Deal or no deal, the latest round of global trade talks may be the last of its kind.
Officials from the US, the European Union, India and Brazil meet this week to advance the faltering Doha round of negotiations. The talks are part of a six-decade push to liberalize trade that is yielding diminishing returns as technology and an increasingly integrated global economy render it less relevant.
“I don’t want to be apocalyptic about the world trading system, but it is in danger, no doubt about that,” says Peter Sutherland, a former director general of the World Trade Organization (WTO) and now the London-based chairman of BP Plc., Europe’s second largest oil company.
As the potential payoff from trade talks wanes, so does commitment to a process that has helped keep a lid on protectionist pressures since just after World War II. That’s a concern because a globally booming economy has much more to lose now from a return to trade barriers.
Trade-sanctions legislation being considered in Congress “could quickly turn the tables on US multinationals and, by extension, abort the large cap rally,” Quinlan says. “The US dollar is also at risk.”
The Doha negotiators, whose week-long meeting begins on Monday in Potsdam, Germany, are struggling to complete a framework so all 150 WTO members can work out a draft agreement by the end of July.
The discussions began in Doha, Qatar’s capital, in 2001 and collapsed last year.
“We are now very close,” UK Prime Minister Tony Blair said on 8 June. “We are only a few percentage points and a few billion dollars away from getting a deal.”
Negotiators are still at risk of failure over issues such as cutting US farm subsidies, lowering EU agricultural import tariffs and getting developing nations such as Brazil, India and China to allow more foreign goods into their markets.
And even if they arrive at an agreement, the World Bank estimates it would add only about $96 billion a year to the world economy. That is less than the annual gross domestic product of Romania, and a fraction of the goals originally laid out for the talks. The Doha round “has more of a psychological effect than it does an actual economic effect,” says Mickey Kantor, a former US trade representative.
The flagging momentum for multilateral trade deals in part reflects the success of earlier negotiations. After eight previous rounds of global agreements, developed countries have lowered tariffs to an average 4% from 40%, and more than half the world’s trade is now duty-free.
Multilateral accords may also be made irrelevant by globalization, as technology cuts obstacles to trade in computing, banking and the media with less government involvement.
Even as the Doha round drifted, trade kept expanding and is set to reach a record 32% of world gross domestic product this year, says Stephen Roach, chief economist at Morgan Stanley in New York.
“The main new vehicle for trade has been the hyper-speed of communications,” says Roach. “These are powerful forces.”
Meanwhile, protectionist sentiment in the US and elsewhere is killing lawmakers’ appetite for big new multinational accords as voters and politicians blame competition from emerging economies for the loss of thousands of manufacturing jobs.
A poll for NBC News and The Wall Street Journal in March found only 28% of Americans viewed free trade deals as beneficial, compared with 46% who said they were harmful. When the same question was asked in December 1999, 39% were positive about free trade, 30% negative.
“We who believe in open economies are swimming against a strong protectionist tide these days,” US treasury secretary Henry Paulson said on 5 June.
Two weeks earlier, Paulson held talks with China’s top economic leaders in Washington, telling them Congress was growing impatient about lack of progress in narrowing China’s trade gap with the US.
Lawmakers in the US and Europe accuse China of unfairly supporting exporters by maintaining an undervalued currency. The country’s trade surplus rose 73% in May from a year earlier to $22.45 billion.
Last week, four US senators introduced legislation that would allow American companies to petition for steeper anti-dumping duties to counter the benefit of any undervalued currencies in China or other countries.
New French President Nicolas Sarkozy calls unrestricted free trade a “policy of naivete,” and vowed on 8 June to “fight to defend our interests” in the trade talks.
The future may be dominated by easier-to-deliver bilateral deals, while the multilateral process focuses on smoothing out other irritants to trade such as differences over intellectual property rights and banking laws.
Jennifer M. Freedman in Brussels, Warren Giles in Geneva and Janine Zacharia in Washington contributed to this story.