William Hawkins discusses “asymmetric economic diplomacy” and the need for the U.S. to better defend its own economic base in the face of protectionism from developing WTO countries.
The World Trade Organization summit in Geneva collapsed July 22 without the major economic powers reaching an agreement that would move the Doha Round trade talks forward. A week later, U.S. Trade Representative Susan Schwab said that Washington would “stand by” the Doha process, but that the offers made during the nine days of negotiations remain “contingent on others coming forward with ambitious offers that will create new market access.” If Schwab is going to wait for the developing countries to open their markets, then she is going to be “standing by” for a long time. The Doha Round was never about liberalizing the behavior of major rising powers like China, India, and Brazil, or of those other states wishing to emulate the fast movers.
The stated purpose of the Doha Round was to change the balance of wealth and power away from the “rich” developed countries of America and Europe and towards the developing world. According to the official WTO Ministerial Declaration issued Nov. 14, 2001, “The majority of WTO Members are developing countries ….The negotiations shall take fully into account the special needs and interests of developing and least-developed country participants, including through less than full reciprocity in [tariff] reduction commitments.”
This is the same asymmetrical standard used in the negotiations over how to share the economic burdens of reducing greenhouse gases. The main headline from the recent G-8 summit in Tokyo was that the major industrial nations agreed to cut in half their emissions by 2050, if the developing nations were also part of any new international climate control effort. But the text of the final joint G-8 statement held countries to different standards, stating, “We recognize that what the major developed economies do will differ from what major developing economies do, consistent with the principle of common but differentiated responsibilities and respective capabilities.”
The developing countries have taken these matters seriously. China, India, Brazil, Mexico and South Africa (known as the Group of 5), who together represent 42 percent of the world’s population, issued a statement rejecting any mandate to meet the G-8 target. Chinese President Hu Jintao went a step further in separate remarks, saying, “China’s central task now is to develop the economy and make life better for the people.” China signed the Kyoto Protocol, but only because it contained no mandates on developing states, which is also why the United States has refused to ratify that environmental agreement.
At Doha, the rising states successfully resisted pressure from the U.S. and Europe to open their markets. The developing countries were always going to be allowed to keep higher average tariffs, but they have also kept the right to protect strategic sectors with “safeguards” that could undo the liberalization of the 1994 agreement. In this effort, they are not just protecting themselves from the developed countries, but from each other. Ebrahim Patel, a South African labor leader, criticized Western pressure to limit the “flexibilities” his country needed to shelter sectors like textiles, automobiles and electronics. He said his country’s electronic sector had been “virtually wiped out because of China, China, China.”
Even more than South Africa, India and China see the auto industry as a strategic sector. They embrace the earlier Japanese growth model and reject the American example of throwing this core industry to the dogs. Ted Koppel set his recent Discovery Channel series on China’s rise in Chongqing, the city designated by Beijing as the center of its auto industry.
Because Washington has unilaterally opened its markets to foreign rivals, it had little with which to bargain at Geneva. Rep. Earl Blumenauer (D-OR), a member of the House Ways and Means Trade Subcommittee, told an audience at the libertarian Cato Institute July 24 that Congress could continue to liberalize trade without having to wait for international agreements to be negotiated. The lawmakers could just drop American tariffs and farm supports unilaterally and “lead by example.” This has been the hope of American officials for decades, but it has not worked. Just the opposite. The U.S. ran a $679 billion manufacturing trade deficit last year, presenting an example no one wants to follow.
Beijing, in contrast, does not need a WTO agreement to continue its rapid advance. It is running a substantial surplus, based on its largely one-way trade with America and Europe. On July 25, as Doha stalled, the Political Bureau of the Communist Party Central Committee held a meeting chaired by President Hu Jintao. It declared the economy was moving ahead as planned and maintaining fast economic growth would remain the top priority for the rest of the year. At a July 17 press conference, China’s National Bureau of Statistics reported that the country was growing at an annual rate of 10.1 percent A poll released July 22 by the Pew Global Attitudes Project found that 82 percent of Chinese surveyed said they were content with the country’s direction, up from 48 percent in 2002 – and an exact opposite result from similar polls taken in the United States.
China wants to continue protecting key sectors while using exports to drive growth. As its WTO delegate, Sun Zhenyu, said in Geneva, “We have great sensitivities, particularly in chemicals, in electronics, in machinery.”
The Bush administration’s WTO strategy was to offer cuts in its support for agriculture in exchange for non-agricultural market access overseas. Instead of reciprocity across sectors, the developing countries refused to open their industrial markets, demanded larger cuts in U.S. and EU farm programs, and asserted their right to erect “safeguards” against agricultural imports. Food security has been recognized throughout the Doha proceedings as a legitimate area for protection and support, a concern heightened by the world food crisis. The resolve of China and India (with the tacit support of most of the rest of the world) to control both agricultural and non-agricultural markets brought the Geneva talks to an end.
As the Washington Post reported, when chief Indian negotiator Kamal Nath returned to New Delhi, he was congratulated by colleagues at a cabinet meeting for “bravely fighting the nation’s battle.”
History may indicate where trade policy is headed as new powers arise. Paul Bairoch, an economic historian at the University of Geneva, has found that economic growth was stimulated when continental Europe was shifting back to protectionism compared to when it flirted with “free trade.” During the era when protectionism was being restored (1877-1913), industry grew at nearly triple the pace compared to when continental growth was being suppressed by exports from a more advanced England. This European movement was supported by the same political alliance of “iron and wheat” now seen in India and China, Japan and South Korea. Trade continued to expand during this time, but most governments understood it was a competitive world where policy needed to shape events in the national interest.
London, however, stayed with “free trade” and fell behind both the United States and Germany. In the latter case, the consequences were particularly grave. As early as 1873, Lord Penzance warned, “The advance of other nations into those regions of manufacture in which we used to stand either alone or supreme, should make us alive to the possible future. Where we used to find customers, we now find rivals.” Yet, England did not change its policies until after the industrial “wake up call” of the First World War.
The lead developing countries today are in the same position as the continental Europe powers in the late 19th century. They reject their assigned place as “customers” or low-end producers in a static Ricardian division of labor. They aspire to create the advanced capabilities that will make them first class rivals in world affairs. The question for the U.S. is how to change its failed policies so as to do a better job of defending its own economic base, upon which its global preeminence is built. The answer will not be found at the WTO.
William Hawkins is Senior Fellow at the U.S. Business and Industrial Council Education Foundation.