World Trade Likely to Expand Even as WTO Tariffs Talks Sputter

By Mark Drajem and Jennifer M. Freedman

July 30 (Bloomberg) -- The collapse of global trade talks for the third time in as many years may be only a bump in the road for world commerce, which continued to expand while negotiations sputtered.

Global markets shrugged off the announcement yesterday that trade ministers at the World Trade Organization in Geneva failed after nine days of talks to agree on a plan to cut agriculture subsidies. The sticking point was a difference between the U.S. and India over how poor nations could opt out of tariff cuts when encountering a surge of imports.

Negotiators and some experts depicted the collapse as a serious setback that will harm the global economy amid turmoil in the financial markets. A half century of global trade liberalization, technological innovation and an explosion of bilateral agreements suggests such predictions may be overstated.

``In the short and medium term this won't have any impact at all on trade volumes,'' said Claude Barfield, a scholar at the American Enterprise Institute in Washington.

When the Doha talks started in November 2001, the World Bank estimated that a deal would inject as much as $850 billion annually into the global economy. The WTO estimates the value of a deal now is $50 billion to $100 billion, a rounding error in a global economy of about $54 trillion.

The average tariff on manufactured goods among developed nations has dropped to less than 5 percent today from 40 percent in 1947, according to the International Monetary Fund.

Trade grew by almost 6 percent a year over the past decade, exceeding global output by 2 percentage points, according to the WTO. The rate of trade growth will probably fall to 4.5 percent this year, not because of the impasse in trade talks but because of ``financial market turbulence,'' the WTO said in April.

Safeguards

The Doha talks fell apart over triggers for safeguards that would enable developing countries to raise agricultural tariffs to protect their farmers in case of a surge in imports.

``I am very disappointed that we were unable to finish the round,'' said Brazilian Trade Minister Celso Amorim. ``I would not have thought that everything would hinge'' on the special safeguard measures.

Negotiators in Geneva said the collapse may unnerve an already shaky global economy, set back the world's poorest farmers and undermine the credibility of the World Trade Organization.

``It's a very bad sign to give at this time to the world economy,'' said Shada Islam, a trade expert at the European Policy Centre in Brussels. ``People had been looking to the WTO for a sign of confidence at this very critical time in the world economy.''

No deal may come now before the U.S. presidential election in November. WTO Director General Pascal Lamy said before trade ministers began negotiations that there was no ``Plan B.''

Markets Unmoved

Financial markets were unmoved yesterday by the collapse.

``I haven't seen it work its way into the Treasury market,'' said Sean Simko, who oversees $8 billion at SEI Investments Co. in Oaks, Pennsylvania.

The Standard & Poor's 500 Index added 28.83, or 2.3 percent, to 1,263.2. The Dow Jones Industrial Average gained 266.48, or 2.4 percent, to 11,397.56, while the Nasdaq Composite Index increased 55.4 to 2,319.62.

One result of the Doha failure may be more bilateral trade agreements. Countries from China to Chile, Colombia to Canada are already pursuing their own paths.

When the Uruguay round of trade talks ended in 1994 there were 80 bilateral free-trade acts. Since then, that number has more than doubled and will reach 400 by 2010, the WTO predicts.

Unpopular With Voters

``If Doha doesn't work, bilateral deals matter even more,'' Jagdish Bhagwati, a senior fellow at the Council on Foreign Relations, who published a book critical of such free-trade deals. ``What they do is cut up so many markets, so you get a huge chaotic mess.''

In the U.S., the world's largest trading nation and the leader of efforts over the past 60 years to cut barriers to commerce, trade deals are unpopular with many voters. Democrats have refused to renew President George W. Bush's fast-track trade negotiating authority, leaving the U.S. on the sidelines for bilateral deals.

Congress won't approve pending deals with Colombia, South Korea and Panama.

``We're not going to do anything until after this session is over,'' Kansas Republican Senator Pat Roberts said at a Senate Finance Committee hearing yesterday. ``Then we're back next year at square one with a new president.''

`Won't Lie Down'

The U.S. isn't suffering. U.S. exports rose more than 18 percent to $768 billion in the first five months of this year, and that is a key to keeping the U.S. economy out of a recession, according to Jim O'Neill, global head of economic research at Goldman Sachs Group Inc.

The Doha Round collapse this week may not really mean it's all over. Ministers from the U.S., India and Brazil said a new effort should follow. The WTO ``should make another try,'' Amorim said.

Former U.S. Trade Representative Carla Hills yesterday recalled the words of her former counterpart from Canada, John Crosbie, after Uruguay Round talks fell apart in 1990.

``She's dead, but she won't lie down,'' Crosbie told Hills.

Four years later the Uruguay Round was completed.

To contact the reporters on this story: Mark Drajem in Washington at mdrajem@bloomberg.net; Jennifer M. Freedman in Geneva at jfreedman@bloomberg.net