Winning the peace after battle of Seattle

Date: 23/11/00

By Tim Jones

FIVE decades since a framework of global commercial rules emerged from the rubble of the Second World War, its advocates are having to make the case for open trade all over again.

Few would have predicted that the World Trade Organisation, which was only set up in 1994 as part of the agreement which concluded the Uruguay Round of negotiations, would become the new 'Vietnam' or 'Bomb' to a generation of left-wing activists by the turn of the millennium.

The more optimistic champions of free trade say the trashing of Seattle and Prague can only be a good thing. It has enabled them to hone their arguments and battle for western public opinion.

The provocatively named David Dollar and his fellow World Bank economist Aart Kraay tried as much with their Growth Is Good for the Poor paper, arguing that "anyone who cares about the poor should favour the growth-enhancing policies of good rule of law, fiscal discipline, and openness to international trade".

Given the tirade of abuse the paper attracted from "anti-globalisation" websites, the two men still have some work to do as missionaries. Anyone who follows in their footsteps also has the problem of explaining raw figures from the United Nations Development Project showing the income gap between the fifth of the world's population living in the richest countries and the fifth in the poorest at 74 to 1 in 1997 compared with 60 to 1 seven years earlier.

The data are awkward, saying more about how attractive the US has been to investment over the past decade and how slowly capital lured into emerging markets works its way down to the people who need it. But they are not an argument for abandoning plans for a Millennium Round.

Indeed, two key issues to be tackled by the round - phasing out subsidies paid to rich EU and US farmers to flood world markets with otherwise overpriced produce, and dismantling the Multifibre Agreement to open western markets to cheap textiles, clothing and footwear manufacturers - are desperately important for developing economies.

The non-governmental organisations (NGOs) which protested in Seattle, rather than the ones that marshalled the street-fighters, will be given some kind of forum for their views. But even the developing countries' governments acknowledge that they - whether democratically elected or not - should be speaking for themselves.

The conditions for launching a round are trickier than they were when the WTO convened in Seattle last year. The new US administration and Congress will be gridlocked, the influential Indonesian government is wobbling and Thailand is approaching an election, while Japan's seemingly endless political crisis and recession-flirting growth rates mean it will be hard to sell further agricultural concessions.

The EU wants and needs a wide-ranging round, including investment and anti-trust rules to supplement farm trade, service industries and intellectual property talks. Without this, the Americans and the Cairns Group will be able to pick off the Union's blatantly discriminatory farm-support regimes without offering important non-agricultural concessions in return.

For the EU, the big tests will be the farm talks and fast-tracking decisions on services accords - an issue which will probably be ducked at next month's Nice summit.

Trade in services - shorthand for aviation, telecoms, finance, distribution, shipping, healthcare, energy and environmental services - is fundamental to a new round, and a deal is vital to the Union since it easily trounces the US as the world's leading services exporter. The EU's four biggest economies alone exported 367 billion euro in services last year compared with 288 billion euro from the US.

Yet the French government, which will chair the Nice summit, is adamantly opposed to allowing international services agreements to be approved by qualified majority vote (QMV) rather than unanimity. The European Commission's Trade Director-General Peter Carl may deem it "unthinkable that decisions in the Community interest can be taken by a procedure that was agreed in 1958", but it is perfectly thinkable in Paris.

Failure to switch services to QMV will be as harmful to the new round as Congressional refusal to give the White House 'fast-track' authority.

The agricultural negotiations, which have already started, have so far simply seen the main players restating positions and surprising nobody. The Europeans are playing their old Uruguay Round tune, offering a further 36% average cut in tariffs on farm produce with a minimum 15% cut for specified products. Developing countries and the militant Cairns Group of agricultural exporters are unimpressed. This "well-tested" method of cutting tariffs will, they argue, leave duties on individual products abnormally high.

Alliances have changed since the last round and 2001 could well see the emergence of a new grouping of food importers - a lobbying first in the history of the General Agreement on Tariffs and Trade - led by an increasingly assertive Egyptian government. Joined with the Cairns Group, this could be a formidable pressure group.

The EU will be hoping to counter some of the complaints made by the developing world and NGOs by emphasing its bilateral freer-trade deals and talks with the four South American countries in the Mercosur bloc and Chile, Mexico and South Africa, as well as the latest offer from the Commission to grant 'everything-but-arms' duty-free access for the world's 48 poorest countries.

But again, the Commission faces French-led opposition as Paris warns that

multi-nationals will set up shop in Sierra Leone or Burundi to export freely into the Union - surely the very idea behind the proposal. Trade Commissioner Pascal Lamy is, however, taking on his countrymen. "Talk is cheap," he insists. "It is time we put access to our markets where our mouth is."

With the case for global trade cooperation so open to question among the wider public, the pressure on EU and US legislators to settle outstanding bilateral disputes is crushing.

Long-standing food spats over American hormone-treated beef and the Union's banana import regime look close to settlement, along with the potentially huge row over tax breaks for US multinationals - something the Dutch, Danish, Belgian and Irish governments are equally adept at providing. This does not mean that the world's two biggest trading powers are out of the woods. Various EU 'environmental' rules - most notably legislation on labelling and traceability of biotech crops and curbs on US-made aircraft hush kits - will provoke Washington into retaliation unless they are changed.

And waiting in the wings is 'armageddon' - a dispute over billions of euro of EU government subsidies to Airbus Industrie to develop a super-jumbo. On top of this, proposals to impose curbs on firms using e-mail to market goods and services and forcing US software and online music and video retailers to register for value added tax in every member state have the potential to spark a damaging transatlantic fight.

Next year's trade drama should be gripping. The multilateral route is likely to pip bilateral clashes for real progress if not headline column inches, although the round - when it comes - is likely to be much less ambitious than the pre-Seattle agenda. The bandana-clad small-worlders should be fairly content when they smash McDonalds windows in the city which is foolish enough to host the next WTO summit. They may not have halted cross-border trade in its tracks, but the post-Uruguay-Round momentum has been lost.

Major feature. Article forms part of a survey on trade.