Outlook: A reform that clears the way for further trade liberalisation

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The French government has moved as far as anyone realistically could have hoped for in agreeing yesterday's compromise proposals for reform of the Common Agricultural Policy. Whether it's far enough to allow for a further liberalisation of world trade is another matter, and even if it is, it doesn't tackle the other big region of agricultural subsidy, the United States.

However, what it may do is remove the European Union from its current position as obstacle number one to renewed progress in trade liberalisation, and put the US in that unenviable role instead. In itself, that's quite a coup, for the US cannot for ever hide behind unilateral arrangements for the pursuit of free trade. It must eventually embrace the global free trade agenda being pursued through the World Trade Organisation.

Nobody could have failed to notice that over the past three years there has been a hiatus in the world economy. During that time, world trade has stalled. Whether that's more effect that cause is hard to say, but in any case growth and trade are two sides of the same coin. Over the past twenty years, world trade has been growing at nearly double the rate of growth in worldwide GDP, but since the turn of the century it has slowed. It barely grew at all in 2001 and last year wasn't a great deal better. As economic circumstances have deteriorated, the pressure for protectionism has grown.

According to the Chancellor in his recent Mansion House speech, world income could be increased by $400bn a year, equal to growth of 1.4 per cent, by halving protectionism in agriculture, industrial goods and services. Of course, the argument at Doha, and later this year at Cancun, is that it is the developed world that gains most from trade liberalisation.

Whether this is true or not, it is widely believed in the developing world, which is what makes further reform of agricultural subsidy so urgent. Little progress is possible so long as farmers in the prosperous west are subsidised to overproduce. We preach free trade but practice the reverse.

The key breakthrough in yesterday's EU compromise is that most of the subsidies that reward farmers according to how much food they produce will be dismantled, allowing the EU to cap and then slowly reduce the totality of agricultural subsidy. Yet as ever the devil is in the detail, and in order to achieve the breakthrough, negotiators have had to dilute the decoupling principle. There are all kinds of get out clauses which may yet disrupt progress in the wider trade debate.

None the less, it's an important start, even if the driver for reform is more that of EU enlargement than the free trade agenda. The EU has at last managed to grasp the nettle of the CAP, and by doing so it may help shift the log jam that's been standing in the way of that vital further round of trade liberalisation.

BP's Russian front

The last time BP danced with the Russian bear it got badly mauled. That was back in 1997 when BP took a 10 per cent stake in a Siberian oil producer called Sidanco. BP found itself defenceless and without recourse as the company was stripped of its best assets by the majority shareholders.

Six years on, the recriminations and legal battles which characterised BP's first foray into Russia have been buried beneath the frozen tundra and BP has signed up for a new $13.5bn joint venture with the very same Russians who first lured it into Sidanco.

BP's Russian partners, Alfa and Access-Renova, promise that this latest joint venture will not end on the same sour note. Back in 1997, Russia was still bandit country as far as the international financial community was concerned. These days, it has both a more stable legal environment and economy. Alfa also has its reputation as a reliable investment partner to worry about.

Just to be on the safe side, Lord Browne, BP's chief executive, has ensured that this time, any disputes between the two sides are settled under English law. The holding company, TNK-BP will also be registered outside Russia in the British Virgin Islands.

Yet the reputational and financial risks for BP are still considerable. BP insists that its partners are changed people, but that didn't prevent involvement in the Prestige oil spill off the Spanish coast - one of the nastier ecological disasters of recent years - and they are still fighting other legal actions in respect of Sidanco.

Moreover, BP does not have management control, nor majority ownership of its new Russian interest, and it will be interesting to see how much weight English law carries in Siberia if the venture falls apart and the black stuff hits the fan.

If the deal does unravel, then at least BP has not bet the ranch. It only has $2.4bn of its own cash at risk. That may sound like a lot to most companies, but it is less than a year's capital expenditure for a business the size of BP. On the other hand, it would almost certainly prove terminal for Lord Browne. His halo has slipped in the last 12 months and he cannot afford another Russian retreat. Which is what makes it such a gutsy deal for him. If it works, he'll reap rich rewards for being first into Russia. And if it doesn't....

Techs/LogicaCMG

Tech stocks have enjoyed something of a revival so far this year. They didn't fall as far or as fast as other shares in the early part of the year and they have outperformed strongly in the subsequent rally. In the US, some internet stocks seem to be undergoing a rerun of the dot.com bubble, so strong has been the updraft in share prices. All things are relative, of course, and the main reason the information technology sector has risen more strongly than other shares is that it had fallen so much more severely, with many tech stocks both in the US and Europe having joined the 90 per cent club in their passage from peak to trough.

Yet there is some solid underpinning for the revival too. From about the middle of last year, the slump in IT investment began to ease. Going into the first quarter of this year, it began to grow once more for the first time in two years. Again, it's got an awfully long way to go before it gets back to the levels it was at during the bubble, but the recession in demand for IT, if not yet production, does at least seem to have come to an end. Production of hardware may remain subdued for some time to come yet, as stocks are reduced, but for software and IT services, the nuclear winter that has engulfed the sector this past few years may at last be starting to lift.

Some companies have been more effective than others in managing their way through the downturn. One of those is LogicaCMG. OK, so the chief executive, Martin Read, ever the optimist, may be getting a little ahead of himself in believing he can lift LogicaCMG from its present position of number 38 in the world league of IT service companies into the top 10, but securing a place back in the FTSE 100 certainly looks an attainable aim. The merger with CMG has, on the whole, been a success, and if the future of IT really is increasingly in mobile devices, LogicaCMG is as well positioned as any to benefit from an eventual rebound in mobile spending.

Convincing the Government that it should spend more on IT remains an uphill task, if only because so many public sector IT projects have gone so spectacularly wrong. Not with us, says LogicaCMG, but to little avail so far. Yet although the wheels of government grind exceedingly slow, the will is there to make e-government work and again LogicaCMG, as Britain's premier software house, is sitting pretty to reap the benefits.

As for IT spending more generally, it's still down in the dumps, but the corner seems to have been turned, and eventually it will recover. Bill Gates, chairman of Microsoft, reckons we have thus far only witnessed the beginnings of the productivity revolution IT is capable of bringing about. Well, he would say that, wouldn't he, but you never know, he may even be right.

jeremy.warner@independent.co.uk

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