|It's time to scuttle the Doha Round
By Peter Morici
The Doha Round of World Trade Organization negotiations is in desperate straights. President Bush and his new trade chief, Susan Schwab, have made clear their determination to accomplish an agreement, and advocates of genuinely open trade should be frightened by that prospect.
Supposedly a grand deal is on the table. Developing countries would cut their prohibitively high tariffs on manufacturers, and reduce regulatory barriers to U.S. and EU exports of high-end services in finance and technology-driven activities. In return, developing countries, led by India and Brazil, want the Americans and Europeans to slash agriculture subsidies, tariffs and quotas.
Throughout the world, agriculture is irrationally protected and offers the greatest potential trade benefits for poorer countries. While the EU Common Agricultural Policy receives a great deal of attention, China manages to keep 150 million extra workers on the farm, and the Bush Administration acknowledges U.S. support programs bestow the most benefits to a relative handful of politically savvy farmers.
Anxious to reduce the federal deficit, the Bush Administration has tabled a generous offer to cut crop supports, but the Europeans, burdened by French fears of modernism, are not politically capable of matching it. Hence, the two great, aging commercial powers have little to prod developing countries to better treat the likes of Volkswagen and Citibank.
Even if an agriculture deal could be brokered, the Doha Round would do little to open developing country markets because it was flawed from the start.
Dubbed the development Round, Doha was to aid poorer nations by exempting principal issues that most plague U.S. and EU exports: arcane industrial policies in developing countries that would protect their manufacturers even if tariffs were slashed; cartels and other private unfair trade practices; foreign investment regulations that compel multinational corporations to give away technology and transfer production and jobs to locations that make little sense; currency manipulation now rampant in Asia; and opaque subsidy schemes such as low interest loans and tax holidays.
For example, General Motors, to gain entry into the Chinese market, was required to form a joint venture with state-owned Shanghai Automotive Industries; now, having absorbed GM's know how, SAI is planning to independently produce and export cars to Europe. China spends more than 200 billion a year subsidizing exports by suppressing the value of the yuan through foreign-exchange market intervention, and provides cheap capital to national champions through state bank loans and generous tax rebates.
As things stand, even a successful Doha Round would do little to boost U.S. exports or increase U.S. imports. By my estimates, U.S. exports would increase about $90 billion. Subtracting additional imports, this would hardly dent the $760 billion U.S. trade deficit. The additional trade would increase U.S. incomes and welfare only about $9 billion, or less than one tenth of one percent of GDP. Studies sponsored by the Carnegie Endowment for International Peace and the World Bank, employing different models, calculate very similar income gains.
The Administration should not be surprised that its efforts to open markets through Doha are generating little excitement or support from American voters. Instead the job losses caused by rising U.S. trade deficits are becoming a political albatross for members of Congress aligned with the President.
Sadly, under current arrangements, the gains in exports and income accomplished by China, India, Brazil, and a few other large emerging economies come at the expense of smaller developing countries, which are not able to leverage access to large domestic markets to accomplish mercantilist gains.
Open markets are perhaps the finest idea for instigating prosperity ever conceived by the collective wisdom of liberal thinkers, but the process underway under the Doha banner is a farce. It is endangering support for free trade among the electorate of its strongest champion, the United States, and is relegating to permanent second tier status smaller Asian, African and Latin American countries.
The greatest danger is that either Doha will succeed or trade officials, being diplomats, will cook up some face-saving, limited deal that leaves the issues creating inequity and poverty unaddressed for another decade or more.
It is time to admit the emperor has no clothes, end the Doha Round, and establish a new agenda that more equitably addresses everyone's concerns.
Peter Morici is a professor at the University of Maryland School of Business and former Chief Economist at the U.S. International Trade Commission. He serves on the Bloomberg and Reuters macroeconomic forecasting panels.
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