Free trade is essential for global prosperity. But negotiating a free-trade deal between ornery, go-it-alone nations is harder than herding cats. Just ask Pascal Lamy, the director-general of the World Trade Organization, who on July 24 reluctantly suspended the Doha Round of trade talks until further notice. The Doha Round "is not dead, but it's definitely between intensive care and the crematorium," Indian Commerce Minister Kamal Nath declared, according to Bloomberg Financial Markets.
The danger now is that the world will break down into regional trading blocs. That would be especially bad for the U.S., which as the world's biggest economy and only military superpower has the most to lose from economic and political fragmentation.
What went wrong in these talks, which began in Doha, Qatar, in the aftermath of the terror attacks of September 11? The easy answer from negotiators in the hallways of Geneva, where the talks ground to a halt, was that the U.S. didn't bend enough. They said the U.S. was the only nation that refused to negotiate further cuts in farm subsidies.
In reality, though, the U.S. is not the primary culprit. The real problem is that the Doha Round may have been doomed from the start by its own unrealistic objectives. First, it put great emphasis on reducing U.S. and European agricultural subsidies, even though those hurt a relatively small group of exporting nations and actually benefit many poor countries, which receive subsidized food exports. Second, the planners built up Doha as a "development" round, creating the unrealistic expectation among developing countries that they would get big benefits in exchange for few if any concessions.
It has taken nearly five years, but the cracks that were in the Doha Round from the beginning have finally widened to the point where the whole negotiating structure has come crashing down.
Let's start with U.S. and European agricultural subsidies, a key target for the Doha negotiators. Are those subsidies too big? Certainly. Is the Doha Round the right forum for lowering them? Probably not. Here's why: The people who suffer the most from those subsidies are the taxpayers of the U.S. and Europe, who pay billions of dollars a year to politically well-connected farmers in their own countries. If voters haven't managed to get rid of those subsidies in their own countries, it's difficult to see how foreign diplomats are going to have any luck. And, in fact, they haven't.
As for the billing of Doha as a "development" round, it was morally stirring but it made developing countries think they had a chance to get something for nothing. "It may be fair but it's downright silly to expect that the big players will make concessions unilaterally," says Arvind Panagariya, a trade economist at Columbia University.
The deadline for hammering out a trade deal has generally been considered to be this summer. That's because current "fast track" authority for Congressional approval of a bill expires next July 1, and it takes many months of detailed consultation from the time a deal is put together to the time it goes up for ratification.
Negotiators are already talking about taking a break and then trying to get a deal done in 2008 or 2009. But the loss of momentum means that many countries will give up and strike bilateral or regional trade deals. Those do less to promote global trade and give more power to anchors of regional trading blocs such as China. Says Panagariya: "I've been in the optimistic camp, but I have to admit it's a dark day."