Sun, Jun 01, 2003 page12

• Globalization hits speed bump

  The movement of people and goods was supposed to become more fluid, but the failure of that promise, tensions over Iraq and multinationals' pressure on officials have slowed trade liberalization

  • By David Leonhardt / NY TIMES NEWS SERVICE
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  When the leaders of rich countries put on their dark suits and gather, as they are this week in Evian, France, barriers to world trade often begin falling. For more than three decades, the US, Japan and Western Europe have led a dismantling of tariffs, quotas and subsidies that almost all business executives and policy-makers credit for lifting economic growth.

  The voices of opposition have tended to come from those with far less power. In wealthy countries, the wages of many workers have stagnated in the face of global competition, and old-line manufacturing executives have watched their businesses shrivel. In poorer countries, traditional industries have been overwhelmed by efficient multinational giants.

  But the politics of globalization are subtly shifting, and the turnabout has helped to slow to a crawl the integration of the world's economies.

  

  The Bush Administration has promised to consider dismantling protectionist policies in the sugar industry before making any trade deals. Any protection could end up hurting sugar plantations like this one in the town of La Romana, in the Dominican Republic.

  PHOTO: NY TIMES

  Struggling through a third consecutive year of weak growth and having already taken the easiest steps toward trade liberalization, wealthy nations have become unwilling to make the compromises necessary for new pacts. At times, they have even erected barriers.

  From the orange groves of Brazil to the rice fields of Southeast Asia, meanwhile, poorer nations have become more insistent that the next round of agreements allow them to benefit equally from globalization. That argument is pushing the politically toxic, multibillion-dollar farm subsidies of Europe and the US to the center of the debate.

  The disagreements have been aggravated by diplomatic conflicts over the war in Iraq and by measures taken to fight SARS and terrorism. And many government officials around the globe have become worried.

  "We have been the postwar leader in liberal democratization, globalization and free trade," said Douglas J. Holtz-Eakin, the director of the Congressional Budget Office and a former economic adviser to President Bush. "To the extent that we adopt a different posture," he added, the effects will be "not so hot from an economic point of view."

  Sok Siphana, the secretary of state for commerce in Cambodia, which is trying to gain entrance to the World Trade Organization, added, "The world better work harder on trade issues, because everything is dividing."

  Already, the flow of goods and investments across borders has fallen after a decade of rapid gains. Exports are likely to account for 18.8 percent of the world's economic activity this year, down from 20 percent in 2000, according to Global Insight, a research company based in Waltham, Mass.

  The economic summit that begins June 1 in the French Alps -- the first meeting since the war in Iraq between Bush and European leaders who opposed it -- is the start of a new effort to revive globalization. It is the annual meeting of the Group of 8, which includes Britain, Canada, France, Germany, Italy, Japan, Russia and the US.

  Beyond the disagreements over Iraq, the US and Europe have had a number of clashes over trade. Europe, for example, opposed genetically modified foods and criticized steel tariffs and tax benefits for exporters like Boeing in the US. The recent decline in the dollar has also made life difficult for European exporters.

  After the Evian meeting, the next step in the trade talks, known as the Doha round, will be in Cancun, Mexico, in September. In Cancun, differences over agricultural subsidies and drug patents will be more clearly on display than they are this week, as negotiators, who have fallen behind schedule, determine whether they can meet their own deadline of signing a new pact by 2005.

  In the meantime, officials from the US and Latin America will continue their fitful discussions about creating a trade zone for the Western Hemisphere similar to one that exists in North America.

  Bush administration officials take a more positive view, saying they remain committed free traders despite their support last year for new steel tariffs and farm subsidies. Officials cite successes in the war on terrorism, which they say are removing a major obstacle to the movement of people and goods, and recent trade pacts with Chile and Singapore. Those pacts are part of a strategy that Robert B. Zoellick, the US trade representative, calls competitive liberalization, in which the administration seeks to maintain free-trade momentum, even if global talks bog down.

  John B. Taylor, the undersecretary of the Treasury in charge of international affairs, said: "You take steps forward and move back. That's always the case." Over all, he added, "the trends are good."

  But other than the pacts with Chile and Singapore, two countries that already had relatively open markets, little tangible progress can be cited by officials. A big reason for that, economists say, is the unfulfilled promise of globalization so far.

  After years of lowering tariffs, ending quotas and removing restrictions on investment, many poorer countries are still struggling. Parts of Asia have not fully recovered from the financial crisis of the late 1990's. Latin America has flirted with similarly deep problems in the last two years. And the global slump has reduced demand for semiconductors, plastic toys and all goods in between that are made in low-wage economies.

  At the same time, China, a country that has kept its borders largely closed until recently, has prospered, offering a counterexample to the sheltered economies of the old Soviet bloc that crumbled.

  "Everyone is questioning globalization," said Javier Gonzalez Fraga, the former head of Argentina's central bank and now a professor at Catholic University of Argentina at Buenos Aires. "The virtuous circle -- we were to import capital goods from the industrialized nations and they were to buy our agricultural produce -- never happened."
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