MULTILATERALISM: A FAILED CAUSE?

MEHVISH JADOON
July 23 - 29, 2007

Seven years after the Doha Development Agenda (DDA) was initiated at the Qatari capital in 2001, it faces faint chances of success. It was launched by the member countries of the World Trade Organization (WTO) and was aimed at lowering or eliminating trade barriers between developing and developed countries. The industries that were targeted are agriculture, service, and manufacturing. The DDA has faced obstacles throughout the years, and negotiations are difficult to reach as all member countries have the power to veto the final deal. The main stumbling block in the negotiations has been agriculture. DDA talks from 2003 in Cancun to 2006 in Geneva have all reached a standstill due to agricultural policies.

The failure of the 2006 Doha Round was blamed largely on the obstinance of the United States and European Union, in refusing to make significant cuts on farm subsidies. Last month in Potsdam, Germany talks between four of the WTO's largest trading powers- US, EU, Brazil and India, failed due to the same reasons. The four members do not have a mandate to negotiate on behalf of all the WTO's members, but refusal by any one country on key issues could put the talks on hold for years. The expiry of 'Fast Track' of the US President, which allowed him to negotiate trade deals with other countries without giving Congress the power to amend, may exacerbate the Doha talks even further.

If proposals by the WTO are accepted by the member countries then trade ministers may be called to Geneva in September for a possible agreement on the deal. The World Bank estimates that such a deal may add $96 billion dollars to the global economy annually. US agricultural production subsidies are currently bound at $19 billion dollars, and need to fall between $13 billion and $16.4 billion, and the highest European Union tariffs should fall by 73 percent. More prosperous countries are requesting developing countries to cut farm import tariffs and also reduce barriers in non-agriculture sectors. British based aid group, Oxfam said in a statement: "The overall cost of developing countries of opening their agricultural and industrial markets remains far too high in return for the modest reforms in agriculture in rich countries."

Some people have dubbed the US stance as "trade imperialism" and would welcome a decisive failure of the Doha Rounds. Lowering of farm tariffs in developing countries while farm production is heavily subsidized in the US and EU would cause vast unemployment among farmers. Kamal Nath, India's Trade Minister, summed up the problem by saying, "Indian farmers can compete with US farmers but not with the US Treasury." Some experts fear that a collective WTO sponsored free trade agreement will have similar effects to prior deals between developing and developed countries, such as NAFTA (North American Free Trade Agreement). Since NAFTA was ratified in 1994, the Mexican market gradually filled with heavily subsidized corn from the United States. The subsidized corn put many Mexican farmers out of business since it was less expensive than the manufacturing price of local corn. In Canada, 47 percent of manufacturing plants that existed in 1988 closed down by 1994 due to NAFTA.

Opponents of the Doha Development Agenda concede that a bad deal is better than no deal at all. Such multilateral agreements give developing countries the power of numbers and prevent them from being bullied into deals that are harmful to them. Without a fair and viable multilateral agreement, countries desirous of advancing their economies see no other way than signing bilateral and regional FTA's. Pakistan also does not want to miss the bandwagon. FTA's have been signed with Sri Lanka in 2005 and one with China which came into effect on 1st July. The FTA with China is Pakistan's first ever comprehensive FTA with any country. According to this agreement, tariff on agricultural products will be reduced to zero within three years along with a number of commodities.

Pakistan is making efforts to enter into more bilateral trade agreements with Bangladesh, Singapore, Japan, European Union, and the United States. The trade deficit of 2006-07 was an all time high of $13.54 billion. According to former Commerce Minister Zubair Khan, Pakistan should first learn to trade competitively with other countries with existing tariffs before entering into FTA's. More homework should be done before rushing into these bilateral agreements, he said on Thursday at a program on CNBC.

The "trade and not aid" policies of the current government are worth lauding but in a country that is facing the worst breakdown of law and order in recent history, more contemplation needs to be done before signing any new agreements. Policies which might increase unemployment and poverty need to be identified for what they are. In Pakistan 40% of the total labor force is employed in agriculture, any trade agreements that may endanger their livelihoods, as NAFTA did for Mexican farmers, could plunge the country further into poverty and debt.