Senior Correspondent
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EARLY next month, there will be a meeting of key global trade ministers in New Delhi for the Doha Development Round talks. The outcome of this meeting in the Indian capital could go a long way towards deciding the future of globalisation and free trade.
During the two-day meeting, to be held on Sept 3 and 4, the ministers will try to break the logjam that currently afflicts the ongoing World Trade Organization's (WTO) global free trade talks - the so-called Doha Round, named after Qatar's capital where this round of talks first started way back in November 2001.
Negotiators in Geneva in July last year almost clinched a deal, but the discussions fell apart at the last moment due to differences between the United States and big emerging countries such as India and China over measures to protect subsistence farmers from cheap imports and eliminate duties in some industries.
With India, as well as China and Brazil, being key negotiators and one of the de facto leaders of the developing nations' bloc in the talks, it is hoped that the Group of 20 (G-20) meeting in Delhi will produce a breakthrough.
The G-20 grouping was established in 1999 to bring together important industrialised and developing economies to discuss key issues in the global economy.
Members include the US, UK, Japan, France and Germany, among others, from the developed nations. India, China, Brazil and Indonesia, among others, represent the developing countries.
Publicly, most of the major governments have committed to finish the talks and sign the deal by the end of this year. Various US officials have made public statements reiterating their country's commitment to ensure a successful conclusion to the talks.
India's Commerce and Industry Minister Anand Sharma was quoted recently as saying: 'A fair and satisfactory outcome to the trade negotiations can actually be a catalyst for the combined international effort to break free of the economic crisis.'
The Indian minister's words are encouraging. If the talks do indeed break down, that would signal a severe setback to global economic activity.
First of all, a failure would almost definitely sound the death knell - at least for the foreseeable future - of the idea of a having a global multilateral free trade arrangement involving all the major trading nations of the world.
As it is, several countries, getting impatient with the lack of progress in the multilateral arrangement, have negotiated and signed bilateral free trade agreements (FTAs).
Singapore, for example, has FTAs with the US and India - two countries which are on the opposing ends of the WTO negotiating table. India on its part has just signed an FTA with Asean, which will complement its existing arrangement with Singapore.
FTAs usually give a boost to bilateral trade and the Singapore-India agreement is a good example. However, different agreements between different countries make international trade more complex and rules-bound.
Jagdish Bhagwati, professor of economics at Columbia University, has argued against FTAs. In his book, Termites in the Trading System: How Preferential Agreements Undermine Free Trade, Prof Bhagwati says that FTAs, which he maintains are in fact Preferential Trade Agreements (PTAs) involving two or more countries, actually set back the cause of free trade and undermine the multilateral trading system.
He has argued that because every country negotiates different trading terms in each particular PTA (FTA) with every other different country, each with its own loopholes, exceptions and particular regulations, this collectively turns world trade into an indecipherable mess.
The other point to note is that a failure to arrive at a global multilateral free trade agreement could also result in reduced trade flows.
The Washington-based Peterson Institute for International Economics recently calculated that a successful conclusion to the Doha Round would boost the global economy by US$300 billion to US$700 billion a year due to higher trade flows. The potential world gross domestic product (GDP) gains would be between US$300 billion and US$700 billion annually and would be distributed evenly between both developed and developing countries, the report noted.
WTO's estimate
However, Pascal Lamy, WTO's director-general, has put the figure on the gains to the global economy at a more modest US$130 billion following a successful conclusion of the talks. This could be a conservative estimate based on the savings on existing trade flows from cutting tariffs as proposed in the talks.
Mr Lamy, who was in Singapore in July, made a very important observation that has more long-term implications than any dollar number. He noted that while restrictive trade policies do not necessarily cause economic downturns - for example, the Great Depression of the 1940s did not start because of protectionism - a protectionist response is a sure recipe for deepening and prolonged economic crisis.
He made this point at the release of the World Trade Report 2009 during the Asia-Pacific Economic Cooperation (Apec) ministerial meeting held recently in Singapore.
Undoubtedly, important trading nations, reeling as they are under the current economic crisis, would be tempted to resort to protectionist measures if a global free trade agreement framework is not in place.
A global economy ringed with trade barriers would hurt Asia, and particularly countries like Singapore, the most.
According to WTO data, world trade is expected to shrink by 10 per cent this year. Despite that, there are signs that Asia may be seeing a rebound in trade. And almost certainly, Asia will be the first region to recover from the crisis.
Kishore Mahbubani, dean of the Lee Kuan Yew School of Public Policy at the National University of Singapore, noted during the release of the WTO report that the merchandise trade within the Asia-Pacific region grew from US$1.7 trillion in 1989 to US$8.44 trillion in 2007, an average increase of 8.5 per cent per year.
Similarly, the region's trade with the rest of the world increased from US$3 trillion in 1989 to US$15 trillion in 2007, an average increase of 8.3 per cent a year.
Which brings us back to the importance of the Delhi meeting next month. The key players need to reach some sort of understanding fast as time is running out.
The US was present at the Singapore Apec meeting, and came in for a fair share of criticism with its representative having to defend President Barack Obama's 'Buy American' provisions. The US representative at the Apec meeting said the provision was not a 'protectionist' measure.
India, meanwhile, after showing a desire to go forward with the talks, has gone back to original positions. Commerce Minister Sharma recently told the Upper House of Parliament that India is willing to take part in negotiations at the WTO, provided the core concerns of the round, namely development concerns of developing nations, are addressed.
The sticking points remain farm subsidies and market access. While the US has been accused of not doing enough to reduce farm subsidies, the developed nations have charged that India is not being flexible on its position on SSM (special safeguard measures).
Protectionist tendencies
SSM permits a country to bring in quantitative restrictions on imports when its feels that such imports are surging in a manner that hurts the domestic industry.
China, the other big player in these discussions, has also been showing increasingly protectionist tendencies as it tries to prop up local industries. It is in the midst of several scraps with the US at the WTO over various issues which the US sees as denial of market access.
Prof Bhagwati recently observed that trade liberalisation at a time of macroeconomic crisis is very difficult. However, he added that it is wise to 'settle for whatever we have'.
Ultimately, a solution would only be found if there is political will and give and take on both sides. The negotiators will have to display statesmanship and the ability to see the big picture and not get stuck on individual issues.
The problem is, the global economic crisis has narrowed the negotiating space of key negotiators from the US, India, China and others. Hence a lot will depend on the G-20 meeting in New Delhi. It could very well make or break the Doha Round talks.
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