Published: The Financial Express, July 14, 2006

By M Shamsur Rabb Khan

“HOW to salvage the Doha Round or not?” by Pradeep S Mehta, published in the Financial Express on July 9, 2006 unveils the real scenario impeding the Doha Round while summarising the events and causes leading to this pass. His observations or suggestions to the US, particularly President Bush needs further elaboration.

It may be recalled that trade negotiator during Reagan administration, Clyde Prestowitz had said that in one simple unilateral move the US could earn enormous global goodwill and save the floundering world trading system.

Prestowitz worried that the global trading system that has facilitated economic growth since WWII is rapidly dissolving, with US increasingly pursuing bilateral and regional trade agreements (RTAs) that can contribute to an unfair economic playing field globally.

To salvage the Doha Round, the US and Europe need to move, without delay and with a greater sense of obligation, ahead in conceding major cuts in their agricultural production and export subsidies that unfairly cripple the already miserable living standards of some of the world’s poorest countries.

As of now, such a move is indispensable not only as a matter of providing a badly needed boost to developing countries, but also because any possible failure of Doha Round — that seems likely — stands to pose a serious threat to the continued viability of the WTO, which is the premier hope of generating the economic growth necessary to lift developing countries out of poverty.

An example will better help understand the scenario. Take the case of cotton. In West Africa, it costs 23 cents — about Indian Rs. 10, to produce a pound of cotton, the growers are abandoning their farms and fleeing to the cities of Europe in the face of dramatically falling world cotton prices. Yet, in Mississippi, where it costs 82 cents — about Indian Rs. 36, to produce a pound of cotton, the growers are expanding their acreage and increasing their exports. In fact, it is the US exports that are driving down world prices and causing Africans to abandon their farms. In a word, subsidies – US $3.5 billion annually to 25,000 US cotton farmers!

Now look at the dichotomy. While the Doha Round was specifically labelled the “Development Round” to emphasise the necessity of addressing this problem for developing countries, both EU and the US expressed a desire to solve the problem and indicated readiness to make some cuts in agricultural subsidies. However, the Bush administration undercut its own position by passing a Farm Bill that dramatically increased the subsidies. Commenting on the bill, EU spokesperson Gregor Kreuzhuber said that there was a “surprising gap” between Washington’s commitment to help developing nations boost exports, and its policies to help support prices for the US farmers. To add insult to injury, in the Cancun Ministerial, both the EU and the US made their proposed subsidy reductions conditional on further opening developing countries’ doors to industrial exports and investment. Hence, the talks collapsed.

However, there is silver lining amidst the dark cloud: only and, if only the EU and the US could budge a few steps from their current stand. Doing so would benefit the US consumers by providing them commodities at prices far below those they now pay. It would also be good for the world economy, because it would spark growth by the developing countries and enable them to buy more developed world exports.

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