The premature demise of the WTO need not distress Indians; it could be good news

More than 200 years ago, two pioneering economists from Britain, Adam Smith and David Ricardo were to logically point out how international trade was a win-win situation for all parties. If implemented in letter and spirit, there is little doubt that free trade policies could have had a dramatic and immensely positive impact on all the countries of the world.

Unfortunately, around the time Smith and Ricardo were discovering the magic of economics, Britain produced another set of people like Lord Clive, the man who laid the foundations for British Imperial rule in India. And that has changed history forever. For Imperialism ensured that when it came to trade, the dice was always loaded in favor of the First World.

More than 200 years down the road, the former Imperial powers are refusing to accept that the rules of the game have now changed. Now that yet another deadline of April 30, 2006, set for a resolution of the so called Doha round impasse has passed without any agreement, it looks increasingly clear to analysts that the 11 year old World Trade Organization (WTO) is dying a premature death.

At best, it resembles another toothless international body - the United Nations - the most expensive old boys debating club in the world with an annual budget of $ 5 billion. On the one hand, the WTO is toothless because any major global economic power with any clout brazenly flouts WTO rules & gets away with it.

On the other, the WTO itself is becoming meaningless because smart countries are stitching together bilateral, multilateral & regional trade agreements and blocs that simply bypass the WTO. "WTO is dying a natural death. People are not ready to bend and work around issues like subsidy. India and Brazil have to look at their interests in such a situation.

Th e developed countries have taken away barriers like quotas, but are playing around with non-tariff barriers. I'd say a game is going on," says Bikky Khosla, CEO, tradeindia.com. He says the death of WTO will not harm India much, "The thing is to improve bilateral trade. We do barely 5% bilateral trade. We should look at SAFTA and regional trade.

We can do a lot more of that." Forget the jargon related to the Doha round and the many other rounds of tortuous negotiations that seem to have become the leitmotif of global trade talks. The whole issue really boils down to the First and the Third World failing to agree to a mutually beneficial give and take deal.

And even Adam Smith had acknowledged that a trade or transaction will take place only if the two parties involved are convinced that both will benefit from the transaction (unless the transaction is held at gunpoint, for that really was what Imperialism was all about!). The First World insists that Third World countries must first reduce tariff and other barriers on manufactured goods and services. The Third World insists that First World countries.

WTO is Dead Long live Trade
Ka-boom! Protests against the inequities of WTO and the global order have spread across the world in spontaneous outpourings of anger and outrage

Must first reduce tariffs and other barriers on agricultural and other primary products (of course, with mainly China, and to a little extent India, displaying remarkable competitive strengths in manufacturing, the First World now wants protection even in that sector!) If you follow the Smith and Ricardo logic, a mutually benefi cial give and take deal could have been easily struck.

Since the First World enjoys a comparative advantage in manufactured goods and services, it should be exporting them to the Th ird World. And since the Th ird World enjoys a comparative advantage in agriculture and other primary products, it should be exporting them to the First World. Unfortunately, the magisterial theories of Smith and Ricardo fall flat when they confront geo-political considerations, populism, narrow national interests and even outright myopia in Third World countries and xenophobia in First World countries.

No wonder, the so called Doha round is endlessly stuck and the WTO looks like a referee in a boxing match that is reeling under punches delivered to it by both the combatants. No wonder, desperately poor countries from Africa, Asia and Latin America hunt for the Holy Grail of Free Trade, while giants like China run away with annual trade surpluses of more than $300 billion and Americans consume their way into mountains of debt; safe in the knowledge that the dice is loaded in their favor.

No wonder again, African nations refuse free supply of Genetically Modified (GM) food grain from the United States despite starving citizens because the European Union refuses to accept GM food, for it is wary of American food and seed companies dominating the world through technologically advanced GM food and seeds. Accepting free supplies of GM food from the US would mean that even the meager dollars that the African countries earn from exports to the EU would vanish. These inequities - and what is known in jargon as 'structural deficiencies' - have resulted in a worldwide movement against bodies like the WTO. In every meeting that the WTO has organized in a First World city - Seattle, Geneva, Rome et al - anti-WTO protestors have virtually reduced the negotiations to a farce.

No wonder, the WTO now prefers 'safer' locations where protestors cannot express their anger. If you notice, WTO talks now happen in places like Doha, Singapore and similar cities, where anti-WTO protestors cannot cause the mayhem they did in Seattle and Geneva! Nevertheless, the repeated failure of the WTO, to hammer out an agreement that is fair and equitable, is leading large sections of people from across the world to turn implacably hostile towards globalization and trade.

Even well known economists like Joseph Stiglitz and iconic billionaires like George Soros have become extremely high profile opponents of globalization and global trade in the manner which it is conducted today. Th ough champions of free trade like Jagdish Bhagwati are putting up a spirited defense of the virtues of globalization and free trade, there is a growing tide of suspicion and hostility towards the two powerful forces that will dominate the 21st century.

The de facto collapse of the WTO will intensify this suspicion and hostility and there is a serious danger of many countries turning their backs on globalization and trade. This would be truly a tragic phenomenon because free and fair trade can make a positive difference. In fact, if one looks at the economies that have performed spectacularly well after the Second World War, virtually every single one has been a success story because of trade and increasing integration with the global economy.

The four most spectacular success stories in the post Second World War era are Germany, Japan, South Korea and China. India is on its way to becoming the fifth. Germany and Japan were completely devastated during the Second World War. Today, Japan and Germany are the second and fifth largest economies of the world with GDP worth $4 trillion and $2 trillion respectively.

Even the per capita income of Japan and Germany is $30,000 and $28,000 respectively. And while Germany has a Life Expectancy of 75 years, Japan tops the league with a Life Expectancy of 82 years! Foreign trade accounts for 50% of Germany's GDP and 60% of Japan's GDP. While Germany and Japan were staging after their miraculous recoveries during the 1960s, China and South Korea were desperately poor countries with per capita incomes that were less than even that of India! Yet, South Korea now enjoys a per capita income of $16,000 a year and has joined the club of developed nations while China has steamrolled its way to emerge as the second largest economy in the world in terms of purchasing power parity.

Even in dollar terms, China's GDP has thundered past the trillion dollar mark and continues to grow at a fantastic 9% per annum. Even if you look at quality of life indicators, tors, South Korea has joined the club of rich and China is well on its way. Again, foreign trade accounts for 60% of South Korea's GDP and 65% of China's GDP.

These four examples are poignant and telling testimony of the power of trade to trigger economic growth and bring about overall economic prosperity even in a poor country. Add the trade and globalization driven prosperity of other East Asian countries like Malaysia, Thailand, Singapore, Taiwan and Indonesia and no one should have any doubts whatsoever about the efficacy of trade as a catalyst for economic growth.

Any sensible person might well ask - have policy makers in other third countries been so stupid and blind that they have hopelessly failed to leverage trade & globalization to improve the living standards of citizens? Famous economists like Jagdish Bhagwati and iconic magazines like The Economist, which unabashedly propagates the First World view, are convinced that the blame primarily lies with Third World policy makers who have irrationally followed inward looking economic policies for decades. Of course, they never fail to add the caveat that First World countries could also have been a little more generous...