Financial Times
By Patrick Messerlin
Original Publish Date: July 20, 2008
Two dangerous prejudices are threatening the critical meeting of trade ministers at the World Trade Organisation that starts on Monday in Geneva.
The first is the view that the Doha round would bring small benefits – merely $50bn (€32bn, £25bn) to $70bn – in the industrial sector. After two decades of tariff cuts, the average industrial tariff is roughly 7 per cent for the 34 economies that account for 95 per cent of world trade and gross domestic product. No wonder additional cuts will not generate large economic gains.
But stopping short here would be a terrible mistake. If, today, these 34 apply mostly moderate industrial tariffs, most of them have never made the commitment that they will keep these tariffs at current levels. Only eight have done so – Canada, the European Union, Japan, the US, China, Hong Kong, Macao and Taiwan.
The other 26 can – at any time and without providing compensation to their WTO trading partners – more than triple their industrial tariffs (from roughly 8 per cent to 28 per cent on average). This is because the tariffs of these 26 have not been “bound” at the WTO. Only WTO-bound tariffs cannot be increased without compensating affected trading partners – in short, only “binding” can deliver the certainty that business people cherish.
Globally, these 26 – from Brazil to India, from Australia to South Korea – represent 40 per cent of the gross domestic product of the rich countries and 30 per cent of world trade. They are essential for the globalised industrial companies whose production processes are spread across different countries. A Doha agreement would deliver the hugely beneficial binding of almost all of their tariffs. Its failure could generate severe turbulence in world trade flows of industrial products – up to a collapse, as in the 1930s, if there is a recession in the US, the EU and China.
It is thus urgent to act in order to keep the world trading system intact. This requires a successful Doha deal not only in manufacturing but also in agriculture, since most of these 26 countries will not bind their industrial tariffs if they do not gain more access to agricultural markets.
This conclusion leads to the second prejudice – that the Doha round would mean the sacrifice of agriculture on the altar of industry. This is wrong. There are many European farmers who would gain from a Doha agreement on agriculture – all those who produce agricultural products that are not supported by the Common Agricultural Policy. In the case of France, these winners will be between 1½ and three times more numerous than the French farmers who might lose, depending on the details of the final text still under negotiation.
Why are the voices against a Doha deal in agriculture so strong in Paris, Dublin and elsewhere? The losers are well organised around a core group of products and large farms that, it should be recalled, grab in the French case roughly two-thirds of the €10bn ($16bn, £8bn) paid out each year in total subsidies. By contrast, the French farmers who would gain from a Doha agreement operate in fragmented markets and receive little support – counterbalancing their weak political influence with higher economic efficiency.
The other large winners from a Doha deal in agriculture would be the producers of processed food. European producers face barriers to market access in the rest of the world higher on average than the European barriers imposed on imports of processed food. As a Doha deal would reduce existing high tariffs by more than low ones, it would greatly assist European exporters of processed food – particularly French exporters benefiting from the reputation of French gastronomy.
Why, then, the current hostility of some influential French processed food producers? Because they want to shift negotiations on agriculture away from the WTO towards a forum specific to agriculture, hoping to impose worldwide regulations similar to the ones envisaged by the steel cartels of the 1930s. But why move the regulation of processed foods, which by their nature involve industrial processes, to an agriculture-specific forum? How could such a forum respond to the industrial challenges of water, energy and climate change that the farmers of the 21st century will face?
The EU’s disastrous biofuels policy, equivalent to a tariff of thousands of per cent protecting products with controversial environmental benefits, shows how costly separating agriculture from manufacturing can be.
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