Throw some cold water on free trade

Failure of the current round of world trade-liberalization talks might be a good thing. If they succeed, the result will be more free trade and an acceleration of already widely unpopular globalization.

The Doha round, named after the capital of Qatar, where it began in 2001, continues to move forward - but perilously.

"A lot of economies are handling all the disruptions and adjustments they can deal with already," says Peter Morici, an economist with the University of Maryland's business school, in College Park.

In a way, he has a "stop the world, I want to get off" view. Change is just too fast for many nations to absorb. Throwing cold water on freer trade for a while would let the dust settle.

That's far from conventional wisdom.

Most economists regard freer trade as a grand opportunity for greater prosperity. Under their "law of comparative advantage," each nation or business specializes in certain goods and services, becoming highly efficient. In that way, all trading partners eventually benefit through cheaper or better cars, clothes, computers, software, etc. But in the short run, freer trade means more discombobulation - for many, lost jobs and damaged businesses.

Freer trade results in losers as well as winners. Concern over the losers is prompting various nongovernmental organizations to gear up to protest when the 149-member World Trade Organization meets in Hong Kong Dec. 13-18 for a key ministerial meeting.

With eight earlier multiyear deals in the post-World-War-II period, international trade and investment has become highly relevant to most of the world. World merchandise exports reached $8.9 trillion in 2004 and are probably up another 6.5 percent this year, the WTO estimates.

To Mr. Morici, this current round of trade negotiations "is no good. We [the United States] do all the giving and don't get anything in return. We need a new round."

Whether that's true or not, success in the Doha round could be delayed until 2009, after the election of a new US president, suspects Harald Malmgren, a Washington trade expert who helped negotiate the 1964-67 Kennedy round.

Here's how Mr. Malmgren sees the Doha scene:

In Hong Kong, the negotiators could agree to a statement affirming some progress and spelling out remaining differences. The Office of the US Trade Representative, under former congressman Rob Portman, is better prepared for this ministerial meeting than was the case at earlier ministerial sessions. Most real negotiations are done outside these cumbersome gatherings. Ministers want to make 15-minute speeches for home consumption. They are unlikely to deal with the horrendous detail involved in WTO sessions, notes Malmgren.

Indeed, 80 percent of the success of a trade round depends on what negotiators hammer out with local politicians and interests in home capitals. Only 20 percent hinges on negotiations at various WTO meetings.

One deadline facing negotiators is that "fast-track" negotiating authority given the president by the US Congress expires in June 2007. It limits congressional approval of a deal to an up-or-down vote, with no amendments. This is crucial. Were it otherwise, Congress would eliminate politically unwelcome aspects of any deal.

Under the US Constitution, Congress, not the president, has the authority to regulate US commerce. When that document was written, most federal revenues came from import duties. For pragmatic reasons, though, the executive branch does the negotiating.

Malmgren doesn't rule out an extension by Congress of trade-negotiating power - if trade rep Portman can win the trust of key members of Congress.

Trade used to be a bipartisan issue. But under President Clinton and his trade rep, Mickey Kantor, it became more of a partisan matter, Malmgren says.

To meet the June 2007 deadline, the Doha negotiators would have to have a deal nearly wrapped up by next June. With a US election ahead, it would be difficult to get key members of Congress to approve various critical points while campaigning. The day after the November election, they might say yes.

Then months are needed to change domestic laws affected by a trade deal as well as approve the deal itself.

One key to Doha round success is agreement on reducing subsidies to farm exports and barriers to agricultural imports. Last week, European Union trade negotiator Peter Mandelson hinted the EU might improve its offer to reduce farm tariffs. But France has a veto over such concessions. Malmgren wonders if French President Jacques Chirac, whose political base has been rural France, will agree to such a concession.

If farm concessions are given by the industrial nations, New York University economist William Easterly would cheer a Doha deal as a benefit to developing nations. Otherwise, he says, it is "probably not worth it." Trade deals don't usually convey gigantic benefits, he adds.

If the Doha round fails, it may earn one nickname: the "Ha-Ha" round. With or without success, though, globalization will continue - perhaps just not as fast.