Global Policy Forum

WTO System Could Weaken After Breakdown Puts Globalization on Unclear Path

By Paul Blustein

So now it's official: Global talks to lower trade barriers are "suspended," perhaps never to resume. Yesterday, leading negotiators continued to fling accusations at each other for the breakdown. But the more profound issue confronting policymakers around the world is whether globalization has been fundamentally redirected, slowed or possibly thrown into reverse.

The talks' failure raises the prospect of weakening the multilateral system that has governed global commerce for the past six decades, possibly even a splintering into regional blocs. Another potential is an erosion of respect for the World Trade Organization's authority to settle disputes, increasing the chances that countries will resort to tit-for-tat trade wars that could disrupt the global economy.

Ensuring that economic interconnection would continue to advance was one of the chief reasons for launching the talks after the Sept. 11, 2001, attacks. With fear of disintegration then haunting the globe, the member nations of the WTO meeting in the Qatari capital of Doha sent a powerful signal that they would deepen their mutual ties by starting a new round of multiyear negotiations aimed at reducing tariffs and other trade obstacles.

For all its boldness, the initiative was fraught with risk -- and on Monday, those risks loomed menacingly, when WTO Director-General Pascal Lamy called a halt to the talks because trade ministers from the United States and five other major powers were at such loggerheads over the main issues. The upshot could have "serious systemic implications for multilateral trade," Peter Mandelson, the European trade commissioner, said yesterday.

Critics of the 149-nation WTO are jubilant, seeing evidence of a backlash to the fast and furious pace at which globalization has proceeded. "The cause of this collapse is not specific countries' unwillingness to concede on particular themes, but growing public opposition in poor and rich countries alike to the very WTO model," said Lori Wallach, director of Public Citizen's Global Trade Watch, a group founded by Ralph Nader.

Even free-trade enthusiasts see some validity in that interpretation. "Countries want to liberalize trade, because they recognize the link between open trade and economic growth, but there just isn't a whole lot of interest right now in the kind of liberalization that binds countries to new rules and new commitments," said Daniel J. Ikenson, a trade specialist at the libertarian Cato Institute. "Countries want to liberalize at their own pace."

It would be misleading to view the problems besetting the Doha talks too apocalyptically. Globalization is not about to stop in its tracks; new forms of cross-border commerce are continuing to proliferate, especially because of the Internet and the fast-growing efficiency of container shipping. "A lot of globalization goes on outside the world of negotiations and agreements," said Edward Gresser, a trade analyst at the Progressive Policy Institute.

But for the WTO and its multilateral rules, which underpin the system and maintain its stability, the outlook has darkened. That is in part attributable to the success of the WTO and its predecessor, the General Agreement on Tariffs and Trade, in sharply reducing trade barriers since World War II.

Eight rounds of negotiations over the past six decades have slashed tariffs and eliminated quotas in many countries and in many industries such as electronics, automobiles and machinery; the sectors that still have high levels of protection in rich countries are the most politically sensitive, notably agriculture, textiles and apparel. Those are the areas where much of the current haggling has proven so fruitless.

"We're really into the tough stuff," U.S. trade representative Susan C. Schwab said in an interview. Farm trade was the main source of the dispute that dissolved the meeting at the WTO's Geneva headquarters on Monday. Schwab insisted that other countries open their markets wider to the United States' highly efficient agricultural producers, a demand rejected by the European Union and India, whose governments face enormous pressure from farmers who are anxious to keep foreign competition at bay.

Complicating matters further is the emergence of China, which joined the WTO in 2001, as an export powerhouse. "There's a concern on the part of many developing countries about opening their markets to China, and some concern about developed countries opening their markets so that China can walk away with the benefits," Schwab said.

If those problems keep the Doha talks from reviving, one likely scenario is an acceleration in many countries' efforts to strike two-way and regional free-trade alliances such as the North American Free Trade Agreement and the more recent Central American Free Trade Agreement. That, many experts fret, could help marginalize the WTO as the central forum for opening trade.

At the same time, such countries as Brazil will probably bring new cases before WTO tribunals, straining the system's ability to adjudicate contentious disputes and intensifying the danger that powerful nations will start defying WTO rulings.

Complaints appear especially likely against the subsidy payments that governments in the United States, the E.U. and Japan give their farmers. Brazil had won a major case against U.S. cotton subsidies and another against European sugar subsidies, and it was expecting a final Doha agreement would curb other subsidies. If the talks "come to a flat end, I think you would have other countries looking at our programs; it just seems inevitable," U.S. Agriculture Secretary Mike Johanns said Monday.

Ultimately, the fear that the trading system will revert to the law of the jungle that prevailed in the 1930s will help bring the talks back to life, predicted Jeffrey Schott, a scholar at the Institute for International Economics. "Countries will sit back for a while, stew in their juices, and see the costs of not going back to the table," Schott said. "There are those who say the talks won't be revived, but my perspective is much more optimistic."

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