Final round for global trade deal
By Steve Schifferes
BBC News economics reporter

With the world economy ever more dependent on trade for economic growth, the year 2006 will be a crucial one for the

global trading system.

The Doha Round of world trade talks are entering their crucial final year, with little sign as yet that the world's leading

economies are prepared to reach the bargain that will unlock a new round of trade liberalisation.

And the growing economic imbalances - the US trade deficit is approaching $700bn annually, while China's growing surplus

is fuelling a continuing economic boom - are adding to protectionist pressures in leading countries.

With European economies still suffering from slow growth, expanding trade could be the key to an economic revival.

But in return, Europe's highly protected farmers would have to open their markets to developing country exporters like Brazil

and agree to weaken the Common Agricultural Policy.

Meanwhile, as trade talks falter, countries like the US and China are pursuing their own separate free trade deals with their

political allies.

World trade talks

The World Trade Organisation ministerial meeting in Hong Kong in December made only modest progress towards the goal of

expansion of free trade.

Trade ministers from 149 countries were unable to firm up any definite plans for how to open up markets - but pledged to

come up with a definitive plan by April.

The talks, which began in 2001, have a practical deadline of the end of 2006 to reach a deal to open up agricultural markets

in rich countries, and markets for industrial goods and services in some developing countries.

The deadline arises because the US president will lose "fast-track" negotiating authority to ease passage of any trade deal

through Congress in July 2007.

However, given the current state of the trade talks, the fact that the meeting did not collapse in acrimony between rich and

poor countries was viewed with relief.

Rich countries offered several concessions to poor countries, including a promise to end all agricultural export subsidies by

2013, and an offer of duty-free, quota-free access for products from the poorest (least developed) countries - but with

some strings attached.

Meanwhile, the developing countries worked together more closely than ever before, with the G20 group of middle income

countries led by Brazil's Celso Amorim cementing an alliance with the poorer countries of the G90 to push for fairer trade in

agriculture.

Economics of trade

The chances of a global trade deal at least partly depend on the gains that each country calculates it would make from

whatever bargain is on offer.

Although trade ministers often call trade liberalisation a "win-win" situation, a new World Bank study shows that the gains

of a trade deal are more limited than previously thought and not equally distributed.

The widely-quoted study suggests that complete trade liberalisation - something more than is on offer in the trade talks -

could increase worldwide economic growth by $287bn per year by 2015.

But two-thirds of those gains would go to the industrialised countries.

And while big agricultural exporters like Brazil would be big winners, many developing countries who are food importers -

like Bangladesh, Cameroon, and Mozambique - would lose out in the early years of any deal, the report shows.

The problem is that for a trade deal to gain political support in the north (especially the US Congress), it will have to include

such significant market openings in agriculture, industry and services.

And key developing countries have very different views in each of these areas, depending on where their competitive

advantage lies. Brazil prioritises agriculture, India focuses on services and China stresses manufacturing.

Trade and geopolitics

As global trade talks have stalled, key countries are moving to establish regional or bilateral trade deals to meet their own

political and economic objectives.

In the eyes of many economists, such deals are much less desirable than a global agreement because the countries

negotiating them have unequal bargaining power.

The US has negotiated free trade agreements with 13 countries, and is negotiating with ten more - including key strategic

allies like UAE, Bahrain, South Africa and Thailand.

Although it failed to push through a plan for a Free Trade Agreement for the Americas, a new free trade deal with the five

central American nations and the Dominican Republic is due to start on 1 January 2006.

China, too, is ploughing its own furrow.

Beijing aims to build an East Asian free trade bloc, and has signed bilateral deals with the Asean countries and is in

negotiations with New Zealand and Australia possibly Korea and Japan in the future.

And the EU is looking to bring in a new economic partnership agreement with the 69 African, Caribbean and Pacific nations

who were former colonies, alongside tightening ties around the Mediterranean.

The emergence of rival trade blocs could increase tensions over a number of simmering trade disputes - including the rapidly

growing Chinese imports to the US and the EU, the EU-US row over state aid to Airbus, and the EU worries about the import

of GM food.

Public opinion and globalisation

Underlying the political difficulties of the trade talks is a growing public ambivalence about the benefits of free trade.

Recent opinion polls by the German Marshall Fund show that in the US and five major European countries - France, Germany,

Italy, the UK and Poland - only 46% of Americans and 45% of Europeans are in favour of globalisation.

In contrast, big majorities in developing countries want the fruits of free trade.

Outside of Latin America, where there is scepticism, globalisation is seen as beneficial by large majorities in countries as

diverse as Nigeria, Vietnam and Singapore, according to the Pew Global Attitudes Survey.

Only 9% of Africans and 10% in developing Asia say that globalisation has a negative effect on their countries.

The biggest fear in industrial countries is the effect of trade on jobs.

Less than half of respondents say they will personally benefit from trade liberalisation - but a majority in these countries

think that multinational companies and rapidly growing countries like China will benefit most.

However, the Western public are not isolationist. Two thirds support global trade, and three quarters say trade contributes

to global stability.

But their growing scepticism about the benefits of free trade - with the UK the biggest exception - will make it harder to

cement a trade deal this year.
Story from BBC NEWS:
http://news.bbc.co.uk/go/pr/fr/-/2/hi/business/4547866.stm

Published: 2005/12/21 22:54:03 GMT

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