Dr. Mohamed A. Ramady
Publication Date: 
Mon, 2007-07-23 03:00

The long wait is over. After last minute and often acrimonious wrangling, the latest negotiations to try to secure a new global trade deal under the so-called “Doha Round”, have collapsed without agreement. Those involved — from the European Union, US, India and Brazil blamed the other for the collapse for not offering enough concessions. The Indians and Brazilians worked more concessions in agriculture, while the US and the Europeans wanted services and industrial product concessions.

Some tried to put a brave face on the deadlock, with Europe’s Trade Commissioner Peter Mandelson stating that the collapse of the current talks does not mean that negotiations “cannot be put back on track.” Some fresh concessions are being offered, with the US saying it would cut farm subsidies to $17 billion a year, while the European Union said it was willing to increase access to its agricultural sector. However, these two trading blocs insisted that India and Brazil should reduce protectionism on farm goods and open up manufacturing to competition.

The question now is which “track” the WTO will take after the collapse of Doha Round? The whole principle of WTO trade agreements is that it is based on a “multilateral” approach with a “fair playing field”. The existence of WTO has, it is claimed, disciplined nations, stopped selfish protectionism and “beggar-they-neighbor” trade policies. Small countries have the same voice as the largest trading nations and can take each other to WTO arbitration on an equal footing. The fact that all are equal, the existing 149 members with their veto over any final deal, ensured that negotiating new or improved rules of trade have become more complicated over time. This is especially true as new services and products have come into the market that put existing producers at a comparative disadvantage.

There are those that are not unhappy at the collapse of true Doha Round, as they believe that the whole process of negotiations and concessions are done in secrecy and that the smaller nations can only sit watch and finally sign up to whatever was agreed. Those that feel this way say that the collapse will provide a good opportunity to develop an alternative approach to trade, and environmental pressure groups such as “Friends of the Earth”, greeted the collapsed talks as good news. They, and others, argued that this was a good opportunity to develop an alternative approach to trade that works more favorably for developing countries and the environment.

There are some practical consequences for the death of the WTO multilateral approach, should it reach that point. These involve trade dispute settlements — how could such trade disputes be settled in the absence of a WTO body? If current members feel that multilateralism is dead, then they could become more litigious and foster a new “beggar-they-neighbor” policy.

If a multilateral trading system collapses, then the alternative is for bi-lateral agreements between countries and trading blocs. This seems to have been the trend over the past few years, as evidenced also by the various Free Trade Agreements (FTA’s) that the GCC countries have signed or tried to sign with both the US and the European Union. Indeed, over half of current world trade is said to occur under regional or bilateral trade deals, and the GCC customs union is one such example of regional trade bloc.

However, such bilateral agreements seem likely to make life harder for smaller countries, especially those with weaker negotiating powers, unlike a more “balanced” negotiating stance under a WTO multilateral system.

Is it all gloom and doom then for the WTO? These could be an erosion of the WTO’s trade agenda, whereby the organization could enter a period of consolidation on what has been agreed upon by members and to try to improve on the political good will of the organization. The WTO can sell itself better to the general public, especially if it manages to have an expanded role in managing and monitoring environmental trade related issues, as well as advising poorer nations on bilateral trade deals being signed. For the foreseeable future the WTO will be here to stay as simply too much political capital and prestige has been put into it for members to suddenly smash it to bits in a fit of concession pique...

(Dr. Mohamed A. Ramady is visiting associate professor of finance and economics at King Fahd University of Petroleum and Minerals, Dhahran.)

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