Flames that lit up the need for a trade umpire

WATCHING THE riots flame against a new round of world trade talks, my mind flashed back to a breaking point the last time around. It was during the Uruguay Round that the World Trade Organisation was born out of the shaky old General Agreement on Tariffs and Trade. But in the early 1990s the negotiations were dead, with the United States and Europe on the brink of trade war.

Somewhat, I have to admit, to the amusement of my Foreign Office colleague in the Prime Minister's office, who by then had read more than enough of my notes on the interminable negotiations, our great trade peace deal barely got a mention on the British news bulletins. As the Prime Minister trudged out to the microphones in Downing Street (muttering, a la Thatcher: "So we are a GATTmother") we glanced at the flickering television screens. The cameras had gone elsewhere - Windsor Castle had just gone up in smoke .

If no one in Britain wanted to hear about the WTO that evening, the fires in Seattle and at Euston station have certainly pushed it into the headlines this past week. Yet the riots were almost as irrelevant to the argument between the big economies as that accidental conflagration at Windsor. Rarely can a protest movement have been composed of quite such contradictory elements. The champions of the world's poor stood beside those who wanted to prevent the poor earning a living from the rich. There were demonstrators against science, for the environment, against imports, for labour rights.

It all demonstrated exactly why we need a trade umpire. It did nothing to increase the chances - never high to begin with - that rich and poor governments would resolve their disputes over the trade agenda. After a few days of being abused as filthy global capitalists, they threw in the towel and left.

There is a fine irony in the timing of all this. For 50 years the politicians were berated for failing to complete the blueprint for a better world order drawn amid the ruins of the 1940s. The victors of the Second World War set up the International Monetary Fund and the World Bank, but would not cede power to a strong trade authority to counter protectionism, preferring the "temporary" GATT.

Neither the IMF nor the World Bank has had any say over life in the United States, which has been lender rather than borrower. For 50 years, therefore, the rest of the world has grumbled that the global economic institutions were simply instruments of American imperialism.

When the third leg was finally hammered on to the tripod and the WTO started work, the balance changed. WTO panels sat in judgement, not merely on the Third World, but on American trade practices.

As we saw in Seattle, therefore, to others' criticisms of global governance there has now been added the powerful, if not wholly consistent, voice of American protest.

Of course, all of these institutions have faced criticism. The IMF has had some countries in care for decades without ever managing to get them off life support. It was embarrassed by its failure to anticipate the Asian crisis. It is under fire for its performance in Russia. The World Bank spent decades bolstering inefficient public sectors, while more than one of its massive infrastructure projects has been attacked as environmental vandalism.

Both bureaucracies grew large enough to develop fixed institutional views. When the WTO was set up, its secretariat was deliberately kept lean and mean, but already questions are being raised about its judgements.

Most criticism should, however, be laid at the door of the members. The IMF has been pushed and shoved by its board of key governments, notably the United States and notably with respect to Russia. The World Bank was set up by these same governments to lend only to public sectors. The way the WTO works was - likewise - laid down by a treaty between its member governments who now number 135. And all three bodies are caught between those who say they should take more care of the environment, and those who resent being told what to do about it by institutions set up to interfere only on economic grounds.

These institutions are clubs, their weaknesses the weaknesses of their members. But the World Bank and IMF are (or should be) also banks of expertise about the business of development and the techniques of economic management, greater and freer of politics than any body a national government can hope to build on its own.

The WTO is much less and much more: it provides minimal support for negotiations over new rules, but also arbitration over the application of existing ones. This is big politics - telling Japan, or the European Union, or the United States to change their taxes on whisky, their banana quotas or their fishing regulations is hotter stuff than telling some developing country the conditions under which it can have a loan. But it is why the Third World and its self-appointed friends should be wary of knocking the WTO too hard. The principle behind the club is one of equal access to each other's markets. Without that, the big guys would consistently bully the small.

Of course, you cannot use a club to rewrite all the rules of economic power - the big will still have most say, even inside. But for half a century the battered principle has survived, and the momentum of market opening maintained by successive negotiating "rounds".

Four factors are now making this more difficult. First, the easy work has been done; tariffs are not eliminated, but many have come down. So, second, many barriers that governments are arguing about derive not from restrictions at borders but much more sensitively from internal regulations, often defended on cultural or environmental grounds. Third, the United States and other agricultural producers are losing patience with the European Union. And fourth, the United States is down to the bedrock of barriers it is prepared to trade.

American presidential candidates are taking refuge in weasel words about "fair trade". In the short term this may win votes; in the long term it threatens to drag the world back into tit-for-tat protectionism.

To save face, WTO members have agreed to resume talks "in the spring", but we will then be even closer to the American polls, and they need to talk further away from the hustings. They also need to engage their brains. The lunacies of the Seattle rioters should not blind the politicians to a more widespread anxiety: a fear that the scientists are out of control, that the world is being managed without precaution, and that "globalisation" gives voters less and less say. This will not be dissolved by weasel words, either, still less by pretending that the WTO can become a global environmental authority as well as a trade umpire. That way lies certain collapse of this leg of the tripod.

The anxiety needs to be tackled head on, by open and informed debate about the costs and benefits of scientific advance, and by serious but quite separate international discussions of environmental issues. It is never an easy argument to win against the paranoia of extremists, but it is a debate we shirk at our peril.

Sarah Hogg is chairman of Frontier Economics.