Pact can show way to real recovery

WITH the passage of the North American Free Trade Agreement by the US House of Representatives, most politicians and business leaders everywhere breathed a collective sigh of relief.

European concerns that Nafta may end up creating a trade 'fortress' in the Americas mirror US fears of a few years ago about the single European market. The White House has already warned that Nafta and Apec - the organisation for Asia Pacific Economic Co-operation - offer an alternative 'trade architecture' to the US if Europe fails to compromise on cutting subsidies for farm trade, the main obstacle to a Gatt accord. 'The US now has a natural escape route for a multilateral trade pact that can develop further into South America and spread west into Asia,' said Ian Harwood, chief economist of Warburg Securities.

Free-trade supporters have stressed the paramount importance of a successful conclusion to all these talks. A Gatt failure, they warn, could splinter the world economy into regional trading blocs ring- fenced with trade barriers. Whatever the outcome, the proliferation of trade negotiations and deals is bewildering to ordinary people and the impact on everyday life seems unclear.

The boom years of the 1980s coincided with a surge in the growth of world trade. More recently, the expansion of global trade slowed and industrial economies sank into recession. Many policy-makers have accordingly concluded that the success of these agreements would boost international trade, lift business and consumer confidence and clear the way for a sustainable recovery.

The classical theory of free trade holds that dismantling international barriers to trade encourages an international specialisation of production that maximises the economic welfare of the whole world. In other words, countries should make what they do best. Thus, for example, China is a leading manufacturer of soft toys, the US and Japan world leaders in computers, and Germany probably the largest manufacturer of hi-tech machine tools.

But there is almost as much concern that breaking down the barriers to trade will destroy huge numbers of jobs in the relatively high- wage industrial world as production is transferred to Asia, parts of Latin America and Eastern Europe where there are vast pools of cheap labour, and where employers' 'non-wage' costs such as social security payments are low.

In practice, even if all the present trade negotiations succeed they will not result in completely free trade. And during the long years of hard bargaining, the free-trade negotiations have been overtaken by the 'globalisation' of the world economy in which multinational companies, buttressed by the increasingly free movement of capital around the world, seek to be active in all markets, regardless of whether there are trade barriers or not. Thus Japanese car manufacturers have established plants in Britain to serve the EU.

Although barriers to trade have grown in recent years, they have been confined largely to declining industries such as steel and textiles, where production in industrial countries has been matched by soaring low-cost output in the developing world. For the same reasons, just as much protection is practised in agricultural trade.

At the same time, capital flows and services have become increasingly unregulated as governments dismantle controls that proved difficult to administer. Capital moves around the world electronically, and it seems unlikely that this trend could ever be arrested.

A key reason for the flood of capital and investment to China, South- east Asia and parts of Latin America is not so much the advent of a more liberal world trade environment as the prospects for growth. Many Asian countries enjoy annual growth rates in excess of 10 per cent. Attracted by the prospects of rapidly expanding markets and large profits, companies have understandably poured money into these regions to bring their production facilities closer to these markets.

If Europeans complain, they have only to look back to the late 1980s. American and Japanese investment poured into the European Community in anticipation of the 1992 single market. Until the recession knocked the European economy off course, the single market was expected to provide a fresh boost to growth. Even today, Britain is one of the biggest European beneficiaries of foreign investment. Relatively low wage and 'non-wage' costs and a nascent economic recovery make the UK an attractive location for serving the European market.

News
The Banksy image in Folkestone before it was vandalised
people
Life and Style
tech

Sales of the tablet are set to fall again, say analysts

Sport
football West Brom vs Man Utd match report: Blind grabs point, but away form a problem for Van Gaal
Arts and Entertainment
Gotham is coming to UK shores this autumn
tvGotham, episode 2, review
PROMOTED VIDEO
Have you tried new the Independent Digital Edition apps?
News
ebooksAn unforgettable anthology of contemporary reportage
News
i100
Arts and Entertainment
Bloom Time: Mira Sorvino
tvMira Sorvino on leaving movie roles for 'The Intruders'
News
Brian Harvey turned up at Downing Street today demanding to speak to the Prime Minister
news

Met Police confirm there was a 'minor disturbance' and that no-one was arrested

Arts and Entertainment
George Lucas poses with a group of Star Wars-inspired Disney characters at Disney's Hollywood Studios in 2010
films

George Lucas criticises the major Hollywood film studios

Voices
Chris Grayling, Justice Secretary: 'There are pressures which we are facing but there is not a crisis'
voices

Does Chris Grayling realise what a vague concept he is dealing with?

