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A setback for global free trade
By Robert Gavin.
Article re-printed from The Boston
Globe 9/16/2003
Talks
aimed at dismantling global trade barriers collapsed
for the second time in four years this past weekend
as the World Trade Organization failed to bridge the
divide between rich and poor nations.
The failure of the meeting of WTO ministers in Cancun
is widely viewed as a setback to a goal of creating
a fair, free, and open global trading system, which
many economists say would help the economies of industrialized
nations, such as the United States, and developing
nations, such as those of Latin America and Africa.
The outcome of trade talks is also important to Massachusetts
companies, which export nearly $20 billion a year
in goods overseas. Here is a look at the issues and
impact of the global trade debate:
Q: What is the World Trade Organization?
A: The WTO is a group of nations, which now number
148, formed in 1995 to develop and administer a global
trading system that would dismantle tariffs and other
barriers to free flow of goods, services, and investment,
based on rules agreed to by all nations.
Q: So what happened in Cancun?
WTO ministers came to Cancun with several contentious
issues on the agenda, in particular agriculture. Developing
nations want the United States, the European Union,
Japan, and other rich nations to lower tariffs and
end farm subsidies, which they say make it impossible
for the agricultural products of developing nations
to compete in global markets.
For example, four of Africa's poorest states, Burkina
Faso, Benin, Chad, and Mali, say the $6 billion in
cotton subsidies paid to farmers in the United States,
Europe, and China are costing their farmers $250 million
a year.
Since agricultural products are among the few exports
and sources of foreign exchange for poorer nations,
a group of 21 developing nations drew a line in the
sand, refusing to assent to lowering barriers for
other products until the richer nations agreed to
steps to eliminate agricultural barriers and subsidies.
Unsatisfied with the United States and European proposals,
the developing nations walked out.
''These talks were not about whether free trade is
good, but how to make globalization work for the poor,''
said Kevin Gallagher, a Tufts University economics
professor who attended the Cancun meeting. ''The developing
nations said, `If you want access to our markets,
you need to end your subsidies.' ''
Q: What's the impact of the collapse of the Cancun
talks?
First, nearly all agree that it makes it near impossible
to meet the 2005 target date for reaching agreement
on a liberalized global trading system. In the short
term, it is likely to hurt global financial markets,
which primarily see free trade as helping the world
economy and generating new economic growth for both
developing and industrialized nations.
''A global free trade agreement is very important
for investor confidence,'' said Jan Randolph, chief
economist for World Markets Research Center, a London-based
consulting firm with offices in Lexington. ''A boost
to trade is so important, and collapse of the talks
doesn't help the global recovery.''
Q: What about the US and Massachusetts economies?
Much depends on whether the failure at Cancun is
a temporary setback or a death blow to a global trading
system. Most economists agree that free trade would
mean new markets for the US economy, particularly
for manufacturers, which account for about two-thirds
of US exports, but are hindered by high tariffs, or
import taxes, in emerging markets. India, for example,
imposes tariffs that average 32.4 percent, compared
to average US tariffs of 4.3 percent, according to
the Manufacuters Alliance/MAPI, a public policy and
research group in Arlington, Va.
Unless these disparities are eliminated, there is
a growing danger of trade wars, in which nations engage
in tit-for-tat tariff increases, leaving consumers
to pay higher prices, with less access to goods, said
Thomas Duesterberg, president of the Manufacturers
Alliance/MAPI. ''The mood is dangerous,'' said Duesterberg.
''There is a lot of sentiment that the US should get
tougher, and there's question of whether the forces
of protection will reassert themselves.''
For Massachusetts, which is among the top 10 exporting
states, opening foreign markets is also critical for
its manufacturers. In addition, Massachusetts software
and technology companies could benefit from likely
protections to would prohibit the theft of intellectual
property -- a particular problem in China, where US
software and patented products are often copied wholesale.
''If the WTO is successful in implementing not just
free trade, but fair trade around the world, it would
mean new opportunities,'' said Linda Noonan, executive
director of the Alliance for the Commonwealth, the
research arm of Associated Industries of Massachusetts.
Q: So what happens next?
Nations will continue to negotiate toward a global
free trade agreement and try to work out differences
in advance of another meeting of WTO ministers, possibly
next year. In addition, trade barriers are likely
to continue to come down as the Bush administration,
as the Clinton administration before it, negotiates
free trade agreements with individual nations, as
well as regional pacts similar to the North American
Free Trade Agreement.
Robert Gavin can be reached at rgavin@globe.com.
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