Comment: Small step on the road to a global economy

Here are a couple of questions about the World Trade Organisation's latest coup - last weekend's landmark agreement between 68 nations to free up their markets to international competition in telecommunications. Is it really as significant as it looks, and if it is, and can be followed in short order with similar agreements covering the freeing up of trade in other services, goods, labour and capital, what is the point of regional trading blocs like the European Union?

The answer to the first question perhaps lies in the second. Yes, it is important, a hugely significant staging post in the development of a truly global economy, but we are still a long way from a global version of the free trade union that typifies the EU or the United States. Indeed to regard trade agreements of this type as a substitute for the European Union, as many Euro-sceptics do, is a distinctly Anglo and highly misleading way of looking at these things.

For its roots look back to the days of Gladstonian Liberalism when Englishmen, and yes, quite a few Scots, too, were able to travel the world freely without the benefit of passport or calling card. Britain's industrial and imperial supremacy made them natural champions of free trade. The John Redwoods of these islands would like to believe that a suitably modernised version of this glorious past is still possible - that if you can win the global argument for free trade it would be perfectly possible to exist outside the Union with its expensive social and political obligations. Logically he must be right, for a global free trade economy is just a larger version of the European one; the former would supersede the latter. But here's why he's so wrong in practice. The case is best put by Peter Sutherland, managing director of Goldman Sachs International and a convinced European. He's also both a former European Commissioner and former chairman of the WTO, so in a sense he straddles the argument.

His starting point is that the telecoms breakthrough would never have happened at all but for the precedent already set by the EU in liberalising its telecoms markets. The EU, then, is not an irrelevance in the process of globalised free trade but rather a vital catalyst. His other point is that the EU is qualitatively different as a trading bloc from the sort of inter-government accords that make up WTO initiatives and the General Agreement on Tariffs and Trade (Gatt). This is largely because the EU has supra-national powers which override national legislation, enabling it to enforce free trade principles.

For the moment the WTO can only dream of the level playing field environment that the EC imposes on competing nations and businesses. The WTO can trust only to a disputes procedure, which in turn relies on the goodwill of its 68 signatories. Add to that the opportunity for fiscal and cultural discrimination among nations, and notwithstanding the good intentions of the WTO it can readily be seen that the EU is a long way from being made redundant by these very encouraging trends.

This is not to belittle the nature of the accord. Telecoms revenue forms more than 2 per cent of global gross domestic product and it's growing exponentially. One of the reasons so many nations were so willing to sign up to free trade for this industry is that those that do not, those that close their markets off to the communications revolution, will be put at a serious competitive disadvantage to those that embrace it. All the same, what has been achieved here is nowhere near as deep as what has already been put in place in Europe. It will still take decades to mirror the EU and US positions globally.

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