Discussions on the Doha round rumble on, and on. There is no immediate and obvious end in sight. In the vacuum that this creates a number of ‘alternative’ solutions have been finding their way onto the table. Last week Manmohan Singh and Thabo Mbeki met in Brasilia with Brazilian President Lula da Silva to review strategy on one of these fronts. The week before British Conservative leader (and possible future UK Prime Minister) David Cameron visited India and advanced his own idea, an EU/India free trade agreement.
And yesterday the Financial Times revealed that the German leader Angela Merkel was considering a plan for a free-trade zone between Europe and the US.
“A senior aide to Angela Merkel said the chancellor was “interested” in promoting the idea as long as such a zone did not create “a fortress” but rather “a tool” to encourage free trade globally, “which she is persuaded is a condition of Germany’s future prosperity”.”
Maybe it is just a coincidence that news of Ms Merkel’s proposal comes hot on the heals of the decision by the US, Canada and the European Union to complain to the World Trade Organisation about China’s tariffs on car parts, but there can be no doubt that China’s move up the value chain will lead to more tension than was produced by - say - the mass exportation of textile products. Additionally, the longer that China is in the export business the better the quality of the product that will be leaving that country.
More than likely none of these proposals will get very far (which is not to say that the demands for more protectionism may not increase). South Africa is faced with very grave and serious problems in the wake of the AIDS epidemic, and though there is no doubt that Brazil is doing a lot better than some are trying to suggest, there is not an evident synnergy between the India and the Brazilian economies. Both, to one degree or another, need China and both need a free flow of goods and services with the G7 economies.
Angela Merkel’s interest in full and complete access to the US economy is evident (Germany runs a trade surplus, internal demand is consistently ‘deficient’ due to the age structure of its more elderly population, and German companies are very competitive in export markets), but it is not so clear that other EU partners will take the same view. Italy and Spain, for example, run deficits, and their export industries are nothing like as competitive. It is also far from clear that such a proposal would meet with universal approval in France. Vis-a-vis the US, which is, of course, already running a significant deficit, increased competition from German companies inside the US may not prove popular either.
As for Cameron, and his proposal (which I incidentally would support), my guess is that this would only serve to reveal, just one more time, how much out of step the UK is with the rest of the European Union. It is, of course, a beautiful dream.
Back in the world of reality, what it really needed is more focus all round, and some real progress on Doha, although this, it seems, is going to be very difficult with the reality which lies behind all these new-found Growth Pandas and Growth Elephants becoming more evident by the day.
(Postscript: it may be worth mentioning, since it may not be obvious to everyone at first sight, but very few - if any - of the car components which are the subject of the current WTO complaint will be entering China having been manufactured in the US or Germany. Very few of the components which currently go into German cars are in fact manufactured in Germany (they have all been outsourced to the new Estern EU members) and I guess in the case of the US they come from Mexico or elsewhere. Obviously the Indian components industry may well be involved in this chain at some level, anyone have any info?).
