News

Fog of numbers shrouds world trade talks

Wed Nov 30, 2005

By Alan Wheatley, China Economics Editor

BEIJING (Reuters) - Freeing trade in goods could boost global incomes by $461 billion by 2015, says the World Bank.
Trade liberalization has cost sub-Saharan Africa $272 billion over the past 20 years, retorts the advocacy group Christian Aid.
The debate over opening world markets, it seems, only goes to prove that there are lies, damned lies and statistics.
Yet peering through the fog of numbers, even free trade advocates at the World Bank acknowledge that the gains to be made from a successful conclusion to the World Trade Organization's Doha round of liberalization talks would be relatively modest.
If all tariffs, subsidies and domestic support connected to merchandise trade were abolished with the wave of a magic wand, the world would generate $287 billion more income a year by 2015, rising to $461 billion if productivity gains were factored in, the World Bank economists say.
But the outcome of the Doha round will be much more modest than the bank's hypothetical scenario: a rift between rich and poor states, and opposition to cuts in farm aid by countries such as France and Japan, have already scotched hopes of agreeing a blueprint for a global deal at ministerial talks in Hong Kong from December 13-18.
Simulating three likely outcomes of the long-running talks, Kym Anderson and other World Bank economists put the income gains in a range of $96 billion to $125 billion a year by 2015.
The latter figure, a bit more than three months' revenue for oil giant Exxon Mobil, is about 0.3 percent of global income.
"These results are likely to be seen by some as too pessimistic, and others might view them as overly optimistic, with solid arguments on both sides," the economists wrote in a recent report.

WORTH THE EFFORT?
The modest benefits beg the question whether warnings of doom and gloom if Doha fails are overstated.
After all, failure to conclude the talks on time by the end of 2004 has not prevented the world economy from turning in one of its strongest periods of growth in more than 30 years.
"The present world trade and investment regime is already more liberal than at any time in the past 75 years. It is not clear that making it still more liberal would bring large economic gains," Robert Hunter Wade, a professor at the London School of Economics, said in a letter to the Financial Times.
Others see this as dangerously complacent. A collapse of the Doha round, they say, would give a boost to anti-free trade forces at a time when a squeeze on middle-income jobs in the West is already fuelling a backlash against globalization.
"As pressure increases to outsource jobs in the manufacturing economy and in the knowledge economy to centers with equal skills but much lower costs, we are likely to see these groups turn away from openness to international competition and promote increasing acceptance of protectionism," Barry Desker, director of the Institute of Defense and Strategic Studies in Singapore, wrote in a paper for his organization.
Stephen King, global chief economist at HSBC in London, agreed that, with wages under pressure, political leaders were finding it harder to make the case for free trade.
U.S. political opposition to a Chinese takeover of Californian oil firm Unocal, and the refusal of many European Union countries to admit workers from new EU members in central and eastern Europe were signs of the new mood, King said.
"The risk of a relapse into protectionism is low but not sufficiently low," he said.

THE COST OF A COW
Business is watching the WTO talks nervously, fearful that a defeat for multilateralism would spawn more regional or government-to-government free trade pacts. The ensuing "spaghetti bowl" of rules would tie global firms in knots.
"Few people realize that bilateral agreements have very troublesome consequences for the global production system," said Victor Fung, chairman of Hong Kong-based trading firm Li & Fung.
Powerful countries would call the shots if common world trade rules degenerated into a web of preferences. Poor states, with no bargaining power, would have to accept terms a lot harsher than they can negotiate under the WTO umbrella of non-discrimination.
That's one reason why, from WTO Director-General Pascal Lamy down, trade experts say poor countries have most to lose from a failure of the Doha round.
Yet as things stand, developing nations say the deck is stacked against them: the World Bank reckons nearly 70 percent of the gains from full liberalization would go to rich states.
Developing countries' incomes would rise on average 0.8 percent. Under the bank's more realistic scenarios, though, letting countries exempt just 2 percent of their tariff lines as sensitive products would dilute gains from farm liberalization and could even increase poverty among poor nations.
That is because 63 percent of the gains developing nations stand to reap from free trade are in agriculture, and rich nations would likely place agricultural products on any list of sensitive items.
That figure in turn helps explain why arguments over the pace of withdrawing the $280 billion a year in aid that rich nations give their farmers go to the heart of the Doha impasse.
As Australian Trade Minister Mark Vaile, whose country would also benefit from greater access to rich countries' farm markets, put it in a recent speech: "A typical cow in the European Union receives a government subsidy of $2.20 a day. The cow earns more than 1.2 billion of the world's poorest people."
Source: Reuters

Returns to news