To Save World Trade: Plan B.

Byline: Jeffrey E. Garten (GARTEN is the Juan Trippe Professor at the Yale School of Management. He can be contacted at jeffrey.garten@yale.edu.)

The mood among the trade ministers gathering in Hong Kong this week is likely to be downbeat. That's because after two years of struggling to move global trade negotiations toward a conclusion, the 149 countries of the World Trade Organization have failed to bridge huge gaps in their respective positions. If ever there was a time for a robust plan B, this is it.

Just a few months ago, the negotiators had expected to have in front of them this week a clear road map with specific outlines for an omnibus trade deal that they would conclude by the end of 2006. This was to be a landmark agreement because more than any other round of trade talks, what is being called the Doha Development Round was to bring developing countries into the heart of the trading system by dismantling restrictions that hit them particularly hard, such as barriers to their exports of sugar, wheat, fruits and cotton.

The centerpiece of the negotiations was supposed to be major cuts in agricultural protections among the G7 nations, which now spend $300 billion a year shielding their food markets, about four times all the foreign aid that goes into the Third World annually. But the concessions offered by the European Union, in particular, fell far short of what agricultural exporters such as Brazil were demanding. That led them and others, such as India, to hold up on offering to lower their barriers to trade in manufactured goods and services. In addition, the really poor nations of Africa have not been offered what they want: tariff-free access to Western markets. Since in the WTO every nation has a de facto veto, the bargaining has become paralyzed.

Against the background of a fragile world economy, this is a dangerous situation. The WTO projects that trade in goods will decelerate from a growth rate of 9 percent in 2004 to 6.5 percent this year. The gigantic trade and financial imbalances between the United States, on the one hand, and Asian countries and oil producers, on the other, have markets worried that a disruptive correction could occur, creating significant currency turbulence and havoc in international trade. Economic nationalism around the world is rising, as evidenced by France's walling off certain sectors from foreign takeovers, tougher attitudes toward immigration in the United States and the renationalizing of industries in countries as diverse as Russia and Venezuela. Add to that the fact that a number of ...