Daniel T. Griswold
02/02/2004
While the collapse of the World Trade Organization’s global trade talks in Cancun in September was an undeniable blow to the cause of free trade, the setback to the efforts of the 146-member body to make progress in the current round of negotiations is likely to be temporary. In the short run, it means we will not see final agreements on reduction of subsidies and tariffs until 2007, if not later, which will delay progress on the liberalization of the still heavily protected markets for agricultural goods and services. But any hope of progress in the longer run will hang heavily on whether the United States exercises its leadership in the global economy.
Multilateral negotiations often follow a torturous path. Previous rounds have missed deadlines and flirted with failure. The successful Uruguay Round almost fell apart in 1990 over European reluctance to deal with farm subsidies and barriers. At ministerial meetings in 1982 and again in 1999 (remember Seattle?), members failed even to agree to launch a round. The current Doha Development Round, begun in late 2001, may be following the same messy path toward achieving its aims.
Much is at stake in the Doha Round for the global economy and American workers and investors. If the negotiations lead to a successful reduction in agricultural and intellectual property subsidies and tariffs, this could add hundreds of billions of dollars annually to world output by raising productivity in rich and poor countries alike.
Critics who claim free trade benefits only the rich countries should know that some of the highest trade barriers in the world today are aimed at products of export interest to poor countries—farm goods, textiles, apparel and footwear. Poorer countries also suffer from the effects of the $330 billion that rich countries, like the United States, spend to subsidize farm production—policies that drive down global food prices, depressing incomes for the 70 percent of the world’s poor who live in rural areas and derive their income from agriculture.
Certainly the United States would reap a rich bounty from a successful Doha Round: A 2001 study by the University of Michigan’s School of Public Policy, released in anticipation of the new round, estimated that the United States alone would receive $177 billion of the $613 billion annual global boost in output that would result from an across-the-board 33 percent cut in global trade barriers on industrial goods, farm products and services. A 2003 World Bank report estimated that such a reduction of trade barriers would, at the same time, lift 140 million people out of poverty by 2015. A more prosperous developing world would be better able to combat the hopelessness and frustration that can breed radicalism and terrorism.
The reluctance of the United States, the European Union and Japan to negotiate deep cuts in their agricultural barriers and subsidies—on a par with the equal reluctance of major developing countries such as India and Brazil to put their own protected sacred cows on the bargaining table—has proven a major block to progress in the Doha Round. Moreover, the Bush administration set a terrible example by signing a 2002 farm bill that ramped up U.S. subsidies, and by slapping tariffs or quotas on softwood lumber from Canada, clothing from China, and imported steel from Europe, Japan and Brazil (though these were repealed in December). Those protectionist lapses have antagonized our trading partners, squandered our credibility, and emboldened the critics of trade at home.
With the Doha Round at an impasse, the Bush administration has redoubled its efforts to negotiate free trade agreements with Australia, Morocco, members of the Central American Common Market and the Southern African Customs Union, Bahrain, Thailand, Panama and the Dominican Republic. Lumped together, those agreements would cover a significant amount of two-way trade, and should be pursued, but bilateral agreements with small countries remain a poor substitute for the comprehensive payoff of a successful multilateral agreement through the WTO.
Short-term stimulus measures will not be enough to return the United States and the world economy to a healthy growth track. The world needs structural trade reform, in rich and poor countries alike, to permanently raise productivity. The multilateral process has proven to be a useful tool to promote the needed reform and to lock in and preserve those gains through the rule of law. To make our own economy more efficient, promote robust growth abroad, and create more opportunities for workers and investors, the United States should lead the world toward free trade by our words and our deeds.
 | Daniel T. Griswold is the associate director of the Center for Trade Policy Studies at the Cato Institute in Washington, D.C. His articles and research can be found at www.freetrade.org. |