Liberal Realism

Jagdish Bhagwati on the Doha Round, Susan and the "last mile"

So, every now and then your hear something interesting, here is Bhagwati explaining what really happens on the last Conference of WTO members. This is for those of you who swallowed the lies told by Susan Schwab:

"Essentially, America was making an offer to cap her trade-distorting subsidies at $14.5 billion which, in fact, exceeded its current payout, which is likely to be $9 billion or less. America has 2 million farmers. India, which has nearly two-thirds of its population in the rural sector, has small subsistence farmers. Faced with competition from subsidized, often large farms, India's reaction has been exactly like that in the United States where nothing works up politicians and lobbyists more than the often-imagined, not even real, allegation that foreigners are subsidizing their products "unfairly." So, just as America, fearful of competition from China, introduced an unprecedented product-specific safeguard in its bilateral agreement of November 1999 and a special textile safeguard during the transition to freer trade in textiles, India wanted a Special Safeguard Mechanism. It was, however, excessive and unacceptable to America, which had virtually pioneered the practice.

The central problem therefore arose from the fact that the U.S. offer on trade-distorting subsidies was too low, prompting an unacceptable Indian demand for an over-cautious SSM. Evidently the solution lies in America capping the distorting subsidies at a minimum of the current payouts: nothing prevents it from spending more instead on non-distorting subsidies which do not affect output (and hence trade) but which are given, for instance, for environmental improvements and for raising poultry and cattle in an ethically-acceptable fashion. In return, India could surely agree to a serious downscaling of the SSM.
This solution is not politically impossible. It requires America to move away further from distorting subsidies, and substituting them with non-distorting subsidies, a move that is surely possible even in a presidential-election year since total farm support can be maintained while its composition changes in a pro-trade direction..." Check the complete article at Brooking Institution.

Doha is gone (again) and there is nothing to cry about.

Finally, somebody with a bit of common sense is writting about the Doha round. Check "Do not cry for Doha", by Dani Rodrik, to get a realist view of what was going on. That guy is one of the few scholar that ha not been trapped and blinded with everything he reads.

WSJ: Doha failure hands off the issue to the next US president, unlikely to make it a top priority

The Wall Street Journal tends to be really realistic when it comes to analyze political rational: Here is a part of the article Trade Talks' Failure Weighs on Other Issues (31/07/08) that I think describes pretty much the situation.

The failure of the talks isn't likely to have big effects immediately on the flow of world trade or on economic growth. Outside of agriculture and textiles, trade barriers generally are low globally because of decades of tariff cutting. But the consequences of the failure were still significant because of the message about the difficulty in reaching global agreements.

"This is the first failure of a multilateral trade agreement since the 1930s," an era of protectionism, said Fred Bergsten, director of the Peterson Institute for International Economics. The absence of trade liberalization, he predicted, would lead to an increase in efforts to protect domestic industries around the globe from competition. Although WTO chief Pascal Lamy held out hope that the talks could be revived once again, European Union Trade Commissioner Peter Mandelson said the Geneva talks represented a "burial" for the Doha round.

Given the U.S.'s leading role in trade policy, the Doha failure essentially hands off the issue to the next president, who is unlikely to make it a top priority. Daniel Tarullo, a Georgetown University law professor who advises Sen. Barack Obama, said "U.S. negotiators were right to walk away from what was shaping up to be a bad deal for the United States," although he said negotiators "should not abandon their efforts." Philip Levy, an American Enterprise Institute economist who advises Sen. John McCain, said the inability to reach a deal "calls into question some of the underpinnings of the global trading system."

Instead of global deals, patchwork efforts on global trade issues may become the norm. In another area of global concern -- the barriers to food exports erected by several dozen countries in response to rising prices -- the World Bank has tried to persuade countries individually to change their policies by appealing to their national interests. The bank's president, Robert Zoellick, a former U.S. trade representative, argued to countries that they will wreck their credibility as exporters if they cut back in times of global trouble.

Future trade deals may focus more on narrower national interests, rather than Doha-style talks that call for countries to make concessions in one area to make gains in another. One possible model is a kind of "coalition of the willing" approach. The model is the Information Technology Agreement signed in 1996, which set zero tariffs on new technology goods for countries that signed on. About half the WTO's members have done so.

WSJ: Doha may be alive after all…...Naaaa

So people think that something will come out of this meeting to advance for a new WTO pact. Keep dreaming. With no Trade Promotion Authority for the US President. With protectionism spreading through the European and American peoples as the crisis gets bigger. IT WILL NOT HAPPEN. And, even if an agreement is signed, do you think the US Congress would validate it? Here is the latest news on the supposedly progress of Doha talks:

U.S.-Brazil Tariff Deal
May Aid Doha Talks

By JOHN W. MILLER
July 26, 2008; Page A4

GENEVA -- European Union and U.S. trade negotiators achieved a minor breakthrough at the World Trade Organization summit, persuading Brazil to accept a compromise proposal on agricultural and industrial goods.

