Trade Talks Could Produce More Than Talk

A few days from now the finance ministers of the world’s richest, industrialized countries will gather in Orlando, Florida, for still another meeting of the G7. What better place to escape the wintry weather that is making life miserable in many of their countries than the warm climate of Florida, and what better place to escape reality than nearby Disney Land.

Ministers from Europe will tell America that their exports to the U.S. are down some 10 percent, and that the Bush administration must do something to stem the decline of the dollar that is steadily pushing the euro to heights that threaten even the tiny bit of growth Germany, France and others are expecting. America won’t.

Americans will join with the Europeans to tell the Japanese to stop intervening in currency markets to prevent the yen from rising against the dollar, keeping Japan’s goods competitive in America, but putting all of the cost of adjusting to the dollar’s fall on Europe. Japan won’t.

The Americans will tell the Europeans to loosen the regulations that are preventing their labor markets from being sufficiently flexible to allow incomes and domestic demand to rise, so that more made-in-the-USA products and services can be sold in Europe. The Europeans won’t.

All will agree that a communiqué extolling the wide agreements that have been reached is just what the world’s markets need, and such a document, drafted long before the meeting convened, will be issued at the photo op that ends these meetings.

Meanwhile, skirmishes on the trade front increase in number and intensity. Brazil has gone to the World Trade Organization’s international dispute settlements panel in Geneva to challenge America’s policy of subsidizing its cotton farmers’ exports to the tune of $1.54 billion annually. The Brazilians, leaders of a newly energized group of some twenty developing countries, are determined to bring down the system of agricultural subsidies that the EU and the U.S. use to make it almost impossible for farmers in poorer countries to compete on world markets.

The EU is not to be left behind in bringing pressure on America. It is launching a complaint against the way American agencies calculate antidumping duties, and seeking sanctions against U.S. exporters. Brussels also plans to impose sanctions totaling $200 million per year on U.S. goods to force compliance with a WTO ruling that tax breaks for American exporters constitute an illegal subsidy and should be abandoned.

In America, protectionist measures mount as the presidential election nears, despite the fact that arch-protectionist Richard Gephardt has dropped out of the race for the Democratic nomination. Some legislators want to ban outsourcing of work on federal and state contracts, and have pushed a bill that would do just that through the Congress and onto the president’s desk. Others want to place a punitive tariff on imports from China, to offset what they claim is China’s unfair practice of pegging its currency to the dollar so as to maintain the competitive advantage Chinese goods enjoy in America. Bush has given a bit of ground, probably in the hope of defusing protectionist pressures, by creating a Commerce Department task force to investigate unfair trade practices that may be hurting America’s manufacturers’ ability to penetrate overseas markets.

Fortunately, these skirmishes conceal the more important peace talks that are going on, largely out of sight. Supachai Panitchpadki, director general of the WTO, is ratcheting up the pressure on the world’s leading trading countries to return to the bargaining table they abandoned when the meetings in Cancún ended in rancor and recrimination. And Bob Zoellick, U.S. Trade Representative, used the just-concluded meeting of the World Economic Forum in Davos to call for a resumption of talks. He has sent letters to the more-than 140 members of the WTO, expressing the hope that 2004 will not be a “lost year,” something he would be unlikely to do if he expected to be rebuffed. Already, free-trading Australia, leader of the Cairns Group of agricultural exporters, has welcomed Zoellick’s move, and Brazil’s ambassador to the WTO, Seixas Correa, has announced his pleasure that the U.S. is “reengaging in a forthcoming manner.”

Equally important, Niaill FitzGerald, the very tough-minded boss of Unilever, has agreed to chair a revived TransAtlantic Business Dialogue (TABD), a business-led group that is attempting to establish a barrier-free transatlantic market. FitzGerald worries that the rise of the euro combined with impending elections in America, will raise “the seductive voice of protectionism”. He told the world’s leading businessmen who met in London at Chancellor of the Exchequer Gordon Brown’s invitation that the U.S. and EU systems of subsidizing their farmers are “morally unacceptable,” and that the rich countries must match the market-opening steps so far taken by developing countries.

The reason that FitzGerald’s agreement to take on the chore of rallying support for multilateral trade-opening measures is such good news is that the Unilever CEO has told the politicians that if they do not muster the political will to get trade talks back on track, he will quit. The job needs him a lot more than he needs the job.

None of this means that resumption and a successful conclusion of talks is in our immediate future, even though all parties recognize that free trade is a win-win game for all nations, although not for all workers. The EU has yet to show its willingness to override French insistence that its rich farmers be protected from more efficient farmers in poorer countries and in the U.S. Even Zoellick recognizes that now is not the best time to persuade America’s politicians to increase the threat to some of the workers in key electoral states. Still, there is movement on the trade front, something that has been absent for many months.