Burying what is dead is sometimes harder than pretending to resurrect it. So it is with the ongoing Doha Round of multilateral trade negotiations. Following the failed talks at Potsdam, the blame game was under way.
The US and EU accused developing countries, and India in particular, of unwillingness to cut manufacturing tariffs. In turn, developing countries complained about the modest subsidy cuts in agriculture offered by the United States. What is going on here? Why is Doha dragging on, interminably? Can there be a swift and successful conclusion?
Beyond the proximate causes that negotiators at Potsdam were quick to invoke, there is a deeper, structural problem, afflicting the Round. Aaditya Mattoo of the World Bank and I argued a few years ago that this Round was unlikely to succeed because (see http://www.iie.com/publications/papers/subramanian0305.pdf) of such a problem. The WTO framework is based on reciprocity.
In this framework - I open my markets in return for you opening yours - the domestic political pain of liberalising imports is countervailed by the domestic political benefits of providing greater market opportunities for exporting interests. Thus, liberalisation is facilitated by rendering it politically palatable. This reciprocity framework is now, however, in trouble. Consider why.
Market opening bargains between industrial and developing countries are increasingly difficult to strike in the WTO. For two reasons. First, exporting interests in industrial countries have less need and hence enthusiasm for the multilateral trade system as a means of achieving their market access objectives.
Major unilateral liberalisation by developing countries as well as bilateral trade deals have provided improved access for industrial country corporations both in goods and services. With all this happening outside the WTO framework, industrial countries have less incentive to pursue liberalisation within it.
Second, there seems little prospect that industrial countries will be able to overcome their own defensive interests to deliver greater access to developing countries where they most seek it.
In the EU, the eastward enlargement of its boundaries and the consequent budgetary pressures have necessitated a reduction in subsidies. In the US, the dismantling of the clothing quotas under the Uruguay Round has exposed domestic firms to greater competition.
In the Doha Round, developing countries want more access - access beyond what the US and EU are already obliged to provide for reasons orthogonal to the Round - in these sectors at a time when the US and EU are still coping with the political consequences and economic adjustments of previous policy changes. Meeting these demands is not easy for the EU and US.
Developing countries have a large stake in labour mobility. But immigration policy in the industrial world has yielded only the most grudging concessions, and the traditional political difficulties have been compounded by a new fear of terrorism. The aborted immigration reform attempts of the Bush administration attest to the difficulties.
Similarly, the growth in outsourcing of services jobs has provoked deep concerns, which have acquired considerable legitimacy from a spectrum of opinion, from Lou Dobbs, the populist TV celebrity, to Alan Blinder, the respected Princeton professor.
As a result, the US will find it difficult to guarantee the security of market access that developing countries such as India want to continue to thrive as efficient global providers of services.
This combination of reduced stake in multilateral liberalisation and defensiveness has led to perhaps the most striking feature of the Doha Round - a lack of serious private sector interest in it. Unlike previous rounds, it was first midwifed, and then carried along, essentially by governments rather than an enthused private sector.
In the Uruguay Round, for example, companies in the pharmaceutical, chemical, recording and film, financial and telecommunications sectors in the US and Europe, among many others, were actively pushing for market opening around the world. In contrast, the corporate demandeurs - the traditional protagonists of trade negotiations - are conspicuous in the Doha Round by their near-absence.
Developing country attitudes are characterised by a similar defensiveness. India, for example, has little enthusiasm for a Doha outcome that would entail market opening, especially in agriculture. It has been difficult enough implementing reforms whose origins and imperatives are clearly domestic; implementing trade reforms that come with a foreign tag seems inconceivable.
Thus, not many of the major players really want the Round. Yet, nobody wants to be seen as the cause of its failure either. As a result, an elaborate international game of smoke and mirrors carries on, whose objective is less to reach a conclusion than it is to carry on the pretence that success is possible. The day of reckoning is postponed because reckoning will lead to assigning, and having to assume responsibility for, failure.
What responsible behaviour requires is a collective recognition that the Doha Round, as currently conceived and at this juncture, is dead, and that it is time to go back to the drawing board to think afresh about structuring future trade negotiations and trade relations in general.
The hard questions for the trading system are: Is it possible to re-activate the reciprocity dynamic that brings trade barriers down and keeps them there? Or, is there an alternative organising principle that can help achieve these ends? And, how can the WTO best serve the poorest countries?
There is, of course, one real danger with burying the Doha Round. A negotiating lull will lead to a sharp increase in trade litigation in the WTO. In many of these disputes, the US and EU will be defending their agricultural policies. Some, even a substantial number, of the verdicts may require changes in US policies.
The United States Congress will chafe at this infringement of its sovereignty, at US policies being dictated by the "unelected" bureaucrats and judges of Geneva. Attitudes toward trade, especially with a Democratically-controlled Congress and in a general climate of anxieties about globalisation, can quickly turn hostile.
But it is often the case that things have to turn really bad before they start to look up. That may be true for the Doha Round too. As Hegel said, "The owl of Minerva spreads its wings only with the falling of the dusk."
The author is Senior Fellow, Peterson Institute for International Economics, and Center for Global Development, Washington D.C., and Senior Research Professor Johns Hopkins University
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