While September rings out “the start of the new school year”, the WTO is not outdone and tries, once more, to restart the never-ending talks of the Doha Round1. So on September 3 and 4, India, with Pascal Lamy’s blessing2, hosted a meeting of approximately 40 trade ministers to determine the means to resume the negotiations, as indicated by Rahul Kullar, India’s Trade Minister. For its part, Sweden, which currently assumes the Presidency of the European Union, has put the Doha Round at the top of its fall agenda by bringing up the fight against protectionism and the benefits that it can generate for trade and prosperity worldwide.
Since its beginning, the Doha Round progresses thanks to a “ideological belief” in the beneficial effects of liberalization on one hand, and, on the other, the regular publication of studies that “put a figure” on the benefits expected from said liberalization3. The financial crisis has led many observers to do some justifiable soul-searching regarding the alleged powers of laissez-faire practices and to question the current risk simulation and evaluation models. We must adopt an identical and prudent position for agriculture and must now answer a deceptively naïve question: Are the empirical and theoretical foundations of the Doha Round well grounded?
To bolster their efforts, defenders of the Round strive to promote figures meant to throw light on gains resulting from trade liberalization according to current implementation procedures. Thus, Ewa Björling, the Swedish Minister for Trade, mentions estimates indicating that, if the Doha Round is completed in good conditions, the European Union citizens would gain up to €200 each as a consequence of increased international trade4. For its part, the Peterson Institute for International Economics published a study in mid-August that radically reassesses upward the benefits resulting from a rapid completion of the Round for global economics: Between the gains tied to the stricto sensu implementation of procedures included in the document, the various business initiatives that will be generated (especially in the chemical, electronic and the environmental goods industries) as well as the liberalization of services and improvement of trade mediation, the Doha Round should, according to the institute, bring about export increases ranging between $180 and $520 million every year and expected annual gains in GDP between $300 and $700 billion5.
The propounded figures must nevertheless be examined with a great deal of precaution, all the more so since they serve as decision-making supports for many international negotiators. It is therefore advisable to not misinterpret their true meaning and avoid giving in to the appeal of “miracle” figures to rule on the future of international trade.
First, it turns out that the Swedish Trade Minister did not precisely clarify the methodology on which these figures were based. We cannot therefore ascertain if the above-mentioned €200 will be a pre-tax figure? Allocated yearly? Homogenously spread among all citizens? With a high priority to the benefit of farmers or service businesses?
Incidentally, if the study conducted by the Peterson Institute shows that the liberalization of exchanges brings with it the development of global export, we must not be led either to believe that this study is conclusive proof that completion of the Doha Round will generate net gains for the international community. The Peterson study is a long way off from revealing the complexity of factors in play to rule on the Doha Round’s beneficial effects, or the lack of them. Consequently, we should avoid improperly summarizing the difficult issue of liberalization in agricultural exchanges into the simple fact that tariff elimination will lead to more trade. Such effect plays an undeniable role, but just as much as its contrary––elimination of traffic, exchange rates, intellectual property, market risks or speculation, to mention only a few that can lead to radical fluctuations in final gains.
It is crucial to keep in mind that the propounded figures were obtained on the basis of precise theories, following a well-defined study perimeter and clearly stated objectives. It is therefore essential––and this is as important as the figures themselves––to openly specify the “framework and modes of implementation” of these figures by international decision-makers.
That is why the approach we initiated with the momagri model is both innovative and useful. Our main objective was to build the first genuine global economic simulation model dedicated to agriculture, in order to assess the potential gains resulting from trade liberalization in the framework of the Doha Round. Our work was guided by two requirements:
- Getting as close as possible to agriculture’s facts and specificities by making use of best adapted theories6 ; According to the latest simulations achieved in March 2009, unfettered liberalization of agricultural markets as called for in the Doha Round will, on one hand, increase price volatility on agricultural exchanges and, on the other, lead to a generalized drop in revenues for most of the world’s farmers, especially those in developing countries8. Such situation seriously questions the Doha Round’s alleged beneficial effects, at least in developing countries, where the Round’s gains will be automatically limited because of the largely agricultural nature of their economies. In countries where close to 70 percent of the workforce farms, a 40 to 60 percent drop in farmers’ revenues will de facto lead to catastrophic results on their economic, political and social stability.
