Disputatious Mr. B

is the subject of my Trade Tripper column in this Friday-Saturday issue of BusinessWorld:

What probably got trade negotiators excited was the decision to hold the next World Trade Organization (WTO) Ministerial Conference -- the highest decision-making body of the WTO -- in sunny Bali, Indonesia in December next year. But that probably is just to hide the fact that international trade is not going to make much headway into the next year or so.

US jobs growth, as compared to unemployment rates, is such that not that even US President Barack Obama can spin it to benefit his reelection campaign. Greece is still a problem and people are looking warily at China’s economy. Adding to this are the political uncertainties that Syria, Iran, and North Korea are making.

The problem, at least as far as trade is concerned, particularly boils down to the current US president, who seems more intent on scoring political points rather than showing the global leadership that is so sorely needed. As Jagdish Baghwati, writing for Handelsblatt, pointed out: "the US killed Doha. Or at least put into Intensive Care. The WTO Ministerial in November 2011 ended without concluding Doha, in defiance of all the efforts that leading scholars and statesmen worldwide had been making in its behalf. The astonishing thing is that Doha was a multilateral-liberalization initiative; and ironically, it was killed by President Obama who had ironically been awarded the Nobel Peace Prize by Norway in the expectation that he would promote multilateralism and turn his back on US unilateralism!"

This is so because "under the Obama administration, already under siege from the labor unions who were hostile to trade, was resolutely opposed to closing the Doha Round unless numerous concessions were made to appease its business lobbies. Thus, Obama administration wanted Doha Heavy: several demands for more concessions by others, especially the major developing countries, including new concessions in services, were to be negotiated.

"This meant, of course, that the conclusion of Doha would be put off by some years: Doha would then be dead for all practical purposes. So, many preferred to opt for Doha Lite: add a few concessions by the US and India on agriculture (which had earlier been a sticking point: the US concessions were inadequate and the Indian demands for special Safeguards were excessive), some minor concessions in manufactures that would appease difficult Congressmen in the US, and close the Round. The long laundry list of concessions demanded but not negotiated would then be handled by declaring a new Round of ‘unfinished agenda’ just as the Doha Round could be seen as one, tantalizingly an Obama Round, addressing the ‘unfinished agenda’ of the Uruguay Round. But this was roundly rejected by the US."

In short, expect the US to go into protectionism mode for the next couple of years at least. Which means that the rest of the world will follow. As Pascal Lamy, WTO Director-General, reported last June: "There has been no slowdown in the imposition of new trade restrictions over the past seven months. Since mid-October 2011, 182 new measures that restrict or can potentially restrict or distort trade have been recorded, affecting around 0.9% of world imports. The main measures are trade remedy actions, tariff increases, import licences and customs controls."

And the expected repercussions are grim: "An uncertain global context is still prevailing, and economic conditions may get even worse. The recovery of the global economy remains weak and unemployment levels are high. World trade growth decelerated significantly last year, due mainly to the economic slowdown in major world economies. Merchandise trade volume grew by only 5.0% in 2011, a sharp fall from 13.8% in 2010. As the global economy continues to lose momentum, trade growth is projected to slow further to 3.7% in 2012, well below the long-term annual average of 5.4% for the last 20 years. Exports of developed economies are projected to grow by 2% this year, and developing countries’ exports by 5.6%. With tight government budgets, high unemployment, slower growth, and the prospects of further imminent multilateral market opening seemingly reduced, the threat of protectionist pressures looms even larger."

The seeming reaction of countries is to resort to more disputes. To date, this year, there has been around 14 disputes filed already, which is a little high considering that the past years saw the number of disputes peak at 19 for the entire year. Trade observers point out that if this keeps up, we could see a record 24 disputes filed this year.

Normally, disputes are considered welcome developments. It indicates healthy trade among WTO member countries (or else, why resort to disputes?). At the same time, it indicates continuing trust in the WTO’s dispute settlement system. However, this year seems to be different and 2012’s disputes are looked at with concern by those who’ve been monitoring the WTO for years.

The effectiveness of the WTO dispute system and the benefits it allows developing countries is something we’ll examine in succeeding articles.