Im an optimist on Doha, and Ill explain why. Its been said that an optimist is someone who hasnt heard the news. Im an optimist because Ive heard the news. The buzz behind the scenes is that the political will has actually changed quite dramatically.
Im optimistic because the Doha round negotiators now realize that we are in the final phase, and we have to get down to settling the thing. There are lots of issues on the table already. Many things have already been done with a view to getting developing countries on board.
In the earlier negotiations and throughout the history of the general agreement on tariffs and trade (GATT), the view has been to get developing countries on board, to indulge them because though they dont amount to a hill of beans in terms of world trade you still want them in the GATT or in the international negotiations. Down the road, theyll graduate, become better off, and its good to have them inside your system. And the same attitude right now applies to the least developed countries. The point is, theres so much on the ground now that I think theres a vested interest in not letting it go. So thats one reason for optimism.
The other reason is this. Take India. Indians have been misled by Oxfam and economists like Joseph Stiglitz into thinking that theres $1 billion-worth of subsidies in the EU and US per day $360 billion-worth a year. If that were true, I would become a pessimist too, because you couldnt really do anything about that.
Many people believe this propaganda, which is really harmful. And then you divide it by the number of cows. [Oxfam notes that the average European cow gets a $2-per-day subsidy. Meanwhile, it claims 800 million people live on less than a dollar a day.] Why not take the number of people in the media and divide that by the number of cows? It really is a meaningless arithmetic; there is no economics there.
But the only subsidies that matter externally are trade distorting ones. The FischlerLamy reforms [to subsidize land use rather than agricultural produce] present a compelling way to turn a lot of distorting subsidies into non-distorting subsidies. So we should celebrate that.
We have been telling India, including trade minister Kamal Nath, that the situation is not that bad if we can actually negotiate. Weve been telling the Americans the same. On agriculture, theres no way you can get them to liberalize now, as the Americans would like, because Indian elections are coming soon, and theyre therefore very risk averse. But I believe that if the Americans can move a little, something can be done by way of reciprocal baksheesh.
My recommendation has been that its probably better to collect an IOU from the Indians on agriculture, with a little gesture of some kind, to say this is not doable right now. But the Americans have a very similar problem right now with agriculture.
On manufacturing, US trade negotiator Susan Schwab is being unreasonable. India has reduced tariffs in manufacturing quite substantially over the last five years, hugely from the 1991 level of about 75% to now about 9%. The current Indian average tariff for manufacturers is about 9%. Nobody mentions that. Susan Schwab is deliberately ignorant and doesnt take this into account. Even then, India could probably go a little further. Theyve continually been bringing it down. There are no lobbies in India against manufactured tariffs reduction.
The Americans are acting like India is a highly protectionist country, saying India hasnt done anything, theyre not going to do anything, and so on: thats simply giving the wrong vibes.
Meanwhile, the US farm sector has two problems. Democrats are waiting to take power, and the Republicans are traumatized about losing it. Neither party can take on the farm lobby before the election because everybody wants the farm vote. The farm lobby insists that India be forced to open up their markets. So they go for sectoral reciprocity. They want movement within agriculture.
The US has been spending on average $15.6 billion over the last five years on subsidies. The upper bound which theyre looking for is $22 billion. But theyre willing to cut back as far as $17 or 18 billion. That is not enough, but they cant do more because nobody wants to risk the farm vote.
My proposal is this: we should push for the Fischler-Lamy plan to apply to the US. That way they can have their subsidies at $22 billion or whatever while changing the composition of subsidies. Reduce trade-distorting subsidies by half, turning them into Fischler-Lamy type non-distorting subsidies so-called green box subsidies. Change the composition but not the total, but cut the total distorting subsidies by half, which is really what matters for Cairns Group [developed nations excluding the US and EU] and India and so on. If you do that, youre really left with, say, only $10 billion distorting subsidies.
President Bush cant go and tell his party and people that hes going to cut farm support, but he can say that, while hes supporting them wholeheartedly, the US will shift about $8 to 10 billion out and pay them in some other way maybe linked to environment. If we do that, Im quite sure that India will give more ground. This is where the outlines of a deal are possible.
It has to be handled in a way that meets the concerns of the US congressman. Once these ideas sink in, there is the possibility of a deal theres reason for optimism. Where theres no reason for optimism is in getting this round settled before the US election. It can move quickly after the election though, and it will still have taken less time than the Uruguay trade round, but the point is were so close, there are so many people.
The other reason is this: if the US doesnt go in for Doha, it has to do bilateral trade deals. If it doesnt do Doha and if it doesnt have fast-track authority [the power that the US president has to negotiate agreements that Congress can approve or disapprove but cannot amend], they cant do bilaterals either. But they need fast-track for the complex bilaterals like Cafta. I think the fast-track for Doha will piggyback on the ones for the bilaterals. Im not worried about fast-track; itll come. Self-interest will lead them into doing fast-track. In the end, sense will prevail, and we can actually package a deal together.
When you look at how this can be solved, I think theres enough there, and a last minute dash is possible. I wasnt that optimistic before, but you know, once you start looking at the issues and where you can get a movement, I think both India and the US are going to be able to move. They are the main players along with Brazil. India has a better rapport with the US. If the US and India really accommodate each other along those lines and do some more, then we have the possibility of a genuine compromise. I think I see those two as critical players right now. Theyre definitely going to be able to do it.
Jagdish Bhagwati, former advisor to the WTO and UN, was in conversation with Taimur Ahmad