VIRGINIA BEACH, VA, November 20, 2006 -- The APEC meeting over the weekend has ceremoniously asked that the Doha Round of trade negotiations be resumed immediately. These negotiations began in Qatar in 2001 but collapsed last July, primarily because the U.S. and Europe defended their agricultural interests too strongly. Unfortunately, these negotiations will also result in little, if anything, says Jim Flinchum, a Virginia Beach-based expert on economics and investing.

"To appreciate this problem, it is necessary to understand one economic principle and one political problem. The economic principle is called the "Law of Comparative Advantage". Every nation cannot be the most efficient producer of every product. Some nations are better at some things than others. Mathematically, it can be shown that all nations earn more when they are allowed to produce as much as possible of whatever they do most efficiently, and stop producing whatever they don't produce efficiently.

"For example, the U.S. is an efficient producer of technology and military armaments but a high cost producer of agricultural products. Simplistically, this means we should not be spending money to compete in agriculture and should spend the money producing more technology or arms. Because we subsidize agricultural products in this country, it is more difficult for poor countries to sell their foodstuffs here, even though they can produce it more cheaply and deliver it here more cheaply.

"In Europe, they usually add tariffs to imported foodstuffs, which makes them more expensive to buy in European countries, protecting European farmers while hurting farmers that can produce more cheaply elsewhere.

"The political problem is that politicians assume the farmers will get sacrificed for the benefit of everybody else. There are numerous ways to use the savings from "Comparative Advantage" to help farmers. There is something sentimental about farmers in the American psyche. Because of this, Bush's neutering this month in the mid-term elections will make it impossible to extend his "Fast Track Authority", which expires next summer. Without that, he will have to submit any trade agreement he negotiates to Congress for ratification. The odds of Congress ratifying any trade agreement are slim.

"The genie of globalization cannot be put back into the bottle. It is a huge international force and will be good for the world in the long run. If we ignore it, we will get run over by it. We need to manage this risk, not ignore it, and the Doha Round is our best opportunity. Without this, globalization will proceed with bi-lateral agreements or maybe regional agreements, albeit more slowly. This bi-lateral approach is far less efficient and more likely to get bogged down in tangential issues, such as security alignments.

"Often unreported, there is a substantial "peace dividend" to globalization. Economic inter-dependence makes war less likely."

In your continuing coverage of this story, feel free to call Jim for comment, analysis or background at (757) 641-3378. His views on the economy and investments can be found at http://www.baycapitaladvice.com/media-coverage.asp.

About Jim Flinchum
Flinchum is the managing principal of the financial planning and investment company Bay Capital Advisors in Virginia Beach. His deep understanding of the financial world, national and global economics, and investing make him an outstanding Expert Resource for your articles. For more than 35 years he worked in senior-level positions for some of America's premier banking institutions, taught economics for the American Institute of Banking and the University of Texas, and served as a gubernatorial appointee to the State Depository Board.

Jim Flinchum contact
jim@baycapitaladvice.com, (757) 641-3378