- The Washington Times - Tuesday, May 16, 2006

Call it the paradox of economic growth and world trade. Virtually all economists agree that the massive trade liberalization of the post-World War II era has been an indispensable factor in the explosion of postwar growth and prosperity and the unprecedented reduction in mass poverty. With the global economy in the midst of a major boom, however, progress has once again stalled in the pursuit of a multilateral agreement in the Doha round of trade-liberalization talks.

After growing by 5.3 percent in 2004 and 4.8 percent in 2005, the world economy is projected to expand by 4.9 percent this year and 4.7 percent next year, according to the latest forecast by the International Monetary Fund. The product of past trade rounds, increased globalization has played a major role in today’s worldwide boom. But now efforts to energize that globalization are in danger of failing. The result could be a protectionist backlash that could reverse some of the huge gains of past trade rounds.

With Western Europe and Japan finally participating in the global expansion, the stage should be set for addressing some of the remaining major barriers to world trade. After all, when the pie is bigger today than it was yesterday and certain to be bigger tomorrow than it is today, it should be easier to distribute the ever-larger slices. The paradox is that the world’s current cyclical growth spurt has regrettably taken some pressure off negotiators in the Doha round from making the tough compromises to get the trade deal done. Thus, even though everyone knows that trade liberalization will enhance global growth over the long run, the world’s economic actors see little incentive in the short run to negotiate.

For decades throughout the second half of the 20th century, export-oriented nations like Japan and South Korea, once flat on their backs, saw their per capita incomes soar. Meanwhile, other nations, such as India and Mexico, during much of the same period pursued ill-advised import-substitution growth models that left their citizens mired in poverty and their economies strangled by inefficiency, overregulation, bureaucracy and corruption.

Launched in the aftermath of September 11, the Doha round was to be about helping poor, developing countries attach their economies the global engine of growth. Everybody knows what must be done to rescue these talks from failure. The United States must reduce its farm subsidies. The E.U. must lower its agriculture tariffs and quotas. The more advanced developing countries, such as India and Brazil, must cut their tariffs on industrial products and open their economies to trade in services. Poor developing countries must be persuaded that their general refusal to enact tariff cuts will prove to be as self-defeating as the failed import-substitution model. If these compromises cannot be made in a time of plenty, when will they be made?


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