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The trade game

October 13, 2005

AMERICAN AND EUROPEAN trade negotiators made their first concrete proposals in two years on Monday in Zurich, Switzerland, breaking a logjam over some especially vexing and important issues. On the same day, about 900 miles north in Stockholm, officials awarded the Nobel Memorial Prize in Economic Sciences to two pioneers in game theory.

The connection? Game theory, a study of conflict management that grew out of the Cold War, is still deeply relevant to modern issues such as the Israeli-Palestinian conflict, the dispute over reform of the United Nations and, yes, the Doha round of trade negotiations discussed in Zurich.

The World Trade Organization's Doha round, which started in 2001, is focused on removing agricultural subsidies and tariffs that devastate farmers in poor countries and damage economies in rich ones. But in the last four years, that has come to seem like an impossible quest.

Two years ago, the talks all but collapsed after a disastrous WTO session in Cancun, Mexico. Domestic pressure from agricultural interests in the developed world, combined with an unwillingness by developing nations to compromise, left the talks at an impasse until recently.

Fortunately, the Bush administration seems determined to revive the matter in time for the next WTO meetings in December. U.S. Trade Representative Rob Portman has proposed a package of tariff and subsidy reductions, leading to a complete end to farm supports by 2023. The proposal has its flaws, but it's a start; also encouraging was a counterproposal from the European Union.

Game theory, as propounded by Nobel winners Thomas C. Schelling of the University of Maryland and Robert J. Aumann of Hebrew University in Jerusalem, is a scientific way of demonstrating something that we all learned in kindergarten: Cooperation is better than conflict.

It suggests that making concessions isn't a gesture of weakness and defeat, it's a move that builds trust and leads to concessions from the other side. It posits that small, incremental compromises work better than big gestures and that negotiations work better when both parties fully understand the other's motivating factors.

The fact that the players in this big trade-negotiation game are continually looking over their shoulders makes it tougher to apply any of these prize-winning strategies. The European negotiators represent a deeply fractured alliance in which farm supports have long been politically untouchable; any agreement they reach might be negated when the EU budget is approved next year. Same for the U.S. team, given that Congress might reject a trade deal when it puts together the farm bill, which is set to expire in 2007.

Further, it's not just a chess game between two players. It's more like a three-for-all among the EU, the United States and leading developing nations, such as Brazil and India, that are rightly demanding an end to rich nations' farm subsidies.

Still, the precondition for a breakthrough in this game is an agreement between the United States and Europe. And without such a deal, global economic growth could be in peril. So Portman and his European counterparts need to bone up on their game theory and play with everything they've got.

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