A job war to avoid

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The Independent Online
AS PRESIDENT Clinton prepares to host a summit on global unemployment, some mainly French assertions suggest that developing countries are about to become the victims.

There are eerily similar messages in recent speeches by the French Prime Minister, Edouard Balladur, Jean-Claude Paye, the secretary general of the OECD, and other officials. The general thrust is that unemployment is rising inexorably in industrial countries and that increased competition from developing countries is largely to blame.

That such competition is a fact of post-Cold War economic life is not at issue. What seems to be arising are new proposals for 'greater transparency and fairness in international competition' even though 'fair competition' has become a new code word for protectionism. The idea of a war breaking out between industrial and developing states after the supposed global free trade agreement that concluded the Uruguay Round is alarming.

Historical trends tell us that growth in trade creates jobs not the reverse. What threatens jobs are trade imbalances such as the massive surpluses enjoyed by Japan with the United States and other countries. These surpluses can be avoided through mutual agreements (sometimes hard to achieve) that increased exports from developing countries will be matched by imports from industrialised countries. This is what the US-Japan 'framework' agreement talks are all about. In this way, all can benefit. Protectionism will only increase costs and the rigidities that threaten jobs over the longer term - and it will not ultimately save inefficient industries.

This message is particularly important for Europe as it contemplates the restructuring of big industries and the resulting unemployment. Charges that the European Union is erecting a new Iron Curtain around east/central Europe and the former Soviet Union are only true in part. A new World Bank study notes that since the collapse of central planning in 1990, the EC/EU granted General System of Preferences (GSP) status to Hungary and Poland and from 1991 to Bulgaria and the former Czechoslovakia. Romania received it in 1992. The measure reduced average tariff rates on imports to 1-2 per cent from 6-7 per cent, giving these countries better access to EU markets than non-European OECD countries subject to higher most-favoured-nation (MFN) rates and their shares of EU industrial imports grew. GSP eligibility, however, is subject to annual review, and the trade-restricting effects on non-tariff barriers are hard to assess.

It is also true that western European industries that suffer from overcapacity and inefficiencies - agriculture, steel, chemicals and textiles - face new competition from the lower-wage east, and these 'sensitive sector' industries are clamouring for protection. But using such competition as an excuse to delay the inevitable, painful restructuring would be a big mistake. This does not mean that Europe should necessarily follow the US example in steel, for instance, where thousands of jobs have been axed brutally over the past decade. The US steel restructuring did produce a leaner, more competitive industry. One positive result was the rise of aggressive, specialty steel 'mini-mills', some worker-owned, which are very profitable. The downside was that many laid- off steel workers, without benefit of retraining and other support, ended up in low-wage service jobs.

I support the notion of a western Europe that embraces countries to the east as a unique competitive opportunity. This will require a drastic philosophical change but is consistent with trends elsewhere towards regional growth centres.

Why not an EU Marshall Plan for east/central Europe? Why not an EU/Efta free trade contract with east/central Europe that boosts the competitiveness of the entire region?

There is much work to be done in rebuilding the infrastructure of these countries and in improving their technological standards. Similarly, western Europe would gain from the lower-wage, lower-cost goods in which these countries are competitive.