2008: Trade Barriers or Trade Liberalization??

2008: Trade Barriers or Trade Liberalization??


Trade Disputes Will Mark 2008


http://www.forbes.com/opinions/2008/01/28/doha-trade-talks-oped-cx_ccp_0129doha.html


FORBES


C. Christopher Parlin


January 28, 2008


Washington, D.C. -


The trade policy outlook for this year is grim, though a concerted effort and a change in approach by many businesspeople could stem backsliding into protectionism.


In the U.S., worsening economic news coupled with the upcoming elections guarantee slow, if any, progress in reducing worldwide trade barriers and increasing market access for U.S. companies. Around the world, these negatives are reinforced by fear of ever-expanding Chinese exports, lack of political will in the World Trade Organization's (WTO) Doha negotiators, and reluctance by trading partners to make concessions to the U.S. in the absence of the president's fast track negotiating authority (aka trade promotion authority).


There will be tensions this year because of the economic and political climate and the lack of breakthroughs in the Doha negotiations. There will be disagreements regarding actions taken (and not taken) as a result of this tension. The question is how these disagreements will be managed and whether they will lead to trade disputes.


The default option is a significant increase in disputes, as the focus of the U.S. and its trading partners leads to protectionist and discriminatory policies. Most will lose in the long run if this happens. The challenge now is to analyze the difficulties that the multilateral trading system will face and develop strategies to limit the resulting harm and serve as stepping stones for resumed progress when the worldwide economic and political climate improves.


Historically, trade liberalization efforts have succeeded only in a healthy worldwide economic climate (the Uruguay Round negotiations creating the WTO in the early 1990s) or after an economic cataclysm (the General Agreement on Tariffs and Trade, or GATT, after World War II). At such times, governments and businesses focus on the horse trading necessary to achieve greater worldwide liberalization. The concept of giving in order to get--of reducing some of your trade barriers to secure reductions from others in areas of greater interest to you--is recognized and acted on. Those losing protection don't like it, but the pro-liberalization forces are stronger.


By contrast, in problematic economic climates, fear of giving predominates. Politicians hear more from constituents condemning adverse effects of imports (and now globalization) on income and jobs than they do from those seeking to give or receive expanded market access. In the U.S., this shift was apparent in the 2006 congressional elections. And it becomes more evident every day as signs of an economic slowdown grow. Bipartisan efforts to enact a stimulus package are welcome, but they are extremely unlikely to improve the trade policy picture.


At the same time, the prospects for a pro-trade congressional majority are nil, and, although much of the protectionist rhetoric of U.S. presidential candidates is just talk, the prospects for a trade-friendly administration are uncertain, at best. The systemic concern caused by a weakening economy is bolstered by particularized fear of a continued Chinese economic juggernaut. No amount of learned discourse, or administration exhortation about the economic benefits of further trade liberalization for the country as a whole, can counteract the present fearful mood in the U.S.


Since the end of the Second World War, the U.S. has been described as the locomotive of world trade liberalization. A very solid argument can be made that GATT was created and the WTO evolved from it as a result of U.S. willingness to make the market-opening concessions necessary to drive other countries to agree to ever greater reductions of trade barriers and increases in market access opportunities.


Despite valiant efforts by the U.S. trade representative, Susan C. Schwab, the country now is stopped on a siding. The public does not accept pro-trade rhetoric, and the administration is unable to credibly promise trading partners that Congress will enact trade-liberalizing measures such as reducing agricultural support (enhancing the competitiveness of other agricultural exporters) or changing certain U.S. anti-dumping rules that most of our trading partners view as blatantly protectionist.


A replacement locomotive is needed, but none has appeared. Neither the European Union, Japan nor any collection of countries has stepped forward to provide leadership in the WTO's Doha negotiations. Instead, the goal seems to be to ensure that blame for failure is attributed to someone else. This is intensified by the inability of the administration to secure renewal of trade promotion authority (under which Congress agrees to an up or down vote on trade agreements, ceding its normal ability to condition ratification on amendments to the negotiated text). Not surprisingly, many of our trading partners will use the absence of fast track as an excuse for not making concessions sought by the U.S., asserting that Congress would demand additional concessions beyond those ultimately negotiated by the administration.


What is to be done? One possibility is to hunker down and wait for better times. That would ensure at best a standstill, but more likely a worldwide increase in protectionism throughout 2008. There is a better option, though. This could be a bad year for forward-looking trade policy, but it need not be a disaster. Rather than ceding the field to those advocating policies of increased protection and unilateralism, the proponents of multilateral liberalization could seek to preserve the positive aspects of the Doha negotiations. Even though significant breakthroughs leading to a successful conclusion will not occur in 2008, the negotiations need not collapse.


Experience during the Uruguay Round is instructive. There was a three-year period when none of the major negotiating parties was able to move on politically sensitive issues such as agriculture, services and textiles. Despite this high-level paralysis, all of the 15 subject matter negotiating groups continued to plug away. As a result, when worldwide political will re-emerged in mid-1993, most of the technical underbrush had been cleared away. A similar scenario could occur this year. The negotiating gains achieved to date could be preserved and steps taken to make technical progress where possible.


On the domestic front, too, 2008 need not be a disaster. Here, the keys will be education and understanding.


To avoid significant backsliding, those supporting multilateral liberalization must emerge from their foxholes and engage more actively and effectively in the globalization debate, educating politicians and opinion makers about the benefits of additional liberalization. At the same time, they must not ignore the dark side of globalization: It has not benefited all Americans. Many have legitimate concerns about their income and jobs.



Economics 101 lectures about the overall benefits of free trade may be sound economically, but will not be politically successful, especially given the worsening economic climate. To strengthen their presentation, advocates of trade liberalization must work to reformulate, advocate and implement policies that will assist those whose lives are negatively affected by globalization. The choice is theoretical purity and political defeat, or creative solutions that recognize the political climate.


Effectively, the course of trade policy today is dependent on what is done by those supporting increased trade liberalization. If they do nothing, the year will see significantly increased international economic tensions, disagreements and disputes. The challenge is to develop a new model in support of liberalization, one that accepts reality and proposes solutions for those who are harmed by globalization. By doing so, we may limit protectionist backsliding so progress can resume when the worldwide economic and political climate improves.