Trade Talks' Failure Seen As Blow To U.S. Economy

The latest round of talks aimed at breaking down world trade barriers has collapsed, a failure that economists say could hurt the struggling U.S. economy as well as the developing nations the talks were designed to help.

The deadlock comes at a time of soaring food prices, shocks to world financial markets and fears of a deeper economic downturn.

Economist C. Fred Bergsten says the failure of the talks means an end to negotiations, at least for this year. Bergsten, the director of the Peterson Institute for International Economics, says talks could be resurrected next year, but that would depend on a newly elected U.S. administration and new European leadership.

Bergsten says Tuesday's collapse of the "Doha" talks — so-called because they began in Doha, the capital of the Persian Gulf state of Qatar — is the first failure of a major international trade negotiation since the 1930s, and the implications could be particularly serious for the U.S. "At a minimum," he says, "we forego big opportunities to expand our exports" at a time when the weak U.S. dollar makes American goods cheaper overseas.

India, China Unwilling To Give Up Barriers

Bergsten says there's blame to go around, but he called India and China the "biggest villains" because they were unwilling to give up trade barriers that protect their agricultural products, services and manufactured goods.

U.S. Trade Representative Susan Schwab said the two countries were practicing "blatant protectionism," calling it "ironic" that India and China would seek to block foreign agricultural products at a time when their own people face rising food prices.

India's trade minister, Kamal Nath, fired back that his country was providing "livelihood security" for its poorest farmers. Representatives from developing nations have accused the U.S. and other Western countries of maintaining subsidies to their own farmers while trying to pry open markets in poorer parts of the world.

Bergsten says both the U.S. and the European Union offered too little too late to get the talks moving seriously. For instance, he says, the Bush administration should have made a "bolder" proposal six to 12 months ago, offering bigger reductions in government subsidies to American farmers.

Instead, he says, the administration waited until after Congress passed an agriculture bill that kept many subsidies to farmers and even expanded some of them. Bergsten says the European Union was also unwilling to reduce its import barriers, despite making some last-minute concessions.

Talks Were Aimed At Helping Developing Countries

The Doha talks have been under way for seven years. It was hoped that they would particularly help poorer countries by enabling them to sell more agricultural goods to industrialized nations. In return, the U.S., the European Union and Japan would be freer to sell manufactured goods and services to the developing world.

Negotiators in Geneva, who bargained for nine days in hopes of reaching a compromise, say it was a painful failure because many felt they were closer to an agreement than they had been in years. There was also a built-in deadline of sorts: the U.S. will change administrations at the end of the year, causing at least a temporary lapse in focus on the trade talks.

Doha Talks Losing Relevance?

In terms of "what's next" for world trade negotiations, Bergsten says, "there's lots of thinking to be done. The truth is that the Doha round of talks was seven years old and was not addressing some of the key trade issues facing the world."

As an example, Bergsten cites the trade dimension of global warming. He says any new initiative on climate change will have to consider the effect that cutbacks in polluting industrial activities will have on world trade.

Although U.S. Trade Representative Schwab expressed deep disappointment at the end of the meetings in Geneva, she seemed unwilling to write off the entire seven-year effort completely.

Asked whether the Doha round of talks was over, she responded, "I didn't say that."

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