Smith Faculty Opinion Article - November 28, 2005

Is the Doha Round Making Pascal Lamy
Another Arthur Dunkel or Don Quixote?
By Dr. Peter Morici, Professor of International Business

World Trade Organization Director General Pascal Lamy has issued a draft work program for the Doha Round as the December 13 ministerial meeting approaches. The New York Times compared his task to the one accomplished by the legendary Arthur Dunkel, whose 1991 text provided the framework for the Uruguay Round Agreements.

Sadly history and circumstances offer Mr. Lamy much less opportunity than Mr Dunkel enjoyed. The 500 page Dunkel draft was a first cut at fair compromises to conclude the Uruguay Round. Whereas the absence of EU resolve, American leadership, and developing country realism have forced Mr. Lamy to table merely a 42 page description of the current stalemate.

These negotiations are not going any place until a compromise is struck between developed and developing countries on agriculture, and that requires France to accept caps on agricultural protection at something considerably less than 100 percent. French reluctance is understandable. After all, with chronic unemployment in excess of 10 percent, what would France do with displaced farmers? France has riots in the streets, which their leaders blame on extremists and cultural ills, when the root causes are the economic dysfunction imposed by outdated labor laws and other vestiges of post-war experiments with socialism.

In the United States, the ever adroit gang at the White House has squandered domestic support for free trade by tolerating the unnecessary erosion of Midwestern and Southern manufacturing jobs by Chinese and other Asian currency manipulation, and by emphasizing in negotiations with Asian and Latin American nations services and intellectual property. The latter do much more to pad profits for multinationals than to create exports and decent jobs to replace those lost to imports.

One of these days George Bush will learn that for free trade to pay out for the politicians on Capitol Hill it must create as many good paying jobs as it destroys. People, not companies, have to get behind free trade for the White House to have an antidote to endless carping from unions, who represent only eight percent of private-sector workers, and left-wing NGOs, who represent only themselves and whose only legitimacy comes from nothing more than generous, sympathetic media coverage.

Finally, thanks to developing countries led by China, India and Brazil, the Doha Round was flawed from the start. Dubbed the development round, it was to aid poorer nations by exempting the real issues that plague U.S., EU and other industrial country exports: higher developing country protection for manufacturing, cartels and other private unfair trade practices, investment regulations that compel the strongest developed country companies to give away their technology and transfer production and jobs to locations that make little sense, currency manipulation now rampant in Asia, and various subsidy schemes for manufacturers such as low interest loans and tax holidays.

Masked by the politically correct slogan special and differential treatment, U.S. and European voters are expected to accept the premise that trade protection is bad for their economies but good for developing country economies. I have never obtained a satisfactory explanation of why that is true from WTO officials or developing country diplomats. I doubt I ever will, because it simply is not so. The text that Lamy has tabled even has provisions for Brazil and others to continue to maintain higher tariffs on manufactures and for the least developed countries to add to the investment barriers they erect.

Open markets are perhaps the finest idea for instigating prosperity and economic security ever offered humanity by the collective wisdom of liberal thinkers, but the process underway under the Doha banner is quickly becoming a farce.

If the Europeans stick to their guns, or make only modest additional concessions, the agreements that emerge will do little to break up the iron triangle of unions, statist bureaucrats and farmers that bedevil their continent. If Bush stays on his agenda, the agreements will do little to address the growing U.S. trade deficit, which is now six percent of GDP and twice the size of the U.S. federal budget deficit. Doha certainly wont open markets in developing countries, as their tariff cuts will be replaced by new investment regulations and another generous portion of subsidies that would be better spent, for example, on public health in China.

Mr. Lamy is a dedicated international public servant and as fine a man as any of us know, but circumstances make him no Arthur Dunkel. He may be tilting at windmills, because the protectionists and innocents masquerading as free traders and savvy negotiators in the Doha Round are unlikely to get the WTO out of its funk.