As developing countries acquire a powerful voice, the US shuns multilateral trade deals because it can no longer get its own way
The freer movement of trade and capital has been a fundamental characteristic of the past 25 years of globalisation. The Doha round, initiated in 2001, was the latest attempt to keep the process rolling. It now looks doomed. The deadlock between the US, the EU, Japan and the developing countries seems final. And with the fast-track powers of the US president – which enable trade agreements to bypass Congress – scheduled to come to an end in 2007, any agreement later than this year will be subject to the unpredictability and delay of Capitol Hill. In other words, it is now or never, and it looks more and more like never.
The implications are profound. It was the Uruguay round in the 80s and 90s that underpinned much of the process of globalisation and helped to establish the terms on which it took place. The failure to reach agreement on its successor, the Doha round, suggests the era of multilateral trade agreements is coming to an end. The US some time ago switched its attention from multilateral to bilateral deals and has, over the past decade, concluded a battery of them. The reason is not difficult to fathom. When negotiating bilaterally, the US can use its economic power to impose far more unfavourable terms on its negotiating partner, which is what it has done. In deals with Singapore and Chile, for example, it insisted on these countries renouncing the use of capital controls, which Malaysia deployed with such effect during the Asian financial crisis. In its treaty with Australia and other countries, it insisted on extending the time period for which patents are valid, thereby extending the monopoly privileges enjoyed by its companies.
The American turn from multilateralism is linked to developments at the World Trade Organisation. Over the past decade, the political character of the WTO has changed markedly. During the Uruguay round it was relatively easy for the developed countries to get their way with the developing world by a combination of bullying, cajoling, dividing, bribing and threatening. But the admission of China as a full member in 2001, the growing power of India, the election of Lula as president of Brazil, and the willingness of South Africa to join forces with them has meant that the developing countries have begun to acquire a powerful voice, substantial bargaining presence, and a self-confidence in their ability to resist western and Japanese pressures. The developing countries torpedoed the meeting in Cancun in 2003, insisting on far greater concessions from the developed world than were being offered. The emergence of the G20 – as their loose negotiating group is known – has transformed the politics of trade negotiations.
Whatever the grand principles and the pontificating, the US only favours multilateralism when that suits its interests. The previous trade regime may have embraced 123 countries but, in practice, the developed world enjoyed overwhelming power. The WTO, in contrast, has come to resemble, at least in a small way, the UN; and the US has long been inimical towards that body because it is frequently unable to get its own way. This turn from multilateralism parallels the trajectory of American foreign policy under George Bush. Many thought that trade would be an exception to this, but the growing US proclivity for bilateral deals and its unwillingness to make the necessary concessions to keep the Doha round alive suggest the contrary: Washington has become disaffected with multilateralism.
The implications of the collapse of Doha are profound. Symbolically, its death is likely to mark the end of the process of globalisation that began in the late 70s and has served to shape the main contours of global development ever since. This is not to suggest that the global regime as we know it today is about to unravel, but the project has ground to a halt. Nothing particularly dramatic is likely to happen, though it might if the dollar begins to go through the floorboards. Much more likely, for the time being, is stagnation in the global economic regime, combined with a slow but steady process of fragmentation and regionalism. Doha will be quietly buried without honour and more than a little recrimination. The WTO, having failed in its first great mission, will be quietly relegated to the backburner, to join a host of other international bodies. Its relegation, though, will be redolent with significance: the WTO was the most important institutional creation of the modern era of globalisation.
The death of Doha may be the first and most dramatic casualty suffered by the modern era of globalisation, but it is unlikely to be the last. Its demise will be the result of a shift in global economic power from the developed to the developing world, with the former unwilling to countenance any diminution in its ability to determine the terms of global economic exchange. The world may be finally waking up to the rise of China and India, but compared with the state of affairs likely to prevail in, say, 20 years, so far little has happened. If Doha has been derailed by what has transpired hitherto, then the effects of the rise of China and India are likely to draw down the curtains on the modern era of globalisation.
Until now, China’s rise has been seen in largely virtuous terms: it has led to falling consumer prices in North America and Europe, while providing an enormous investment opportunities for western and Japanese firms. The voices of the losers – those in the west who have suffered from Chinese competition – have mostly been drowned out. But as that competition grows, the demand for protection is likely to grow louder and, ultimately, prove irresistible, as James Kynge argues in his book China Shakes the World. Over the past year, protectionist demands on both sides of the Atlantic have grown more numerous.
The irony of Doha is that it is being killed by western disinterest in the face of the growing power of the developing world. The rise of China and, to a lesser extent India, is likely to be accompanied by a parallel irony. The west, which has been the traditional defender of free trade – because free trade always favours the most powerful and advanced economies – is likely to run for cover and put up protectionist barriers, unable to cope with the political, social and economic implications of the rise of China. In a sense, the death of Doha is a dress rehearsal, albeit an early one, for the end of globalisation. And those who bury it will be those who designed it and proselytised for it – the US and Europe.