Bhagwati: U.S. Must Rethink Doha Demands

A group of ministers attending January’s World Economic Forum meetings in Davos made a push to revive the Doha round of multilateral trade negotiations, producing a mixture of hope and skepticism. The previous round of talks stalled last summer, with all major parties entrenched on the issue of agricultural supports. But Jagdish Bhagwati, CFR’s senior fellow in international economics, says the renewed talks can still be productive, even if they don’t result in a deal.

Bhagwati points out that the modest accomplishments already pushed through in the Doha round have narrowed negotiations to the core issues, however difficult these issues might be. But he adds that for a significant deal to be cut between the United States and developing countries like India and Brazil, U.S. officials must move beyond traditional double standards in U.S. trade policy. “We are minimalists in terms of making concessions in the farm sector,” Baghwati says, and “maximalists in making demands on others in terms of agriculture.”

A number of ministers at Davos made a push this January to revive the Doha round of trade negotiations. Last summer, when the Doha talks were suspended indefinitely, things seemed pretty deadlocked. Were you surprised at all by this push to revive them?

I think you have to think of it as a process. Doha was started in 2001. At that time we pushed it through largely as an assertion against 9/11 intentions to undermine capitalism. So it was used cleverly by [former U.S. Trade Representative Robert] Zoellick to say “Look, we have to make an affirmation.”

So we got it going. Two years later we were going to meet in Cancun. Everybody wanted it to finish in Cancun, which was nonsense because in two years you can’t finish. The previous round, the Uruguay round, took practically eight years; the one before, the Tokyo round, took five years. I think we did make progress in Cancun, if you look at it. Some very contentious issues were laid to rest, such as intellectual property protection. Then in Hong Kong [in 2005] we made further progress. We got export subsidies in agriculture eliminated by 2013. We also made one-way concessions to the least developed countries. So a large number of things got done. We were clearing the decks, as it were. We were cleaning out all peripheral things. Now it’s a game between four major groups: the EU, the U.S., India, and Brazil. The reason I was optimistic is that all the issues that had cluttered things up had been cleared away. And it seems to me that you could make progress because everyone now knows what they need to do.

You mentioned agriculture. Obviously, U.S. agricultural subsidies have held things up in the past. Is there any reason to expect greater flexibility on the American side?

Well, that’s the thing. Everybody knows what has to be done. For the U.S., it is agricultural subsidies and the tariff barriers to some extent, but mainly a lot of agricultural subsidies. We have around $20 billion [in annual subsidies]. According to the farm bill that is being considered right now, we are willing to go to $17 billion. I don’t think the rest of the world is going to be excited about that. So we have a problem that we’re not offering enough, in my view. We are minimalists in terms of making concessions in the farm sector, which is the critical one. At the same time we are maximalists in making demands on others in terms of agriculture.

We want India—and I happen to be Indian so I have to clarify—we want the Indians to make substantial concessions in agriculture. At the same time, the Europeans, who don’t have any interest in exporting agriculture because they don’t have any comparative advantage in it—they are perfectly happy to see India and Brazil make concessions in manufacturing and services. We should be willing to do that. But because of the farm lobby saying it will never give up subsidies unless it gets big market access elsewhere—that creates a very basic source for pessimism right now. It’s really our farm lobby—it’s not our executive. The executive would like to make those concessions.

You mentioned the number $17 billion. The Economist has focused on what it calls the two “magic numbers.” They say in order for there to be any possibility of a deal, the U.S. needs to agree to cap farm subsidies at $17 billion a year, and European countries agreeing to cut agricultural tariffs by around 54 percent. Are those reasonable numbers?

I don’t think so. I’ve been in touch with many countries, and many developing countries. I was in India in January, and there’s no way anybody in India could be prevailed upon to make the kinds of concessions that are required by our farm lobby, against a cut of only $3 billion. It’s not the economics that matters. When you go into the public policy space, in India, and say, “Look, we have to open up our markets to American competition when Americans are subsidizing even $10 billion dollars”—how does the trade minister get it past anybody except for economists? As an economist, I would say, wonderful, we get cheaper stuff. But that’s not how the common public reacts. They say it’s unfair. And it’s not just the common public. The New York Times says that. They don’t bring economics to the issue. They bring some kind of crazy, quasi-ethical argument. And that’s what plays in the public arena. So my pessimism arises here: If we go with $17 billion we cannot expect developing countries to play along. If the U.S. and the EU are the only ones to do it, then these numbers that you cited are okay. But along with them come these demands on other countries.

