- The Washington Times - Thursday, November 17, 2005

Negotiators at the World Trade Organization are struggling to move the Doha Round of trade negotiations forward. According to recent reports, WTO members are increasingly unlikely to reach agreement on key issues before an important December meeting in Hong Kong. But this short-term setback may ultimately benefit the world trading system.

So far, the negotiations have followed a predictable pattern. The United States is pushing the European Union to limit its agricultural subsidies and to open its market to imports of food products. The EU claims it can make concessions only if the U.S. is willing to open its market even more. Both the U.S. and the EU are seeking lower tariffs from the developing countries. If the pattern holds, the U.S. will largely give way, the EU will change its agricultural regime superficially, developing country concessions will be minimal, and negotiators will begin planning the next round of talks.

Such an outcome would be unfortunate. The negotiations follow the paradigm of last century, while ignoring two major developments that have fundamentally changed the landscape of international trade: the emergence of China and the inability of the U.S. to continue absorbing an infinite amount of imports.

Since the Doha Round began in November 2001, China has become the world’s factory, with its exports flooding markets across the globe. China’s success, however, does not reflect true comparative advantages such as lower labor costs. Rather, China has systematically manipulated the value of its currency, the RMB, to keep it well below its real value. This makes Chinese exports cheaper than otherwise, while making imports to China more expensive.

China’s currency policies are simply one aspect of a pervasive problem. Although China has some market economy features, the government still has the decisive role in economic decisions. Through control of the banking system, the Chinese central and provincial governments can provide Chinese manufacturers essentially free money in rarely repaid loans from state-owned banks, as well as enormous direct subsidies.

China’s economy differs fundamentally from those of most other WTO members. These differences have made China extremely disruptive in international trade. Ironically, the countries that have suffered the most from China’s policies are the other developing countries, which have seen Chinese products muscle them out of their export markets. Yet the Doha Round has failed totally to address this.

The continued focus by the EU and other countries on even easier access to the U.S. market also reflects the old approach. These countries presume they can escape their economic doldrums by exporting more to the United States, and that the U.S. can absorb infinite imports. This is no longer true.

The United States is on track to have a trade deficit of more than $700 billion this year — evidence its market has been more open than most other countries. To complicate matters further, the federal government is running a budget deficit of more than $300 billion, consumer debt is greater than disposable income, and the personal savings rate is negative.

It is uncertain the United States could afford substantial additional imports without triggering an offsetting decline in the dollar’s value. A weaker dollar would make it more difficult for foreign countries to export to the United States

The Doha Round in its current form is unlikely to provide significant benefits for U.S. manufacturers or farmers. Despite the talk of opening up foreign markets for U.S. agriculture, unfortunately the real liberalization beneficiaries will be a few multinational trading companies, not American farmers. U.S. corn, cotton, wheat, and beef farmers could actually see exports fall and imports rise.

Similarly, U.S. manufacturers are unlikely to benefit much from lower tariffs in developing countries; these countries will still have relatively high tariffs, and American products must compete with Chinese exports’ artificial advantages.

Following the old paradigm for negotiations will not succeed. The Doha Round must address China’s disruptiveness in the world economy, or the round will be irrelevant at best and counterproductive at worst.

As frustrating as it may be to change course after four years of negotiation, the most productive step the United States and the other members of the WTO could now take would be to pause, step back and carefully consider how to address the issue of China in the world economy.

Dan DiMicco is president and chief executive officer of Nucor Corp.

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