Doha Round of World Trade – who needs it most?

Shanghai Port in China

For the past 400 or so years Europe and by extension through the discovery of the Americas – the US, has enjoyed a comparative economic advantage over the rest of the world. European intellectuals advocated the ideas of enlightenment and progress and European and US businesses have harnessed technology to impose their will on the rest of the world.

How did Europe become so important economically

How is it possible that in the year 1000 the Middle East's share of the world's GDP was larger than Europe's – 10pc compared with 9pc? But by 1700 the Middle East's share had fallen to just 2pc and Europe's had risen to 22pc.

A new book by Timur Kuran, a Turkish-American Economist, entitled “how Islamic law held back the Middle East” tackles this question. The central thesis is that the Middle East fell behind Europe because it failed to produce commercial institutions – most notably joint-stock companies – that were capable of mobilising large quantities of productive resources and enduring over time.

Europeans inherited the idea of the corporation from Roman law. Using it as a base, they also experimented with more complicated partnerships. In the 19th century limited liability became widely available as well as other innovations such as double-entry book-keeping and stock markets. European and US economic dominance is rooted not just in the exploitation of scientific technology but in its ability to develop institutions that combined labour and capital in imaginative ways.

No more “third world”

Since 2008 so called “developing countries” have become the engines of the world. They have contributed almost all of what economic growth there has been from 2008-2011. In the 1980s they accounted for 34pc of global income at purchasing-power parities. In 2010 they accounted for 43pc provoking the President of the World Bank to proclaim in 2010 that: “2009 saw the end of what was known as the third world”.

The term “third world” used to mean poor and dependent. Hence almost by definition, third world countries were economic failures. But with the emergence of the East Asian tigers, developing countries entered a new era, shedding their dependency and entering the 21st century in a resurgent position at a time when the so called “developed countries” were in decline.

The Doha Trade Round – serious risk of failure

The Doha talks were launched in the Qatari capital almost a decade ago, in the aftermath of the 9/11 atrocities. This was supposed to be the “development round”, with the US and the EU showing “more understanding” towards the rest of the world, dropping its trade barriers and abandoning “neo-colonial attitudes” so as to spread the wealth and hopefully temper the hatred.

However the initial Doha meeting was also the moment that China joined the WTO, re-engaging with the global trading system after a long absence. By the time of the Cancun WTO summit in 2003, China and the other big emerging economies had entered the global economic scene in a very big way. As such, they felt strong enough to reject the Doha deal on offer and insist on more access to G7 markets in return for opening up their own. At the 2005 summit in Hong Kong, the WTO talks foundered again – the emerging giants now even bolder and EU and US trade diplomats and politicians failing to grasp the speed at which the centre of economic gravity was shifting eastwards.

Six years later, emerging markets' goals have changed too. Many emerging economies are now more bothered about keeping food prices in check than about keeping rich-world subsidies down. The EU and the US espouse free trade yet, both maintain a vast web of barriers and subsidies that not only dump agricultural goods on world markets but also seriously undermine global commerce.

In April 2011, Pascal Lamy, Director-General of the WTO provided a blunt assessment of the state of affairs. He suggested a deal this year is in “serious doubt” due to “a clear political gap” which “is not bridgeable”.

What then for the future of free trade rules and for the US and the EU

The World Trade System has played a pivotal role in securing more than 60 years of relative peace and prosperity. But the WTO system of multilateral rules is near the verge of collapse. The Doha talks are at serious risk of being the first failure of a multilateral trade negotiation since the 1930s which led to protectionism and trade barriers being erected that stunted economic growth for a decade blighting countless lives and doing much to cause the ensuing global conflict.

The Geo-Trade Blog believes strongly that the the US and the EU needs the boost to investment, growth and jobs that Doha would deliver far more than the fast-growing emerging markets. The prosperity of the next generation of US and EU citizens depends on them being able to sell their goods to the mass markets of tomorrow – the very countries we are refusing to do a deal with. The US and the EU need to look upon the rising numbers of Chinese, Indians and Brazilians who can afford to buy US and European products and see this as an opportunity that will provide jobs and economic growth in the the US and the EU enabling their companies to prosper. The opposite is protectionism fuelled by fear that leads to a stagnated global economy blighting the lives of everyone. The US and EU need to lead the charge in freeing-up world trade in their own self-interest.