LONDON — Japan’s current row with China over steel exports is symptomatic of a growing retreat from the free trade aims that underpinned international growth in the last two decades of the 20th century. It is now a year since members of the World Trade Organization set themselves the task of reducing trade barriers at their summit in Doha. But the climate has grown chillier in the past 12 months, with worrying implications for rich and poor nations alike.
From Brussels to Beijing, via Washington and Southeast Asia, governments are responding to the lure of protectionism. This may be dressed up in politically seductive terms for the domestic market or formulated in terms of regional agreements. The longer-term danger lies in fragmentation of the international trading system that will further depress the world economy in the years ahead.
Despite his proclamations of enthusiasm for free trade, U.S. President George W. Bush has shown himself all too ready to fall back on protectionism in steel and agriculture to win votes. Now that he has done well in the mid-term elections, it can only be hoped that he rediscovers liberalization.
As economist David Hale has noted, the post-9/11 context helped to swing American opinion behind the launch of the Doha round as Congress accepted the need to play a leadership role promoting global economic growth and reducing poverty in developing countries.
On the other side of the Atlantic, the European Union, at France’s urging, has concluded an agreement to perpetuate its protectionist agricultural policy for at least four years, and potentially for much longer. This benefits European farmers through the subsidies they receive, but it maintains barriers to poor countries that the Doha round was meant to bring down.
The truth is that while they recognize the benefits of freer trade, governments almost everywhere appear intent on maintaining their own advantages at a time of general economic downturn.
As well as the growing web of trade-distorting bilateral arrangements, both between countries and between groups of nations, the emergence of regional trading blocks raises the specter of trade wars on a major scale between Asia, Europe and the Americas.
But nobody feels able either to stand aside or to push alternatives that open the way to less restrictive regional pacts. The reaction to the agreement between China and the Association of Southeast Asian Nations was significant in this regard, as both India and Japan felt obliged to make interested noises. With a potential free trade area of 1.7 billion people emerging by 2010, such interest is inescapable but it reinforces the prospect of regional agreements supplanting a more general opening up of trade to the benefit of all.
Defenders of the developing regional groupings and the network of bilateral deals say they will create the foundations for broader global agreement. On the contrary, the danger is that they will reinforce sectional interests as governments use them to play to domestic concerns — as happened in the case of France’s coup on the European Union’s agricultural policy, which will benefit its farmers by ensuring that they go on receiving big subsidies.
The new head of the WTO, Supachai Panitchakdi, has a commitment to freeing farm trade. As important as this is, the concern must be that he will pay less attention to broader issues, and will concentrate on helping developing nations to the detriment of the far larger trade flows between rich nations that need encouraging after the stagnation of the last couple of years.
In a submission to the WTO, New Zealand has estimated that scrapping all tariffs on nonagricultural goods would add nearly “$400 billion to global income.” The European Commission called last week for “an ambitious plan” to cut duties on industrial goods and end all export restrictions on raw materials.
But the trend is starting to move in the wrong direction, as governments view trade as a defensive weapon rather than a means of raising and spreading wealth. Given the global overcapacity in many industries, and the need to help poor nations get more access to world markets, this can only recall the kind of blinkered approach that led to the beggar-thy-neighbor policies which deepened the economic slump of the 1930s.
With the Doha process thrown into doubt by the continuing global downturn, world leaders need to reassert their commitment to freer trade, not just regionally but on a truly international scale. Slipping back toward protectionism is all too easy, particularly when there are elections to be won and interest groups to be catered for. But without a boost to trade, the post-Cold War world will lose one of the currents that can bring it together in a way that provides the glue it badly needs.
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