The Trade Paradox

Moisés Naím / The Washington Post

It's an odd situation: Free-trade negotiations are crashing, one after another, but at the same time, free trade itself is booming.

The last time official trade negotiators had reason to feel good was in 1994, when 125 nations agreed on a significant drop in trade barriers and the creation of a body charged with supervising and liberalizing international trade -- the World Trade Organization. Since then, efforts to liberalize trade through multilateral negotiations have stalled. In many countries, free-trade agreements are now politically radioactive, with imports routinely blamed for job losses, lower salaries, heightened inequality, and, more recently, even poisoned toothpaste and deadly medicines.

The domestic politics of trade reform are inherently skewed against trade deals. While the benefits of freer trade exist as promises, the costs can be real, tangible and immediate. And while the benefits of trade liberalization are widely distributed throughout the population, the costs are borne by highly concentrated groups. Cutting agricultural tariffs, for example, may benefit society at large by reducing what consumers pay for food. But it will immediately reduce the income of farmers, who will therefore have a strong incentive to organize for the purpose of derailing trade deals. The same is true of workers in factories forced to compete against far cheaper imports. These social and political realities go a long way toward explaining why enthusiasm for reaching trade agreements has dried up in many countries.

It started in 2000, when the attempt to launch a new round of trade negotiations crashed in Seattle. Those botched meetings are now remembered more for the violent clashes between police and anti-trade activists than for the fact that negotiators went home without even agreeing to start the negotiations. Ironically, the activists were protesting a deal that wouldn't have happened anyway. A year later the trade ministers met again, in Doha, Qatar, and decided to initiate a new round that they agreed would be concluded in four years. It was not to be. That deadline -- and others -- came and went, and this past June, after six years of talks, negotiators left the meetings on the Doha round and denounced each other as uncooperative.

Meanwhile, world trade continued to grow at a breakneck pace. In 2006, the volume of global merchandise exports grew 15 percent, while the world economy grew at a 3.7 percent rate. In 2007, the growth in world trade is again expected to outstrip the growth rate of the global economy. This sustained, rapid pace of trade growth has led to a more than fivefold increase of inter-regional trade in goods between 1980 and 2005. For an unprecedented number of countries, rich and poor alike, strong export growth is boosting overall economic performance.

So, what explains the surging trade flows? The short answer is technology and politics. In the past quarter-century, technological innovations -- from the Internet to cargo containers -- have lowered the cost of trading. And in the same period, an international political environment more tolerant of openness created opportunities to lower barriers to imports and exports. China, India, the former Soviet Union and many other countries launched major reforms that deepened their integration into the world's economy. In developing countries, import tariffs dropped from an average of 30 percent in the 1980s to less than 10 percent today.

Indeed, one of the surprises of the past 20 or so years is how much governments have unilaterally lowered obstacles to trade. Between 1983 and 2003, 65 percent of tariff reductions in the world occurred as a result of governments deciding that it was in their own interest to lower their import duties, 25 percent as a result of agreements reached in multilateral trade negotiations, and 10 percent through regional trade agreements with neighboring countries.

So, who needs free-trade agreements?

We all do. Although trade may be booming, giving up on lowering the substantial trade barriers that still exist would be a historic mistake. Even the more pessimistic projections show that the adoption of reforms such as those included in the Doha round would yield substantial economic gains, anywhere from $50 billion to several hundred billion dollars. Moreover, according to the World Bank, by 2015 as many as 32 million people could be lifted out of poverty if the Doha round were successful.

But it isn't just the money. As the volume of trade continues to grow, the need for clearer and more effective rules becomes more critical. In this century, the quality of what is traded will be as important as the need to lower tariffs was in the last. The recent cases of deadly medicines and toxic toothpaste coming out of China prove as much. No country acting alone stands as good a chance of monitoring and curtailing such lethal goods as does the WTO, working in concert with governments across the globe.

Moreover, a rules-based system accepted by a majority of nations can protect smaller countries and companies from the abusive practices of bigger nations or large conglomerates.

Despite all the misgivings about international trade, countries where the share of economic activity related to exports is rising grow 1.5 times faster than those with more stagnant exports. And although we know that economic growth alone may not be sufficient to alleviate poverty, we have also learned that without growth, all other efforts will fail.