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Paris, Thursday, December 16, 1999

Tell People the Truth:Trade Barriers Are Bad

By Roy Denman International Herald Tribune

LONDON - The director-general of the World Trade Organization, Mike Moore,

said he was disappointed but not dismayed at the collapse of talks in

Seattle to launch a new trade round.

Disappointment implies surprise, but no one should have been surprised at

the failure of the talks. To have scheduled in an American city within one

year of an American presidential election a high-profile launch of a new

trade round without any agreement on the agenda was to invite the

intrusionof American domestic politics.

President Bill Clinton promised to bash developing countries if their

exporters were inconveniently young or worked inconveniently hard, and to

bash the European Union for its wicked Common Agricultural Policy. But

there was to be no touching American anti-dumping policy. Trade unionists

and farmers throughout the Midwest cheered. Foreigners did not.

Agreement on the agenda for a new trade round will not now be possible for

at least 18 months. After the election a new administration will have to

be formed and the new special trade representative will have to get his or

her feet under the table.

But delay will be only the start of the troubles mounting for world trade.

Mr. Moore need not have been surprised but he should have been dismayed.

For several reasons:

In the last year of the 20th century, governments everywhere seem to have

forgotten one of its main lessons -that opposition to international

tradeis mad and bad.

In 1930, President Herbert Hoover signed into law the Smoot-Hawley tariff.

This was the most disastrous mistake that any American president has made

in international relations. It lifted the American tariff level to more

than 60 percent. Twenty-five countries retaliated. World trade fell by

two-thirds. This turned an American economic downturn into a catastrophic

world recession.

Unemployment soared. Adolf Hitler was elected in Germany. The economic

chaos of the 1930s brought about the Second World War.

Afterward, the nations of the world resolved not to make this mistake

again. A precursor of the WTO, the General Agreement on Tariffs and Trade,

was drafted to act as a world trade code and a basis for the mutual

reduction of trade restrictions. It turned out to be one of the great

success stories of the second half of the 20th century.

Tariffs and quotas were slashed. World trade expanded 17-fold. This

produced the biggest increase in prosperity in recorded history.

All this seems to have been forgotten by the governments of the world.

Thousands took to the streets in Seattle to protest against

''globalization.'' No one pointed out that the same attitude was

fashionable in the 1930s. Then it called for exporting unemployment, which

led to dire results.

But it is not just a question of riots in Seattle. According to an opinion

poll in the United States this past summer, 58 percent believed that

imports were bad because they depressed wages. The U.S. Congress is

showing great reluctance to make the legislative changes necessary to

admit China to the WTO and to pass the ''fast-track'' legislation

necessary for a new negotiation in the WTO.

If this is the popular mood in an economic boom, what will it be when the

economy heads south? The U.S. recovery has lasted far longer than

expected; the trade deficit has risen to 4 percent of GDP; sometime over

the next year the bubble is likely to burst. And the first reaction to a

slump will be to take a hammer to imports.

Talk of future trade negotiations is further complicated by one powerful

myth. This is that the European Union's agricultural policy is monstrously

protectionist and is a danger to world trade. This rubbish has been

repeated so often that the world has come to believe it.

In producer support per farmer, the EU ranks (1996-1998) behind

Switzerland, Norway and Japan, and only marginally ahead of the United

States. Washington is planning $8.7 billion in farm aid this year, mainly

for its world competitive grain sector. There are high barriers against

imports of dairy products and sugar, and recent curbs on lamb imports have

infuriated Australia and New Zealand.

No one ever mentions the huge irrigation subsidies without which farm

production in the west of the United States would be greatly curtailed.

The EU has cut its farm protection and is willing to negotiate further

cuts, on a genuinely reciprocal basis. But it is not, any more than

American sugar and dairy producers, prepared to see whole regions reduced

to ghost land. Discussions about farm trade need less rhetoric and more

reality.

This should be a motto for governments everywhere. The boom in world trade

has lasted so long that politicians have forgotten the past and have grown

complacent about the future.

Let us suppose that a large and angry mob were to advance on a government

somewhere crying that the earth was flat. And in reply ministers would

say: ''We must listen to you folks. Maybe the earth is flatter than we

think.'' People would fall about laughing.

Politicians everywhere need to sell anew the idea that bringing down trade

barriers, and keeping them down, means more prosperity and more jobs, and

a world safer for democracy.

The writer, a former representative of the European Commission in

Washington, contributed this comment to the International Herald Tribune.