"LEST WE FORGET"

Enjoying the greatest, sustained economic expansion, beating the 1950’s and 1960’s, it is easy to take for granted the conditions and global framework that makes this success possible. First, let’s celebrate that in the last 50 years, life expectancy has increased by 20 years, infant mortality rates have dropped by two-thirds. Thirty years ago, Ghana’s income equalled South Korea. Now, South Korea’s income equals Portugal’s. Malaysia and Haiti were equal in 1950. Burma and Thailand had equal incomes in 1945. Forty years ago, Japan was a developing country. The system can work if governments do the same thing.

We need to remind governments why our parents created an open world, rules-based trading system. Immanuel Kant, in his essay in ’Perpetual Peace’, suggested "Durable peace could be built upon the tripod of representative democracy, international organisation and economic dependence." Mill, Hume and Adam Smith all argued that expanded commerce produced good government, reduced the propensity for conflict, enhanced individual liberty and security, and promoted equality by lessening the servile dependence of individuals on their superiors. The effect of increased commerce on individual freedom was, according to Smith, the least observed advantage of commerce.

Trade and exchange of services creates friends and is a key factor in development. It is control that breeds enemies. That’s why new trade opportunities between India and Pakistan, China and Taiwan are so important. That’s why the World Trade Organisation is important to peace, security and development and why our fathers created it alongside the other great organisations such as the U.N., IMF and World Bank.

The Doha Development Trade round offers the opportunity to lift hundreds of millions of people out of extreme poverty. But there are problems, almost a crisis. All multilateral trade rounds managed under the umbrella of the GATT, the General Agreement on Trade and Tariffs, now the World Trade Organisation, are in crisis until a deal is done. Conferences of Trade Ministers often fail because Trade Ministers agreements are real, legal and supervised by a binding disputes mechanism where disagreements about the meaning and implementation of complex details are decided. Ministers of Transport, housing, environment, foreign affairs meet and reach meaningless agreements wherever one’s position is covered with fine-sounding "communiqués" that provide comfort and cover in their ambiguity. Is it possible, given how everyone can win under the Doha Development agenda, that the deal could perish because of the lack of political willpower and courage and leadership? What’s new now that makes things more difficult and different?

Perhaps major players, including China and India, feel things are good as they are now. There are alternatives to a multilateral solution, inferior, potentially dangerous, and multiplying in direct relationship to the lack of progress in the Doha negotiations. Twenty years ago there were few regional and bilateral trade deals, now there are many hundred. They create trade distortion, trade diversion, some even restrict trade, none have a binding disputes mechanism, most have dozens of exemptions, and few do much in agriculture. The latest South Korea-U.S. deal excludes rice and, like all such deals, products new privileges and preferences. This deal has already stimulated Japan and the EU to take more seriously its options with South Korea. Japan and Switzerland are doing a deal that excludes agriculture. Those lightweight deal on agriculture provides yet another opportunity for the protectionists to strengthen their defensive position on agriculture at the World Trade Organisation negotiations. Many nations now seem to seek preferential deals, one by one, which are easier to sell domestically, but it’s basically mercantilism which avoids the hard decisions at home and the long-term costs will be painful.

Ministers love to sign things, this frenetic activity is a poor substitute for direction and multilateralism. It diverts political attention and precious Ministerial time. The costs to the greater global trading system are now beginning to be felt. The answer is, of course, getting the Doha Round finalised. Regional deals and bilateral preference deals are not that hard if you exclude sensitive issues. Another danger is the increasing number of disputes between nations that the WTO must manage. These are causing pressure to build up. Sooner or later some countries are going to challenge the WTO findings, and then what ?

A world economy without a global trading system that can manage, in a clear, predictable, binding way, these disputes would quickly become dark and dangerous.

Despite all I’ve written about the perils of unilateralism and bilateralism, I’d be doing it if I were in Government. There’s a terrible cost to being left out. The global economy is facing a ‘lose, lose’ situation. However, we should re-name the present spate of trade deals "Preferential Trade Deals" because they insult the concept of free trade.