Free Trade After Doha's Collapse

For U.S. trade negotiators, the breakdown of the Doha round of talks adds urgency to bilateral pacts with South Korea, Colombia, and Panama

by Peter Coy

Business Week

July 31, 2008

The collapse of global trade talks on July 29 proves Voltaire's aphorism that the perfect is the enemy of the good. In pursuit of the perfect—an international trade deal agreed upon by some 150 countries with vastly different goals—negotiators wound up with nothing. The way forward is likely to be via bilateral and regional agreements. A global deal, if one can be reached, may be a package of smaller agreements between subsets of the full body.

Excessive ambition may have doomed the Doha Round of trade talks, which began in November 2001. Under the World Trade Organization (WTO), the intention was to get all nations to agree to all parts of the final deal. That proved impossible, as China and India insisted on their right to protect their fragile farming sectors.

Previous trade rounds were conducted among wealthy, industrialized countries with similar interests. As the rounds grew, countries were allowed to opt out of parts of deals. The Uruguay Round, started in 1986, reached a universal agreement, but that was partly because nations that signed the deal could call themselves founding members of the WTO. That incentive was not available for the Doha Round, says Philip I. Levy, a scholar at the American Enterprise Institute and an adviser to presumptive GOP Presidential nominee Senator John McCain (R-Ariz.).

U.S. CHECKLIST

What's next? U.S. trade negotiators will shift to winning congressional approval for pending bilateral free-trade deals with Colombia, Panama, and South Korea. Levy says such pacts can be "proving grounds" for a global deal by demonstrating the economic potential of various kinds of trade liberalization.

Not that bilateral deals are a piece of cake, either. Congress has refused to act on free-trade agreements sought by President George W. Bush. And while McCain is a free trader, his Democratic rival, Senator Barack Obama (D-Ill.), has been more skeptical.

Still, the U.S. can secure better terms in bilateral deals by promising access to its vast domestic market. Such small agreements aren't perfect, but they're better than nothing.

The collapse of global trade talks on July 29 proves Voltaire's aphorism that the perfect is the enemy of the good. In pursuit of the perfect—an international trade deal agreed upon by some 150 countries with vastly different goals—negotiators wound up with nothing. The way forward is likely to be via bilateral and regional agreements. A global deal, if one can be reached, may be a package of smaller agreements between subsets of the full body.

Coy is BusinessWeek's Economics editor.

businessweek.com