For Obama, Free Trade Is Key to Success

Between the November elections and legislative battles, it's been a tough year for President Obama. But there is hope for 2011. Obama can follow the long tradition of U.S. presidents who turned from frustration at home to success abroad by resolving to conclude the World Trade Organization's Doha Round of global talks next year. In principle, he already supports the idea. He and his fellow world leaders regularly pledged to wrap up the round--until the utter lack of progress made those promises seem empty. The president must move beyond empty promises to bold proposals and strategic alliances.

The last two years of Doha Round stagnation have proved that U.S. leadership is essential. The president could provide that with an ambitious proposal to reduce agricultural subsidies. The 2008 U.S. offer centered on a 70% reduction to the current $48.2 billion cap on overall trade-distorting subsidies (OTDS) and was deemed insufficient by almost all WTO members. President Obama should top his predecessor's offer with a new proposed 80% reduction (to $9.64 billion) in OTDS, coupled with a commitment to eliminate all trade-distorting cotton subsidies. It could be just the shock treatment the comatose round needs. Such an offer would be made contingent on similar levels of ambition on farm subsidies, industrial market access and service liberalization from all other major players.

The move would be timely. The G-20 leaders in Seoul, South Korea, and the APEC leaders in Yokohama, Japan, recently called for a Doha "end game" in 2011 and publicly directed their trade negotiators to re-engage in across-the-board negotiations to conclude the round. The WTO's director general, Pascal Lamy, just offered an intensified work plan, endorsed by almost all 153 WTO members, that would complete the round by December 2011.

The president must move beyond empty promises to bold proposals and strategic alliances.

That time frame is propitious for other reasons. First, high global food prices mean that U.S. OTDS levels are likely below the proposed $9.6 billion ceiling, and U.S. farmers are thriving on record exports. Second, U.S. fiscal troubles have created a prime political environment for including farm subsidies in any broad, bipartisan fiscal reform package; the president's own deficit commission called for a $10 billion reduction in U.S. agriculture outlays. Third, an overhaul must be proposed before the 2012 farm bill locks new subsidies into place. Finally, the 2012 election season will likely stymie any progress that year, and if left until 2013, the round could finally die.

On top of the potential triumph on the world stage, this initiative could deliver the president sorely needed domestic political benefits. Paring back farm subsidies could impress fiscal conservatives, while a credible move to bolster the WTO would gladden fans of a multilateral approach to U.S. foreign policy. But a bold proposal alone would not suffice. There is no possibility of selling a Doha deal on Capitol Hill without new access to the major emerging markets. India and China's reluctance to offer such access helped crash the talks in 2008.

The U.S. therefore needs a developing country partner with heft and influence. There is no better choice than Brazil. One of the few bright spots to emerge from the 2008 negotiations was Brazil's willingness to engage in a constructive way. Brazil sees agricultural subsidies, including America's WTO-illegal cotton program, as a top concern and knows they must be addressed in a multilateral context. With sufficient diplomacy and the offer of an Obama visit to Brazil, it might be possible to craft a joint U.S.-Brazilian proposal for the Doha talks.

Such a North-South partnership of two trade titans could have a dramatic effect. The rest of the world would react to the joint initiative with shock and awe. Countries would scramble to match America's new level of ambition. The Europeans, particularly after their longstanding criticism of U.S. inaction, would have no choice but to match the U.S. offer. The Indians and Chinese would also feel pressure to cooperate--because Brazil's participation would signal the support of the developing world, and because the U.S. offer would significantly exceed even their most hopeful demands. In December 2009, India's Commerce Minister Anand Sharma demanded at least a 70% reduction in U.S. and European OTDS. An 80% offer would cause palpitations in New Delhi and Beijing and would force them to supply their own ambitious offers or risk being portrayed as culpable for the round's demise. African and other poor nations would cheer the emphasis on cotton--their primary concern.

If Obama could pull this off, it would be a historic, centrist achievement. It would tighten U.S. relations with a key hemispheric partner and would help quell concerns about sagging U.S. leadership. It would restore confidence in the global trading system and help bolster the world economy. A great way to bounce back from a tough year.

Philip I. Levy is a resident scholar at AEI. Scott Lincicome is an international trade attorney at White & Case LLP.

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About the Author

 

Philip I.
Levy
  • Philip I. Levy's work in AEI's Program in International Economics ranges from free trade agreements and trade with China to antidumping policy. Prior to joining AEI, he worked on international economics issues as a member of the secretary of state's Policy Planning Staff. Mr. Levy also served as an economist for trade on the President's Council of Economic Advisers and taught economics at Yale University. He writes for AEI's International Economic Outlook series.

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  • Email: philip.levy@aei.org

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