With or Without Doha

Charlene Barshefsky

From Foreign Affairs, December 2005 -- WTO Special Edition

Summary:  Today, the United States confronts four urgent challenges: imbalances in global trade and capital flows, South America's drift, Asia's economic integration, and the Muslim world's decline. International trade policy alone cannot solve these complex concerns, but it can play a pivotal role in dealing with each.

CHARLENE BARSHEFSKY is Senior International Partner at Wilmer Cutler Pickering Hale and Dorr LLP in Washington, D.C. She was United States Trade Representative from 1997 to 2001. EDWARD GRESSER, a policy adviser at the Office of the U.S. Trade Representative from 1998 to 2001 who is now at the Progressive Policy Institute in Washington, D.C., assisted in the preparation of this article.

The United States must spur the WTO to address the multilateral system's greatest single failure: the economic decline and marginalization of the greater Middle East, the group of 25 majority-Muslim states from Morocco to the Middle East, Central Asia, and Muslim South Asia. These countries must be integrated into trade negotiations, manufacturing trade, and the mainstream of investment, through trade-preference policies, the early implementation of Doha commitments, and WTO membership.

The greater Middle East, once the center of international commerce and intellectual "globalization," now resembles a miniature version of the closed and fragmented world economy of the 1930s. Its share of global trade and investment has plummeted, dropping by nearly 75 percent between 1979 and 2000. While it continues to rely on quick cash from oil, countries in Latin America and Southeast Asia have moved on to value-added agricultural products and light-manufactured goods, creating more jobs and spreading money more evenly through their populations. The countries of the greater Middle East barely trade with one another; Jordan's King Abdullah has described the region as "a series of isolated islands of production," rather than the integrated economy it was for most of its history.

Middle Eastern governments participate less than those of any other region in the WTO. Eleven of the 22 Arab League members, four of five Central Asian Republics, Afghanistan, and Iran are all outside the system, leaving high barriers in place -- to their detriment. Boycotts and international sanctions have further deepened this isolation. The causes of the region's fragmentation are numerous, led perhaps by postcolonial economic nationalism, which remained popular in the Middle East and South Asia long after it lost its appeal elsewhere. The result is a range of individual countries relatively closed to outside trade and investment.

The greater Middle East has in effect experienced a quarter-century experiment in deglobalization. As its share of trade and investment has shrunk, its population has boomed from 340 million to 600 million. Per capita income in the Arab world has dropped from $2,300 to $1,600 between 1980 and 2000; in South Asia and Iran, it never got that high to begin with.

Lack of interest in the United States and Europe, meanwhile, means that Western trade regimes have begun to tilt away rather than toward the major Muslim states. Washington has lifted tariffs for clothing imported from Africa and Latin America but retains tariffs of 20 percent for T-shirts and 32 percent for sweaters and other goods from Afghanistan, Pakistan, Egypt, Turkey, and other countries. The Common Agricultural Policy's $3 billion in annual olive-oil payments, which keeps the prices of EU goods artificially low, blocks Moroccan and Tunisian oil from U.S. supermarkets even as U.S. consumption grows. Neither Europe nor the United States has made a significant effort to reform its policies. The EU's economic policy toward countries around the Mediterranean (known as Euromed) excludes most agricultural issues. The United States' proposed Middle East Free Trade Area is, at best, a decade away, and in any case would exclude Afghanistan, Pakistan, and Turkey.

Such a situation would raise political temperatures anywhere in the world. In the greater Middle East, rife with ethnic and religious rivalries, it is all the more destabilizing. Just as the global economy's collapse in the 1930s formed the backdrop for radical nationalism in Asia and Europe, the decline of Muslim economies gives radical fundamentalism a set of grievances and a recruiting pool.

The Doha Round offers no near-term solution to this volatile situation. With reform now under way in several countries, notably Pakistan and Egypt, the United States, Europe, Japan, and China should respond by launching preference programs matching those awarded to other regions and by immediately implementing Doha commitments in textiles and agriculture. Meanwhile, all WTO members need to cooperate to bring the remaining Arab states, the Central Asian countries, Afghanistan, and perhaps later a reforming Iran into the WTO system.

Where does this leave the ministers meeting in Hong Kong? Sixty years ago, Roosevelt and his colleagues had the insight and imagination to see that the policies of the past had failed. Today, by contrast, ministers have the opportunity to build on success. Through the Doha Round, they can create a trading system that better meets the hopes of the poor. With or without Doha, however, the United States faces pressing matters to which it must attend.