Free-trade supporters must speak freely

The idea of free trade is under attack as never before in the post-war era
ONE OF THE MANY fresh starts in the next century will be the launch of a millennium trade round, a three-year negotiation intended to reduce barriers to trade in more areas, particularly services and agriculture. The annual meeting of the World Trade Organisation in early December is meant to agree the scope and terms of the negotiations, and it is no exaggeration to say its success will determine whether the 21st century will see extended to developing countries the improvements in welfare and prosperity enjoyed by the populations of developed countries these past hundred years.

Trade growth that gives them access to the world's big markets is one of the main ways that poorer countries can capture some of the benefits of globalisation. For very many countries, exports have been the engine of long-term growth. As the chart shows, for developing countries as a whole trade has been the motor for the past two decades, growing faster than national income, and its share rising most rapidly during the years of fastest growth.

Yet the idea of free trade is under attack as never before in the post- war era. The WTO's meeting in Seattle is likely to turn into a zoo of protest, as a coalition of campaigners, including aid charities and environmental groups, converge to proclaim their view that the world trading system is organised to benefit the rich and powerful through exploiting the poor. This could not be more wrong.

Yet the campaigners' false and malicious view of the WTO, and the continuing process of liberalisation, is in danger of becoming conventional wisdom. Few commentators bother to engage with it, or to correct it. Some even exploit it irresponsibly. For example, a recent discussion paper by economists Francisco Rodrguez and Dani Rodrik, published by the Centre for Economic Policy Research, challenged the methodology used in earlier research claiming countries with lower trade barriers grow faster. This rather technical paper was gleefully and wrongly acclaimed in some quarters as proving the stronger counter-claim that trade does not help boost growth.

The time has come for the supporters of free trade and globalisation to speak out. The global trading system has in fact been weighted very much more in favour of the developing countries by the establishment of the WTO. The reason is that it is a rule-based system, which does create a formally level playing field for all those who sign up to it. Systems based on rules, rather than negotiating weight, work to the advantage of the weak. In practice, of course, it is not quite so fair. For example, as the forthcoming World Development Report from the World Bank will point out, developing countries have very many fewer officials at the WTO than the industrial countries. Most are not in such a good position to exploit the opportunities.

Even so, the poorest country has, formally, the same market access as the richest. Poorer countries will be aided further by the fact that trade liberalisation is being extended to sectors in which they should have a comparative advantage, notably agriculture. If trade barriers and government subsidies can be reduced in farming, the whole world will benefit. Consumers everywhere will get cheaper food. Farmers in the rich countries, the lame- duck industry of the turn of the century, will no longer be diverted into unprofitable lines of business by daft subsidies. Taxpayers will save billions. And farmers in the developing countries will enjoy a much bigger market for their produce.

Unfortunately, the politics of trade are notoriously complicated even if the economic analysis is straightforward. There are always potential losers as well as winners, with the losers often an identifiable and powerful group able to lobby government effectively. And not only is there protest against trade liberalisation from campaigning organisations, the radical fringe of modern politics, there are currently serious tensions between the EU and US that could derail the new round of talks.

The banana case was an example. The American producer Chiquita was backed by the US government in a complaint that the EU had not fulfilled pledges to allow imports of its Latin American bananas. After a 10-year transition period the EU rules were still weighted in favour of former colonial producers in the West Indies and Africa. Portrayed as a big, bad US multinational throwing its weight around, the WTO nevertheless ruled in favour of the US. On this one the EU was in the wrong.

Potential future rows could make the bananas look like peanuts. Disputes over hormone-treated meat, genetically modified foods and aircraft are all in the pipeline. On the one hand is the EU's usual suspicion of free trade, reinforced now by the fact that the strongest liberal voice in Europe, the UK, is in the second division of decision making thanks to its decision not to join the euro in the first wave. On the other is a US administration with basically liberal instincts and a good record but a yawning trade deficit and an impending presidential election campaign. Between candidate Pat Buchanan's rhetoric and the need for union contributions to the campaign, there will be little scope for the American negotiators to make a strong push for further trade liberalisation in the early stages of the millennium round.

Even worse, one area on which the EU and US have reached agreement is the need to incorporate minimum labour standards in the trading rules. This means outlawing the use of child or slave labour, for example. Awful as these practices are, linking their abolition to access to world markets is potentially catastrophic, according to experienced and senior trade experts. They warn that it is a disaster, that the decision will open up a chasm between the developed countries and the developing. The latter see the labour standards link as backdoor protectionism, especially as its most fervent advocates have been unions in industries in the rich countries most at risk from cheap imports.

After all, low wages are the core comparative advantage of developing nations. While it might be possible enough to identify, say, the use of prisoners paid no wages in export industries as unacceptable, other aspects are not so clear-cut. What if children's incomes are essential to families in a country where all children over a certain age do work? It would be considered abhorrent in the industrialised countries, but these countries are rich enough for households to have several dependents. Poor countries have to be allowed the opportunity to enjoy enough economic growth to reach that state of wealth themselves. That growth will come through exports of cheap goods.

The auguries for trade in the new millennium are not all that good. In the end, however, trade liberalisation is so important that policy makers will almost certainly hesitate to throw away its benefits. But they must not be diverted by the ill-informed and damaging circus of anti-trade campaigners descending on the negotiations.

d.coyle@independent.co.uk

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