[A-List] US imperialism: global trade agenda

["Michael Keaney" <michael.keaney@xxxxxx>]

A competitive approach to free trade
By Fred Bergsten
Financial Times: December 5 2002

The debate over the relative merits of multilateral trade liberalisation and
bilateral or regional agreements is raging again. Advocates of preferential
deals view them as a way of substantially reducing barriers, deepening
political ties among participants and promoting a successful conclusion of
the Doha round in the World Trade Organisation. Proponents of pure
multilateralism fear such agreements will generate much trade diversion,
risk new political clashes between the "ins" and the "outs" and undermine
both Doha and the WTO itself.

There is no definitive answer to the debate. History teaches us that
regional discrimination, as in the 1930s, can have devastating political as
well as economic consequences. More recently, preferential and multilateral
liberalisation have proved to be necessary complements. The postwar process
of trade negotiations shows a steady ratcheting-up of liberalisation between
regional and global initiatives.

In the future as in the past, the outcome will be determined not by theory
but by the policies of the main players. Developing countries are now more
important than ever but it is the actions of the US and the European Union
that will be decisive.

The EU is the source of the world's greatest trade discrimination - which
will increase sharply as its membership expands - and the hub of the most
extensive set of preferential deals with non-members. But Europe badly needs
the outside pressure of global commitments to implement essential internal
reforms, especially in agriculture. That outside pressure comes primarily
from the Americans.

The US, as usual, remains the pivotal operator. There are two concerns about
its will to lead Doha to a successful conclusion. One is that protectionist
pressures will preclude any meaningful US liberalisation at all. Another is
that its new zeal for preferential negotiations will sidetrack its
traditional multilateral predilections. The first concern is misplaced.
Recent actions on steel and farm subsidies, though noxious and politically
motivated, were essential in winning congressional approval of trade
promotion authority, without which the US could not negotiate any
liberalisation. A successful Doha package will in fact require and enable
Washington to roll back its agricultural supports and to tighten its
safeguards to prevent future abuses.

America's new penchant for preferential deals is also readily understood.
Robert Zoellick, US trade representative, is pressing for "competitive
liberalisation" - bilateral, regional and global - to place pressure on
non-members of individual free trade agreements either to join the group
itself or to conclude broader agreement. For example, the North American
Free Trade Agreement preferences in the US market induce other Latin
American countries to create a Free Trade Area of the Americas, as an FTAA
would in turn spur the Doha round.

Critics fear the defensive reactions to other countries' preferential pacts
but the objective is precisely to induce non-members to accelerate their own
liberalisation in ever-widening circles until global free trade is achieved.
More than half of world (and US) trade is already free, or en route to
freedom, via preferential agreements. In any event, the overarching US
priority must remain Doha for three reasons.

First, significant agricultural liberalisation is essential for the US,
because the farm bloc is crucial to its domestic coalition for freer trade
and is possible only at the global level. Second, festering problems in the
WTO's dispute settlement mechanism obviously require action in the WTO.
Third, a stronger WTO is necessary to make the world safe for regionalism
itself by functioning as a more effective arbiter of the preferential pacts.

Even the strongest critics of US trade policy should thus be reassured by
the sweeping proposals Washington has now made for Doha: elimination of all
tariffs on agricultural and industrial trade, massive cuts in farm subsidies
and liberalisation of services. The US is willing to eliminate all tariffs,
including on some clothing and other "sensitive" items, and sharply trim its
own farm subsidies. It is willing to give a lot if it can obtain a lot in
return.

The other main countries must co-operate but many of them would lose heavily
if the global talks failed and the EU and the US were forced to follow only
the preferential path.

Sceptics are correct to doubt that all this can be done by the target date
of end-2004. The real deadline for Doha (and the Free Trade Area of the
Americas) is mid-2007, when US negotiating authority expires, a discipline
that has helped complete all previous postwar rounds. Moreover, the next US
farm bill, the vehicle for rolling back the new subsidies, must be tackled
in 2006. The recent Franco-German agreement appears to preclude significant
reform of the EU's common agricultural policy until then.

Hence the outlook is for a series of preferential pacts over the next few
years that will generate "competitive liberalisation" and produce a sweeping
Doha agreement by the middle of 2007. That would bring the world
considerably closer to the state of global free trade that would obliterate
the distinction between the competing approaches and the endless debate
about them.

The writer is director of the Institute for International Economics