The Doha failure: Let´s get real in trade talks

Shed no tears for the recent collapse of the trade talks, widely portrayed as a big setback for the trading system and developing nations. The suspension opens the door to a more realistic agenda.

The current round of trade talks began in 2001 at Doha, Qatar, an authoritarian location conveniently off-limits to protesters. It was billed as a "development round" - something for poor countries.

The U.S. government was promoting its latest grand bargain. Emerging economies like India and Brazil, which limit the ability of foreign capital to use their economies as speculative playgrounds, should fling their doors open. In return, the United States and Europe would cut farm subsidies, so third-world nations could export more agricultural products.

This was described as a win-win deal: good for third-world farmers, for U.S. and European investors, poor countries that need foreign capital, and good for consumers. But talks were suspended last week because the parties could not agree on a formula. The press has reported this largely as greedy U.S. and European farmers influencing governments to refuse to cut subsidies. However, a World Bank study in 2005 concluded that when all the costs and benefits were added up, the deal would be a net loser for most developing countries, and benefit mainly rich ones.

The trade agenda has been set by business elites who would impose one economic model on the world - the model of laissez-faire. This model rejects more than a century of Western history, during which democracies have relied on government regulation and social investment to temper the instability and income extremes of a pure market economy. The elite model would also coerce third-world countries to give up their successful development strategies, in which government helps local business develop new technologies and markets, and fledgling economies are sheltered from foreign speculation.

To the extent that third-world countries have already given in to U.S. pressures, results have often been disastrous. East Asia's economic meltdown of 1998 was largely caused by too abrupt an opening of local financial markets. Speculative capital poured in, overheating local economies; then, when the winds shifted, it poured right out, sinking economies that were otherwise sound. Much the same thing happened to Mexico.

Current trade rules make it too easy for global business to deny workers in both poor and rich countries the fair fruits of their labors, despite rising productivity. U.S. multinationals outsource in search of cheaper labor. China runs a huge trade surplus, in part by denying its workers fundamental rights and decent wages. This puts downward pressure on wages in the United States, Europe, even Mexico.

To appreciate the business domination of the trade agenda, consider the fates of property protection and labor protection. The U.S. government, prodded by business, successfully fought to add enforceable protections of patents, trademarks and copyrights to trade negotiations. It just as fiercely resisted adding labor protections. A realistic trade negotiation agenda would address these questions:

How can the trading system promote fair compensation of workers everywhere, rather than helping transnational corporations and repressive governments play off workers in different countries?

How can the system recognize that different countries choose different development strategies, rather than imposing a one-size-fits-all model convenient to U.S. finance?

How to distinguish legitimate strategies (e.g., subsidizing technologies) from illegitimate ones (stealing intellectual property, denying rights to workers).

How to help the poorest countries, without making them mere appendages of Western private capital?

It embarrasses free-trade ideologues that the most successful emerging economies like Japan and South Korea, and more recently Brazil, India and China, have generated their own domestic savings and entrepreneurs, and have not relied much on foreign investors. This has both produced high rates of growth, and insulated them from imported instability.

The West has a fair complaint that if these nations want access to its more open markets, they need to show greater reciprocity - but in product markets, not capital markets. America's structural trade imbalance reflects the failure of U.S. leaders to negotiate a reasonable buffer with nations that export to our open system while they practice more closed systems.

In the end, the trade round stalled not just because the United States and Europe failed to agree on farm policy, but also because key leaders of developing countries weren't keen on the whole approach. It wasn't such a great deal for most Americans, either.

A true grand bargain would address not just the needs of American business, but of working people everywhere.