The Latin American country Friday accepted some tariff cuts on goods like cars and chemicals in exchange for a $14.5 billion cap on U.S. farm subsidies, down from $15 billion three days earlier. Those are key points of contention in the seven-year-old Doha Round of world-trade talks.

A final resolution remains far from certain. China, India, South Africa, Argentina and many others remain opposed to the compromise proposal, drawn up by WTO chief Pascal Lamy Friday in a last-ditch attempt to save the talks. And there are still dozens of unresolved issues on the table.

The negotiations began Monday and quickly turned into a marathon session of ill-tempered bargaining. "The biggest concern we have is that a handful of large emerging markets threaten this round for the rest of us," said U.S. Trade Representative Susan Schwab.

In particular, Indian's industry-and-commerce minister, Kamal Nath, has proved inflexible on the key EU and U.S. demand that he accept cuts in tariffs on industrial goods like cars and chemicals.

But Brazil's acceptance of Mr. Lamy's proposal could unlock the tension in the talks, say analysts. Brazil and India had previously forged an iron pact of resistance to Western demands on industrial tariffs. "The talks had foundered for days and were on the verge of collapsing, so this is important," says Paul Blustein, a trade analyst at the Brookings Institution.

Brazil's foreign minister, Celso Amorim, sounded a note of optimism on leaving the meeting of delegates from some 30 countries. "There is now a 65% chance of doing a deal, where before there was a 50% chance," he said.

On Saturday, negotiators will start discussions on rules for banking, insurance and other service sectors. They will then go back to discussing agriculture on Sunday. Those talks are expected to last until Wednesday.

"What's on the table is not perfect, it's not beautiful, but it's put together what will be a genuine boost for the world economy, and particularly good for developing countries," the EU's trade commissioner, Peter Mandelson, told reporters.

Dani Rodrik`s Blog: On the intellectual (death) consensus about globalization

I was Reading once again Ruggie´s work on the Embedded Liberalism theory and the intellectual consensus that motivated the shaping of the international economic order after WWII: Some kind of mix between liberal economic ideas such as free trade and international monetary stability and an accepted need for state intervention on the domestic level to assure social stability. Then I read this from Rodrik, and see how history is repeating once again:

There was a time when global elites could comfort themselves with the thought that opposition to the world trading regime consisted of violent anarchists, self-serving protectionists, trade unionists, and ignorant, if idealistic youth. Meanwhile, they regarded themselves as the true progressives, because they understood that safeguarding and advancing globalization was the best remedy against poverty and insecurity.

But that self-assured attitude has all but disappeared, replaced by doubts, questions, and scepticism. Gone also are the violent street protests and mass movements against globalisation. What makes news nowadays is the growing list of mainstream economists who are questioning globalisation's supposedly unmitigated virtues.

So we have Paul Samuelson, the author of the post-war era's landmark economics textbook, reminding his fellow economists that China's gains in globalisation may well come at the expense of the US; Paul Krugman, today's foremost international trade theorist, arguing that trade with low-income countries is no longer too small to have an effect on inequality; Alan Blinder, a former US Federal Reserve vice-chairman, worrying that international outsourcing will cause  unprecedented dislocations for the US labour force; Martin Wolf, the Financial Times columnist and one of the most articulate advocates of globalisation, writing of his disappointment with how financial globalisation has turned out; and Larry Summers, the US Treasury chief and the Clinton administration's "Mr Globalisation", musing about the dangers of a race to the bottom in national regulations and the need for international labour standards.

While these worries hardly amount to the full frontal attack mounted by the likes of Joseph Stiglitz, the Nobel-prize winning economist, they still constitute a remarkable turnaround in the intellectual climate. Moreover, even those who have not lost heart often disagree vehemently about the direction in which they would like to see globalisation go.

..

The first three decades after 1945 were governed by the Bretton Woods consensus – a shallow multilateralism that permitted policy-makers to focus on domestic social and employment needs, while enabling global trade to recover and flourish. This regime was superseded in the 1980's and 1990's by an agenda of deeper liberalisation and economic integration. That model, we have learned, is unsustainable. If globalisation is to survive, it will need a new intellectual consensus to underpin it. The world economy desperately awaits its new Keynes.

Check the original: http://rodrik.typepad.com/dani_rodriks_weblog/2008/07/the-death-of-the-globalization-consensus.html