- Building a transparent model7, in which retained hypotheses are clearly highlighted, to maximize the decision-making process.
Beyond these figures however, the very theoretical and philosophical foundations of the Doha Round are increasingly being challenged. Largely based on a neoliberal belief in the market self-regulating ability, the liberalization intended by the Doha Round has thus seen its effectiveness undermined by the recent crises. Because of the empiric reassessment of the market ability to self-regulate, more and more voices are being raised to question the correlations between cause and effect––taken for granted until now––that exist between liberalization, growth, development, as well as food security and the fight against poverty. And it would seem that these correlations are more abundant and complex than what was willingly observed in international arenas until very recently.
As outlined in the July 3, 2009 OECD research paper in the organization’s publication Journal of Development, the correlations between international trade liberalization, economic growth and alleviation of poverty are indeed largely misunderstood and inconclusive9. As a consequence of the difficulty in quantifying a country’s commitment to international trade, many studies asserting that free trade goes hand in hand with alleviation of poverty10 were strongly criticized. The only fact that can be taken for granted is that, since 1974, the world has been experiencing a wave of liberalization, and that, far from decreasing, the gaps in wealth redistribution have in fact increased. In terms of revenue per capita, the gaps ranged between 1 and 15 in the 1960’s, while they vary between 1 and 30 today.
That is the reason why the unwavering trust in unfettered liberalization must be toned down, if not called into question. If it is quite possible that liberalization plays a crucial role in economic growth and the alleviation of poverty, it is definitely not a panacea, contrary to what the global economic doctrine has long maintained. For that matter, some empiric studies proved it by showing that coerced liberalization policies conducted in various developing countries in the name of the IMF “structural fine-tuning” did not produce the expected gains11. It thus seems necessary to at least set up a framework of successful liberalization, so that the beneficial effects of liberalization reach their full potential by including, in particular, appropriate macroeconomic policies that ensure a certain amount of equilibrium. Issues related to the Doha Round are therefore calling for extreme caution. The recent crises demonstrated that the economic theories, which served as bases for the economic development of the past decades, are indecisive. Let’s not make the same mistake twice by entrusting global stability––especially food stability––to markets that do not regulate themselves and by blindly following the recommendations and figures generated by tools that are ill adapted to the issue at stake.
1 The Doha Round was launched in November 2001 in the Qatari capital and is still not completed. Today, it remains the longest round of trade negotiations mediated at the WTO.
2 Pascal Lamy is Director-General of the WTO.
3 If we have been insisting, since momagri’s creation in 2005, on the value of having numerical data to advance international negotiations (owing to the multiplication of involved players, of the growing complexity of issues covered, of the ever-growing interaction between economic sectors…), we have also been emphasizing the value of using credible figures that take into account the reality of agricultural markets and are based on a clear and transparent methodology. Consequently, it is not the figures themselves that are often so questionable––except in some rare cases––but rather their use by various experts or decision-makers, who make studies and models state things that they simply cannot state.
4 As quoted by Agrapresse, “Restart of talks on the agenda, August 31, 2009.
5 The complete study is available at http://www.iie.com/publications/wp/wp09-6.pdf
6 Taking into account market risks––farmers’ expectation errors and speculators’ behavior on futures markets––are one of the specificities of the momagri model.
7 That is the reason why momagri hosted an international workshop this past June 4 and 5 at the Paris-Sorbonne University on the issues of uncertainty and prices in agricultural commodities. Additional information is available on the website www.momagri.org.
8 Only emerging countries that are net exporters of agricultural goods (such as Brazil) would come out unscathed. To consult the complete results from momagri’s simulations, please see our March 16, 2009 article “Far from Preventing it, a WTO Agreement on Agriculture Could Drive the World Straight to Protectionism!” by Jacques Carles, Executive Vice President of momagri.
9 Please see the July 6/7 presentation in Geneva made by Masato Hayashikawa, of the OECD Development Co-operation Directorate.
10 We are referring to the benchmark study Dollar and Kraay of 2000, which is based on an empiric analysis proving that there is a strong correlation between the revenues of the have-nots and the general growth rate.
11 Please see for example the study conducted by the FAO in Tanzania based on a general economic equilibrium that can be computed: “Liberalizing trade under structural constraints in developing countries: A general equilibrium analysis in Tanzania”, Research Working Paper #23.