Life and Style
A street vendor in Mexico City sells Dorilocos, which are topped with carrot, jimaca, cucumber, peanuts, pork rinds, spices and hot sauce
food + drink

Trend which requires crisps, a fork and a strong stomach is sweeping Mexico's streets

Life and Style
The charity Sands reports that 11 babies are stillborn everyday in the UK
lifeEleven babies are stillborn every day in the UK, yet no one speaks about this silent tragedy
News
Blackpool is expected to become one of the first places to introduce the Government’s controversial new Public Space Protection Orders (PSPOs)
news

Parties threaten resort's image as a family destination

Life and Style
Northern soul mecca the Wigan Casino
fashionGone are the punks, casuals, new romantics, ravers, skaters, crusties. Now all kids look the same
Life and Style
gaming

I Am Bread could actually be a challenging and nuanced title

News
Nigel Farage has backed DJ Mike Read's new Ukip song
i100
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs General

Year 5 Teacher

£80 - £140 per day: Randstad Education Leeds: Year 5 Teacher KS2 teaching job...

Software Developer

£35000 - £45000 Per Annum Pensions Scheme After 6 Months: Clearwater People So...

Systems Analyst / Business Analyst - Central London

£35000 - £37000 per annum + Benefits: Ashdown Group: Systems Analyst / Busines...

Senior Change Engineer (Network, Cisco, Juniper) £30k

£30000 - £35000 per annum + Benefits: Ampersand Consulting LLP: Senior Change ...

Day In a Page

Oscar Pistorius sentencing: The athlete's wealth and notoriety have provoked a long overdue debate on South African prisons

'They poured water on, then electrified me...'

If Oscar Pistorius is sent to jail, his experience will not be that of other inmates
James Wharton: The former Guard now fighting discrimination against gay soldiers

The former Guard now fighting discrimination against gay soldiers

Life after the Army has brought new battles for the LGBT activist James Wharton
Ebola in the US: Panic over the virus threatens to infect President Obama's midterms

Panic over Ebola threatens to infect the midterms

Just one person has died, yet November's elections may be affected by what Republicans call 'Obama's Katrina', says Rupert Cornwell
Premier League coaches join the RSC to swap the tricks of their trades

Darling, you were fabulous! But offside...

Premier League coaches are joining the RSC to learn acting skills, and in turn they will teach its actors to play football. Nick Clark finds out why
How to dress with authority: Kirsty Wark and Camila Batmanghelidjh discuss the changing role of fashion in women's workwear

How to dress with authority

Kirsty Wark and Camila Batmanghelidjh discuss the changing role of fashion in women's workwear
New book on Joy Division's Ian Curtis sheds new light on the life of the late singer

New book on Ian Curtis sheds fresh light on the life of the late singer

'Joy Division were making art... Ian was for real' says author Jon Savage
Sean Harris: A rare interview with British acting's secret weapon

Sean Harris: A rare interview with British acting's secret weapon

The Bafta-winner talks Hollywood, being branded a psycho, and how Barbra Streisand is his true inspiration
Tim Minchin, interview: The musician, comedian and world's favourite ginger is on scorching form

Tim Minchin interview

For a no-holds-barred comedian who is scathing about woolly thinking and oppressive religiosity, he is surprisingly gentle in person
Boris Johnson's boozing won't win the puritan vote

Boris's boozing won't win the puritan vote

Many of us Brits still disapprove of conspicuous consumption – it's the way we were raised, says DJ Taylor
Ash frontman Tim Wheeler reveals how he came to terms with his father's dementia

Tim Wheeler: Alzheimer's, memories and my dad

Wheeler's dad suffered from Alzheimer's for three years. When he died, there was only one way the Ash frontman knew how to respond: with a heartfelt solo album
Hugh Bonneville & Peter James: 'Peter loves his classic cars; I've always pootled along fine with a Mini Metro. I think I lack his panache'

How We Met: Hugh Bonneville & Peter James

'Peter loves his classic cars; I've always pootled along fine with a Mini Metro. I think I lack his panache'
Bill Granger recipes: Our chef's heavenly crab dishes don't need hours of preparation

Bill Granger's heavenly crab recipes

Scared off by the strain of shelling a crab? Let a fishmonger do the hard work so you can focus on getting the flavours right
Radamel Falcao: How faith and love drive the Colombian to glory

Radamel Falcao: How faith and love drive the Colombian to glory

After a remarkable conversion from reckless defender to prolific striker, Monaco's ace says he wants to make his loan deal at Old Trafford permanent
Terry Venables: Premier League managers must not be allowed to dictate who plays and who does not play for England

Terry Venables column

Premier League managers must not be allowed to dictate who plays and who does not play for England
The Inside Word: Brendan Rodgers looks to the future while Roy Hodgson is ghost of seasons past

Michael Calvin's Inside Word

Brendan Rodgers looks to the future while Roy Hodgson is ghost of seasons past