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All things considered: October 08

Doha’s Failure


October 29, 2008
By Jim Knisley


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Doha’s Failure

The WTO’s Doha round is down but the referee has only counted to nine so it isn’t quite out.
Most world governments seem to have given up on their contender, but there are a gaggle of academic economists, WTO officials and officials deep in trade ministries and departments around the world screaming “get up, get up.”

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They have faith that their glassy eyed, rubber legged champion needs just one more shot to put the uninformed, brutish forces of protectionism on the mat.

They never lose faith. They invoke David Ricardo. They rise as one and yell out “comparative advantage.”

Their champion has been down before and risen. But this time may be different. This time comparative advantage ran into political reality and aspirational economics.

The political reality is, no matter what trade negotiators say, the U.S. and Europe will not sacrifice their agriculture and industrial support programs. Meanwhile Brazil, India and China will not give up their economic development programs and their financial service sectors to the detriment of their people and the benefit of others.

And no one wants to allow themselves to become overly dependent on others for food. Too many Third World countries have seen what happens when you allow local farmers to be bankrupted by cheap, insecure supplies of foreign food. The countries become dependent on imports they can no longer afford to buy and victims of policies of foreign governments that divert land to the production of industrial feedstock.

It is also worth remembering that before economics became a so-called science it was called political economy. The founders of the discipline knew that the two went together hand and glove. They knew that no matter how fancy the mathematics it cannot be divorced from the human element. They knew that no one would allow themselves to face rack and ruin because some economic model says they should.

Perhaps in the long run the academics would be proven right. Perhaps, in the long run, more people would be better off if Doha succeeded. But as 20th century economist John Maynard Keynes said: “In the long run, we’re all dead.”

Doha failed because it focused too much on the long run.

Meanwhile people, groups and industries looked at the short term and saw trouble. In virtually every nation someone was going to be hurt and they could clearly identify the potential damage. All the proponents would say in response was that in the long run things should be better.

If you are facing economic ruin that answer isn’t nearly good enough and politicians know it.
Doha failed because the WTO wanted a big, long run deal. Rather than spending seven years wandering in the wilderness the time would have been better spent going after small, incremental deals where the benefits would be clear.

People, I think, are willing to accept short-term costs if the damage is limited and the benefits are clear.

In Canada there hasn’t been as much gnashing of teeth as one might have expected when Doha hit the mat. There have been a few shots taken at supply management and the government’s support of it. But that came from the usual sources and is pretty routine and largely inconsequential. And surprisingly none of those, who had in the past said that Canada was a barrier to a trade deal, made that claim once it became clear that others had collapsed the talks.

Once Doha gets carried from the ring, if the referee ever gets to 10, the supply-managed sector in this country can breath a sigh of relief. But it should be brief.

Those who believe in the long run will never give up.

Meanwhile the internal challenges that have long faced the sector remain. They were quieted during the great Doha debate – nothing focuses the mind like impending doom – but they haven’t disappeared.
Allocation, pricing formulas, production quotas, disease preparedness and the ongoing struggle to win the hearts and minds of Canadians remain as issues.

Perhaps the most threatening of these is interprovincial rivalry. While it has been comparatively quiet on that front of late – thanks to Doha and higher grain prices – it won’t take much to put that back on the table.

If grain demand slips and grain stocks rise provincial governments will – as they have in the past – look to increased poultry production for relief. Those demands were accommodated and the worst of the proposals defanged in the 1990s, but the potential threat has never disappeared. It’s worth remembering that the national supply-managed system was at the brink within the last 10 years because of those threats.

So while the whole sector is rightly celebrating the collapse of Doha, it should also ensure that domestic differences don’t rise up and do what Doha didn’t. n


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