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A setback for global free trade

By Robert Gavin.

Article re-printed from The Boston Globe 9/16/2003

Talks aimed at dismantling global trade barriers collapsed for the second time in four years this past weekend as the World Trade Organization failed to bridge the divide between rich and poor nations.

The failure of the meeting of WTO ministers in Cancun is widely viewed as a setback to a goal of creating a fair, free, and open global trading system, which many economists say would help the economies of industrialized nations, such as the United States, and developing nations, such as those of Latin America and Africa. The outcome of trade talks is also important to Massachusetts companies, which export nearly $20 billion a year in goods overseas. Here is a look at the issues and impact of the global trade debate:

Q: What is the World Trade Organization?

A: The WTO is a group of nations, which now number 148, formed in 1995 to develop and administer a global trading system that would dismantle tariffs and other barriers to free flow of goods, services, and investment, based on rules agreed to by all nations.

Q: So what happened in Cancun?

WTO ministers came to Cancun with several contentious issues on the agenda, in particular agriculture. Developing nations want the United States, the European Union, Japan, and other rich nations to lower tariffs and end farm subsidies, which they say make it impossible for the agricultural products of developing nations to compete in global markets.

For example, four of Africa's poorest states, Burkina Faso, Benin, Chad, and Mali, say the $6 billion in cotton subsidies paid to farmers in the United States, Europe, and China are costing their farmers $250 million a year.

Since agricultural products are among the few exports and sources of foreign exchange for poorer nations, a group of 21 developing nations drew a line in the sand, refusing to assent to lowering barriers for other products until the richer nations agreed to steps to eliminate agricultural barriers and subsidies. Unsatisfied with the United States and European proposals, the developing nations walked out.

''These talks were not about whether free trade is good, but how to make globalization work for the poor,'' said Kevin Gallagher, a Tufts University economics professor who attended the Cancun meeting. ''The developing nations said, `If you want access to our markets, you need to end your subsidies.' ''

Q: What's the impact of the collapse of the Cancun talks?

First, nearly all agree that it makes it near impossible to meet the 2005 target date for reaching agreement on a liberalized global trading system. In the short term, it is likely to hurt global financial markets, which primarily see free trade as helping the world economy and generating new economic growth for both developing and industrialized nations.

''A global free trade agreement is very important for investor confidence,'' said Jan Randolph, chief economist for World Markets Research Center, a London-based consulting firm with offices in Lexington. ''A boost to trade is so important, and collapse of the talks doesn't help the global recovery.''

Q: What about the US and Massachusetts economies?

Much depends on whether the failure at Cancun is a temporary setback or a death blow to a global trading system. Most economists agree that free trade would mean new markets for the US economy, particularly for manufacturers, which account for about two-thirds of US exports, but are hindered by high tariffs, or import taxes, in emerging markets. India, for example, imposes tariffs that average 32.4 percent, compared to average US tariffs of 4.3 percent, according to the Manufacuters Alliance/MAPI, a public policy and research group in Arlington, Va.

Unless these disparities are eliminated, there is a growing danger of trade wars, in which nations engage in tit-for-tat tariff increases, leaving consumers to pay higher prices, with less access to goods, said Thomas Duesterberg, president of the Manufacturers Alliance/MAPI. ''The mood is dangerous,'' said Duesterberg. ''There is a lot of sentiment that the US should get tougher, and there's question of whether the forces of protection will reassert themselves.''

For Massachusetts, which is among the top 10 exporting states, opening foreign markets is also critical for its manufacturers. In addition, Massachusetts software and technology companies could benefit from likely protections to would prohibit the theft of intellectual property -- a particular problem in China, where US software and patented products are often copied wholesale.

''If the WTO is successful in implementing not just free trade, but fair trade around the world, it would mean new opportunities,'' said Linda Noonan, executive director of the Alliance for the Commonwealth, the research arm of Associated Industries of Massachusetts.

Q: So what happens next?

Nations will continue to negotiate toward a global free trade agreement and try to work out differences in advance of another meeting of WTO ministers, possibly next year. In addition, trade barriers are likely to continue to come down as the Bush administration, as the Clinton administration before it, negotiates free trade agreements with individual nations, as well as regional pacts similar to the North American Free Trade Agreement.

Robert Gavin can be reached at

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