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April 19, 2006
Future of trade talks
With the appointment of United States Trade Representative Rob Portman as head of OMB, the speculation is ramped that this signals the end of the Doha Round of trade talks.
Washington Post - "Hopes for Trade Talks Dim After Personnel Switch":
By switching his chief trade negotiator yesterday, President Bush sent a gloomy signal to many trade experts and policymakers about the prospects for achieving significant gains in trade talks with foreign countries anytime soon.
. . .
"It's bad news as far as the Doha round is concerned," said Sen. Charles E. Grassley (R-Iowa), chairman of the Senate Finance Committee, which oversees trade policy. He added, however, that "if there's not a major breakthrough within the next 30 days, I don't think it makes much difference who is trade representative."
International Herald Tribune - "U.S. step stirs doubt on global trade talks":
But the European Union trade commissioner, Peter Mandelson, characterized the switch as ill-timed, suggesting that talks now risked losing steam.
"At this stage in the round, it would have been easier to manage with" Portman still in place, Mandelson said in a terse statement.
Financial Times - "US reshuffle signals downgrading of trade policy":
Clay Shaw, a Florida Republican and chairman of the House Ways and Means Trade Subcommittee, told Congress Daily: "If the Doha round is doomed for failure ... this may be a case of looking for where [Portman's] talents, which are extraordinary, can best be used."
The President named Susan Schwab, Deputy USTR to replace Ambassador Portman. I worked with Ms. Schwab when she was on Senate staff and in the Bush, Sr. Administration. She is very talented and capable.
However, I am not sure anyone can pull this rabbit out of the hat.
Just yesterday, the Wall Street Journal ran a story "WTO Head Ponders a Bold Step" that Pascal Lamy is considering issuing his own version of the "Dunkel draft," which is viewed by some as the equivalent of a nuclear strike. In 1991, then head of the GATT (which became the WTO), Arthur Dunkel broke with negotiating tradition and developed his own draft trade agreement document. It was a bold ploy to break the deadlock during the Uruguay Round. It worked, but left a bad taste in many mouths.
During my Senate staff career, I was involved in the beginning and the end of the Uruguay Round. When we finally passed the implementing legislation, I mused out loud that I thought this would be the last global round of trade negotiations. None of my colleagues agreed - and some of the old hands seemed taken aback at such heresy. They argued that you can only get an agreement by linking everything in a big package. (In diplomacy - this is known as "linkage.")
Over a decade later, I still thing I am right. It is not just an issue of a backlash against globalization and a rise of protectionism. That is certainly a factor -- and a point that will be hyped over and over again should the Doha Round fail.
But there is much more going on - especially in the internal dynamics. Global trade talks have become to complex and overarching to succeed in one mega-negotiation. The dynamics that made these trade rounds work is no longer present. Trade talks aren't about just trade any more. They are talks about the harmonization of economic rules. As such, the old trade-offs no longer apply.
In previous negotiations, the focus was on tariff reduction. I'll reduce my tariffs on steel if you reduce your tariffs on autos. This allowed for a win-win (from economists point of view) situation that pushed for lower and lower tariffs. Everyone agreed that the end point was lower tariffs. The question was how to get there.
In the new talks, it is unclear how the trade-offs work, and in what direction the dynamics points. I'll lower my tariffs on steel if you increase your patent protection to 100 years? I'll allow you to subsidize your aircraft industry if you don't ban my genetically-modified beef? I'll decrease my agricultural subsidies if you reduce regulations on investment banking?
We don't have any agreement on what the end point should be. We have a general idea - "open economies" - but we differ dramatically on what that means and on the specifics.
In addition, I'm not sure that the Doha Round is even looking at the right set of issues. As I've said before (After Doha: What The WTO Is Not Talking About), it may be the last trade negotiations of the industrial era - not the first of the information age.
My gut reaction to the trade talks is that we will have to approach each of these economic regulatory issues separately - possibly in separate forums. Yes, this being a negotiation, there will be linkage. But the complex web of links will not become so great as to bring the entire structure down.
I, for one would welcome, such as shift. As the I-Cubed Economy matures, these economic harmonization discussions need to be ongoing. We are still feeling our regulatory way - and the economy keeps shifting. It is not as simply a matter as hitting a zero tariff number or eliminating a trade barrier. It is an evolutionary process that we need to engage with other countries real-time and continuously.
That is much more difficult that negotiating a trade agreement - but also much more important.
So, if the Doha Round collapses, let us not take it as a sign of failure. Rather, it is an opportunity to build the new international framework for regulating the new global I-Cubed Economy.
Posted by Ken Jarboe at April 19, 2006 9:08 AM
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Comments
i think your points about rising complexity and more difficult linkages and no longer really about trade but about harmonizing regulation are all good ones, and i suspect your conclusion is right, or close to it. If Doha ever ends, i cannot see anyone being all that eager for another round. and i am quite far removed from the sausage factory, so to speak
Posted by: bsetser at April 19, 2006 1:03 PM