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Q&A: The Collapse of World Trade Talks

U.S. Secretary of Agriculture Mike Johanns and U.S. trade representative Susan Schwab.
Fabrice Coffrini/AFP/Getty Images
U.S. Secretary of Agriculture Mike Johanns and U.S. trade representative Susan Schwab.

The World Trade Organization put an end to five years of international trade talks this week, after failing to resolve disputes over farm subsidies.

The main goal of the talks was to help poorer countries sell agricultural goods to industrialized countries.

Adam Davidson, NPR's international business reporter, puts the events into perspective.

What is the WTO? What does it mean that the WTO negotiations collapsed this week?

The World Trade Organization (WTO) is like a U.N. for trade. It brings together 149 countries to make one blanket, global trade agreement, so that each country doesn't have to negotiate separately with every other country. Since its inception (well, its predecessor, the GATT's inception) in 1947, the trade body has boosted trade and growth by reducing tariffs and other trade barriers all over the world, leading to far more global trade. Since 2001, though, the WTO member countries have been unable to move forward on additional negotiations. For five years now, they've been in talks that have produced nothing but frustration. So, this past Monday the WTO Director-General, Pascal Lamy, decided to call it quits. He said the members need a "time out."

What were the issues that caused so much trouble?

In a word: Agriculture. The core goal of the Doha round was to help the world's poorest countries get richer by selling their agricultural goods -- things like cotton, wheat and rice -- to industrialized countries. There would be Brazilian wheat sold in the United States and African cotton sold to Europe. In exchange for letting so many agricultural products in, the wealthier countries wanted something in return. They wanted to be able to sell manufactured goods -- cars, cranes, washing machines -- and services -- banking, legal, telecommunications -- to those poor countries.

In theory, everyone would win. Consumers everywhere would get cheaper products. Wealthy country manufacturers and poor country farmers would sell more products overseas. But the talks devolved into an ugly game of chicken. The wealthy countries wanted to see the poor ones open their markets first; the poor countries wouldn't budge until the rich opened theirs. By most accounts, the talks were killed by a lack of courage and will on behalf of everyone involved.

Why wouldn't anyone make the first move?

Every country involved has to deal with domestic politics. To give poor countries what they want, the United States would have to cut subsidies to farmers. Poor countries argue that U.S. farm subsidies give American farmers a leg up, creating an [uneven] playing field that hurts poor country farmers. American farmers, though, certainly don't want their subsidies cut. And that means that a lot of lawmakers from agricultural states don't want subsidies cut. The Bush administration hoped to show that others in America -- such as companies that sell washing machines and cars or legal and financial services -- would benefit from the new WTO deal. But the poor countries refused to lower barriers to those U.S. exports. With nothing to counterbalance the pain to U.S. agriculture, the Bush administration believed it could not get Congress to sign on.

Every other country faced similar domestic stumbling blocks. India and Brazil and other developing economies knew that a trade deal would benefit their farmers while hurting their factory and bank owners, who would find it hard to compete against larger, more efficient American companies.

This game of chicken is reminiscent of things that happen every day in school yards: "You go first." "No! You go first." And, just like in school yards, it doesn't always have a happy ending.

What are the trade barriers that these negotiations were supposed to end?

Every country has barriers to imports from other countries. There are tariffs -- a sort of tax on imports -- and quotas -- a limit on the number of goods that can come into a country. The goal of the WTO has been to get these barriers as low as possible. Typically, a country protects some things far more than others. In the United States, for example, imported clothes have a much higher tariff than imported electronic goods.

Were the proposed WTO agreements bad to begin with?

Probably Not. Most economists who have looked at the particulars say that if these negotiations had concluded successfully, the increase in trade would have made the world, overall, richer by about $200 billion. That's not a huge amount in a world economy worth more than $60 trillion a year. The benefits would have been particularly strong among some of the world's poorest people, farmers in developing countries.

Who can I blame for the collapse of the talks?

Everyone. There's plenty of blame to go around, when everyone involved allows narrow political interests to weigh more than the global good. While the negotiations were technically among all 149 member countries, six major players -- the so-called G-6: The United States, European Union, Brazil, India, Japan, and Australia -- held the crucial talks. All six, but the first four in particular, made increasingly generous offers but never went as far as the other parties wanted.

Many have decided to blame the United States. While most impartial observers say the U.S. was probably more flexible than Europe, Brazil, or India, some say that as world's largest economy, the United States should have played a leadership role and sacrificed domestic gain for the world's greater good. The U.S. negotiators, though, reject this idea.

What now?

No one knows. Most key players say they hope the talks will resume at some point. Nobody has said when that might happen.

Copyright 2022 NPR. To see more, visit https://www.npr.org.

Adam Davidson is a contributor to Planet Money, a co-production of NPR and This American Life. He also writes the weekly "It's the Economy" column for the New York Times Magazine.