WTO Failure Spurs Regional Alliances at Expense of U.S.

The failure of global trade talks in Seattle has sent governments around the world scrambling to strengthen economic ties with their neighbors, accelerating a trend that trade experts say could undercut U.S. influence and opportunities abroad.

Responding to what they see as a protectionist backlash in Washington, leaders in Latin America, Asia and Europe began beefing up their regional or country-to-country preferential trading arrangements within days of the collapse of the World Trade Organization talks in early December.

While trade critics hoped their massive demonstrations in Seattle would slow the rush to tear down borders, these governments are seeking to reduce their dependence on a lucrative U.S. market where labor unions and environmentalists have declared war on the borderless economy.

In a speech to leaders of Latin America’s Mercosur trade bloc immediately after the Seattle debacle, Brazil’s President Fernando Henrique Cardoso said the WTO failure “showed how much we have to gain with a strengthening of our ties within Mercosur.”

The four-nation Mercosur group last week agreed to begin working on a coordinated monetary policy that might include controls on the flow of money across their borders, a move strongly opposed by the United States. Japan launched talks on a free trade agreement with Singapore similar to pacts it is pursuing with South Korea and Mexico. And Europe announced a plan to tighten control over the Internet economy, which runs counter to the hands-off attitude being pushed by Silicon Valley.

“Generally, there’s a feeling they’ve [foreign governments] been dancing to the Washington economic music long enough and it’s time to create their own situations on the trade side,” said Gary Hufbauer, a senior fellow at the Washington-based Institute for International Economics.

These special trade agreements have the effect of penalizing countries that do not belong. Thus, such key U.S. exports as agricultural products and chemicals could face higher tariffs--and be more expensive--than competing products made by nations within the regional trade alliances.

The rush to expand such agreements does not represent a wholesale rejection of the global trading system. But they could lead to the Balkanization of the global economy that the architects of the beleaguered Geneva-based WTO had hoped to avoid, warn trade experts.

“If governments don’t move fast to moderate the effects of globalization . . . it will look more like the rule of the jungle than the rule of law,” warned John Weekes, ofAPCO Associates Inc., a Washington-based consulting firm, and Canada’s former ambassador to the WTO.

These regional initiatives could undermine U.S. influence abroad at a time of growing resentment toward perceived Yankee imperialism. They could also give foreign firms advantages over their U.S. competitors in some of the fastest-growing markets in the world.

“This really means other people will be doing deals in which the United States won’t be a beneficiary,” added Weekes.

Clinton administration officials remain hopeful that the WTO will move quickly to resurrect the failed trade talks. But few others are optimistic the WTO will get back to the table in a “meaningful way” in a U.S. presidential election year, says a key Japanese trade official.

The Seattle talks foundered on a worsening split between rich and poor nations and on intractable disputes among the U.S., the European Union and Japan over such issues as farm subsidies, anti-dumping laws and wood products.

Not everyone finds a shift away from the global trading system alarming. Greg Mastel, a trade analyst at the New America Foundation, a Washington think tank, argues that the WTO needs a serious overhaul before it ventures further.

Mastel believes the U.S. is better off strengthening its own regional alliances, such as NAFTA, and using them to influence trade policies elsewhere.

“The U.S.-Canada agreement broke ground on some key issues, such as investment and trade, that set a pattern to help the WTO address these issues later,” he said.

But others fear the U.S. is headed into a more protectionist, isolationist era, when any measures to lower barriers to trade in goods and services are rejected, spurring retaliation against U.S. firms.

Even before Seattle’s streets became a battleground for anti-globalization forces, the Clinton administration had suffered serious defeats in expanding its free trade agenda.

This perceived cooling of U.S. sentiment toward free trade had already caused actions by other governments. Mexico has reached trading deals with Europe and six of its Latin neighbors. Canada has signed a pact with Chile.

And last week, finance ministers of Mercosur, which includes Brazil, Argentina, Paraguay and Uruguay, introduced measures designed to move their region toward a common currency and agreed to accelerate efforts to add the Andean Pact countries of Chile, Venezuela, Colombia, Ecuador and Peru. Mercosur is also part of a 46-nation Latin American group that signed an agreement in November to establish a special trading arrangement with the EU.

Fearful of being left behind, Asia’s hard-hit economies are also pushing similar measures.

In addition to Japan’s announcement last week of a pact with Singapore, the Japanese are pushing ahead with a $30-billion Asia fund to provide low-cost loans in the region. They are also lobbying their neighbors to support Eisuke Sakakibara, a former Japanese deputy finance minister, as the next head of the International Monetary Fund.

At a meeting in Manila immediately preceding the Seattle WTO conference, 10 Southeast Asian nations invited Japan, China and South Korea to join in an economic alliance that could lead to an EU-style economy and common currency.

To be sure, Asia is too dependent on America’s vast market and technology to go its own way, according to Mike Mullen, director of the Seattle-based National Center for APEC (Asia Pacific Economic Cooperation).

“They’re just not going to do anything that’s going to be so inimical to us that it would damage their access to what’s for them their most important market,” he said.

The most serious regional threat to U.S. firms could come from Europe, the world’s largest economic bloc.

It could be felt quickly in Internet commerce, which the Clinton administration sought unsuccessfully in Seattle to protect from regulatory burdens.

With the WTO in disarray, the EU last week launched its own e-commerce initiative that would begin to set Internet standards. In the absence of global trade rules, Silicon Valley fears other regions are likely to follow suit, creating a hodgepodge of government regulations, taxes and standards that would hamstring the tech industries now dominated by the U.S.