Potsdam Failure : Implications on the World Trade

It is ironic that Potsdam, a city in Germany at the banks of Havel River has again come into international light due to failure of an attempt to bring consensus. We know this city better for the post world war II attempts to reach an consessus among remaining super powers over territorial rights. Seven days after the surrender of Germany, Josef Stalin, first Winston Churchill and then Clement Attlee, and Harry S. Truman met at a conference from July 17 to August 5 to deliberate on the administration of the defeated Germany and Austria and also to re-draw a new world map. The relations between the superpowers were so strained that they soon turned into Cold War. In the same city Ms Susan Schwab, Trade Representative of the US, Mr Peter Mandelson, the European Union Trade Commissioner, Mr Kamal Nath, the Minister for Commerce and Industry and Mr Celso Amorim, Brazil's Foreign Minister, abruptly ended the negotiations in the Doha Round of the World Trade Organisation (WTO), two days ahead of the schedule. Let us try to understand the entities involved in this failure.

Multinational Trade Agreements

The dynamics of international trade in present times have become much complex owing to various controls and dependencies countries have over cross border trade. The fundamental aspect still rotates around productivity and market access. The cost of goods and services depends upon a host of factors making certain countries naturally favoured locations for them. Such countries naturally produce much higher than what is required for the domestic consumption. Under such circumstances they seek newer markets to keep the pace of their development. This poses serious threats to other nations where local producers can not compete in terms of cost due to various reasons. Their livelihood falls under jeopardy. Whereas this comes as a boom for the consumers who gain out of price war, the local industries have to face the hit. The most impacted area always has been the agriculture. Developed nations have better infrastructure to produce surplus agricultural goods at lower costs. Fractions of population dependent on agriculture is also less in developed countries. But in developing and third world countries, cost of agricultural produce is much higher due to poor facilities. The number of agriculture dependent people is also substantially higher here. Under these conditions it is only fair to expect the weaker nations to retaliate against any trade agreement which do not favour them substantially. Trade agreements are necessary however to control the chaotic pattern of free trade. Prosperity can not be achieved if we fail to have liberal trade terms internationally. But these should not aim to boost already developed nations under marginal gains and apathy to hundreds of poor citizens of the developing and under developed nations.

World Trade Organization (WTO)

The General Agreement on Tariffs and Trade (GATT) was an international organization created in 1947 to reduce trade barriers through multilateral negotiations. In January 1995, the GATT was replaced by a stronger World Trade Organization (WTO), the result of eight years of GATT negotiations. Today, member countries number 125 (nearly the whole world except China, some former communist countries, and a number of small nations) and WTO rules apply to over 90 percent of international trade.

Negotiators from member nations revised GATT rules and liberalized world trade several times in multi-year conferences called “Rounds.” The GATT’s (and now the WTO’s) approach to reducing trade barriers was based on the “most-favored nation” principle, which requires that when a nation grants a trade privilege to one country, it must grant the same privilege to all GATT members. Another guiding principle is that of “national treatment,” which requires nations to give equal treatment to foreign imports of goods or services as to domestic goods or services.

The Doha Round

The Doha round of WTO negotiations began in November 2001. aims to lower trade barriers around the world, permitting free trade between countries of varying prosperity. As of 2006, talks have stalled over a divide between the developed nations led by the European Union, the United States and Japan and the major developing countries (represented by the G20 developing nations), led and represented mainly by India, Brazil, China and South Africa. The Doha round began with a ministerial-level meeting in Doha, Qatar in 2001, with subsequent ministerials in Cancun, Mexico (2003), Hong Kong, China (2005) and recently in Potsdam, Germany. Related negotiations have taken place in Geneva, Switzerland in 2004, Paris, France in 2005 and again Geneva in 2006.

The new trade agenda of the developed world was dubbed the Doha Development Agenda, and from there all countries were committed to negotiations opening agricultural and manufacturing markets, as well as services negotiations and expanded intellectual property regulation. The intent of the round, according to its proponents, was to make trade rules fairer for developing countries. Opponents however charged that the round would expand a system of trade rules that were bad for development and interfered excessively with countries' domestic "policy space".

It is important to understand the aspirations from Doha Round in the backdrop of The Uruguay Round. The Uruguay Round was a trade negotiation lasting from September1986 to April 1994 which transformed the GATT into the WTO. It was launched in Punta del Este in Uruguay (hence the name), followed by negotiations in Montreal, Geneva, Brussels, Washington D.C. and Tokyo, Japan, with the 20 agreements finally being signed in Marrakesh - the Marrakesh Agreement. The main aims of the Uruguay round of negotiations were to reduce agricultural subsidies, put restrictions on foreign investment, and begin the process of opening trade in services like banking and insurance. They also wanted to draft a code to deal with copyright violation and other forms of intellectual property rights. However this round was highly criticized criticized for paying insufficient attention to the special needs of developing countries.