Trade at the Crossroads.(Asia-Pacific Economic Cooperation)(World Trade Organization)(Statistical Data Included)

The second half of 2001 will witness a series of critical trade meetings that may determine whether the world continues to move toward multilateral free trade or shatters into hundreds of bilateral agreements. In June, trade will be a major topic at the US/EU summit in Stockholm. In October, the Asia Pacific Economic Cooperation (APEC) regional trade grouping will meet in Shanghai, followed by the all-important World Trade Organization (WTO) summit in Qatar in November.

Any credit manager who doubts the decisive impact of trade issues on individual companies should review the financial statements for Chiquita Brands International, a Cincinnati-based company that was pushed to the brink of bankruptcy by the nine-year trade war over European banana imports. When Europe first set its quotas, Chiquita was the largest trader in the region with a 40 percent market share, and millions invested in shipping and marketing equipment on the continent. The quotas sliced Chiquita's market share in half and cost the company $200 million a year. By the time the dispute was finally settled in April of this year, Chiquita was unable to pay its debts.

Although many assume that most trade wars focus on products in the highly sensitive commodities and agricultural sectors, battles now loom across all industries, including financial services, data products and software. As the US economy and other economies around the world continue to slow, the demand for protectionism grows. The use of antidumping and countervailing duties is soaring, threatening the gains from past liberalization.

According to Jagdish Bhagwati, professor of economics at Columbia University and senior fellow in international economics at the US Council on Foreign Relations, the greatest threat to increased trade is the rapid proliferation of preferential bilateral trade agreements. These agreements have increased in number from about 100 six years ago to about 400 today. The bilateral agreements fragment the world trading system into inefficient and confusing mini-blocs that ultimately choke free trade.

There is a growing danger that the increase in bilateral and plurilateral trade deals could come to be seen as a substitute for, rather than a complement to, multilateral liberalization and a nondiscriminatory set of rules to govern international trade. A continued absence of multilateral liberalization will encourage the large trading nations to act unilaterally and carve up markets through preferential trade agreements, destroying the possibility for truly multi lateral free trade and the global economic prosperity it could generate.

EU-US Tensions

World merchandise trade grew by about 10 percent in 2000--twice the annual rate recorded for 1998 and 1999, and well above the 6.5 percent annual average growth rate for 1990-1999. WTO analysts predict that world trade for 2001 will slow slightly from 2000, but will remain stronger than the average rates recorded for the previous decade. The US, EU and Japan account for about half of all world trade. A breakdown in trade between any two of the three could bring global trade growth to a halt.