News from Nusa Dua

From the tourist enclave of Nusa Dua on the Indonesian island of Bali comes an agreement, approved yesterday, that will almost certainly spark widespread dissent at it is implemented throughout the world. This is because the "Bali Package" strikes a blow to those who view globalization as something to be stopped, and instead renews the world's commitment to the multilateral liberalization of international trade.

All 159 members of the World Trade Organization (WTO) agreed on Saturday to a package of trade measures that Washington's Peterson Institute of International Economics estimates will inject just short of $1 trillion into the world economy while creating 21 million jobs, the bulk in developing countries. The deal, though a very modest start, and far less ambitious than originally conceived, is a milestone. It's the WTO's first, after 12 years of fruitless negotiations, slashing customs' red tape and lowering other non-tariff trade barriers. In a single sweep, it rescues the WTO from irrelevance.

The process of world trade liberalization was not dead, but since the collapse in Geneva of the WTO's Doha round of trade talks just months prior to the Lehman collapse in 2008, it had clearly slowed, and in some ways was reversing into creeping protectionism. Not close to the extreme economic isolationism that emerged in the Depression of the 1930's, a clear pattern of more national self-interest and state intervention in the flow of money and goods was nonetheless developing. Thus, for example, in recent years India has imposed local-content requirements on government purchases of communications technology, Brazil has tightened restrictions on its state-controlled Petrobas to ensure it purchases more of its equipment from Brazilian companies, and both America and Europe have offered substantial subsidies for green energy at home while imposing tariffs on Chinese solar panels, citing Chinese government support of their domestic producers. Further, in a grievous example of confusing the benefits of trade with foreign policy, President Obama decided that the way to respond to the tragic collapse in April of a clothing factory in Bangladesh, killing more than 1,000 people, was to suspend US preferential tariffs on many imports from that country. And, in addition to restrictions on trading goods, controls on cross-border flows of capital, direct investment, and even people, have become more prevalent.

So, into this deteriorating trade policy environment, recently characterized by, at best, a shift to more bilateral and regional agreements, comes the new multilateral Bali package. It's modest, but still remarkable - to think that, when national governments are often trapped in their own political deadlocks, 159 foreign ministers could agree on any sort of package of international trade liberalization measures that apply to them all equally. Allowing markets, rather than government edict, to more freely channel scarce capital to the best investment opportunities is a certain way to enhance economic well-being. In this spirit, let's hope that the WTO can now move the much broader Doha agenda forward.