[Ip-health] Wall Street Journal: At a Crossroads: Failed Trade Talks Cloud WTO's Future

[Thiru Balasubramaniam]

At a Crossroads:
Failed Trade Talks
Cloud WTO's Future

By *GREG HITT*
July 31, 2006; Page A2

The collapse of global trade talks last week forces the world's big
economies to seek new ways to pursue their quest for lower barriers to
trade. It is far from clear that the World Trade Organization, the
149-nation organization that has been the forum for the talks, is up to
the task.

Indeed, the WTO is at risk of becoming a 21st-century version of the
League of Nations: a well-intentioned experiment in global governance
that slides into irrelevance.

The trade talks reached an impasse last week amid disputes over how
deeply to cut tariffs on farm products and farm subsidies. The inability
to bridge those differences stalled parallel talks on services and
industrial goods. WTO chief Pascal Lamy, faced with a snarl nearly five
years in the making, suspended negotiations.

"The WTO really is at a crossroads," says Grant Aldonas, who was
undersecretary of commerce for international trade in President Bush's
first term. He says the collapse of the Doha Round of world trade talks,
unless they're revived, sets the stage for the "steady erosion of the
WTO's role as the principal forum for addressing not just trade, but the
broader process of globalization."

When the WTO's predecessor, the General Agreement on Tariffs and Trade,
was set up after World War II, it was ruled by the U.S. and, to a lesser
degree, the major economies of Western Europe. When they agreed, they
could bludgeon other nations to follow suit. Consensus was easier to
come by. Through eight rounds of negotiations beginning in 1948, tariffs
and trade barriers fell steadily. By the end of the 20th century, world
trade -- as measured by the value of goods that cross borders -- was 22
times what it had been in 1950.

That day is gone, and trade barriers aren't falling as rapidly. New
nations have risen to economic prominence and demand a voice in setting
the rules of trade. Unlike the United Nations and International Monetary
Fund, where big countries have a veto or more voting power, any single
country in the WTO can scotch any deal. "Operating on the basis of
consensus, with 149 countries, is a stretch," says U.S. Trade
Representative Susan Schwab. "That dynamic is pretty darn complicated."

A further complication is that the WTO isn't just a body that legislates
world trade rules. It is also the court that enforces them, a task at
which it has had some success. The deal that created the WTO in 1994 did
away with a less-confrontational approach in which countries could
ignore trade rulings. Now member nations are bound to follow WTO rulings.

But that has led to problems. Under the WTO's predecessor, disputes were
frequently mundane. But the WTO has added such contentious issues as
agriculture subsidies and intellectual-property rights. On Capitol Hill,
lawmakers have grudgingly supported the WTO.

A core group in Congress has always viewed the WTO as an international
expression of support for the rule of law, and that has buttressed the
case among lawmakers for talks led by the group. But the WTO left a bad
taste in the mouths of some Americans when it overturned a special tax
break for U.S. multinational corporations with big export businesses to
comply with a ruling on a complaint filed by the European Union;
Congress never likes to see its -- or America's -- power constrained by
foreigners.

The collapse of the Doha trade talks probably means the WTO is heading
for trouble as it approaches more difficult issues, including some
touchy disputes that had been kept out of its dispute-resolution
mechanism in the hopes that Doha Round diplomacy would solve them.

Brazil, for instance, is considering whether to ask the WTO for
permission to impose $1 billion in damages on the U.S., as compensation
for cotton subsidies the WTO has ruled are illegal. Action on the
penalties had been delayed, amid the focus on the larger talks.

Similar cases could be brought against the U.S. over corn, rice and
sorghum. The EU is exposed to complaints involving tomatoes, wine and
butter, among others.

To the degree that the WTO rules on items that are close to the heart of
national sovereignty, support for the institution will wither, and with
it the WTO's mandate to promote growth and fight poverty. "There's no
question about it: that's very problematic," says John Engler, president
of the National Association of Manufacturers.

The U.S. never joined the League of Nations. It stood by as the
institution faded slowly into irrelevance, unable to meet the diplomatic
and military challenges gathering ahead of World War II. So far, the
world still looks to the WTO as the only honest referee in the global
trade game, and the U.S. insists that the organization remains a vital
cog in the global economy.

Perhaps the bright side of the collapse of the trade talks is that
trade-dependent nations may be jolted into attention and redouble their
efforts to reach a compromise. That might be enough to save the WTO and
recommit major economies to reducing trade barriers and smoothing the
tensions that cast a shadow over a globalizing economy.

*Write to* Greg Hitt at greg.hitt@wsj.com <mailto:greg.hitt@wsj.com>^1