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Trade Talks: The Right Next Step


At least for the moment, the progress toward further trade liberalization has run aground. The latest round of global trade talks, held in Cancun, broke down in mid-September, as developed and developing countries could not agree on what to do about agricultural subsidies, rules for foreign investment, and other issues. In effect, the developing countries banded together and drew a line in the sand, saying that they would be not be willing to further open their economies unless they got a better deal.

In part, the opposition to trade concessions is not surprising, given the stage of the global business cycle. The world economy may be picking up speed, but it's tough to overcome political opposition when Europe is still stuck in a slump, Japan is just escaping from 13 years of stagnation, and the U.S. is running trade deficits of staggering proportions.

But the halt in trade negotiations should also be viewed as a challenge to the industrialized countries. For one, the latest events come after several years of growing opposition to globalization, starting with the huge demonstrations in 1999 at the Seattle meetings of the World Trade Organization. At the same time, developed countries are still walling off imports of low-end goods, such as textiles and agricultural products, that represent promising areas of export growth for many developing nations. It may be that some measure of subsidies for farmers in developed countries can be justified on the grounds of self-sufficiency in food. But agricultural subsidies that total $300 billion -- an amount as large as the economy of Taiwan -- are damaging to global prosperity and growth.

That's why the U.S., Japan, and Europe, in particular, must roll back their agricultural subsidies. There's no good economic reason why President George W. Bush should have signed an enormous expansion of the farm-subsidy program into law last year. And there's no good economic reason why the EU is still spending an estimated $100 billion annually on direct subsidies to farm producers.

The advantages of a global economy far outweigh its disadvantages, which is why BusinessWeek has always supported free trade and globalization. That's exactly why it may be time to focus on the objections of the developing countries, which seem well-founded. Unlike in the past, when developing countries resisted opening their markets in part to protect the local elites, there's little doubt now that many of them are getting the short end of the stick. Free trade is going to move forward -- the global benefits are simply too great. But the developed countries need to accept that fairness should be the guiding principle.


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