 1980s, we gave social- security benefits to workers unemployed after the ending of protection and grants to some businesses and farmers to enable them to move out of protected industries.)

The authors add that reduced protection may increase unemployment and inequality, and it may discourage entrepreneurship. Of course, all these arguments can be taken to the extremes – that is certainly not their intention. But Poor Countries can reasonably argue that extreme reforms may damage their national welfare.

Their doubts are reinforced by a recent report from a Washington think-tank, the Carnegie Endowment for International Peace, which concluded that the Doha Round proposals could be detrimental to those least able to afford it, such as Bangladesh and countries in East and Sub-Saharan Africa. The agricultural reforms are also problematic. Food prices are expected to rise, so net food importers and their citizens will have to pay more, and their subsistence farmers will not be well placed to seize the opportunities that the new conditions will present. (However, the study concludes that significant trade liberalisation will ultimately benefit the poor.)

There appears sufficient respect for such arguments that the Rich are not insistently demanding too much from the poorest countries, who are content, not so much from the economic logic, but because it does not disturb their domestic pressure groups. However, the economic case against reform by developing economies that were recently poor – including China, various East Asians, India and some Latin Americans – is less compelling. They have strong domestic political pressures to maintain the protection.

The Rich Countries are insisting that those countries whose exports are vigorously competing with their products should increase the world’s access to their protected domestic markets by reducing tariffs, abandoning quotas and withdrawing subsidies. So the Rich Countries are saying that unless there are substantial non-agricultural market access (NAMA) concessions, there will be minimal concessions in the agriculture area. (A convenient argument for such are the objections of the Rich’s farmers that they don’t seem to be too keen to make the concessions, anyway.)

The Doha Round negotiations continue in Geneva this week. Unless there is considerable movement in both areas, the round could collapse. As one country whose farm sector is particularly oppressed by the existing agricultural protection, New Zealand has much to win or lose from the final decisions. Our hopes rest not just on the agricultural negotiations, but also on the NAMA ones.