The current round of trade talks was launched in 2001 at Doha, Qatar, an authoritarian location conveniently off-limits to protesters. It was billed as a "development round" -- something for poor countries.
The U.S. government was promoting its latest grand bargain. Emerging economies like India and Brazil, which limit the ability of foreign capital to use their economies as speculative playgrounds, should fling their doors open. In return, the United States and Europe would cut farm subsidies, so Third World nations could export more agricultural products.
This was described as a win-win deal: good for Third World farmers, for U.S. and European investors, poor countries that need foreign capital, and good for consumers. But talks were suspended this week because the parties could not agree on a formula. The press has reported this largely as greedy U.S. and European farmers influencing governments to refuse to cut subsidies. However, a World Bank study in 2005 concluded that when all the costs and benefits were added up, the deal would be a net loser for most developing countries, and benefit mainly rich ones.
The trade agenda has been set by business elites who would impose one economic model on the world -- the model of laissez-faire. This model rejects more than a century of Western history, during which democracies have relied on government regulation and social investment to temper the instability and income extremes of a pure market economy. The elite model would also coerce Third World countries to give up their successful development strategies, in which government helps local business develop new technologies and markets, and fledgling economies are sheltered from foreign speculation.
To the extent that Third World countries have already given in to U.S. pressures, results have often been disastrous. East Asia's economic meltdown of 1998 was largely caused by too abrupt an opening of local financial markets. Speculative capital poured in, overheating local economies; then, when the winds shifted, it poured right out, sinking economies that were otherwise sound. Much the same thing happened to Mexico.
Current trade rules make it too easy for global business to deny workers in both poor and rich countries the fair fruits of their labors, despite rising productivity. U.S. multinationals outsource in search of cheaper labor. China runs a huge trade surplus, in part by denying its workers fundamental rights and decent wages. This puts downward pressure on wages in the United States, Europe, even Mexico.
To appreciate the business domination of the trade agenda, consider the fates of property protection and labor protection. The U.S. government, prodded by business, successfully fought to add enforceable protections of patents, trademarks, and copyrights to trade negotiations. It just as fiercely resisted adding labor protections. A realistic trade negotiation agenda would address these questions:
It embarrasses free-trade ideologues that the most successful emerging economies like Japan, Korea, and more recently Brazil, India, and China, have generated their own domestic savings and entrepreneurs, and have not relied much on foreign investors. This has both produced high rates of growth and insulated them from imported instability.
The West has a fair complaint that if these nations want access to our more open markets, they need to show greater reciprocity -- but in product markets, not capital markets. America's structural trade imbalance reflects the failure of U.S. leaders to negotiate a reasonable buffer with nations that export to our open system while they practice more closed systems. In the end, the trade round stalled not just because the United States and Europe failed to agree on farm policy, but also because key leaders of developing countries weren't keen on the whole approach. It wasn't such a great deal for most Americans, either. A true grand bargain would address not just the needs of American business, but of working people everywhere.
Robert Kuttner is co-editor of The American Prospect. This column oringinally appeared in the Boston Globe.
