By
Jean-Marc F. Blanchard, Ph.D.
Senior Consultant, KWR International
On September 15, global trade talks in Cancun, Mexico ended without an agreement.
The breakdown of talks does not bode well for the future of the Doha
Round, the latest series of World Trade Organization (WTO) talks
designed to produce a greater liberalization of the global economy.
Many worry that the lack of a trade deal is hindering economic growth
and reducing confidence. In a pique, U.S. Trade Representative Robert
Zoellick opined “some countries will now need to decide whether
they want to make a point or whether they want to make progress.”
According to various news reports, two issues sank the negotiations. First,
the developed world, particularly European Union countries, would not compromise
on the issue of agricultural subsidies. They simply could not bring themselves
to make significant reductions in subsidies now running an incredible $300
billion per year. Second, the developed world called for a liberalization
of foreign investment rules to improve transparency, reduce red tape, and
open government procurement. Developing countries, led by Brazil, China,
and India, were unwilling to move forward without meaningful cuts in agricultural
subsidies. Moreover, they never warmed to the idea of new foreign investment
rules because of the potential adverse consequences of such rules for their
domestic industries.
For cynics, the talks produced one agreement, a concurrence on the merits
of protectionism! In truth, the meeting had one noteworthy accomplishment.
Specifically, there was an agreement authorizing developing countries to
import generic versions of vital drugs—e.g., those needed to deal with
epidemics like HIV/AIDS—without contravening WTO intellectual property
protections, provided that importers meet certain conditions and sellers
take measures to prevent exports to developed countries.
WTO delegates will be meeting again in Geneva in December, but it is hard
to imagine how they will achieve the goal of a new global trade deal by the
end of 2004. In fact, it is possible that free trade has gone on an enduring
siesta. One reason is that the U.S. seems to have abandoned the leadership
role it has played in the past. Another reason is that the democratization
of foreign economic policy has made it more and more difficult to advance
the agenda of an open international economy. A third reason is the changed
geopolitical environment. This makes economic tradeoffs in the name of national
security less likely.
Ever since the establishment of an open international economic order in 1945,
the United States has played a lead role in promoting it. It has cajoled,
threatened, and bribed other states to get them to reduce tariffs, to eliminate
non-tariff trade barriers, and to accept new items on the global free trade
agenda. The U.S., however, no longer seems willing to assume such a role.
The weakness of the last three American Presidents has made them wary of
alienating constituencies that might provide the crucial margin of victory
in close Presidential elections. This dynamic is shown vividly in President
George W. Bush’s decision in March 2002 to dramatically increase tariffs
on foreign steel. Moreover, the U.S. continues its heavy subsidization of
large farms.
Frustrated by the lack of progress at the global level, U.S. policymakers
have increasingly turned to bilateral and regional negotiations, arenas where
the consensus of 146 WTO members is not required and the U.S. can use its
political and economic power to strike favorable deals. The evidence indicates
the U.S. will maintain such a strategy. Such arrangements, though, are not
as beneficial for world trade as global deals and have the potential to produce
a series of closed trade blocs.
Compounding the problem, global trade negotiations have become much more
democratic. The democratization of globe trade has occurred because of internal
changes within countries, the activism of non-governmental organizations,
and the structure of WTO negotiations whereby a complete consensus is required
for the conclusion of trade deals. This development increases the number
of players who can veto trade deals, injects time, organizational, and material
burdens into the trade negotiation process, and restricts secret side-payments.
The democratization of global trade clearly is positive from a procedural
standpoint, but not necessarily for the future of free trade and investment.
The last factor that bodes poorly for an open international economy is the
changed geopolitical situation. Many forget the Bretton Woods system came
into being not only because the U.S. and its allies wanted to promote capitalism,
but also because they wanted to avoid the protectionist mistakes of the 1930s,
mistakes they believed fueled the Great Depression and World War II. Beyond
this, open trade benefited from the willingness of the U.S. to tolerate European
and Japanese protectionism if it facilitated the containment of the Soviet
Union. Such geopolitical imperatives no longer exist. Hence, there is a reduced
inclination on the part of the U.S. and others to accept disadvantageous
trade structures.
In total, the prospects do not look good for a further opening of the international
economic system. How might companies respond to this changed setting? Clearly,
it will be critical to exploit whatever leverage one’s home government
has to gain access to other markets. Furthermore, it will be essential to
draw upon knowledgeable individuals who can facilitate access to foreign
markets. Finally, it will be advisable to direct attention to those countries
that actively embrace the liberal trading order.
