Wednesday, July 18, 2007

Doha Round's demise: implications for the Philippines

THE Doha Round of trade negotiations is dead. The greater tragedy is that not even one in this country wrote a eulogy or explained to the people what this meant. Maybe our policymakers haven’t really thought about the ramifications of Doha’s collapse yet.

But there’s going to be no bliss in ignorance. Soon we are going to realize that with the demise of what is supposed to be a “development round,” developing countries like the Philippines will feel we have jumped from the frying pan to the fire.

Indeed, a world without a successful Doha Round will be full of uncertainties, an international trading system that is prone to protectionist urges, politically driven trade blocs that will hurt the small fry like the Philippine economy, and dicey global geopolitics.

Everybody seems to believe in the virtues of free trade; that explains why everyone wanted to join the World Trade Organization (WTO), even communist—nominal or real—ones like Vietnam, Laos, China and Cuba. The irony is that negotiators, pandering to interest groups and lobbyists in their own countries, do their business like mercantilists—those greedy ones whose idea of a good trade policy is beggaring their neighbor by selling stuff while fending off the efforts of others to sell their stuff in return. Mercantilism had caused global wars, but the world just can’t seem to learn from it.

That is why a successful conclusion of such an ambitious international trade-liberalization project could only succeed when the countries that matter in global politics take the leadership.
During the Uruguay Round of trade negotiations, freeing agricultural trade, or specifically eliminating quantitative restrictions on farm trade by converting those barriers into tariffs, were among the major roadblocks. The Europeans simply resisted the inclusion of farm products in the reform agenda.

To break the deadlock, American president Bill Clinton pushed hard for the Bogor Declaration calling for free trade among members of the Asia-Pacific Economic Cooperation. Fearful that Europeans would be left behind, the Europeans relented, thus paving the way for the conclusion of the Uruguay Round and the birth of the WTO.

The same kind of global leadership by America is needed under the Doha Round, but President George Bush, lured by the siren songs of unilateralism and distracted by the daily bloodbath in Iraq, has shied away from such a role.

Pandering to the US farm lobby, the American government refused to reform its agricultural subsidy program, thus giving the Europeans the excuse not to touch their own Common Agricultural Policy.

Doha is supposedly a “development round” and it can only assume that essence when the billions of trade-distorting subsidies poured by the Americans and Europeans to their farm sector is significantly reduced. With those subsidies, the only way developing countries can compete is for them to put up their subsidies—implying the diversion of scarce resources away from social expenditures like education and health.

No dice, the negotiators from developing countries said vis-à-vis the demand from advanced countries for greater market access in manufactures and services.

So the dreams of Doha died. And all its dire implications.

With a weaker multilateral trading framework, the next best thing for countries hoping to sell stuff abroad and finance development is through free-trade agreements (FTAs) and other preferential trading arrangements. The trouble is, such an arrangement may also divert trade and could victimize third parties.

Not to mention cause confusion arising from the very real possibility that countries forging bilateral FTAs with so many others could end up making contradictory commitments.
An example of third-party victimization is the free-trade accord between Chile and Korea, which gives preferential access to Chilean copper cathodes at the expense of the Philippines that is not part of the deal. Under a multilateral deal, all the things Chile gets with its talks with the Koreans would have to accrue to the Philippines as well.

The solution, of course, is for the Philippines to sign its own FTAs with a relevant country like the US, China or Japan. In contrast to the WTO system using the principle of nondiscrimination, however, such an arrangement tends to become a relationship among unequals since the Philippines usually doesn’t have the funds to hire the best and experienced negotiators.
In most bilateral negotiations among unequal nations, the talk usually transmogrifies into horsetrading for just plain market access without due regard for the “development” considerations of a poor country. Ever wonder why under our supposed “free-trade agreement” with Japan, we are supposed to allow their dumping their garbage here?

Ever wonder why America, our traditional trading partner, has lately been signing up FTAs left and right except the Philippines? It’s because the Americans probably think we need the FTA with them more than they need it with us. So if we ever broach the idea with them, the Americans will surely demand blood—the wholesale opening of the economy for American firms—in return for a few concessions.

Certainly, service industries like banking, telecommunications, utilities, shipping, port operations and aviation need infusion of greater competition, but doing such reforms under an FTA with Uncle Sam does not seem to be politically palatable in the context of the love-hate relationship we have with a former colonial master.

The more pernicious aspect of the post-Doha world will be the dangers of greater protectionism. The demise of Doha came at a time when offshoring was becoming a political issue in the US. With a weak multilateral trading system, it would be more convenient for countries to put more constraints on trade, using all sorts of excuses, including food safety measures.

This is already happening between China and the US, which have started an apparent tit-for-tat banning of certain imports from each other, on the hard-to-dispute ground of safety. What’s to prevent other countries from applying similar measures on the Philippines? Remember how many years we’ve been hostage to that simple phrase “phytosanitary measures” in trade with Australia and Europe?So let’s fasten our seat belts for the rough flight ahead. We haven’t seen the worst of our fears happening yet, but the omen so far is not good. It’s a sad historical turn for which we have no control. All our policymakers can do right now is to develop our defenses and enhance our competitiveness to prepare ourselves for what’s in store in a post-Doha world.

Please see related posts:
1. Doha round as dead thing walking
2. Demystifying the World Trade Organization

(Note: Originally drafted as editorial for BusinessMirror, July 19 2007)


sparks said...

To what degree would you attribute the Doha Round failure to the US and EU absolutely refusing to remove their agricultural subsidies?

Dave Llorito said...

this is a very complicated issue but Nobel prize laureate Joseph Stiglitz blames his own country, the US, as well as the EU as the main roadblocks to the successful conclusion of the Doha Round. I agree with his assessment.