July 28, 2006

An Impediment to Globalisation

Asia Times, 27.07.06

It is not an exaggeration to declare that the Doha Round of negotiations at the World Trade Organization has comprehensively failed. Whether the inflexibility of the US position contributed primarily to this failure matters little, for whoever is to be blamed, the fact of the matter is that there is no deal on the table. The key issue lies elsewhere, and is noted by WTO director general Pascal Lamy: "We have missed a very important opportunity to prove that multilateralism works."

The failure of multilateral trade negotiations has been followed by announcements from a number of WTO member countries suggesting that they intend to pursue bilateral deals instead, while paying lip service to the long–term agenda of the global body. For instance, India – one of the chief perpetrators of the breakdown in talks – is already mulling free–trade deals with the European Union and Japan. France – another culprit supreme – has already shown receptiveness to more openness in trade between the EU and India on a bilateral level.

Such instances are not one–offs. After the breakdown of each round of meetings, such deals are often announced between countries. Often the developed countries have used offers for bilateral deals as an incentive to break the unified agenda of the developing countries at the WTO.

There have been arguments put forward by such people as Kenichi Ohmae that regionalism frees up at least some of the world trade and is hence a facilitator to large–scale globalization. However, it hardly seems a coincidence that most recent regionalist projects have been mulled precisely after the failure of a wider and much more ambitious global agenda. Examples include the US–Middle East Partnership Initiative and the EU–Mediterranean free–trade agreement (FTA). Moreover, there are certain characteristics of regionalist projects that make it a bulwark against globalization, and not a catalyst for quickening it.

First, many of the preferential trading regimes across the world are highly selective in nature. The Association of Southeast Asian Nations has recently suspended free–trade talks with India on grounds that the latter was being highly selective about removing import tariffs. Under the Common Agricultural Policy of the EU, certain subsidized items were excluded from the FTA it signed with South Africa. Under the North American Free Trade Agreement (NAFTA), Canada has opted out of freely trading in sugar, poultry and dairy products.

Second, whether regionalism has resulted in a globalization of trade is highly doubtful. For instance, in 2004 intra–EU trade stood at US$2.5 trillion vis–a–vis $180 billion for EU–Africa trade. Taking a cue from the world systems theory of Immanuel Wallerstein, we can argue that the world is increasingly being divided into "cores and peripheries" as far as concentration of trade is concerned.

Third, we must always ask ourselves whether regionalism facilitates trade, or whether it encourages a fortress–type mentality among the participants. From WTO figures, we can calculate that while the trade among the Andean group of countries grew by 461% between 1990 and 2004, their trade with the rest of the world only grew by a mere 136% over the same period. Similarly, while intra–Mercosur (Mercado Comun del Cono Sur, or Southern Cone Common Market) trade grew by 318% over this period, its trade with the extra–Mercosur world grew by 188% only.

We could make the point without citing statistics. Take a look at the defensive nature of key sectors in countries within the EU and NAFTA (eg the French farm lobby) and the issue will be quite clear. Inter–regional disputes such as between the US and the EU over subsidies are another point to note here.

What can be agreed is that globalization has managed to thwart proactive protectionism. But regionalism has provided ample opportunities for self–interested, inward–looking states (which liberals wish they could wish away) to introduce reactive protectionism. The hostile reaction of the EU to China's alleged "dumping tactics" is a recent example. What has taken place, therefore, is not "globalization of trade" but "globalization of trade regionalization". The basic defensive character of these trading blocs remains. As Columbia University Professor Jagdish Bhagwati has argued, the regionalization tendency is "a Trojan horse masquerading as a gift horse".

So when India, China, Brazil or the US ink the next FTA with a country or a group of countries, look for the small print – look for areas where these countries are planning to exclude competitors from extra–regional countries.

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