Trade Talks' Failure Weighs on Other Issues

Global Cooperation Falters, Clouding Hopes on Emissions

By BOB DAVIS in Washington and JOHN W. MILLER in Geneva

Wall Street Journal

July 31, 2008; Page A10

The demise of the Doha world trade talks because of splits between wealthy and developing nations suggests other global undertakings, from slashing greenhouse-gas emissions to ending food-export restrictions, also will face hurdles.

Efforts at global cooperation are all grappling with the same forces: a resurgence of nationalism across the globe, muscle-flexing by emerging economic giants such as China and India, and a fraying of the Cold War ties that bound many developing countries to the U.S. and Europe. "The way the Doha Round collapsed is a preview of what we're likely to see in other negotiations," said Kimberly Elliott, a senior fellow for the Center for Global Development, a Washington think tank. "Emerging markets [such as China and India] are taking a big role," she said, sometimes elbowing out even poorer nations.

"If the Doha Round repeatedly fails, this will cast doubt on the ability of all parties to find solutions to complex problems, such as climate change, high oil prices and food prices within a global framework," said a commentary by China's official Xinhua news agency.

The Doha Round collapsed after China and India insisted on having the right to reimpose tariffs -- or raise them -- if there were a surge in food imports. In terms of impact on economic growth, the issues at stake in the round were fairly small compared to the global-warming debate. Limiting the rise of greenhouse gases could hit growth by forcing industry to retool factories and consumers to alter lifestyles. That sacrifice could prompt an even fiercer reaction from New Delhi and Beijing.

The U.S. is similarly worried about how a global climate-change regime would affect economic growth. During Senate discussion recently on a plan to cap emissions through a system of tradable pollution permits, much of the focus was on how to penalize countries such as China and India if they didn't also limit emissions. Essentially, the bill would have imposed tariffs on imports of steel, iron, glass, cement and paper from such countries. "There is more support in the Senate for the import [restriction] provision -- a China bashing measure -- than the overall cap-and-trade system," said Robert Stavins, a Harvard University expert on global-warming policy

The U.S. cap-and-trade measure failed on a procedural vote. But a version of the bill is bound to come up again next year because both presidential candidates back cap-and-trade systems.

Negotiators had been working on a Doha trade agreement for seven years, and often stalled. At this week's Geneva trade summit, the parties seemed closer than ever to reaching a deal because the U.S. and Europe had made long-sought concessions on agricultural subsidies. They hoped to entice developing nations to open their markets further to U.S and European manufacturers and service companies. Brazil, a leader among developing nations and a big agricultural exporter, signed on. Despite intense pressure to go along, India and China balked.

Under World Trade Organization rules, all 153 members must agree on a deal. In practice, only the economically important players get a real say. No African country was among the seven nations that conducted most of the negotiations. The issue of U.S. cotton subsidies, which is of vital interest to Africa's four cotton-producing nations, wasn't even discussed.

The failure of the talks isn't likely to have big effects immediately on the flow of world trade or on economic growth. Outside of agriculture and textiles, trade barriers generally are low globally because of decades of tariff cutting. But the consequences of the failure were still significant because of the message about the difficulty in reaching global agreements.

"This is the first failure of a multilateral trade agreement since the 1930s," an era of protectionism, said Fred Bergsten, director of the Peterson Institute for International Economics. The absence of trade liberalization, he predicted, would lead to an increase in efforts to protect domestic industries around the globe from competition. Although WTO chief Pascal Lamy held out hope that the talks could be revived once again, European Union Trade Commissioner Peter Mandelson said the Geneva talks represented a "burial" for the Doha round.

Given the U.S.'s leading role in trade policy, the Doha failure essentially hands off the issue to the next president, who is unlikely to make it a top priority. Daniel Tarullo, a Georgetown University law professor who advises Sen. Barack Obama, said "U.S. negotiators were right to walk away from what was shaping up to be a bad deal for the United States," although he said negotiators "should not abandon their efforts." Philip Levy, an American Enterprise Institute economist who advises Sen. John McCain, said the inability to reach a deal "calls into question some of the underpinnings of the global trading system."

Instead of global deals, patchwork efforts on global trade issues may become the norm. In another area of global concern -- the barriers to food exports erected by several dozen countries in response to rising prices -- the World Bank has tried to persuade countries individually to change their policies by appealing to their national interests. The bank's president, Robert Zoellick, a former U.S. trade representative, argued to countries that they will wreck their credibility as exporters if they cut back in times of global trouble.

Future trade deals may focus more on narrower national interests, rather than Doha-style talks that call for countries to make concessions in one area to make gains in another. One possible model is a kind of "coalition of the willing" approach. The model is the Information Technology Agreement signed in 1996, which set zero tariffs on new technology goods for countries that signed on. About half the WTO's members have done so.

--Charles Forelle in Brussels and Andrew Batson in Beijing contributed to this article.

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