Don't expect much from Seattle trade meeting!

By Jonathan Power

LONDON (JP): In Sir Arthur Conan Doyle's The Hound of the Baskervilles, the great detective Sherlock Holmes lectures his faithful assistant, Watson, on the unlikely subject of free trade.

Says Holmes: "Capital article this on free trade. Permit me to give you an extract from The Times, 'You may be cajoled into imagining that your own special trade or your own industry will be encouraged by a protective tariff, but it stands to reason why such legislation must in the long run keep away wealth from the country, diminish the value of our imports and lower the general condition of life in this island.'

"What do you think of that, Watson?" cries Holmes in high glee, rubbing his hands together with satisfaction. "Don't you think that is an admirable statement?"

That was written in 1901. At century's end the intellectual battle for this central point in economic life is being fought for once again.

Has so little been learnt?

Successive trade reductions over the course of the century have been a major ingredient in increasing the world's wealth. On that few economists now disagree.

It is the getting there that is difficult and controversial -- ensuring that no one is disadvantaged by the cutting exercise; and that no one cheats by replacing the tariff cuts they've agreed to with other barriers to competition -- paper work, "health checks" and, these days, say the Third World countries, with certificates of compliance that ensure that the goods in question are not the product of child labor or rapacious, exploitative, environmental practices.

"There are 77 paragraphs and they are nearly all bracketed. That means almost nothing is agreed", says an official preparing for the kick off next week in Seattle of the preposterously named millennium round.

Still, the prize, even if it's only a quarter of the size suggested by the razzmatazz is worth fighting for.

But it means keeping the latest fashion -- globalization -- in some sort of perspective. Openness to low barriers to trade and free capital flows- the sing song of the globalists -- will not on its own set an economy on a path to sustained growth.

Every country needs a benign environment, first for its farmers and, later, for domestically generated investment to build up a home-grown industrial and service base. Only then can it afford to start to compete in the world economy. The market mantra of Thatcher, Reagan and, more recently, Clinton and Blair has only ever made 50 to 60 percent of sense.

As Harvard professor, Dani Rodrik, recently wrote in a paper published by the Overseas Development Council, "It takes too much blind faith in markets to believe that the global allocation of resources is enhanced by twenty-something-year-olds in London, who move hundreds of millions of dollars around the globe in an instant, or by the executives of multinational enterprises who make plant location decisions on the basis of concessions they can extract from governments."

International economic integration is not an end in itself. Still, it is one useful tool and it is in that light that the issues that are going to bedevil the meeting in Seattle should be approached.

Ironically, it is the United States, for so long the chief proponent of globalization, that is approaching the Seattle meeting with a sackful of ifs and buts.

Instead of wanting to open everything up, as Bill Clinton not so very long ago might have been expected to demand, the United States now wants an agenda very much tailored to Clinton's quite short term interests, namely the election of Al Gore.

Perhaps, if this slows the pace of the head long, no holds barred rush to globalization it is no bad thing. But if it is merely to placate Gore's trade union support then it is, indeed, as misguided as any reflexive protectionism in some unthinking, over nationalistic, trade partner.

The American negotiators have joked that the Europeans are prepared to negotiate abc-that is, anything but agriculture. This is partly true. But the joke doesn't really stand up. What the European Union says it wants is a broad-ranging comprehensive agenda. Admittedly, this is a tack to take the heat off their economically irrational protection of agriculture, but it is more in tune with past trade rounds than America's push for a limited agenda.

America's tactics are more beguiling than coherent. It is going to push for the incorporation of labor standards ( for example banning child labor) in trading rules -- if you don't agree to abolish child labor in such and such an industry we pile on the tariffs.

Apart from the fact that the poor are then twice damned, once for being poor and twice for trying to earn their way out of it, this is not a policy close to the heart of the American voter.

But it is important to Gore's friends in the unions who grab at any protectionist device like a dead man to a raft. Those who are campaigning on the streets of Seattle for the abolition of child labor should not be taken in by the apparent hand of friendship extended by the American negotiators -- for them this is only a pawn in a bigger game.

If the United States were truly serious about the issue it would emulate the new European Union policy of turning the tariff penalties on their head -- offering tariff cuts to those countries which sign up to new standards on child labor and environmental protection.

The EU, in reversing the old logic, has twice saved them -- poor countries gain a trade preference and they have an incentive to pass the benefit down the line to, say, child laborers so their conditions are improved.

If the U.S. government really does want to help the child laborers and their families then an agreement to reduce protectionist devices for textiles, too long promised, would do more than any slew of new regulations.

If Europe really wants to help the debt-ridden Third World countries, then opening up agriculture would be worth a hundred anti-American jibes. (The EU could start with honoring its agreement to allow in South African wine, instead of making the present dishonest fuss about South African labeling practices).

The Seattle stand-off leads many commentators to conclude that the fire has gone out of trade liberalization. We are returning to the era of Sherlock Holmes and old truths have to be re- discovered.

It certainly looks like this examining the current bracketed text, and with the U.S. Congress refusing to authorize that the president be given fast-track negotiating authority, and with Brussels refusing to budge on farm projects when it knows that it is Europe's richest farmers who disproportionately benefit from its archaic protection racket.

Still, the cause is not entirely dead. China, at last, has won U.S support in its bid to join the World Trade Organization. The U.S. general election will be over and done with relatively soon, freeing the new president to push ahead with a more balanced approach.

But for now not one of the big countries is really in the mood at the moment for serious talk about a "millennium round". We should, my dear Watson, not expect very much from Seattle.