It’s rare that you have to convince a business to defend its interests. But Fredrik Erixon and Andreas Freytag try to coax exporters to care about the Doha Round in The Wall Street Journal Europe:

The World Trade Organization has often been portrayed by antitrade groups as a corporate puppet. But one key problem in this round has been the relative silence on industry’s part. Business has been the dog that didn’t bark…

Business leaders’ absence from the game is understandable. All the global-governance hubris, windy rhetoric and political grandstanding invariably displayed at big WTO meetings offer ample reasons for outsiders to take a rain check…

Yet the Doha agenda still has serious appeal for businesses interested in freer trade. Business opportunities in goods and industrial products will be significantly improved, particularly when it comes to exports to major developing countries. And binding countries to their currently applied tariffs — which are lower than the ones agreed in the last multilateral talks, the Uruguay Round — can increase stability and certainty in world trade. The Doha Round will not substantially liberalize trade in services, but it can lock in already achieved liberalizations, especially for investment, as well as dismantle some of the worst nontariff barriers to trade. What’s more, the vast majority of the business community has a lot to gain from a WTO deal that puts limits on antidumping measures, today the weapon of choice for protectionist governments, and prohibits egregious abuses of other trade-defense instruments.

So why aren’t businesses interested in the Doha round? Perhaps it’s the focus on agriculture and development that has turned them off. Maybe the lack of services liberalization is problematic. Or have businesses already obtained the trade liberalization most important to them, as Anne Krueger suggests?

It is not often asserted that the existence of preferential arrangements is a reason for failure to support, or opposition to, further multilateral liberalization. But the fact is that producers already exporting to PTA markets are either efficient and have already achieved the benefits (to them) of trade liberalization or they are inefficient and do not want multilateral competition. Either way, support for further multilateral liberalization has eroded. Many in the policy community have noted the absence of strong support from the US business community for the Doha Round, as compared to support for the earlier rounds of trade negotiations. It is not possible to prove that the absence of support for Doha is the result of PTAs (or the prospect of further PTAs) but it is certainly possible and even, I would argue, likely.

Erixon and Freytag aren’t much interested in that hypothesis, however:

One can argue at length over bilateralism versus multilateralism, but this is a superficial exercise that only clouds the real issues. They are neither opposites nor substitutes for each other. There is room for both of them.

What other hypotheses might be offered to explain the absence of support from business lobbies?

Update: Meanwhile, the FT says: “US business leaders on Thursday threw their weight behind the Bush administration’s last-ditch drive to revive its trade agenda before the president’s fast-track trade promotion authority expires later this year.”

Joseph Francois is optimistic about agricultural liberalization, despite the failing WTO negotiations:

In recent years, the new dispute settlement body… has led to successful cases against the U.S. and EU (led by Brazil) on cotton and sugar. At the same time, under different dispute mechanisms in the WTO, developing Latin American countries recently won a high-profile case against the EU on bananas. The most difficult issues are being handled through the legal machinery in Geneva, and developing countries are even winning. As it turned out, none of this really hinged on the agriculture negotiations themselves…

The current set of agricultural policies in the U.S. and EU is not sustainable. In the case of the EU, the combination of (i) aging populations and (ii) an Eastern Enlargement that has taken in poor, agricultural economies means that the CAP as we know it is doomed. The European Commission knows this, and EU Members have already launched on a policy reform process that recognizes that future agricultural policy will have to be very different (and much cheaper) if it is to survive the budget constraints brought on by aging populations, and the demands for structural funds from new members. The EU has made a commitment to reform (necessary regardless of how events unfold in Geneva), and we can expect the process to continue. So, why not just wait? We can probably get the same results we would from active negotiation. In the case of the U.S., the budget hole is now so deep, and the looming costs for Medicaid and Medicare with retiring baby boomers is so large, that large farm outlays are likely to be a victim of the storm of budget rationalization that will arrive with the next White House team. So again, why not just wait? We will get rationalization anyway, regardless of whether or not we push this through Geneva.

The EU scenario seems reasonable, but I don’t buy the US story, at least at first glance. Agricultural subsidies run around $20 billion, while federal spending is in the neighborhood of $2.5 trillion and the deficit is more than $300 billion, so although the subsidy payments are foolish, slashing them won’t significantly improve the budget situation. Meanwhile, farm lobbyists are a well-organized and influential constituency.

