Johannesburg — The current round of international trade talks, the "Doha Round," which many Africans hope will open new markets for them in developed countries, enter a crucial few weeks in which it appears there is a real chance of reaching agreement on trade in agricultural and industrial goods.
In the regular column written for AllAfrica by experts of the South African Institute of International Affairs, Peter Draper explains how the multilateral trading system developed and what it means to Africa and the world.
Trade Ministers are set to gather in Geneva on May 19 to bed down the Doha Round. This comes in the wake of a seemingly gathering consensus on draft agreements on agriculture and industrial goods, and on associated trade-offs.
Those, especially business people, not steeped in the World Trade Organization's labyrinthine intricacies, are puzzled by the time it takes for so many officials to reach conclusions; consequently many are indifferent to the organization.
Yet many civil society activists agonise over each news morsel concerning the latest twist in this or that negotiating area. Considering these divergent reactions it is important to reflect on what the multilateral trading system actually means to the world and Africa especially.
The WTO, and its sister organizations, the International Monetary Fund and the World Bank, are unique historical creations integral to consolidating Western democracies in the aftermath of World War Two. (The WTO, although formed in 1994, grew out of the General Agreement on Tariffs and Trade, or the GATT.)
Their primary purpose was to establish regimes to govern the global trading and financial systems. American leaders, in partnership with Great Britain, were determined to prevent those systems collapsing, as occurred in the inter-war period, giving rise to the Great Depression with all its consequences for global security.
GATT contracting parties tacitly concurred that the multilateral trading system should not intrude too deeply into the ability of states to pursue domestic social programmes – what the political scientist John Ruggie labelled "embedded liberalism." This ensured the GATT maintained steady pressure on developed countries to liberalise trade, while allowing them to embed their democratic welfare states domestically.
Thus a core tension at the heart of the system was the oscillation between liberalizing trade and preserving domestic social prerogatives (which may require trade protection).
Correspondingly, developing countries pursued the prevailing orthodoxy of aiming to substitute imports with locally-produced goods, which required creating loopholes in GATT rules to minimise disruptions to their domestic markets associated with trade liberalization. (This flexibility was called "special and differential treatment" and has been a feature of every multilateral trade negotiation since the 1960s.)
But in the 1970s economic crisis these certainties were seriously disrupted as "stagflation" took hold; the U.S. abandoned the fixed exchange rates system; and a group of newly industrialized countries in combination with the resurgence of Japan forever altered the global balance of manufacturing prowess.
This gave rise to a first wave of "declinist" hype in the U.S. – which suggested that the country was declining economically compared to other market economies – and the associated protectionist response. Consequently, the G5, or the grouping of the world's five leading economies – later to develop into the G7 and G8 - was established to steer the "embedded liberalism" ship away from the sirens of protection.
This club of advanced democracies largely succeeded in its task, and so a new, more ambitious round of trade negotiations was launched in 1986 in Uruguay under firm U.S. leadership. In the wake of the collapse of the Soviet Bloc, and at the height of the "Washington consensus", this round resulted in the most extensive set of agreements yet, including the establishment of the WTO in 1994.
Yet the global environment for trade reform was shifting even as the Uruguay Round agreements were being implemented. The backlash against the "Washington consensus" was beginning; and the emerging economies known as the BRICs (named for Brazil, Russia, India and, notably, China), were only just exploding onto the global stage.
Thus, the Doha Round, launched in the wake of the September 11 tragedy, came at a time when many developing countries were still reeling from opening up trade as part of implementing their Uruguay Round commitments and, in the case of many least developed countries (particularly in Africa and Latin America), were emerging from a "lost decade" of debt overhangs and structural adjustment.
Furthermore, global economic power relations were on the verge of being radically transformed with the rise of the BRICs. Consequently, with its wide agenda and increasingly diffuse power relations it is scarcely surprising that the Doha round is so difficult to conclude.
These tensions are evident in the broader struggle to manage global economic governance. The organisation of rich countries into the G7 and G8 groupings is widely regarded as illegitimate, and the post World War Two multilateral institutional framework outdated. Hence some G7 leaders are attempting to expand the charmed circle to a G13 incorporating Brazil, India and China – Russia is already in the G8 – plus South Africa and Mexico.
This process is complicated and fraught with tensions. The G7 democracies are closely associated with the "embedded liberalism" compromise; the same cannot be said of undemocratic China and authoritarian Russia; Brazil, Mexico, and South Africa are not necessarily regarded as leaders by other countries in their own regions.
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So the big question many scholars are asking, as they did in the 1970s, is: can the "embedded liberalism" compromise survive? What is the future of the WTO, and of global economic governance more broadly?
These are big questions. For me, the best response is to ask: what if the WTO did not exist? China needs it most in order to constrain protectionist impulses in the developed world and retain growth (and social stability) at home.
Africa needs a global referee to minimise power plays from the big players; and the Doha Round is likely to result in a host of opt-outs for the majority of African states, meaning they will benefit from free trade by being able to export goods more easily to developed countries, but will be protected to a degree from having to reciprocate by opening their markets in a way which would damage them.
So perhaps the "embedded liberalism" compromise is alive, if not well. Let's hope the Geneva negotiators can bed down a final deal this time and ensure it survives the U.S. presidential elections.
Peter Draper is Trade Research Fellow of the South African Institute of International Affairs.
