All posts by Sarah Chambers

Sarah Chambers is a research consultant with five years of experience in producing and managing extensive research portfolios across the fields of trade logistics and sustainability. Her earlier career involved strategy and marketing in exporting and international shipping. Sarah holds a Bachelor of International Business from Queensland University of Technology and a Masters in Trade & Development from the University of Manchester. Currently seeking work in trade and business development in emerging markets.
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Another year down and no agreement in Doha trade talks

After more than a decade of trade talks under the Doha Development Round, the international community has nothing to show for its efforts. The talks broke down in 2008 and despite efforts to revive them there is still no agreement. Rather acrimonious finger-pointing from opposing countries has also soured the mood and further entrenched the stalemate. This signifies a failure to deliver potential welfare gains, across all WTO member nations, of an estimated US$120 billion.

When the Doha Round, dubbed the Development Round, was launched in 2001, the world was a very different place. Developing countries’ share of world trade was only 19.5% in 1996 as opposed to 41% in 2010, and these countries had considerably less clout in international politics. The talks were seen as a vehicle to empower developing countries through removing barriers to trade with developed countries.

Although 157 countries are party to the talks, negotiations have come down to a leadership group of countries and regions, the United States, European Union, China, India, Brazil, Japan and Australia. These countries are some of the key players in the trade of agricultural goods, which is the primary source of the disagreement. Eighteen items out of 20 on the agenda were agreed but the final two items, related to the trade of agricultural goods, could not be resolved.

Image Credit: Neil Palmer (CIAT)
Image Credit: Neil Palmer (CIAT)

These items relate to US and EU subsidies of their farmers and access to developing countries’ markets for these goods. Countries such as India and China pushed for ‘safeguards’ of their markets, in the form of tariffs, which they could impose when imports of these subsidised agricultural products flooded their markets. Essentially, agreement could not be reached on what level at which this safeguard mechanism would be set.

It is widely acknowledged that developing countries have been disadvantaged in the past by the structure of the world trading system. The majority of rich countries established their wealth by protecting their domestic markets and promoting their industries via ‘infant industry’ policies, meaning providing investment and support to businesses and producers in the early stages of their development.

Industrial manufacturing in today’s developed world was strongly established by the late 1980’s, also establishing their competitive edge in the global economy. The other side of ‘infant industry’ policies, ‘investment’, is still most notably present today in rich countries in form of subsidies to farmers, particularly in the EU and the US.

Developing countries are under pressure to compete without such assistance to their industries or farmers whilst rich countries still reap the benefit of earlier use of such methods. It’s also now clear that developed countries have moved away from the principle of a ‘Development Round’, one which redresses these imbalances in the trading system and would benefit developing countries.

It is a great failure that the round collapsed, but its agenda was hugely ambitious, attempting to cover industrial goods, agriculture and services. Furthermore, discussions took place in a decade where global economic power has shifted more than at any other time in the last 100 years.

Still, development economists despair at the lack of agreement and have made it clear which nation is to blame. Jadish Bhagwati commented, “In short, the US killed Doha. Or at least put it into intensive care. The WTO Ministerial in November 2011 ended without concluding Doha, in defiance of all the efforts that leading scholars and statesmen worldwide had been making in its behalf”.

While agreement in these multilateral talks has been elusive, many nations are instead pursuing preferential trade agreements (PTA) which are less advantageous to all countries and particularly developing countries, which experience a power imbalance when negotiating such agreements. Bhagwati further commented, ‘and now, the US, not content with killing Doha, is even promoting the regional PTA called the Trans-Pacific Partnership, compounding its folly twice over’.

The importance of salvaging some agreement out of Doha cannot be overstated. According to the WTO, trade as a share of global GDP has risen from roughly 40% in 1980 to around 60% in 2012. During this time, trade has been a significant contributor to increasing economic growth and increasing prosperity in many developing countries.

The ‘Washington Consensus’, which advocated opening markets to trade and investment, was preached to developing countries in the 1990s and 2000s and many have diligently undertaken liberalisation of their economies, including removing barriers to trade.

There is a strong case of ‘do as we say, not as we have done’ from the US and the EU. The US simply finds it too politically sensitive to cut subsidies to agricultural producers, which also double as strong lobby groups. When head of the World Bank, Robert Zoellick pointed out the importance of a deal and urged the US to show leadership saying, “The world needs a global growth strategy and opening trade drives growth. We’ve seen it with proven effectiveness all throughout the past 60 or 70 years”.

The quagmire economies of EU and US could benefit from an agreement but is it the insecurity in those countries which makes an agreement even more unlikely. It seems clear now that officials have concluded that the ‘grand bargain’ originally intended from this round is not possible. In October 2012, the head of the WTO, Pascal Lamy, conceded, “It is now clear the goal of achieving a Doha package encompassing 20 topics among the WTO’s 157 members is out of reach in the short term. But in this difficult environment the possibility still exists of advancing in smaller steps”.

It’s clear that political leaders are now bypassing the Doha talks. At the World Economic Forum in January 2012, David Cameron called on Europe to bypass the Doha talks on a world free trade deal in favour of seeking separate agreements with the United States, Africa and other willing parties.

