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Tectonic Trends in Trade

Two political tremors in recent days reveal that the global trading system may be creaking and groaning into isolated blocs of countries - without the United States.

South America's leaders met last week to declare the founding of a "South American Community of Nations," modeled on the European Union. They pledged to wrap the continent's 12 nations and 360 million people into a free-trade area (known generically as an FTA).

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Just days before, China and a 10-member bloc of Southeast nations promised to set up the world's largest common market by 2010, with 1.9 billion people in the Far East.

If these two regional goals are met, and that's still a big if, they would help undercut all the progress made since the 1980s to create a full global free-trading system, managed by the World Trade Organization.

While the agreement in the early 1990s that created the WTO has helped to open many otherwise closed markets, much work remains in negotiating further access in areas from agriculture to financial services. And more WTO agreements are needed on basic trading rules, such as further protecting intellectual property rights.

The US helped set up the latest set of talks to expand global free trade, known as the Doha Round. But the Bush administration, whose free-trade credentials have been suspect, met with so much resistance in Europe and developing countries that it began to use a dubious tactic. It aggressively pursued FTAs of its own, sending a signal to recalcitrant nations that they would miss out on greater access to the giant US market if they didn't concede points in the Doha talks. After four years in office, Mr. Bush proudly declares he has set up FTAs with 12 nations, and is pursuing agreements with 10 others.

Cutting global trade into a patchwork quilt of too many bilateral agreements can create confusion and barriers to expanding global trade, and might make for regional protectionism. They also can create political blocs that divide the world. The US, for instance, might eventually find itself on the sidelines as China and the EU each becomes the center of a giant hub of economic activity and political partnerships.

In his second term, Bush needs to commit the US to finishing the Doha talks, either by making further concessions or pressing other nations to acknowledge the better path of further opening global trade. The game of dividing up the world in order to unite it just doesn't make sense anymore.


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