World Trade May Expand Even as WTO 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.

While negotiators and some experts depicted the collapse as a setback for the global economy, others said the decades already spent lowering trade barriers, combined with technological innovations and an explosion of bilateral agreements, suggest such predictions may be overstated.

``World trade will be the same as it was before,'' said Andrew Freris, chief Asia economist at BNP Paribas SA in Hong Kong. ``The talks have been going on for 10 years now and aren't going anywhere. There's always going to be an issue of subsidies from the U.S. and European sides.''

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

Lower Tariffs

The average tariff on manufactured goods among developed nations 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.

``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, a research organization in Washington that supports free markets.

The Doha talks fell apart over triggers for safeguards that would enable developing countries to raise tariffs to protect their farmers should imports surge. The U.S. accused China and India of refusing to open their markets to foreign competition and snubbing a compromise on agriculture and industrial goods.

`Major Impact'

The failure ``will have a major impact on the fragile multilateral trading system,'' Chinese Commerce Minister Chen Deming said yesterday. It added to a ``world economic downturn, serious inflation and imminent financial risks,'' he said.

Reaching a consensus probably wouldn't have eased prices of commodities such as wheat and soybeans, which have soared to records this year, said Freris at BNP Paribas.

``Had the talks been successful, could the recent jump in food prices be avoided? Unlikely,'' he said. ``Liberalization of trade of agricultural products doesn't necessarily increase the supply of food.''

The deadlock also reflects the growing economic and negotiating might of nations including Brazil, Russia, India and China.

``BRIC countries have acquired strength in the global stage because of their rapid economic growth,'' said Tapan K. Bhaumik, chairman of economic affairs at the New Delhi-based Associated Chambers of Commerce and Industry. ``The emergence of regional trade blocs will be the way forward.''

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

`Bad Sign'

``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.''

No deal may come now before the U.S. presidential election in November. Japanese Prime Minister Yasuo Fukuda said the collapse ``has pushed back the possibility of an agreement within the year.'' WTO Director General Pascal Lamy said before the negotiations that there was no ``Plan B.''

Financial markets were unmoved by the collapse. The Standard & Poor's 500 Index yesterday added 28.83, or 2.3 percent, to 1,263.2. The MSCI Asia Pacific Index gained 1.6 percent to 132.17 as of 2:08 p.m. in Tokyo.

One result of the Doha failure may be more bilateral trade agreements. Countries from China to Chile 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.

Bilateral Deals

``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., Democrats have refused to renew President George W. Bush's fast-track trade negotiating authority, leaving the nation 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.''

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

The Doha Round collapse 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,'' said Brazilian Trade Minister Celso Amorim.

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