LONDON — Gordon Brown, the British chancellor of the exchequer and likely successor to Prime Minister Tony Blair, has declared publicly his strong support for a successful conclusion to the Doha round of world trade negotiations. He has called for new mechanisms to break the global logjam on trade and has condemned ideologies “that support protectionism” as “little more than the modern equivalent of Luddism.” (Luddite workers broke up machinery at the start of the 19th century, thinking that it was causing unemployment.)
Unfortunately, the Doha round has been stalled and it is going to be very difficult to get it going again. The biggest stumbling bloc is agriculture. Americans accuse the Europeans of adhering obstinately to the protectionist devices incorporated in the Common Agricultural Policy (CAP). This accusation has some validity although there have been some significant CAP reforms.
Europeans accuse the Americans of hypocrisy for pretending that U.S. agricultural subsidies are not what they seem or for putting off ending their subsidies on the contrived assumption that Europeans will never abandon the CAP. The most egregious of American subsidies are on cotton, a crop of great significance for some poor developing countries.
The Japanese and the South Koreans, who are even more protective of their agriculture, prefer to say as little as possible. In fact, the Japanese consumer would be one of the largest beneficiaries of a further significant liberalization of agricultural trade.
Developing countries, while demanding a reduction in barriers to their exports, are very reluctant to open up their own markets. China and India in particular have been slow to fulfill their obligations as members of the World Trade Organization. The Europeans have recently complained about high Indian barriers to wines and spirits. The Chinese have not yet done enough to halt the counterfeiting of goods and copyright infringements.
Another difficult problem is the treatment of services. Many British companies have outsourced their call centers to India. Indian employees of British Telecom and British insurance companies earn significantly less than their counterparts in Britain. They no doubt do their best but their command of English is often inadequate. Some politicians and trade unionists would like to ban such outsourcing, but to do so would be counterproductive as the subsequent rise in the cost of services would make us less competitive internationally.
The single market in Europe has increased intra-European trade significantly by eliminating tariffs and the worst nontariff barriers, but there are still significant problems. Taxes vary from country to country as do wage levels and standards of living. Some federalists would like to equalize taxes and conditions of employment, but this is strongly opposed in Britain and some other EU member states.
There should be freedom of movement within the union, but bureaucratic regulations in some member states make a mockery of this principle. Moreover, some European states don’t have to grant freedom of entry to citizens of new-member states, such as Poland, for a number of years yet.
Britain has not applied restrictions, and it is estimated that some 800,000 Polish workers have settled in Britain in the last two years. They have generally found work and this has been advantage for the British economy, but there has been such a furor over illegal immigration that the British government has decided to take advantage of European exemptions to limit the number of Bulgarian and Romanian workers allowed to settle in Britain after Bulgaria and Romania join the EU in January 2007.
The extent to which free trade can be expanded without liberalizing emigration and immigration is debatable, but it is hard to envision developed countries giving up their right to control immigration.
Another issue is the extent to which rules and standards should be made to apply across all member states to ensure fair competition. It is obviously desirable that there be rules to govern food standards and ban misleading advertising, but where should the line be drawn?
Anti-EU campaigners in Britain draw attention to absurdities such as the alleged demand that only straight bananas be sold in the EU, and there has recently been a row about an alleged EU ban on the term “dragon sausages,” made by a Welsh company, on the grounds that consumers might be misled into thinking that the sausages contained the meat of the mythical dragon.
Protectionists generally point to the damage that companies and their employees suffer from liberalized markets. Recognizing that companies must eventually face outside competition, they call for lengthy periods of adjustment. The problem is that these periods tend to be prolonged indefinitely as we saw with European restrictions on Japanese car exports in the 1980s and ’90s and with the multiple extensions of the GATT multifiber textile agreement. Adjustment periods should be as short as is reasonable.
In the absence of progress in world trade talks, states are placing more emphasis on bilateral trade deals and on the creation of trade blocs. This is unavoidable, but it is important that these deals are not made exclusive. Countries should be led toward expanded trade in general.
Brown’s call for a resumption of WTO negotiations has been greeted with what Japanese refer to as mokusatsu (the act of killing something with silence).
If Prime Minister Shinzo Abe wants to show that he really is an internationalist, he should ensure that Japan takes a lead in relaunching the world trade negotiations even if it means clobbering head-in-the-sand protectionists in the agricultural ministry.
Opponents of globalization and freer international trade are like King Canute, who bade the waves retreat when the tide was coming in.
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