Trade history teaches EU lesson

Date: 30/04/1998

By Tim Jones

THE half-century-old relationship between multilateral trade organisations and the European Communities has been a lot less fraught than generally believed.

Trust may have been tested to breaking point and the spark may have gone out since the heady days of 1994, but mutual respect for undoubted common achievements remains.

The World Trade Organisation is widely perceived, even by those who hate it, to have succeeded.

Disputes which only a few years ago would have flared up into bilateral rows have been settled within the WTO's panels.

Even the recent EU-US spat over a law punishing companies for doing business with Cuba involving expropriated American property was essentially resolved within its structures.

The Union recently allowed its WTO complaint against the Helms-Burton Act to lapse on the understanding that key elements of the law would never be implemented.

The importance to the EU of the General Agreement on Tariffs and Trade, which celebrates its 50th birthday on 19 May at what promises to be a dazzling party in Geneva, has changed radically in nature over the years.

Three years before French Foreign Minister Robert Schuman even presented his plan for a common coal and steel community in Europe, a group of United Nations members including Belgium, France, Luxembourg, the Netherlands and the UK were negotiating 45,000 tariff cuts affecting 9 billion ecu in world trade.

By binding these commitments into the GATT in October 1947, the countries involved, with France among them, established the multinational system.

Politicians tended to think globally rather than regionally in the Forties. The events of the preceding decade had taught them that globalism had already arrived. Although the 1939-45 war began in Europe, within a very short time it became the first true world war.

At the time, world policemen such as the International Monetary Fund, the World Bank and a planned International Trade Office which never materialised were seen as the best way to pre-empt the crises which could lead to a Third World War.

Four further rounds of negotiations throughout the Fifties saw another 14,000 tariff concessions exchanged and the number of contracting countries reaching more than 50.

Any market openings which took place in Europe during that period were largely conducted through GATT. However, all that began to change in 1957 with the signing of the Treaty of Rome and the creation of the European Economic Community.

For the first time, non-Europeans began to fear that France, Germany and Italy would go their own way and remove barriers between each other but, at the same time, erect a common higher tariff for everyone else, creating 'Fortress Europe'.

The Americans responded by launching the Dillon Round in September 1960, beginning with intra-EEC talks to set a common external tariff and ending with more than 4,000 tariff concessions covering around 3 billion ecu of trade.

The same fears emerged at the beginning of the Seventies when the UK, along with the smaller trading presences of Ireland and Denmark, began accession talks with the EEC.

Once again, Washington's jitters translated into launching a new round in 1973 in Tokyo.

It was the most wide-ranging yet, binding 99 countries to rules covering subsidies and retaliatory measures, technical barriers to trade, import licensing, procurement and trade in civil aircraft.

But it was with the Uruguay Round, launched in 1986 at Punta del Este, that the cohesion of the EU and its institutions was tested most severely.

Despite the diminishing importance of agriculture in the Union, including farm trade in the round was like showing a red rag to a French bull.

The areas of negotiation which had true significance for France, such as opening up financial services or the market in audio-visual products, were ignored until the last five minutes of the negotiations. Until then, all anyone could talk about was subsidised cereals and oilseed exports.

The split between the French and 'Anglo-Saxon' approaches was brought into the open in November 1992 when the EU's chief farm trade negotiator, Commissioner Ray MacSharry, decided to quit rather than tolerate persistent interference and second-guessing by Commission President Jacques Delors.

The Frenchman made no secret of his strongly held view that the interests of 12 million European farmers had to be protected in the headlong rush towards free world trade.

In the three years since the WTO was formed to police the GATT, the Union has found itself on the wrong side of the organisation in several key areas, most notably over its protectionist banana import regime.

Last September, the WTO's appellate body upheld an earlier panel ruling that the regime governing the importation, sale and distribution of bananas was discriminatory. The Union's latest proposal to keep the existing 2.2-million-tonne quota at a 75-ecu-per-tonne tariff has done nothing to win over angry US and Latin American governments.

And yet it is in the US Congress, rather than within the corridors of power in Brussels or Paris, that the most vociferous criticism of the world trade body can be heard: a fact of life that the White House has had to accept and even pretend to embrace.

US President Bill Clinton is trying his best to make the WTO loved at home, this time by securing a deal at this month's Geneva summit to make the Internet a tax-free zone for downloading software or selling online newspapers and music.

But he is being sniped at both from the Republican right in Congress and from the left, in the shape of Richard Gephardt, the congressman who looks set to give Vice-President Al Gore a run for his money in 2000's Democratic primaries.

The next GATT round, which is due to start at the end of 1999, will see the Americans at their most aggressive in attempting to eradicate the last remnants of the EU's agriculture-subsidy machine.

The Union, on the other hand, wants to negotiate over trade barriers to investment, intellectual property and services and, above all, the unfair use of competition policy.

Only last week, Competition Commissioner Karel van Miert restated his view that the forthcoming round should agree global anti-trust rules to deal with restrictive business practices, abuse of market power and merger control.

But he and the rest of the Commission know that the EU will not get what it wants in these areas unless it is prepared to give ground on farming.

Major feature on the EU and the multilateral trading rules of the GATT and WTO.