Adherence to National Interests Cause Failure of WTO Talks

Ahmad El-Sayed El-Naggar: Adherence to National Interests Cause Failure of WTO Talks

  • 5 August 2008

In the wake of a global economic slowdown, countries seem more worried about safeguarding their own national interests and are reluctant to make desired concessions in international economic negotiations, even on mutually beneficial terms. It seems they prefer maintaining the status quo and seem wary of taking on new, even short-term, initiatives, out of fear that such ventures could exacerbate the present economic uncertainty.

The first signs of the global economic downturn appeared in mid-2007, when the US faced a severe credit crunch in the wake of the sub-prime mortgage crisis and the feared meltdown of its major financial institutions. The situation was worsened by an exponential, and somewhat untenable,   increase in the price of oil and food products. However, it was thought that in the year of the US elections, when major strategic decisions are made, a new convention on liberalization of trade in Geneva, within the framework of the Doha Rounds, would make significant breakthroughs for the world economy. However, talks at the convention proved unsuccessful, as the present taxing global economic conditions did not provide a conducive atmosphere for achieving any breakthroughs in negotiations.

During the talks, the emerging economic powers, India, China and Brazil, were particular about safeguarding their interests and did not hesitate from using their growing economic clout to freeze negotiations on greater trade liberalization. Such assertiveness by the emerging economic powers stands in stark contrast to the times when the developing world was prone to toe the line of advanced industrialized countries, which was particularly manifest during the signing of the trade charter in 1994. The rising stock of developing countries in global trade has been nothing short of phenomenal. Their share in global exports has risen from 25% in 1986, 32% in 1995, 37% in 2000 to 45.1% in 2006, according to IMF figures. China that ranked 16 in mid-1980s, in terms of global exports, has now become the biggest exporter in the world.

In Geneva, Western countries proposed a reduction in agricultural subsidies by 50% to 85%, and also mooted the complete abolition of agricultural subsidies by 2013. Taking the lead in this respect, the US even offered to slash its agricultural subsidies by 63.8%, estimated to be worth $14.5billion annually, instead of its present subsidy amounting to $40 billion annually. Moreover, it was proposed that advanced countries, particularly Japan and Switzerland, substantially reduce tariffs on agricultural imports.

However, newly emerging economies, China, India and Indonesia, refused to slash  tariffs on agricultural imports by stating that such a move could only be contemplated when developed countries discontinue aid to their farmers, which gives the latter an unfair advantage over their counterparts in the developing countries. Consequently, the talks achieved no new breakthroughs and global agricultural trade that had risen to the tune of $634.5 billion in 2004 and grew further to about double that sum last year, would continue to operate on the old set of rules.

The proposed agenda for the meeting also included reduction in customs tariffs on imported industrial goods to 11%. This provision was particularly beneficial for advanced countries, whose industrial exports constitute 92% (Japan), 82% (US) and 80% (EU)¿as well as for China, which is currently considered the largest supplier of industrial goods in the world. It should be noted that industrial goods presently constitute 75% of global commodity trade, which has risen to the tune of $13.7 trillion in 2007, and the International Monetary Fund (IMF) estimates it would reach around $15.8 trillion in 2008. Therefore, the liberalization of trade was the most important target  of developed countries, and also the industrialized developing countries.

The draft agreement also sought greater global liberalization for the financial, communications and insurance sectors by including them among the sectors open to foreign investment by member states of the World Trade Organization (WTO). It is important to note here that international trade in services sector rose to the tune of $3290 billion in 2007 and is expected to rise to about $3,699 billion in the current year (IMF figures). The developed world controls 79.8% of the global services sector; therefore, its  liberalization is in their interest as it would provide them with better means to exert pressure on countries under debt, with the help of the IMF.

The unsigned draft also included a general formula to facilitate the temporary migration of skilled labor, but it did not include any specific or binding obligations on the countries that accept it. This meant that the formula was largely to appease developing countries.

Amidst the trading of charges between representatives of China, India and some other developing countries on the one hand and the representatives of developed, industrialized countries as the US, Europe and Japan over the failure of negotiations, the real reason for the disagreement was that the developed countries did not take into account the changing economic equation. Until now, the trend was that the WTO would put forth proposals to member states and it would be left to them to either accept the proposals or refrain from them. However, this practice of setting the terms and conditions has changed with the increasing share of developing countries, particularly China and India¿ in global trade and economic production.

If the abovementioned factors have been decisive in scuttling international trade talks, the major parties would take time to realize the change in global economic equation and make the required adjustments to come up with an agreement based on present global realities. In addition, upcoming US presidential elections and the revival of a sluggish world economy, expected in the fourth quarter of the present year, would create a suitable atmosphere for reaching a more just and realistic international trade agreement.