Globalizing economy? Not so fast

The movement toward greater economic integration of nations - one of the most profound global trends of the age - hit trouble this week.

In Sweden voters said "no, thanks" to adopting the single currency of the European Union (see British euro debate story). In Cancún, Mexico, global trade talks collapsed, derailing efforts to continue lowering tariffs and other barriers to trade.

These events were caused by different things. Neither is fatal. The euro zone will inevitably expand; World Trade Organization negotiations will eventually continue.

But together they may show how uncertain many in the world are about the future at a time when numerous national economies continue to sputter.

"Both are important events ... that create additional uncertainty in trade and financial markets in their respective areas," says Jeffrey J. Schott, a trade specialist at the Institute for International Economics in Washington.

In Sweden the referendum on adopting the European Union single currency was defeated by a surprisingly large margin of 14 percent.

A prosperous nation that has long prized its independence, Sweden has always been viewed as skeptical of tying its financial future to its neighbors. Indeed, the continued recession in the two largest euro nations, France and Germany, loomed large in Swedish voters' minds, according to European analysts.

The Swedish vote is likely to feed anti-euro sentiment in the other important EU currency holdouts, Britain and Denmark. Over the next decade the result might be a Europe that has three economic tiers: euro nations, non-euro rich nations, and poorer euro aspirants such as Bulgaria and other former East bloc members.

This result might constitute a defeat for continental political leaders who have long viewed the EU as a unified economic counterweight to the influence and wealth of the United States.

Not that the US is feeling particularly wealthy at the moment. The so-called "jobless recovery," in which the nation seems to be pulling out of a shallow recession while still continuing to shed jobs, has many Americans nervous about where their own economy is headed.

The continued decay in manufacturing jobs, in particular, is an issue that Democratic presidential candidates have been using to try and hammer the Bush administration. In response, the White House has tried to appear proactive on the issue - on Monday, for instance, the Commerce Department announced the creation of an Unfair Trade Practices Team meant to investigate barriers to open markets.

Manufacturers have long complained that unfair exports from China represent one of their biggest problems.

Given this context it is perhaps not entirely surprising that the WTO Cancún talks ended in confusion and acrimony.

The proximate cause of the Cancún collapse was disagreement over customs rules and other fairly technical issues. But the big controversy of the meeting was agriculture: specifically, whether the US, Europe, and Japan would agree to cut their farm subsidies and allow poorer nations easier access to their large agricultural markets.

The world economy has seen so many rounds of trade talks - and so much liberalization - in recent years that now the important things are truly painful for some of the nations involved. The easy moves have been made. Farm subsidies are big business in the US, and perhaps even more sensitive in Europe and Japan.

"We have some sacred cows that we are trying to protect," says John Audley, a trade expert at the Carnegie Endowment for International Peace in Washington.

Developing countries, in contrast, see attacking those sacred cows as the best way for them gain entry into markets in which their cheap labor and land might give them some competitive advantages.

In the past poorer nations have not necessarily stuck together in WTO negotiations. This time, they did, to an extent that may have surprised even them. A group of 21 nations, ranging from China to Chad, forced the Cancún meetings to a standstill with their accusations that the developed world was not offering them meaningful concessions.

"The real message from Cancún is that the developing countries have finally found a common voice," says William Moomaw, a professor of international environmental policy at Tufts University's Fletcher School in Medford, Mass.

Given the new sensitivities on all sides it is unlikely that the worldwide trend of globalization will now proceed apace, say analysts. It will pause, at least for awhile.

The US will probably pursue bilateral free-trade accords with individual nations. US negotiators recently completed such pacts with Chile and Singapore. Talks are under way with five Central American countries, as well as Australia and Morocco, among others.

The irony is that while the developing world scored points with its stance, it may have had the most to gain from progress in WTO negotiations.

There is some question whether there might have been some compromise on farm subsidies if the talks had not collapsed. And in any event, it is the poorer nations of the world that need trade-driven growth the most.

"We're going to be fine. The Europeans are going to be fine," says John Audley of the Carnegie Endowment for International Peace. "It's developing countries that ... ultimately are the losers when negotiations like this collapse."