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”:http://news.ft.com/servlet/ContentServer?pagename=FT.com/StoryFT/FullStory&c=StoryFT&cid=1087374019893&p=1045050946495) 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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