The Competitive Edge -- Time to End the Global Gridlock

Lack of movement in world trade negotiations could be costing U.S. consumers half a trillion dollars.

World trade talks have been largely stalled since completion of the Uruguay Round in 1994. Despite the best efforts of the Clinton and Bush Administrations to galvanize a new round, progress in the World Trade Organization (WTO) has been stymied by a combination of intractable differences on agriculture and lingering distrust between the developing countries and the advanced industrial countries. Creative thinking is needed to get things moving again. This is especially important for U.S. manufacturers, who generate about 60% of U.S. exports.

Global trade is booming. Total world exports are up 138% since 2001. Economies in places like China, India, East Asia, Mexico, Brazil, East Europe and Russia are growing rapidly. The United States is especially strong in capital goods and has strong market share in this fast-growing niche. U.S. manufacturers export more than 20% of all they produce, and total goods exports are growing by around 11% this year due to the global economic boom and a weaker U.S. dollar.

U.S. manufacturers control over 40% of global production for high-tech products, while U.S. agricultural exports represent only 8% of total exports, reflecting the much smaller size of global markets. Services are about 28% of U.S. exports.

It makes little economic sense to let the agricultural tail wag the dog on trade policy. For over a dozen years, successive negotiators have attempted to open global markets further, yet have faced gridlock in the WTO largely because they cannot find a way to overcome opposition (not only in the U.S., but in Japan, the European Union and India, among many others) to opening the tightly protected agricultural markets.

Progress has been made since 1994 in bilateral free trade agreements, largely between countries without fundamental conflicts on agriculture. Another important achievement was the 1996 WTO Information Technology Agreement (ITA), which brought together willing nations to largely eliminate trade barriers in the growing high-tech sector.

The ITA provides a promising model for moving forward. In the early part of the ongoing Doha negotiations (started in 2001, just after 9/11), former U.S. Trade Representative Bob Zoellick tabled the idea of moving to free trade for nonagricultural products and far-reaching market opening for services. One advantage of placing manufacturing and services at the forefront of the negotiations is that the United States already has very low or zero tariffs on most products, and generally would stand to gain by removal of the much higher tariffs in growing economies like Brazil, India, China and Indonesia.

One way to accomplish this is to make such an agreement among a "coalition of the willing," representing the large majority, say 90%, of global trade. If this threshold were used, accord among the industrialized countries and the emerging industrial economies in Asia, Latin America and Eastern Europe would be sufficient to reach the target. If such an agreement were reached, it should be made open to anyone who wanted to join, hence opening the door to global free trade. Substantial market opening for key services sectors would also benefit the United States.

Economists estimate that at least 10% -- or well over $1.2 trillion -- of U.S. annual output is directly attributable to trade opening measures put into effect since the second World War. This could be enhanced by another 50% or more with removal of remaining barriers to global trade. Achieving free trade in manufacturing and whatever services sectors are willing would be a good start to harvesting these gains.

Dr. Duesterberg is president and CEO of the Manufacturers Alliance/MAPI, an executive education and business research organization in Arlington, Va.

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