WTO Failure The Fragmented Future of World Trade

The idea was to create a unified trade regime for the entire globe. But with WTO talks failing last week, the future of trade looks much more fragmented. Myriad bilateral agreements are on the horizon -- and bitter trade wars are likely.

The day after the World Trade Organization (WTO) talks collapsed amid squabbling last Tuesday, with the limousines already lined up along Geneva's lakeside promenade, the participants to the conference suddenly appeared to have found agreement after all -- at least when it came to their choice of words.

The WTO talks collapsed in disagreement last week.

The WTO talks collapsed in disagreement last week.

Foto: AFP

Indonesian Minister of Trade Mari Elka Pangestu said that she was "deeply disappointed." Kamal Nath, the Indian industry minister, also expressed his "deep disappointment." And when US Trade Representative Susan Schwab spoke of a "very disappointing turn of events," European Trade Commissioner and avowed cynic Peter Mandelson couldn't help but echo the general sense of official mourning over the conference. It was "heart-breaking," Mandelson said of the meeting's outcome.

This collective melancholy is certainly appropriate. For nine days, the senior representatives of 153 countries attempted in vain to agree on a new set of rules and regulations to govern international trade. The ultimate failure last week of this most recent effort, may mark the end of mankind's dream of a world without borders and customs barriers.

Confusing Meshwork of Bilateral Agreements

Now, it is unclear whether the talks, which began in the fall of 2001 in Doha, the capital of Qatar, will be continued at all. A senior member of the German delegation summed up the prevailing mood as "over and done with." Pascal Lamy, WTO Director General, was hardly more upbeat. "We will need to let the dust settle a bit," said Lamy, whose term ends next year. "WTO members will need to have a sober look at if and how they bring the pieces back together."

Experts fear that, instead of a uniform body of rules and regulations, what will now emerge is a confusing meshwork of bilateral trade agreements -- to the detriment of consumers and the poorest countries of the developing world.

Ironically, it was a relatively petty argument between Indian chief negotiator Nath and his US counterpart Schwab that led to the fracture. The two delegates were fundamentally in agreement that India should allow more US-produced beef and seed into the country. The only point of contention was how much more.

But the two negotiators were placed under too much pressure from the home front. The United States is in the middle of an election campaign. And India's trade minister had to fly home for a short time during the negotiations to fend off a motion of no confidence against the government.

Still, the real reason for the failed negotiations runs deeper. Concerns about globalization have become greater than the hopes it engenders, even in the industrialized nations and the successful emerging economies. Lamy is now referring to last Tuesday's debacle a "collective failure."

Forcing Others to Make Concessions

The roots of the problem lie in the prevailing ascendancy of national egotism and territorialism. Even the representatives of the European Union were incapable of agreeing on a common position. Theoretically, all countries are in favor of reducing trade barriers. But in practice countries are more interested in reducing the barriers of other countries, not their own. The game is that of forcing others to make concessions without having to make any sacrifices yourself.

The United States, for example, wants to sell its agricultural products to the rising economies of India and China, and to do so with as few barriers as possible. But at the same time the Americans refuse to drastically reduce subsidies to their own farmers and, for example, to permit increases in the importation of cotton from countries like Burkina Faso and other West African nations.

Brazil likes to pose as an advocate of the poor and especially of vulnerable developing countries, but in reality has long been one of the world's biggest exporters of agricultural products. Japan wants to supply the entire world with its cars, but closes its borders to rice imports. And the supposedly progressive European Union imposes a duty of €176 ($273) on every ton of bananas coming into the EU -- unless they come from countries colonized by Europe in the past. The result is a de-facto penalty for those countries that were never victims of colonization.

In fact, it was EU representatives who fuelled one of the most grotesque disputes at the recent round of WTO talks. The issue was cold cuts. Italian makers of the original Parma ham are upset by the fact that meat factories abroad use their regional designation for ordinary ham from the United States. Some Italian negotiators called for an immediate ban on such brand name piracy.

Some Europeans were strongly in favor of the Italian effort. French red wine lobbyists were quickly won over. The Hungarians also spontaneously joined the anti-WTO movement. Other delegates attempted, in vain, to point out to their counterparts that the Italian shoe industry would suffer the most if the negotiations failed.

Death of a Grand Idea

In the end, even the Germans failed to muster the necessary enthusiasm for further liberalization. Minister of Agriculture Horst Seehofer, a member of the conservative Christian Social Union (CSU), is in the middle of Bavarian state parliamentary elections and wants the support of Bavarian farmers, who tend to oppose the lowering of trade barriers.

The result is the death of a grand idea. After the terrorist attacks of Sept. 11, 2001, many gravitated to the idea of opening up the markets of industrialized nations to underdeveloped countries as a way of mollifying the anger of their dissatisfied citizenries. Now, the true price of the failure will only begin to become clear in the fall. China and the United States, in particular, as well as some representatives of the EU, have quietly expected the global trade talks to fail for some time -- and they are now dusting off plan B. In the coming months, experts expect to see a sharp increase in the number of bilateral negotiations aimed at setting up mini trade alliances.

Officially the EU looks askance at such a strategy. And last week the German government insisted, once again, that bilateral agreements are not an alternative. But the reality is that concrete preparations are already underway.

By this fall, the EU could very well have signed a free trade agreement with South Korea and another agreement with the Gulf states. Many of the details have already been agreed upon. For instance, the only unresolved issue with South Korea is whether the import duty for cars should be eliminated immediately or reduced gradually.

The Europeans would have preferred a negotiated solution under the auspices of the WTO conference. But now they see themselves forces to accept an abbreviated version.

Because the Americans and, in particular, the Chinese are developing regional alliances, some fear that the EU could be excluded from increasingly important markets in Indonesia, Thailand and Malaysia. Japan has already entered into a partnership agreement with the Association of Southeast Asian Nations (ASEAN).

No Cathedral, No Monastery

Of course, the bilateral agreements are of little use to the world economy. On the contrary, trade privileges for some are detrimental to others. And bureaucracy becomes even more difficult to negotiate. Managers of companies dependent on exports have long been irritated by the myriad regulations, standards and forms they are required to observe.

The countries most in need of economic recovery are also negatively affected. The weaker a country is economically, the less leverage it has in bilateral negotiations. But even the industrialized nations face hard times ahead. The collapse of the WTO talks means an end to the trade-war truce agreed to by countries around the world. Experts anticipate that the current conflicts between aviation giants Boeing and Airbus could now lead to a trade war between the United States and Europe.

"We wanted to build a cathedral," said one disappointed German delegate as he was leaving Geneva last week. "Instead, we didn't even manage to erect a monastery."

Translated from the German by Christopher Sultan