I’m a bit concerned to see people welcoming APEC’s commitment to re-igniting the Doha Round of free trade talks as if they are a solution to the economic mess we are in now. I’ve already noted that more free trade, while desirable if done fairly, will not fix the problems that have lead to this crisis but, just as importantly, there is a not ‘more free trade’ button we can just push and feel the effects of straight away.
The Doha Round has been a mess for years now. Very, very basically, it is meant to open up the developing countries to more first world investment and, in turn, open up the agricultural production of the US, EU, and Japan to competition from the third world (and first world food exporters like us). It would do that by removing subsidies for farmers in the first world, which are absolutely massive.
The problem is, the farmers rather like their subsidies and, as in New Zealand, farmers present a lobby group with power out of all proportion to their numbers in the EU and US*. That barrier to the first world coming through on its side of the basic bargain that Doha is all about. And it is a barrier that has not disappeared.
Yet, let us imagine that somehow the EU and US do manage to overcome resistance from their farmers. Would we then have a massive economic boost from more free trade right away? No. Even if the outline of the deal could be agreed tomorrow, there would still be a months, if not years, long process of sorting out the details. These trade deals are incredibly complex and every element of them needs to get approval by the member countries, all 153 of them. Even once there is a deal signed off, it has to be ratified by a certain number of members before it comes into force, a process that also takes a long time (five years for Kyoto, I think it was). And, even then, reductions in trade barriers do not happen immediately. Typically, there is a lead-in period of several years so businesses can adjust before tariffs and subsidies are cut, and they are gradually cut in steps over periods of up to a decade.
The long and short of it is even if by some miracle they break the deadlock at the next meeting and Doha progresses forthwith, we’re not going to see any economic effect from it for years. To think a free trade deal that is years away can help us now displays the same level of economic understanding as thinking tax cuts can close the wage gap with Australia – ie. an all too common one.
In contrast, much needed reforms of the finance sector, breaking up the ‘too big to fail’ banks and dividing the operators in different markets off from each other, could take place in months and get the markets functioning again without the constant fear of another giant tumbling sending cascading failures through the other finance firms, which is what is paralysing the system now.
But, no, so much easier to turn to the free-trade panacea, instead.
*(ever wondered why we are suddenly all into converting food crops into ethanol for cars, a technology that has been around for decades and may not actually reduce greenhouse gas emissions? Because George Bush subsidised it to win crucial votes in the rural battleground states in the mid-West)