The cost of ‘failure’

I’m sorry to see that Martin Wolf has joined the casandras warning us of the immense harm to the WTO system if Members fail to reach agreement on a negotiating framework this week. I doubt that there is much danger to the system, although there may be a danger to the current EU offer on export subsidies. bq. What is required this week is not to conclude negotiations but to agree merely on how to conduct them. To fail for a second time would be a devastating blow. Some argue that no agreement would be better than a bad agreement. But no agreement would be harmful in itself. What the world needs is a compromise that is better for everybody than nothing.(“Financial Times”: I don’t buy this argument. It’s implausible that the system will be damaged: at worst it’s the credibility of Members—particularly the industrialized and developing country leaders—that will suffer from failure to find a consensus framework for continuing the negotiations. The system is not implicated by agreement or disagreement in negotiations because the contract it embodies remains valid and necessary, whether or not we can agree on future modifications. The history of eight previous ’rounds’ of negotiations suggests that no country will be definitively discouraged by failure to find agreement this week. Even the largest economies depend on the intermediation of WTO in their disputes with each other as well as on an expectation that their trading partners will comply with current rules. That won’t change if Members fail to agree on a text this week. Here’s a small thought experiment. Consider, for a moment, how ‘system collapse’ might begin. Imagine that a Member government resolved to put up the shutters to imports, contrary to its WTO obligations, on the grounds that the system had been discredited by a failure to produce agreement on a framework. What do you think would happen? Do you think that its trading partners would agree that its ‘disappointment’ justified unilateral action? Do you suppose that these others would allow the Member to defect based on concerns about the ‘credibility of the system’? No. Of course not. They would more likely invoke their rights under the system to enforce the agreed rules through reciprocal action. Is there, nevertheless, a risk that failure to agree on a framework this week, coming so soon after the collapse of the Cancún talks, could mean the end of the negotiations? Perhaps. It’s not out of the question that the talks will prove impossible to re-start. But I don’t think this is a big risk. We had several empty dénouements in the last round of WTO negotiations (including the ‘final’ Ministerial meeting in Brussels in 1991) and almost as many false starts. There’s no fundamental difference on this occasion, except that it’s the final curtain for some high profile individuals (Zoellick, Lamy). Lastly, I can’t see the merit of Wolf’s argument, that we need ‘compromise’ at any price. Let’s suppose that a compromise is reached; when the negotiations resume, after the US elections and the replacement of the EU Commission, in next February or March, the ‘framework’ now proposed may, or may not, prove the basis for detailed agreement. If the framework attracts the endorsement of most Members then it has a very good chance of accelerating the resumption of talks and of being the ‘bones’ of the final deal. But if Members accept the ‘framework’ in a silent but generally dissatisfied consensus for the sake of consensus alone (as Wolf seems to urge) then it is quite unlikley that any aspect of it will endure when the talks resume. I can’t see how this helps. So is there nothing at risk from disagreement this week? I do see a risk that the next EU Commission will be bullied by France into revising the current offer on the elimination of export subsidies. If the offer were ‘rejected’ now, that would make it easier for the French. Of course, they may also try this on the next Commission whatever is agreed this week.

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