Global Economics

Saving the Trade Agenda


As the dust settled from the World Trade Organization's Hong Kong Trade Ministerial last December, trade ministers breathed a collective sigh of relief. Disasters -- such as the failure even to launch negotiations during the chaotic Seattle sessions in 1999 or the total breakdown in talks that marred Cancun in 2003 -- were narrowly averted. Though movement in Hong Kong was glacially slow, the free-trade train was still in motion. An expensive derailment was avoided.

Still, major deadlines relating to the structure of the negotiations were postponed until the end of April. Now, as that moment nears, it appears that they, too, are likely to be missed. Trade officials met for a mini-ministerial in London in mid-March, but made little progress. Pascal Lamy, director-general of the WTO, has been on a whirlwind tour trying to cajole, persuade, and otherwise strong arm countries into making the necessary concessions.

With each missed deadline, the possibility increases that the unthinkable could happen: the failure of a major trade round. And with that, a growing number of trade negotiators, analysts, and business leaders are asking: Do the current negotiations for the WTO Doha Development Agenda still matter, and what's their relevance for businesses and consumers?

PROVEN BENEFIT. The answer is that they do indeed matter -- more than ever. It's only through coordinated, multilateral trade agreements that global businesses, economies, and consumers will enjoy the full benefits of free trade. The failure of Doha wouldn't stop globalization, but it would leave nations and companies to contend with today's cumbersome and expensive patchwork of bilateral agreements. Worse, it would deprive consumers in both developing and developed countries of the opportunities fostered by deregulation and open trade.

Most countries' trade negotiators accept the general principle that lowering global barriers has already benefited many people. World Bank economist David Dollar estimates that freer trade lifted some 375 million out of poverty in the last two decades alone. Yet, when it comes to putting these ideals into practice, many of these same negotiators -- who publicly claim to support free trade -- put the interests of local producers above the interests of consumers in their own markets, thus preventing progress in talks.

It's no wonder. Local producers tend to be politically powerful, and consumers rarely have a collective voice. Most businesses tend to work harder at protecting their existing markets than at opening up new ones. Yet some companies seeking better access to markets are now starting to find common cause with consumers in those markets. Business managers who recognize this must act on the knowledge. They must explain to their governments why opening up markets to competition is good for their own countries.

NEED TO KNOW. After all, most of the issues that keep business managers awake at night relate to the regulatory environment in which traders and investors find themselves. Most operate on the assumption that the regulatory environment is set in stone, and that their job is to weave their way around it.

Few realize that many of the regulatory hurdles they face are the subject of trade negotiations. Even fewer realize that by contributing to regulatory change, they may be able to radically increase their own company's market share. What stands in their way is usually the extraordinary political power of local producers.

EU trade negotiators' rigid adherence to the Common Agricultural Policy in Europe is an example of the interests of local producers trumping those of consumers. Economists have calculated that the damage to consumer welfare caused by the CAP is on the order of the size of the total economy of Spain, yet the interests of a handful of agricultural producers in certain member states of the European Union make progress on eliminating trade barriers difficult.

NOT TOO LATE. When it comes to the important area of services, where trade negotiations inevitably concern changes to domestic regulations, the gains also have been minimal. Negotiators hide behind the notion that any attempt to force change in a domestic law or regulation violates national sovereignty. The problem is that consumers in countries have a lot to gain from precisely this kind of regulatory reform. Without it, they will continue to face the same status quo that has consigned millions of people in developing countries to poverty.

But the game isn't yet over. If trade negotiators wake up and start to negotiate for their consumers, greater competition will lead to benefits across the board. The most significant will flow to the same developing countries which are blamed for slowing down the process, but benefits also will flow to consumers in developed countries where agricultural trade barriers are removed.

BROADER VIEW. People the world over are betting that their elected representatives will stop playing protectionist games, and start to properly represent them. There are precedents. The unilateral repeal of the corn tariff in Britain in the 19th century is credited as the birth of the modern free-trade movement, despite the power of the British farmer over the political process.

In the 1980s, Britain and the U.S. initiated a wave of privatization and deregulation that swept the globe, despite the protests of politically powerful and protected groups. In both cases, it took leadership and political courage. As Pascal Lamy travels the world searching for a break in the trade impasse, leadership from businesses who see beyond narrow national interests could be a crucial factor in tilting the agenda back to reform.


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