Rough Trade

The Doha round is dead. But NZ’s bilateral trade deals are no substitute for global ones.  

Listener: 26 August, 2006. 

Keywords: Globalisation & Trade; 

The Doha round on trade liberalisation is suspended “indefinitely”. More colourfully, India’s Commerce Minister Kamal Nath said that the round, though not dead, “is between intensive care and the crematorium”. Trade Minister Phil Goff thinks “it is more cryogenics, actually. It’s on ice. There is a possibility of resurrection.” But a collapse of the negotiations does not mean the end of globalisation. 

Countries will continue to export, to import and to invest offshore. However, the forces of globalisation may take a different form. No one knows what. There is not even a common understanding of why the negotiations deadlocked. Many were quick to blame a veto by US farmers. Nath said he was looking after the interests of his 650 million farmers, while some of the subsequent responses by the EU have been maverick, to interpret them kindly. 

Whoever were the winners, New Zealand is a loser. We have long suffered from discrimination against our farm exports, which depresses the return to the farmers and the country. But the country also faces a major strategic issue: where do we fit in the world economy? 

The ideal is clear. In a multilateral world economy – the framework underpinning the WTO and the Doha round – we are one of many players. If that multilateralism fragments, the larger economies have more opportunities to manipulate trade in their interests. What significant market is going to give priority to a bilateral trade deal with an economy that is all of 0.2 percent of the world’s production? I don’t see the EU or the US (45 percent of the world economy between them) putting us high on their lists. China (10 percent) might have put us first so that they could practise for bigger deals. Some readers may dislike the WTO, but multilateralism is the foundation of a rules-based international trading system. The alternative is surely worse. 

A world fragmented into trading blocs is too horrible to contemplate. (The last time it happened was in the 1930s.) Whatever the blocs may be, we don’t fit naturally into any of them. Our best chance may be to hook into one we already belong to – APEC, ASEAN, the OECD. But, to be realistic, they are unlikely to do much for agricultural trade. And to be even more realistic, whatever collapsed the Doha round is likely to apply to such groupings, too. We could increase our leverage by going in tandem with Australia, although they went alone for their US trade agreement and have some very different trade concerns from us. In any case, Australia will be a relatively smaller market for us (and us for them) as Chinese exports become more pervasive. And together we are still only 1.3 percent of world production. 

An even gloomier prospect is the future role of the US. Over the past 50 years it has been the leader of a multilateral world economy. But the Doha round collapse in part reflects its increasing doubts over that role. The US Congress, beset by strong protectionist lobbies and much domestic indifference, seems more unilateralist. 

It is possible that Americans will elect a more outward-looking Congress in November. But one has a sense that the US is becoming more isolationist in response to its changing role in the world. It would be wrong to blame President Bush for the deadlock. He is a free trader, although he appears to have other priorities. President Clinton, at the peak of his powers, may have also found the domestic politics overwhelming. As may President Clinton at the peak of her powers. 

Americans are surely wrong to think they can go it alone. There are too many exporting US businesses, too many investors with holdings overseas and too many US consumers dependent on imports (not least, oil). Yet sometimes countries, like people, do damned stupid things against their long-run interests. Both the US and the EU may one day look back at last month’s Doha round deadlock and regret their obduracy.