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Last Updated: Tuesday, 25 July 2006, 23:12 GMT 00:12 UK
The death of the WTO's Doha talks
BBC Economics Editor Evan Davis
By Evan Davis
BBC economics editor

Indian farmer working in a field
Trade issues are vital to the development of poorer nations
Would you prefer the world to be run by the United States or the United Nations?

Most people outside the United States would probably answer, "neither, thank you very much".

But in some areas of global governance, a choice has to be made.

And in essence the stark, and unrealistically narrow, choice between the US and the UN is a choice between two different kinds of global governance.

Choice of methods

These two are perhaps best described in the horrible abstract words "unilateralism" and "multilateralism".

The good thing about the unilateralism of the US is that it can move more quickly than the UN. The good thing about the multilateralism of the UN is that it can reflect opinion outside the United States.

Both have their merits, although neither is ideal.

Now of course, the UN does not control trade. But the issues of multilateral and unilateral approaches do come up there, inevitably along with their companion, "bilateralism".

For quite a few years, trade has been dominated by a multilateral approach, and for eleven years, the WTO has existed as a kind of United Nations of global trade.

And in many respects, it has been better at keeping the peace than the UN, acting as a global referee and deliberating on trade disputes.

Dead or alive?

The existence of a WTO has disciplined nations, stopped selfish protectionism, and beggar-thy-neighbour trade policies. It's the only venue in the world where Costa Rica can take on the US, and win.

The WTO has also acted as the venue for the rules of world trade to be discussed and negotiated multilaterally.

EU trade commissioner Peter Mandelson

But with 149 members, each with a veto over any final deal, negotiating new or improved rules of trade is inevitably a complicated and difficult business.

Indecision is the default position for an institution as democratic as the WTO. And that's why trade talks take so long and sometimes fail.

So, above all the failure of the talks this week - with the US receiving the bulk of the blame from other parties - represents a serious failure of multilateralism.

The question now the talks appear to be over, is whether the WTO and multilateralism in the trade sphere survive.

You don't have to declare multilateralism dead, just because this round of talks is over, but there are three particular, potential consequences of the collapse in the talks:

  • That the WTO's role in trade dispute settlement is undermined.

    This might happen if countries - sceptical of diplomacy in trade - become more litigious and take each other to the WTO more often.

    This could foster political controversy and ultimately lead member states to ignore the rulings of the organisation.

  • That countries - led by the US - negotiate bilateral trade deals that carve up the world trade into complicated and bureaucratic flows of goods that do not reflect who can produce things most cheaply.

    There are already a multiplicity of these agreements around - you can find a sceptical website devoted to them, at www.bilaterals.org.

    For example, the US-Australia Free trade Agreement that was signed in 2004.

    Indeed, over half of world trade is already said to occur under regional or bilateral deals.

    These agreements seem likely to make life harder for smaller countries, which have less negotiating power than they would expect to have in the multilateral institutions.

  • That countries get fed up with free trade altogether and adopt more protectionist policies, through backdoor means like anti-dumping measures, or hidden subsidies.

These are all nightmare scenarios for economists, who learn the merits of free trade in their first weeks at university rather as school children learn the times tables.

Changes needed

So what needs to happen for these scenarios not to materialise?

Most essential of course, is for the political will to remain well-disposed to the WTO, among the politicians and publics of the big players.

But the WTO as an institution will also have a challenge, to manage itself well through the next couple of years.

It will have to carry on settling disputes efficiently, and will perhaps find some limited areas where negotiation can proceed, and where the WTO can have a role.

Above all the WTO might try to foster an expanded role in managing and monitoring the bilateral trade deals that are being signed.

It is ironic, that one of the measures already agreed in the Doha round - and thus, now suspended with everything else - was a rule that aimed to improve the transparency and disclosure of these deals.

If you believed in such a rule within the Doha framework, you should believe in it far more strongly now Doha seems no longer to be with us.

Team game

It will not be easy to pick up the pieces, especially when the insults have been flying.

But having spent five years coming close to a deal, it would be odd for the diplomats in their pique, to smash up the venue in which the talks were held.

One final thought, by way of post-script. The arguments about multilateralism and unilateralism are usually seen as applying to US policy - for example in invading Iraq or abandoning the Kyoto protocol.

But it would be wrong to lay all the blame for the failure of the talks at the feet of the US.

It is true that diplomatically on the last day, it was the US refusal to move that precipitated the final collapse of the talks.

It is also true that probably the agricultural subsidy that most egregiously breaches conventional economic logic is the American one for cotton farmers.

But the Doha round has been struggling with European agricultural policy for quite a while too. Not to mention the Japanese.

And the OECD figures on support for farmers indicate the EU has subsidies (or equivalent support) that are far more important to European farmers, than the American subsidies are to theirs.

So it is not just the US who can be accused of lacking team spirit on trade.

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