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President Bush and the Doha Round

By Peter Morici
web posted July 24, 2006

The G8, urged by President George Bush, have recommitted to successfully concluding the Doha Round of World Trade Organization negotiations.

Advocates claim a new global trade pact would raise millions from poverty. Sadly, though, a Doha agreement would benefit most the wealthy and large multinational corporations. It would offer little for smaller developing countries and farmers and workers in industrialized nations.

The sticking points in negotiations appear to be U.S. and EU reluctance to dismantle expensive agriculture support programs and developing country resistance to slashing tariffs on manufactured imports. However, the issues surrounding farm and industrial products are incredibly complex, and in the details lay the failings of Doha and agendas of politicians.

Agriculture is protected by so many layers of income support, export subsidies, tariffs and import quotas, and questionable health regulations that gains negotiated in one or several areas can easily be undone by adjustment to policies in others. We have seen that sort of thing many times, for example, to protect North American and European livestock industries.

Moreover, India and other developing countries want to exclude their most sensitive products from a Doha deal. This would negate the liberalizing intention of Doha, outright, and turns the agriculture talks into a farce.

Developing countries routinely sport tariffs of 25 percent and higher on autos and other complex industrial products where U.S. and EU based industries could accomplish the greatest export gains. The United States wants these tariffs slashed, but developing countries routinely impose other protective devices, such as undervalued currencies, all manner of subsidies, and regulations on the conduct of foreign investors. Lowering tariffs would hardly affect how many Chevys or Volkswagens are imported into China, India or Brazil, because those nontariff practices are not meaningfully addressed by the Doha Round negotiating agenda.

A deal on tariffs would only encourage more opaque protectionism, and developing countries with large domestic markets are much better at applying those tactics. Already, most of the benefits of WTO sanctioned mercantilism go to the big developing countries. That is why China, India and Brazil are growing more rapidly than their smaller neighbors.

Even in China, India and Brazil, the fruits of industrialization are skewed. Wealth and income are profoundly concentrated in the hands of a few, as the workers are underpaid for their productivity making exports of textiles, electronics and furniture.

Those cynical dimensions of the global trading regime steal jobs from workers in North America and Europe, hope for growth in smaller, poorer developing countries, and decent pay from workers in places like China and India. We should not be surprised the unions and many developing countries are increasingly wary of free trade policies.

For the United States and EU, Doha is a mugs game. Their growing trade deficits with China, since they agreed to its WTO membership, provide patent evidence of the ineptness of U.S. and EU trade negotiators.

So, why is George Bush pushing so hard for a Doha agreement?

Multinationals have greatly profited from protectionism in China, India and other large developing countries by placing factories and selling services in their markets. In the process, they have been able to grind down wages for the workers they still employ in the United States and Western Europe.

General Motors and Caterpillar, for example, profit well in China thanks to an undervalued yuan and restrictions on imports, while the United Autoworkers gird for more givebacks and plant closures. GE and IBM proclaim great opportunities await in India’s arcane protected markets.

In Washington, large multinationals have lobbied for restraint on U.S. policies, for example, to persuade China to stop manipulating the yuan or for India and Brazil to open their markets for products actually manufactured in the United States. Instead, multinationals have most earnestly sought diplomatic support to help clear a path for their investments and obtain protection for their intellectual property in large developing countries.

If the Doha Round fails, China, India and Brazil, having little to gain from further negotiations with the United States, will be freer to impose onerous terms on western multinationals. Multinationals need a Doha deal that appeases China, India and others to maximize their profits in those economies.

President Bush’s economic initiatives from prescription drugs for the elderly to his failed proposals for private accounts to replace social security have favored the interests of large multinationals, whose political support he has enjoyed. A Doha deal would similarly serve those interests.

Trade policy is always political, and George Bush knows how to reward his friends.

Peter Morici is a professor at the University of Maryland School of Business and former Chief Economist at the U.S. International Trade Commission.

Other related essays:

  • It's time to scuttle the Doha Round by Peter Morici (July 3, 2006)
    Peter Morici argues that the WTO's Doha Round of negotiations won't do much for the United States and the greatest danger is that it will actually succeed in its goals

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