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. Last Updated: 07/27/2016

Regional Deals Flourish as WTO Fails

The failure of global trade talks in Seattle has sent governments around the world scrambling to strengthen economic ties with their neighbors, accelerating a trend that trade experts say could undercut U.S. influence and opportunities abroad.

Responding to what they see as a protectionist backlash in Washington, leaders in Latin America, Asia and Europe began beefing up their regional or country-to-country preferential trading arrangements within days of the collapse of the World Trade Organization talks in early December.

While trade critics hoped their massive demonstrations in Seattle would slow the rush to tear down borders, these governments are seeking to reduce their dependence on a lucrative U.S. market where labor unions and environmentalists have declared war on the borderless economy.

"Generally, there's a feeling they've [foreign governments] been dancing to the Washington economic music long enough and it's time to create their own situations on the trade side," Gary Hufbauer, a senior fellow at Washington's Institute for International Economics, said.

The rush to expand such agreements does not represent a wholesale rejection of the global trading system. But they could lead to the Balkanization of the global economy that the architects of the beleaguered Geneva-based WTO had hoped to avoid, warn trade experts.

"If governments don't move fast to moderate the effects of globalization ... it will look more like the rule of the jungle than the rule of law," warned John Weekes, of APCO Associates Inc., a Washington-based consulting firm, and Canada's former envoy to the WTO.

These regional initiatives could undermine U.S. influence abroad at a time of growing resentment toward perceived Yankee imperialism.

"This really means other people will be doing deals in which the United States won't be a beneficiary," Weekes added.

Officials in the administration of U.S. President Bill Clinton remain hopeful that the WTO will move quickly to resurrect the failed trade talks. But few others are optimistic the WTO will get back to the table in a "meaningful way" in a U.S. presidential election year, a key Japanese trade official said.

Not everyone finds a shift away from the global trading system alarming. Greg Mastel, a trade analyst at the New America Foundation, a Washington think tank, argues that the WTO needs a serious overhaul before it goes further.

Mastel believes the United States is better off strengthening its own regional alliances, such as NAFTA, and using them to influence trade policies elsewhere.

But others fear the United States is headed into a more protectionist, isolationist era, when any measures to lower barriers to trade in goods and services are rejected, spurring retaliation against U.S. firms.

This perceived cooling of U.S. sentiment toward free trade had already caused actions by other governments. Mexico has reached trading deals with Europe and six of its Latin neighbors. Canada has signed a pact with Chile.

Finance ministers of the South American trading group Mercosur introduced measures in early December designed to move their region toward a common currency and agreed to accelerate efforts to add the Andean Pact countries of Chile, Venezuela, Colombia, Ecuador and Peru.

Fearful of losing ground, Asia's economies are pushing similar measures.

At a meeting in Manila, Philippines, immediately preceding the Seattle WTO conference, 10 Southeast Asian nations invited Japan, China and South Korea to join in an economic alliance that could lead to an EU-style economy and common currency.