The breakthrough trade agreement signed in Beijing on Monday between China and the United States heralds the imminent global debut of the world’s last-remaining large market that is basically free and operates on the basis of common global rules. This is a real boon, not only for the two nations concerned, but also for all other countries that have been pursuing economic prosperity and welfare on multilaterally arranged terms at the World Trade Organization.
Monday’s signing of the trade accord, which includes lower tariffs, easier market access and investments, was especially welcome for Japan. Since concluding a separate bilateral market-access agreement with China in January, Japan has been calling on China’s major trading partners to sign the needed bilateral agreements to help that country join the WTO.
Because the new agreement is a bilateral one, it does not mean China’s automatic and immediate WTO membership. Beijing has to conclude deals with the European Union and Canada as well as a multilateral agreement with all 134 WTO member countries before it can fully accede to the organization. Nevertheless, the Sino-American agreement definitely opens the way for China’s formal admission — even if the admission is unlikely to materialize in time for China’s participation in the WTO ministerial meeting opening in Seattle, Washington, on Nov. 30.
Representatives will meet there to work out an agenda for the next round of trade talks. The prenegotiation process has been under way for several months already, and it has been a bruising experience. The consensus in support of further trade liberalization has weakened. Unless the developed nations are ready to set an example and open their protected industries to foreign competition, the next round may never get off the ground.
The first hint of difficulties became evident when WTO members could not agree on a replacement for Director General Renato Ruggierio, whose term expired in the spring. After a bitter fight, a compromise was reached between the two candidates. Mr. Mike Moore, former prime minister of New Zealand, who was supported by the U.S. and other developed nations, would first assume the post and hold it for half of the six-year term. He would be succeeded by Mr. Supachai Panitchpakdi, a former Thai finance minister, who had been championed by Japan, Asian nations and other developing states.
That clash hinted at a growing lack of faith in the liberalization program. At the very least, it suggested that the individual in the top slot could influence the negotiation process and that that influence was worth channeling in a given direction. In other words, certain types of liberalization were more useful than others. Thus, the fight for control merely raised the stakes for the losers.
Japan, the EU countries and others are pushing for a broad agenda, so that concessions in one area can be traded for deals in another. Japan, for example, is demanding that the talks address trade rules; specifically, the antidumping laws that the U.S. frequently uses to protect its companies. The Tokyo government also wants to see negotiators accept the “multifunctionality” of agriculture — a sure focus of the talks — which would acknowledge the role it plays in protecting the environment and in national security. European governments join Japan in endorsing the “multifunctionality” thesis, which shores up their Common Agricultural Policy.
The U.S. and allies such as Australia, Canada and New Zealand argue that the Uruguay Round of trade talks identified agriculture and financial services as the focal points of the next round. Expanding the scope of the talks reverses that understanding and is an invitation to stalemate.
Perhaps, but the real strain is the growing ambivalence about the free-trade agenda that has sprung up around the world. Developing countries have not seen the economic gains promised by the Uruguay Round. Worse, the global financial crisis that began in 1997 has heightened their concerns about the negative effects of liberalization. Their reluctance to open their markets is compounded when developed countries try to shelter their own industries — agriculture, textiles, steel, to name three prominent ones — from foreign competition.
An open trading system has been one of the pillars of international prosperity in the latter half of the 20th century. China has been outside this regime for much of this crucial period. But if, as a new WTO member, China commits itself to the free-trade principle, it could encourage all other member governments to renew their efforts to jointly build the foundation of a healthy and prosperous 21st century.
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