Global trade liberalization is dead in the water. No serious reduction in barriers is being negotiated anywhere in the world.
The resulting policy vacuum is extremely dangerous. History clearly reveals that trade policy either moves forward toward greater openness or retreats in the face of protectionist pressures. Restoration of positive momentum is urgently needed.
Worrisome signs abound. The European Union has restricted numerous agricultural imports. The Brazilian crisis has triggered new barriers in Latin America. Japan has blocked an effort by the Asia Pacific Economic Cooperation (APEC) forum to liberalize a number of major sectors.
The central problem, however, is the stalemate over trade politics in the United States. The president and Congress have been unable to work out new negotiating authority for five years. Hence the United States cannot provide effective leadership of the international trading system.
The United States is in fact leaning more toward limiting trade than liberalizing it. President Clinton rejected China's offer to dramatically open its economy to get into the World Trade Organization (WTO), largely because he wants to keep restraining its most competitive products. The House overwhelmingly passed (though the Senate subsequently rejected) quotas on steel imports. Anti-dumping suits are proliferating. The administration has sharply raised tariffs on lamb. Its legislative focus seems to be shifting toward easing the path toward future protection.
This policy drift in the United States is particularly alarming because it coincides with our robust economic performance. It has also occurred when many of America's toughest competitors are in deep economic trouble, further improving our competitive position. The outlook for American trade policy is thus extremely worrisome once the economy slows down and unemployment begins to climb, and when our competitors make their inevitable comebacks.
Hence the domestic stalemate is unlikely to be broken soon. Labor unions, a few industries, some environmental groups, the majority of House Democrats and some right-wing Republicans oppose globalization. The bulk of the business community and most Republicans support liberalization but have been unwilling to compromise even on legitimate labor and environmental complaints. The administration, which is usually decisive on trade policy, has frequently pandered to the anti-globalization forces. The latter have won the last several battles and are girding for more.
Even a free-trade Republican president would have great difficulty restarting liberalization unless he brought a strong House majority with him. A Democratic majority in the next House would ensure prolongation of the stalemate. In any event, it will take some time to implement essential programs to allay legitimate concerns over globalization: mainly domestic safety-net improvements to ease transitions triggered by job dislocations, and improved education and training programs to enable American workers to take advantage of globalization rather than feel victimized by it.
In the meantime, most hopes for restarting trade progress are pinned on the Ministerial Conference of the WTO in Seattle in December. The major powers, including the United States, have agreed to launch a new global negotiation. However, they remain far apart on what it should contain. A number of developing countries oppose the whole project. The antiglobalization groups will be out in full force at Seattle.
In any event, no serious WTO negotiation can take place until Congress provides "fast track" authority for the president. The administration rightly notes that a new "round" can start without such authority. But the Europeans and others will not take on the internal battles needed to liberalize their sensitive sectors until the United States is ready to bargain -- and they note that Congress has already rejected "fast track" twice. The countries of this hemisphere "launched" negotiations for a Free Trade Area of the Americas over a year ago, but nothing has happened because of the U.S. stalemate.
At the recent APEC summit, a like-minded group consisting of Australia, Chile, host New Zealand, Singapore and the United States discussed the creation of a "Pacific Five" free trade zone. Such an initiative could sidestep the U.S. stalemate; like its initial free trade partners Canada and Israel, none of the countries involved are "low wage competitors." Nor do they raise problems of labor or environmental standards. Such negotiations could proceed without "fast track" under detailed procedures laid out in legislation already submitted by a group of key House leaders.
The P-5 approach would also help the United States defend itself against new preferential pacts by others. The European Union is negotiating new relationships with Mercosur and Mexico. Canada and Chile already have a free-trade area, which has cost American companies at least one major contract, as do Australia and New Zealand. Korea and Chile are in the process of negotiating a bilateral deal, as are Singapore and New Zealand. Japan and Korea have discussed the prospect at the highest level. Japan is studying the possibility with Canada and Mexico. Such deals that would discriminate against the United States are yet another costly manifestation of its withdrawal from international liberalization efforts.
A subregional arrangement such as the P-5 is of course inferior to wider reduction of barriers in the WTO, APEC as a whole or an FTAA. Its terms would indeed have to permit it to be rolled into such broader arrangements later. A P-5 could stimulate more extensive liberalization almost immediately, however, as other countries seek to avoid new discrimination in the lucrative United States market. Earlier groupings, notably the European Union and NAFTA, have been similar "building blocs" for catalyzing more extensive trade progress.
Some observers fear that launching a "P-5" now could undercut the effort to start a new global negotiation at Seattle. The opposite effect is much more likely: Europe and other reluctant liberalizers would recognize that the United States and its Pacific allies were contemplating alternative devices that would shut them out, and thus would be compelled to bargain seriously in the WTO.
It is urgent to restart the global momentum toward opening markets. The United States must resume leadership of the international trading system, for broad foreign policy as well as economic reasons. President Clinton indicated publicly in New Zealand that he viewed the P-5 "as a very interesting idea" and promised to respond to his host's initiative on it "in a couple of weeks." The P-5 offers the most promising way to proceed for the foreseeable future.
The writer is director of the Institute for International Economics.