And Brazil is presumably in the same boat as India?

In all these international negotiations, people lie low if two other people are fighting. It’s prudent to let other people get the blame. Brazil, since about a year ago, has not been in the news, as you may have noticed. They look like the good guys. But I have no doubt—I know from inside information—that the Brazilians also would not be happy making these concessions. But on the whole, they have such substantial interests in exporting to us, and getting the Europeans and the U.S. to get off the subsidies and the trade barriers, that they would be willing to make some concessions in agriculture, if it comes to it, because they look at the balance of advantages for them. But in India it’s just generalized fear. And that’s true of many developing countries. So I think if we stick to our demands on agriculture, a deal is not going to happen this round.

A country that’s rarely mentioned in all of this is China. What’s its role here? Is it just going to sit back?

China is keeping out, but I think China has a bilateral problem with us. We again have a rather crazy attitude toward China. If you look at everything that happened in the last election, people are terrified of competition from the poor countries. All the Democrats are bringing up labor and environmental standards abroad. It’s not that their hearts are actuated by altruism and empathy—I mean, Americans are a nice lot, I’d agree, after all I’ve become one—but it’s self interest and fear that’s really driving it. They want to raise the cost of production abroad by making them more like us in terms of their obligations on labor and the environment. [New York Times columnist] Tom Friedman says the world is flat and I say, “Tom, you’re wrong.” People are trying to flatten the world to equalize competition—it’s not that competition is equalized.

The second thing that every Democrat who came in was worried about is China. China is a huge power, and that attracts attention. And second, it is susceptible to being demonized, partly because it has demonic elements—if you’re interested in human rights, for instance. China is a terrible violator of human rights. It’s also a terrible case, as [CFR Director for Asia Studies] Elizabeth Economy and others have pointed out, in terms of the environmental damage it is doing. It’s close to overtaking us in its damage to global warming. So on several dimensions it’s not doing very well, and it’s easy, if you’re worried about Chinese competition, to be scared of China. So we have a problem there. But I don’t think there’s any compelling argument, on the purely economic side, to be terrified by it. China offers us a big market.

Do you think this is the last chance for Doha? The president’s fast-track trade authority comes up in July. With a Democratic Congress, it seems unlikely to be extended. Would that effectively kill this round of negotiations?

It’s true that everything doesn’t require fast track. We’ve had some bilateral agreements go through without it. But these were miniscule ones. Every time there’s been something big and complicated—certainly the big multilateral ones, and even the big bilateral ones like NAFTA—they had to go through fast track. So if you’re interested in only piddling little things—bilateral with nobodies—I won’t mention specific countries or I’d get flooded with emails!—they don’t amount to a hill of beans. Therefore, if we don’t have fast track, we are going to lose out in the race for bilaterals. When the Europeans try for bilaterals, we’ve sort of stopped them in their tracks by joining in and pushing for these things ourselves. Now, we could get handicapped, because we’re the only country in the world that requires fast track. But I’m optimistic, for a perverse reason, which is that in our own self interest we will have to pass some form of fast track. Otherwise we’ll be big sore losers in the world trade system.

So if Doha fails, what will we see? Presumably a lot more bilateral deals?

Well, they’re going on anyway. This is the thing. I’m supposed to be a great multilateralist. So I should be saying, if Doha doesn’t work out, there’s going to be billions or trillions of dollars lost. There are studies now that say this kind of thing, but no serious economist believes this rubbish. Of course some gains from trade will be lost. But it’s not as if the sky will fall. All this means is, you won’t be able to move forward, but that doesn’t mean you will slide back. I see no reason why protectionism would break out because Doha is not moving ahead.