G7 Summit: Leaders promise jobs, lower prices and prosperity

Click to follow
The Independent Online
BRUSSELS - 'No winners nor losers. We all won,' said Mickey Kantor, the US Trade Representative, after the Group of Seven (G7) industrialised countries agreed a trade pact. That is the view world leaders, businesses and most economists take of the deal struck in Tokyo and of the General Agreement on Tariffs and Trade (Gatt). It is not universally shared. Trade is at the heart of a battle in the streets of Europe, in policy salons and smoke-filled negotiating rooms.

More trade means cheaper goods; lower prices mean higher incomes; the outcome is an increase in jobs. This is the basic premiss of trade liberalisation, which is the fundamental purpose of Gatt.

So there should be concrete gains in a Gatt deal in three areas. First, prices should be lower. The deal would reduce tariffs, opening markets to imports. It eliminates them in eight sectors: pharmaceuticals, medical equipment, construction equipment, steel, farm equipment, beer, furniture and distilled spirits. In four sectors - ceramics, glass, textiles and apparel - they will be reduced.

The effect of this is to cut prices of imported goods. If prices come down, consumers can buy more. Thus a trade deal increases wealth, in theory. For instance, the National Consumer Council (NCC) believes EC measures to protect home manufacturers of electronics cost British consumers and businesses pounds 274m in 1990. This may be one of the biggest changes to come from the Gatt deal. Getting rid of the Multi-fibre Arrangement, which governs trade in textiles and clothing, would mean a 5 per cent cut in clothing costs, it estimates.

Will prices really come down? This relies on price reductions being passed on to consumers, rather than taken as profits. In any case, the impact of the Tokyo deal alone is probably not great for British consumers. In many of the sectors affected, tariffs in the EC are already low.

But in the 300-page draft final act of the Gatt drawn up in December 1991, tariff negotiations account for only three pages. There are sections that will have a far more profound impact on the developed countries, covering, for instance, trade in services. And farm trade will be revolutionised, a process that has begun in the EC's Common Agricultural Policy.

So, second, a Gatt deal should mean more economic growth by promoting exports of goods in liberalised sectors. However, the most important effect of a deal, in the view of many economists, is on confidence, since it means a more stable trading environment.

Third, since free trade creates wealth, it creates jobs. That is the link every political leader in Tokyo sought to make yesterday. Britain expects 250,000 extra jobs in 10 years, said John Major, and Mr Kantor said it would mean 1.4 million jobs in 10 years for the United States. But there are also fears that freer trade will just help the low-wage economies of Asia.

Advocates of freer trade, however, say protectionism is an expensive way to save jobs. The cost of protectionism in textiles and clothing to British consumers was estimated at pounds 980m by one study. 'The cost of each job 'saved' was around pounds 29,700,' noted the NCC, 'three or four times the average earnings in the two industries.'

There are clearly costs and benefits to trade liberalisation. But the theory has always been that the benefits, which spring from lower prices and market access for more efficient producers, outweighed the costs.

This has recently been challenged by economists, some of whom argue that in 'strategic' sectors such as electronics a degree of protection can be beneficial. It is also under threat from people who feel they are hit by the costs rather than the benefits.

Peter Sutherland, the Gatt chief, has issued a study that emphasises the gains from a deal. It said that 23 million jobs in the G7 countries depended on exports of goods, and millions more on service exports. It also emphasised the importance of developing countries as markets.

One of the biggest arguments is whether the costs and benefits of liberalisation are equally distributed. In free-trade theory, that job is carried out by the market. But a decade of deregulation has made many sceptical of the market's even-handedness. Even as the world works towards a deal in the Uruguay Round, there are moves in the EC to create mechanisms to ensure low-wage economies with little social protection do not gain at the expense of more developed countries.