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The EU and the Doha Dead End

Are European fears about free trade reforms in the Doha round resting on false assumptions?

May 1, 2006

Are European fears about free trade reforms in the Doha round resting on false assumptions?

The dismal failure of the WTO to meet yet another deadline, this one on April 30, 2006, is hardly surprising — but still greatly dispiriting. The mess in which the EU currently finds itself was best evidenced by the European edition of the Financial Times of April 25, 2006. It shows a photograph of the Italian veteran politician with the caption: "Comeback kid 87-year-old Andreotti up for speaker.”

The European Union, at the risk of mixing incompatible metaphors, is both in a rut and in a state of drift — the likes of which I have not seen in my six decades on this planet.

It is very, very, very depressing to be a citizen of the EU in the early 21st century — and especially, as is my case, a citizen of France (even though Italy comes in at a close second.)

Among the erstwhile "miracle European economies," Germany for some time had the dubious distinction of being mostly in the doldrums. Things seemed to brighten up with the appointment of Angela Merkel as chancellor in the fall of 2005.

In Davos in January of 2006, she gave an excellent and quite inspiring speech, where she emphasized that Germany has always benefited from free trade, adding that barriers must be torn down further — and that the EU must show its strong commitment to the multilateral system.

Her government has resisted the siren calls of economic chauvinism that have afflicted other European countries, notably France, Spain and Poland, among others.

Beyond that, though, she has not succeeded thus far in changing the EU course of unenlightened and self-destructive protectionism. EU Trade Commissioner Peter Mandelson has added to the general EU tone of aloof negativity.

He has stated that, if the talks collapsed, Europe would lose nothing. Not only is this singularly unhelpful, it is emphatically untrue.

The mercantilist atmosphere, which has gripped the WTO results in a distorted perception of trade that is based exclusively on a narrow production prism — rather than that of consumers.

When, for example, Mr. Mandelson says that the greatest beneficiaries of agricultural trade liberalization would be big farmers in rich countries (read: Australia) or in middle income ones (read: Brazil), this is not true. The greatest beneficiaries would be European citizens.

But what is most objectionable is that his statement that the EU has nothing to lose from a failed Doha stands out as a negation of globalization. We live in a highly interdependent world. The perception that the developing countries need us (the rich countries) — and we do not need them — is false.

We need their markets — resources and increasingly people — as Europe's demographic decline intensifies. On the basis of UN population projections, the overall population of Europe (including West, Central and Eastern Europe) will decline in the first half of this century by about 100 million — from 729 million to 628 million.

By 2025, no more than a brief moment down the road of time, the median age in Europe will be 45, in comparison to 30 in India, 32 in Latin America, mid-20s in most of the Middle East and North Africa.

Apart from looking to the future, we must look at the past. The tragic 1930s and 1940s began with the outbreak of trade wars following the Great Depression of 1929.

Economics Nobel Prize Laureate Joe Stiglitz and the eminent historian Niall Ferguson have been among the different voices warning of the eerie similarities between the state of global economic governance today and the era of the Great Depression.

If the world wishes to avoid making in this century the same tragic mistakes we made last century, we need a very different attitude from the aggressive, yet very parochial and inward-looking mercantilism that implies we have nothing to lose from the collapse of Doha.

To make this world work, we need to recognize that we all lose if the architecture of the global economy collapses and a spirit of chauvinist acrimony prevails.

The real crux, thus, is not the person of Peter Mandelson. Under present circumstances, it would be very difficult to imagine that an EU trade commissioner — no matter who he or she might be — could be particularly constructive or indeed even sensible.

Mr. Mandelson's half-baked negotiating stance just reflects broader political realities in core Europe. On the one hand, you have Angela Merkel — and her unambiguous philosophical and political commitment to free trade.

Unfortunately, her determination is met by an equally unambiguous philosophical and political commitment at the opposite end, coming from the other side of the Rhine.

Jacques Chirac, among his various pronouncements, has declared that "liberalism is an ideology as dangerous as communism and it will not prevail."

This statement does not reflect a minor difference of opinion with his German counterpart over tactics — or even over delicate issues such as agricultural subsidies. It is a very profound philosophical divergence between two positions that are totally irreconcilable.

Chirac's views are not just rhetorical in nature, although one may wish they were. France has taken increasingly protectionist positions not only vis-à-vis the outside world, but also within Europe.

The unseemly manner in which EU Commission President José Manuel Barroso was booed and heckled in the French parliament over the issue of the liberalization of services is only one of the more recent manifestations of intensive economic nationalism.

Those protests demonstrate a deep fissure across the EU on economic policy and, indeed, philosophy. How can a constructive unified European position be articulated on the basis of such a deep ideological chasm?

Indeed, the trade minister of one of the Scandinavian countries confided to me just last week that, in her view, these differences on trade could conceivably lead to the break-up of the EU.

The EU, for its part, has said it will not move on agriculture unless, among other conditions, it sees better offers from Brazil and other developing countries on services.

That leads one to wonder. How can the EU claim to the Brazilians that liberalization of services is good for them, when that very same process is being fiercely resisted inside Europe? Never mind the inconsistency. This is outright hypocrisy.

The EU fortress mentality is not only directed against outsiders, but also against the citizens of the new EU member states from Central and Eastern Europe. Instead of embracing these "new" Europeans, as we should, we tell them to stay at home and keep their plumbers!

So what is to be done? There could, of course, always be many more speeches from European political leaders like Angela Merkel, demonstrating a clear commitment to an open and interdependent global market.

But speeches only go so far. The talk must be walked. To achieve that, across Europe coalitions of business leaders, independent policy thinkers and open-minded citizens alike must actively join to back Angela Merkel.

Europeans ought to realize how much they stand to gain from a more outward-looking and dynamic Europe. The global trade agenda has become very boring, the paralysis is felt not only at the policy level, but also intellectually.

If the Doha Trade Round does fall off the precipice, it will be far more than just a WTO negotiating round that will have failed. As I see it, the global multilateral economic system will have failed — possibly ushering in a resurgence of predatory and discriminatory trade practices.

Everyone will suffer. And contrary to the smug incantation that the EU has nothing to lose from the failure of Doha, it will indeed lose very much — materially and morally.

Europeans would do well to remember who initiated and caused a great deal of the havoc and barbarity that marked the 20th century. Europeans — and the world — deserve better in the 21st.

Leading and salvaging the Doha Agenda would be perhaps the single most inspired act of enlightened self-interest the EU could conceivably engage in at this moment of history.

The EU's leaders should be made to see this — and younger Europeans should be exerting great pressures from below in order to safeguard global stability — and their very own future.