In 2013, negotiators must move to conclude talks on those topics which parties can agree. Agriculture accounts for only 10% of global trade in merchandise, but has been the sticking point for an overall agreement whereas merchandise trade of manufactured goods accounts for 55% of global trade.

Lamy has spoken of a Doha-lite agreement, the Australian Trade Minister, Craig Emerson, is advocating a ‘modest agreement’ by breaking the large agenda into smaller pieces and concluding each one separately, and the Economist has taken a similar approach, in a recent article, calling for a ‘Global Recovery Round’ again being broken into smaller chunks and allowing member nations to pick and choose which agreements to pursue.

As the global economy is still stalling, these kind of pragmatic steps really would be the least worst option. Rather than simply let multilateralism slide and protectionism rise, all parties have a lot to gain from even a partial resolution to the battle.

 

The end of aid through trade?

We are undergoing a transformation in the global economy. The financial crisis which has plagued the United States and Europe since 2008 is still holding back growth in those nations. In the meantime many developing countries continue to register positive economic growth. This is partly because developing countries are less dependent than they once were on developed countries as a source of growth. Research carried out by the International Monetary Fund (IMF) in 2008 found that the business cycles of rich and emerging nations were diverging. Further to that, the IMF is forecasting that next year the developing world will out-produce the developed world for the first time. This signifies a key turning point and a monumental opportunity.

At the same time the importance of maintaining aid to developing countries is coming under the spotlight. Recently, the Canadian government made deep cuts to their foreign aid budget. Whilst the foreign aid budget has so far escaped such cuts in the United States, Greece and Spain have also slashed their aid budgets, as have Austria and Belgium.

The debate around the effectiveness of aid also rages on in many forums, including here on whydev (such as in this post). But, in light of the improved economic performance of developing countries, should there be a shift in the debate to be more focused on how the global community achieves the end of aid? And if so, how would we bring about the end of aid?

Although I don’t generally enjoy quoting Tony Blair, I’ll make an exception this time. In a recent op-ed in the Huffington Post, he argued that Africa can be free of dependence on aid in a generation. To achieve such independence he wrote that Africa needs economies that generate wealth and improved living standards for all. Similarly, the Nigerian finance minister, Dr Ngozi Okonjo-Iweala, highlighted that aid to save lives is only part of the story. She explained that, “saving lives turns those people into productive contributors to the economy. Of course the social and humanitarian reasoning makes sense but add to that the economic”. She raised the question, “after lives are saved what is the next step?”

The next step is economic growth through trade. Today’s aid needs to enable tomorrow’s trade. Whilst economic growth figures in developing nations in recent years have been impressive, they can still be improved. Sub-Saharan African growth averaged 5% in the years 2000-2008 and we’re all familiar with the approximately 10% growth rates in emerging Asian nations in the same period. Although the economic turmoil in the US and Europe dented those growth rates, both regions rebounded in 2011. But, a recent World Bank report on the Light Manufacturing Industry in Africa highlighted the impact of poor trade logistics, which increases cost and reduces competitiveness, the holy grail of trade. Improved trade competitiveness is essential for developing countries to continue their growth trajectory and ultimately cut aid dependence.

In order to build a “trade enabling environment” an essential element of foreign aid spending needs to be investment in infrastructure such as roads, railways, ports, and systems. This is especially important on an intra-regional basis. In the African example, transport from landlocked nations to ports in the coastal nations adds significant cost and extends transit times, again reducing competitiveness. Also intra-regional trade is in itself a key component to increasing trade and economic growth. The OECD reported in 2010 that “South–South” linkages had intensified and trade is growing rapidly as part of the global production networks and also to serve the growing middle class in many emerging nations. The World Bank’s report “Connecting to Compete: Trade Logistics in the Global Economy” emphasises that efficient trade logistics is strongly associated with trade expansion, export diversification, the ability to attract foreign direct investment and economic growth. The basis of that report is the Logistics Performance Index, which assessed the reliability and effectiveness of import and export supply chains in 155 countries and ranked countries from best to worst. The countries in the bottom 10 in the rankings are low and lower-middle income countries and eight out of 10 countries are in Sub-Saharan Africa. China has the highest position of any developing country at number 27. It is quite clear that in order for autonomous economic growth to replace aid, investment in and improvement of transport infrastructure is an essential prerequisite.

In countries such as Malaysia, India and China, trade driven growth has been shown to be successful. In order for other developing countries to replicate such growth, rich countries can also ‘aid’ developing countries by allowing access to their markets and indeed providing a more level playing field. I won’t go into all the details of the failings of the Doha round, the so-called ‘Development Round’ of trade talks, but it’s clear that the lack of agreement is a key threat to increased global trade and that it is causing developing countries to lose out on significant opportunities. The current economic environment has also led to an increase in protectionist sentiment and hence creates less potential for a resolution of the round.

In a world where more than a billion people still live in poverty, it’s important to highlight that the end of aid dependence can be the goal only after development foundations have been laid, such as achieving the Millennium Development Goals. Aid is still an essential pillar of the “first step” in development that is to save lives. But Dr Okonjo-Iweala is right to ask, “what is the next step?”

The next step is becoming clear – it is economic growth through trade. Today’s aid needs to better facilitate this next step, by supporting better infrastructure and access to high-income countries’ markets.