World trade talks: The aftermath

MADELAINE DROHAN

GLOBE AND MAIL UPDATE

JULY 31, 2008 AT 2:37 PM EDT

OTTAWA — Truth be told, the ministers representing Canada at the global trade talks didn't sound all that broken up when they talked to reporters after the negotiations collapsed. And why would they? Their time horizon has shrunk to a matter of weeks, after which Canada might be plunged into a general election. The last thing Trade Minister Michael Fortier and Agriculture Minister Gerry Ritz wanted was a multilateral agreement to cut farm support that would force them to confront dairy and poultry producers in Ontario and Quebec. Mr. Fortier sounded almost relieved when he said we now return to the status quo.

We are unlikely to remain there long. What happened in Geneva will not stay in Geneva. The failure of the talks will sour broader relations between rich countries and the developing world, especially the emerging giants of China and India. And it will speed the already rapid proliferation of bilateral and regional trade deals, which undermine the global system, despite all professions to the contrary. So while the short-term political outlook for ministers Mr. Fortier and Mr. Ritz has not darkened, that of the world and especially that of small, open economies that depend on trade (i.e., Canada) is a lot gloomier today than it was a week ago.

Irritating China and India

By all accounts, the talks between a select group of countries broke down on what was considered a minor issue – how high would a surge of farm imports have to be before developing countries could erect tariff barriers to protect their farmers. The United States, no piker when it comes to protecting its own farmers, was adamant that the level be set low. India and China felt otherwise. Indian Commerce Minister Kamal Nath is now characterizing the battle as between the rich and powerful U.S. and poor farmers across the developing world. Not an image that will do the U.S. any good.

Canada eyes bilateral trade deals Why irritate two of the newest economic powerhouses by refusing to give in on a minor point, especially at a time when growth in the developing world is keeping the world economy afloat? Here again, election year politics raises its head. The time horizon for U.S. politicians only stretches to November. Much like the Canadian ministers, they would rather not take on powerful farm interests right before an election.

Such actions have consequences and they will not be restricted to the realm of trade. Governments do not neatly compartmentalize their foreign relations into discrete areas of trade, finance, defence and the like. Perceived bad faith in one area invites reciprocal action in another, perhaps unrelated area. For example, the cod war between Spain and Canada in the mid-1990s led directly to the cancellation of serious talks on a bilateral trade deal between Canada and the European Union. More than a decade later, we are still trying to get those talks back on track.

Where the next battle will erupt between rich and developing countries is impossible to predict. Globalization has forged so many connections between countries that there is a wealth of possibilities.

Unhealthy proliferation of bilateral deals

While ministers Mr. Fortier and Mr. Ritz expressed somewhat rote disappointment about the failure of the talks, they spoke with enthusiasm about their plans to pursue yet more bilateral trade deals. Canada's on a “dual track,” explained Mr. Fortier. We are exploring bilateral deals while remaining committed to multilateral talks. This is called having your cake and eating it too. The world doesn't work that way.

Bilateral deals undermine the global trade system by setting up separate and often contradictory regimes that favour the few and exclude everyone else. The effort and energy governments expend on negotiating these deals necessarily reduces the amount of time or interest they have in seeking a broader deal. And when a deal is struck between a powerful, rich country and a poorer, developing country anxious to attract new trade and investment, you can guess whose interests are protected.

Proponents say bilateral and regional deals, such as the North America Free Trade Agreement, can act as building blocks for a global pact. Critics say they are stumbling blocks, creating powerful vested interests that are loath to lose the protection and benefits they receive from being inside protective walls. The critics have the more realistic view. One reason why so many countries were prepared to walk away from the negotiating table in Geneva is that they knew they had these bilateral and regional deals in their back pocket.

Yet this is where we now are heading. Canada is far from the only country looking to sew up bilateral and regional deals. The U.S. is doing the same thing, as are India, China and many others. Following this path to its logical conclusion leads to a world of powerful trade blocs, vying with each other for advantage.

Everyone lost in Geneva

Canada doesn't have much clout in such a world. Where once we were the world's seventh largest economy, the latest rankings from the World Bank place us at ninth, and Brazil, Russia and India are nipping at our heels. It is telling that we were not included in the group of seven countries invited to push the talks forward in Geneva. Australia has taken our place. In a world of regional trade blocs, we will be part of a more powerful country's sphere of influence. We are unlikely to create our own.

Mr. Fortier was asked during his conference call with reporters who won and who lost in Geneva. He demurred, saying that because there wasn't an actual deal on the table, he couldn't really say that any specific sector won or lost. That might be the safe, political answer, but it's not the correct one. Everyone lost. We just don't realize it yet.