It's Time To Think Small On Global Trade
Szamosszegi is senior research associate of the Economic Strategy Institute.
14 January 2000
The San Diego Union-Tribune
Trade negotiators are on the ropes. Reeling from the body blows of the
failed Seattle meeting and enduring unflattering press coverage, they
may be tempted to come out swinging with big ideas for re-invigorating
the trade liberalization process. This would be a mistake. Their best
bet, paradoxically, is to think small.
The process of trade liberalization is inherently difficult. Though
economic theory is clear that the economic benefits of liberalization
outweigh its costs, in the real world it is the costs of market opening
that are often the most visible. Consequently, propelling
liberalization forward has not been easy. It took eight rounds of
multilateral negotiations to create the World Trade Organization, the
body that just remotely resembles the broadly empowered International
Trade Organization proposed during the 1940s.
There were three factors that moved the process forward. First, the two
dozen countries represented in the early negotiations were like-minded
in recognizing the benefits of market opening. Second, the United
States had the diplomatic and economic chits to make the process of
liberalization enticing to other countries.
Finally, and perhaps most importantly, the negotiations actually
produced results: trade barriers were substantially reduced and many of
the countries that exported aggressively saw their living standards
rise. Consequently, today's World Trade Organization has 130 member
countries and another three dozen countries are trying to get in.
These factors are no longer catalysts. Because the WTO is so big, its
members no longer see eye-to-eye on key issues. There are deep
differences on whether to incorporate labor rights and environmental
standards in the WTO, and on how much to reduce agricultural subsidies.
Washington no longer has enough trade or diplomatic "goodies" to offer
in exchange for further liberalization. For instance, it is not
entirely clear what the European Union would "get" in return for
dramatically reducing its massive agricultural subsidies.
The past effectiveness of the multilateral framework has sowed the
seeds of ineffectiveness. Government officials and policy wonks have
correctly observed that the WTO now resembles the United Nations, an
organization rarely lauded for its efficiency. Consequently, it is not
entirely surprising that the Seattle gathering ended in a stalemate.
Where do we go from here? The conventional wisdom holds that a new
round can begin after the U.S. presidential election. Unfortunately, it
is not entirely clear how a new president could change the
circumstances that doomed the Seattle meeting.
Others have suggested a WTO-plus, a group of like-minded countries that
would handle issues that the broader WTO cannot. However, the WTO-plus
formulation could cost the United States key support. For instance,
Europeans and Japan are more likely to agree with each other on
agricultural subsidies than to agree with the United States, which has
more in common with developing countries on this issue.
Moreover, a WTO-plus committed to labor rights and environmental
standards would be isolated from most of the developing world. Yet
without developing countries, few concrete gains can be realized.
The Kyoto Protocol on greenhouse emissions underscores this
shortcoming. The 160 countries that negotiated the accord are
bifurcated into advanced and developing countries. The protocol
specifies reductions only in advanced countries. Thus, developing
countries, expected to produce the bulk of future emissions, are not
committed to do anything.
Rather than going for the knockout punch of a WTO-plus, it may be wiser
for negotiators to liberalize incrementally, one sector at a time. This
targeted approach has the advantage of flexibility. The automobile
industries of the United States and the European Union, for example,
could harmonize standards if they wish, but they would not be bound to
agree on agricultural issues or e-commerce.
Once an accord is reached, U.S. auto makers could in turn promote the
deal with their counterparts elsewhere, perhaps in the Asia- Pacific
Economic Cooperation forum. As major traders and producers of cars,
Asian countries would naturally benefit from adopting the same
standards as their western competitors. Countries that are not major
producers would benefit as well, because harmonization would reduce
some of the costs associated with parts trade, thereby leading to lower
prices for consumers.
Sectoral liberalization is already under way. Agreements have been
concluded in financial services and information technology products.
U.S. and European firms in a variety of industries are working toward
agreements that would grease the wheels of trade on both sides of the
Atlantic. Members of the Asia-Pacific Economic Cooperation forum, which
includes the United States, nearly agreed to market opening in six
industrial sectors, but were hamstrung by Japan's insistence on
protecting its forestry and fishery sectors. Despite this setback,
sectorial liberalization in Asia remains on the table.
Make no mistake, the gains from sectorial agreements will not match
those of previous comprehensive trade rounds. Nevertheless, with
prospects for such a round dimming, it makes sense to think small.
Targeted negotiations can ensure that countries and industries which
support market opening are not held hostage by others who do not.