Simon Kennedy and Mark Drajem: Beggar-Thy-Neighbor Protectionism Looms
Deal or no deal, the latest round of global trade talks may be the last of its kind.
Officials from the U.S., the European Union, India and Brazil meet this week to try to advance the faltering Doha round of negotiations. The talks are part of a six-decade push to liberalize trade that is yielding diminishing returns as technology and an increasingly integrated global economy render it less relevant.
``I don't want to be apocalyptic about the world trading system, but it is in danger, no doubt about that,'' says Peter Sutherland, a former director general of the World Trade Organization and now the London-based chairman of BP Plc, Europe's second-largest oil company.
As the potential payoff from trade talks wanes, so does commitment to a process that has helped keep a lid on protectionist pressures since just after World War II. That's a concern because a globally booming economy has much more to lose now from a return to trade barriers.
``Protectionism represents a significant risk to the U.S. financial markets,'' says Joseph Quinlan, chief market strategist at Bank of America Capital Management in New York.
Trade-sanctions legislation being considered in Congress ``could quickly turn the tables on U.S. multinationals and, by extension, abort the large cap rally,'' Quinlan says. ``The U.S. dollar is also at risk.''
Struggling Over a Framework
The Doha negotiators, whose week-long meeting begins tomorrow in Potsdam, Germany, are struggling to complete a framework so all 150 World Trade Organization members can work out a draft agreement by the end of July. The discussions began in Doha, Qatar's capital, in 2001 and collapsed last year.
``We are now very close,'' U.K. Prime Minister Tony Blair said June 8. ``We are only a few percentage points and a few billion dollars away from getting a deal.''
Negotiators are still at risk of failure over issues such as cutting U.S. farm subsidies, lowering EU agricultural import tariffs and getting developing nations such as Brazil, India and China to allow more foreign goods into their markets.
And even if they arrive at an agreement, the World Bank estimates it would add only about $96 billion a year to the world economy. That is less than the annual gross domestic product of Romania, and a fraction of the goals originally laid out for the talks.
A Psychological Effect
The Doha round ``has more of a psychological effect than it does an actual economic effect,'' says Mickey Kantor, a former U.S. Trade Representative.
The flagging momentum for multilateral trade deals in part reflects the success of earlier negotiations. After eight previous rounds of global agreements, developed countries have lowered tariffs to an average 4 percent from 40 percent, and more than half the world's trade is now duty-free.
Multilateral accords may also be made irrelevant by globalization, as technology cuts obstacles to trade in computing, banking and the media with less government involvement.
Even as the Doha round drifted, trade kept expanding and is set to reach a record 32 percent of world gross domestic product this year, says Stephen Roach, chief economist at Morgan Stanley in New York...
Read entire article at Bloomberg
Officials from the U.S., the European Union, India and Brazil meet this week to try to advance the faltering Doha round of negotiations. The talks are part of a six-decade push to liberalize trade that is yielding diminishing returns as technology and an increasingly integrated global economy render it less relevant.
``I don't want to be apocalyptic about the world trading system, but it is in danger, no doubt about that,'' says Peter Sutherland, a former director general of the World Trade Organization and now the London-based chairman of BP Plc, Europe's second-largest oil company.
As the potential payoff from trade talks wanes, so does commitment to a process that has helped keep a lid on protectionist pressures since just after World War II. That's a concern because a globally booming economy has much more to lose now from a return to trade barriers.
``Protectionism represents a significant risk to the U.S. financial markets,'' says Joseph Quinlan, chief market strategist at Bank of America Capital Management in New York.
Trade-sanctions legislation being considered in Congress ``could quickly turn the tables on U.S. multinationals and, by extension, abort the large cap rally,'' Quinlan says. ``The U.S. dollar is also at risk.''
Struggling Over a Framework
The Doha negotiators, whose week-long meeting begins tomorrow in Potsdam, Germany, are struggling to complete a framework so all 150 World Trade Organization members can work out a draft agreement by the end of July. The discussions began in Doha, Qatar's capital, in 2001 and collapsed last year.
``We are now very close,'' U.K. Prime Minister Tony Blair said June 8. ``We are only a few percentage points and a few billion dollars away from getting a deal.''
Negotiators are still at risk of failure over issues such as cutting U.S. farm subsidies, lowering EU agricultural import tariffs and getting developing nations such as Brazil, India and China to allow more foreign goods into their markets.
And even if they arrive at an agreement, the World Bank estimates it would add only about $96 billion a year to the world economy. That is less than the annual gross domestic product of Romania, and a fraction of the goals originally laid out for the talks.
A Psychological Effect
The Doha round ``has more of a psychological effect than it does an actual economic effect,'' says Mickey Kantor, a former U.S. Trade Representative.
The flagging momentum for multilateral trade deals in part reflects the success of earlier negotiations. After eight previous rounds of global agreements, developed countries have lowered tariffs to an average 4 percent from 40 percent, and more than half the world's trade is now duty-free.
Multilateral accords may also be made irrelevant by globalization, as technology cuts obstacles to trade in computing, banking and the media with less government involvement.
Even as the Doha round drifted, trade kept expanding and is set to reach a record 32 percent of world gross domestic product this year, says Stephen Roach, chief economist at Morgan Stanley in New York...