International Herald Tribune
Philip Bowring: Self-inflicted trade wounds
Wednesday, July 30, 2008

HONG KONG: The developing world has been ill-served by the three big countries - India, Brazil and China - that in effect represented them in the World Trade Organization's Doha Round negotiations that collapsed Tuesday. Just as the Geneva talks seemed on the brink of success a mix of national interests and "food security" illusions trumped concern for world trade and the interests of the majority of developing nations.

High food prices should have been a catalyst for overcoming the farm trade issues that had long deadlocked Doha. But rather than demonstrate the need for fewer market distortions if output and trade is to meet global demand, the talks saw India and China reverting to the very food security arguments used in the past to justify European subsidies.

In the process, Beijing and New Delhi have blocked the hopes of countries like Thailand and Malaysia and impoverished African cotton producers that the tariffs and subsidies that hurt their economies would be cut. By discouraging efficient producers from increasing output, these market distortions also raise long-term prices for developing countries that import food.

It has never helped that the developing world has been led by India and Brazil, two countries with long insular traditions and high tariffs. Although both have liberalized over the past decade, they remain relatively protective of manufacturing and have comparatively low trade-to-GDP ratios. Brazil at least was consistent in pressing for much freer access for its highly competitive farm products in return for industrial tariff cuts. But India maintains an array of often contradictory tariffs, subsidies and controls on farm products. While rightly arguing for reducing subsidies in developed countries, New Delhi ended up fighting to keep out farm products from efficient producers in the name of protecting the global poor.

India has the potential for massive increases in farm productivity that could make it the world's leading exporter of rice, cotton and other crops. But it is locked in a defensive mode, claiming to represent the global poor while obstructing an agreement that, for all its faults, would have represented progress for most of the poor, increasing access for goods like African cotton while spurring unsubsidized production of staple grains by others.

India talks of food security, but security everywhere is best achieved by open trade and adequate stocks. In reality, Indian opposition to a Doha deal seems to have been driven by fear that the country's inefficient manufacturing industries would be opened to greater competition, particularly from China, which has already made big inroads in India's consumer goods markets.

That makes China's position seem even more driven by gut protectionist attitudes than by economic logic. China, like much of industrializing Asia, needs an agreement to improve access to the developing world's markets for manufactured goods.

But after a long period of keeping a low profile at the Doha talks, Beijing revealed its protectionist colors by pressing for special deals for key items like rice, sugar and cotton, all products in which other developing countries - including India, Brazil, Southeast Asian nations and some African countries - are competitive.

India and China have both failed to grasp that current high food prices are the result of farm trade restrictions and subsidies, not cause for more "safeguards" against imports.

China is a net food-exporter and has been increasing the sale of high-valued products like fruits. Given how much it has gained from freer trade, and its need to keep industrial exports growing to buy raw materials, China's attitude can only be explained as an obsession with self-sufficiency. Its efforts to protect some of its manufacturing sectors have been obstructive. This can only make it more likely that countries with huge China trade deficits will resort to similar security arguments and kill off China's trade-driven growth.

Of course, China, India and Brazil were not the only obstacles to reaching an agreement. America's ability to deliver on promises to reduce farm subsidies was in doubt. Sniping by President Nicolas Sarkozy of France at the European Union's efforts to cut subsidies demeaned the current holder of the EU presidency. But the trade-dependent countries of the world, be they big exporters of both farm and manufactured products like Malaysia and Thailand, African cotton growers or aspirant industrial exporters need to make much more fuss about the behavior of their supposed champions in Geneva.

The world still needs Doha, more than ever now that it is on the brink of recession, and with food production at the mercy of climate change and energy prices.