Analysts more familiar with the entitlement programs and the federal budget process are better equipped to discuss this topic than I am, but I’m skeptical that farm subsidies are likely to be first on the chopping block.

Pascal Lamy says that Africa needs to give ground in the Doha negotiations:

“If we conclude this round, there will be many winners. If the negotiations fail, no doubt who will be the biggest loser: Africa. We all know that. This is the reality,” said Lamy. Africa states must “alter their position in negotiations to avoid a return to deadlock,” added Lamy during a visit to the African Union’s headquarters in Addis Ababa for talks with trade ministers from the continent.

A June 2006 Focus on the Global South brief by Aileen Kwa summarizes research skeptical of this position:

Contrary to these expectations, however, research from the World Bank, the Carnegie Endowment, the European Commission, and also the FAO, reveal that the majority in Africa will be faced with losses in both agriculture and industrial goods liberalisation. Even if agricultural export markets were open to Africa, the majority of African farmers – subsistence farmers – will not be in a position to compete. In addition, they will lose through having to open their domestic markets in the negotiations. The poorest countries in Africa will be worst hit – many are LDC countries in Sub- Saharan or East Africa.

Here’s a summary of the Carnegie research done by Sandra Polaski:

Ms. Polaski enumerated three reasons why agricultural liberalization could actually harm many developing countries.  First, many poor countries are net food importers.  Eliminating agricultural subsidies would reduce production and increase the price of agricultural goods to the detriment of net food importers.  Second, many rich countries apply lower tariffs to exports from developing countries.  Reducing overall tariff levels would narrow the margins of these preferences.  Finally, due to the small scale of agricultural production in most developing countries, the prospects for competing on global markets are poor.  However lower tariffs could lead to cheaper imports of competing products, leading to a reduction of farmers’ incomes.  The Carnegie model showed that developing countries could shield certain crops essential to farmers’ incomes without significantly diminishing the benefits to other countries of agricultural liberalization. 

The World Bank research is less clear. Kwa writes that “the Bank concluded that the gains were expected for only a few large developing countries such as Argentina, Brazil, India. ‘Bangladesh and many African countries benefiting from preferences are likely to face losses.'” She cites Kym Anderson and Will Martin, Agricultural Trade Reform and the Doha Development Agenda (2005) as the source of the quotation, but the 2006 publication (full text available here) does not contain that sentence. Moreover, that quotation appears to be describing the impact of preference erosion, not the net impact of the Doha agenda. Anderson and Martin’s summary runs contrary to Kwa’s characterization:

Most developing countries gain in our Doha scenarios, and all would if they participated more fully in the reforms. Our simulations of alternative scenarios for possible outcomes of the Doha negotiations show that middle-income countries certainly stand to gain, but so too would poorer developing countries so long as they do not exercise their claims to special and differential treatment in the form of lesser requirements to reform. An important part of this result comes from the increases in market access—on a nondiscriminatory basis—by other developing countries.

Preference erosion may be less of an issue than commonly assumed. Some least developed countries in Sub-Saharan Africa and elsewhere appear to be slight losers in our Doha simulations when developed countries cut their tariffs and these poor countries choose not to reform at all. Our simulations overstate the benefits of tariff preferences for least developed countries, however, since they ignore the trade-dampening effect of complex rules of origin and the grabbing of much of the rents by developed-country importers.

So the World Bank work seems to support Lamy’s argument that African nations need to reform.

I don’t have time to dig into the EC and FAO research, but those interested in the skeptics’ arguments might use Kwa’s piece as a starting point. For another skeptical view of the DDA’s impact on poor countries, see Dani Rodrik’s take. And for skepticism regarding all these simulations (CGE models), check out the Economist‘s July piece (courtesy of Ben Muse).

France on Thursday warned Mandelson against making further concessions on
agriculture amid a global push to revive the stalled Doha round of trade negotiations. During a meeting with Mandelson in Paris, Foreign Minister Philippe Douste-Blazy ‘firmly reminded’ the top Brussels trade negotiator that his existing offer to cut tariffs on farm goods ‘constituted a red line and exhausted the EU’s room for negotiation,’ a ministry statement said. … France – which insists European concessions should not go beyond the reform of the EU’s Common Agriculture Policy agreed four years ago –
threatened previously to veto any final trade deal, accusing Mandelson of overstepping his mandate with an October 2005 offer of further farm-tariff cuts.

I’m not shocked.