HAWKINS: Back to the future on trade?

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COMMENTARY:

After nine days of intense negotiations, the World Trade Organization mini-ministerial meeting in Geneva collapsed. It is clear that the politics of trade have changed fundamentally since 1994 when the Uruguay Round was completed. The key issues in the current Doha Round are about how to manage trade through the use of subsidies, safeguards and protective tariffs so national economies are not disrupted or stunted in their development by foreign rivals.

The Uruguay Round had its rough moments, but the mood of euphoria after the Cold War helped bring it to a liberalizing conclusion. But that moment of harmony quickly ended, as it always does. The real world of cutthroat competition reemerged. Not only is the global division of wealth at stake, but also the power that is built upon economic success.

The stated purpose of the Doha Round was to change the balance of wealth and power. According to the official WTO Ministerial Declaration issued November 14, 2001, "The majority of WTO Members are developing countries.... The negotiations shall take fully into account the special needs and interests of developing and least-developed country participants, including through less than full reciprocity in [tariff] reduction commitments."

The lead developing countries, China, India and Brazil, took this objective seriously, as did others hoping to emulate the fast movers. They have successfully resisted pressure from the U.S. and Europe to open their markets. The developing countries were always going to be allowed to keep higher average tariffs, but they have also kept the right to protect strategic sectors with "safeguards" that could undo the liberalization of the 1994 agreement. In this effort, they are not just protecting themselves from the developed countries, but from each other. Ebrahim Patel, a South African labor leader, criticized Western pressure to limit the "flexibilities" his country needed to shelter sectors like textiles, automobiles and electronics. He said his country's electronic sector had been "virtually wiped out because of China, China, China."

Even more than South Africa, India and China see the auto industry as a strategic sector. They embrace the earlier Japanese growth model and reject the American example of throwing this core industry to the dogs. Ted Koppel set his recent Discovery Channel series on China's rise in Chongqing, the city designated by Beijing as the center of its auto industry.

Because Washington has unilaterally opened its markets to foreign rivals, it had little with which to bargain at Geneva. The U.S. ran a $679 billion manufacturing trade deficit last year, not an example anyone wants to follow. Beijing, in contrast, does not need a WTO agreement to continue its rapid advance. On July 17, China's National Bureau of Statistics reported that the country was growing at an annual rate of 10.1 percent. China wants to continue protecting key sectors while using exports to drive growth. As its WTO delegate, Sun Zhenyu, said in Geneva, "we have great sensitivities, particularly in chemicals, in electronics, in machinery."

The Bush administration's WTO strategy was to offer cuts in its support for agriculture in exchange for non-agricultural market access overseas. Instead of reciprocity across sectors, the developing countries refused to open their industrial markets, demanded larger cuts in U.S. and EU farm programs, and asserted their right to erect "safeguards" against agricultural imports. Food security has been recognized throughout the Doha proceedings as a legitimate area for protection and support, a concern heightened by the world food crisis. The resolve of China and India (with the tacit support of most of the rest of the world) to control both agricultural and non-agricultural markets brought the Geneva talks to an end.

History may indicate where trade policy is headed as new powers arise. Paul Bairoch, an economic historian at the University of Geneva, has found that economic growth was stimulated when continental Europe was shifting back to protectionism compared to when it flirted with "free trade." During the era when protectionism was being restored (1877-1913), industry grew at nearly triple the pace, compared to when continental growth was being suppressed by exports from a developed England. This European movement was supported by the same political alliance of "iron and wheat" now seen in India and China, Japan and South Korea.

London, however, stayed with "free trade" and fell behind both the United States and Germany. In the latter case, the consequences were particularly grave. The lead developing countries today are in the same position as the continental Europe powers in the late 19th century. The question for the U.S. is how to change its failed policies so as to do a better job of defending its own economic base. The answer will not be found at the WTO.

William Hawkins is senior fellow at the U.S. Business and Industrial Council Education Foundation.