International Herald Tribune
Philip Bowring: The failure of Doha
TUESDAY, JULY 25, 2006
HONG KONG It says much about the disconnect between financial markets and the real global economy that stockmarkets boomed - Wall Street rising 2 percent and most of Asia and Europe following suit - on the day the Doha round of world trade talks collapsed, perhaps irretrievably.

Of course markets often turn on a misplaced comma while the consequences of the blow to the World Trade Organization may take years to be fully felt. However, it is as well to focus on the fundamentals before markets awake to the consequences of the demise of Doha so soon after the pious platitudes at the G-8 summit meeting.

Leave aside for the moment the issue of who was most to blame - the United States, the European Union, or developing countries led by India and Brazil.

Leave aside the collapse of the first real effort to bring the same trade rules to bear on agriculture that have existed on industrial products ever since the founding of the General Agreement on Tariffs and Trade (GATT), the WTO's predecessor, 58 years ago.

Leave aside the fact that this trade round was supposed to help most of all the poorest people and countries who thus far have been largely excluded from the benefits of open trade.

Leave aside the fact that with China now a major member and Russia on the brink of joining the WTO, a global commitment to a market-based trading system seemed to be almost complete.

Concentrate instead on what this failure says about the lack of commitment of countries, the United States in particular, to multilateralism. It is hard not to see in this an aspect of the U.S. retreat from the rule-based world that it was instrumental in creating after World War II.

If one scorns the United Nations, rejects a global court, incessantly ignores or vetoes UN resolutions, one cannot expect trade to survive forever as the sole focus of multilateralism.

That the United States long stuck to its WTO principles despite unilateralism elsewhere was attributable in large part to the efforts of former U.S. Trade Representative Robert Zoellick. Two quick changes of the trade representative since his departure were evidence of Washington's lack of commitment to Doha.

The Doha story bodes ill for other areas of global concern - such as the environment - where multilateralism is essential. Developing countries have failed to recognize that their best hope for sustained growth is more open trade, especially with each other.

The old rich with aging demographics have, for the sake of their tiny agricultural minorities, passed up an opportunity to open up markets growing much faster than their own ever can.

The consequences of the failure of Doha for Wall Street may come sooner rather than later as the forces of trade and finance collide.

Of course, the WTO is still here. No one has left it. Its rules and levers sill exist. But an institution so weakened by failure will have a hard time standing up to the pressures building on the trading system due to the massive trade and financial imbalances, of which the imbalance between the United States and China is the most threatening.

For sure, the WTO cannot itself resolve these. Both countries must face up to the dangers of letting desire for short-term growth lead them to avoid imposing discipline on their financial sectors, changing fiscal policies and accepting painful currency adjustments.

However, a weakened WTO is likely to see countries - and not just the United States - taking short cuts to resolving trade imbalances by imposing quantitative restrictions, anti-dumping measures and other non-market measures.

More broadly the failure of Doha will encourage the proliferation of regional and bilateral trade deals that purport to further free trade but often have scant practical value. Worse, they often undermine the whole principle on which world trade has been based since GATT was formed - that of non-discrimination.

The EU single market and the creation of the North American Free Trade Area have generally been examples of regional deals enhancing global free trade. Fears around 1990 that the two would become competing trade blocs enclosed behind their regional walls were not realized because both the EU and the United States recognized their mutual self- interest in open regionalism.

However, the tensions in global trade are now not primarily between two groups of advanced nations with shared values and balanced trade. The much greater danger now is of competing blocs.

The tensions are increasingly between the developed and the developing world, most obviously represented by China as the new industrial power, and between east Asia - principally Japan, Korea and China - and the West.

Can leaders look up for a moment from small wars and minor crises to a fundamental crisis in the arrangements that helped create post-1945 global prosperity?