World trade faces a big chill

The Doha Round of multilateral trade negotiations is all but dead in the water, which bodes ill for globalization.

The world appears to be blowing the whistle on any ambitious expansion of free trade.

A weekend ago, Pascal Lamy, director general of the World Trade Organization, told a host of the globe's top government financial and economic leaders meeting in Washington that, "If the situation does not change soon, governments will be forced to confront the unpleasant reality of failure" for the current Doha Round of multilateral trade negotiations.

At present, a breakthrough in the negotiations involving the 150 member-nations of the WTO is not visible – despite a new, year-end deadline for completion.

Failure doesn't mean the current rules and obstacles governing trade between nations won't allow exports and imports to continue growing. Anyone shopping in the United States for consumer goods – clothing, toys, electronics, etc. – can hardly escape picking up foreign-made goods.

"World trade won't stop in its tracks," says Clyde Prestowitz, president of the Economic Strategy Institute, a Washington think tank. But he sees some risk of the rules and regulation of international trade being weakened in the future.

By courtesy of earlier trade deals, almost 31 percent of the world's output of goods and services crosses national borders today. That's up 10 percentage points from the mid-1990s and double the preglobalization ratio of the mid-1970s, notes Stephen Roach, chief economist of Morgan Stanley, a New York investment firm.

Major free-trade deals, moreover, have something of a zombielike nature. Though seeming to be dead, they can be revived. The previous world trade-liberalization negotiation, the Uruguay Round, lasted eight years. The one before that, the Tokyo Round, took six years. The Doha Round, named after its 2001 launch in the capital of Qatar, may last at least 10 years, says Frank Vargo, top trade expert at the National Association of Manufacturers. That would be after the Bush administration ends and a new president elected. [Editor's note: The original version misidentified Frank Vargo's organization.]

In a way, previous trade rounds in the postwar years were easier to tackle. They eliminated or shrank many obstacles to trade, such as quotas on imports.

Perhaps the remaining obstacles are tougher to handle. Trade officials from the US, the 27-nation European Union, Brazil, and India met in Delhi 10 days ago to see if they could break a negotiating logjam between wealthy and developing nations. The latter want less competition from, and greater access to, the agricultural markets of rich nations. That could be accomplished by shrinking supports and subsidies for farmers. In return, industrial nations insist that major developing nations shrink their obstacles to imports of goods and services.

Indian tariffs, for example, run about 15 to 20 percent. Those in the US and Europe average 4 percent, and in Japan it's 1 percent.

The effort failed, prompting Mr. Lamy's lament at the spring meeting of the International Monetary Fund and World Bank.

In any case, a revival of Doha will require Congress to renew Trade Promotion Authority (TPA), which is the power of the administration to negotiate a trade treaty and give it to Congress for an up-or-down vote – no changes in trade details allowed. The existing TPA law runs out June 30, and the deadline for submitting a trade deal expired April 1. Prospects for passage of a new TPA (sometimes called "fast track") anytime soon are slim, however. It's a "nonstarter," says Robert Scott, a trade expert at the liberal Economic Policy Institute in Washington.

Loss of jobs and stagnation in worker wages in the US are often blamed on competition from cheap imports and outsourcing of jobs. The election last fall demonstrated the unpopularity of globalization, helping Democrats win control of Congress. Mr. Roach notes that in the seven richest countries, the share of national income going to capital investment income is at a record high of 16 percent, while the share going to labor – to employees – is at a record low of 54 percent.

"Congress is feeling the heat," Mr. Scott says. "There has been a real sea change."

Many Republicans also are unhappy with the impact of globalization.

To Greg Mastel, an adviser on trade with the Washington law firm of Akin Gump Strauss Hauer & Feld, a weakness of the Doha Round is that it has been focusing on "problems of the last decade, and not the next decade."

Mr. Prestowitz agrees. He sees inadequate attention to shaping globalization in a more desirable way.

One major concern in the US is that more service jobs will migrate abroad, following the many manufacturing jobs lost to relatively cheap labor overseas.

In an academic paper published last month, Alan Blinder, an economist at Princeton University in New Jersey, examines in detail 291 US occupations and calculates that as many as 29 percent of all jobs in the 2004 US workforce are "offshorable," that is, could be done in other countries. "Contrary to conventional wisdom," he writes, "the more offshorable occupations are not low-end jobs, whether measured by wages or education."

That doesn't mean that nearly that many jobs will disappear abroad in the next 10 or 20 years. But Dr. Blinder, a former vice chairman of the Federal Reserve, suspects they are vulnerable to outsourcing.

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