Banana skins litter the road to free trade

SUNDAY TIMES (LONDON) July 9, 2000

Bananas, meat, aircraft and rum have one thing in common - they are all points of friction between America and the European Union as trade negotiators sort through the rubble of the riot-torn meeting of 135 trade ministers in Seattle last December. Unfortunately, those meetings elevated a small minority of protesters to centre stage in world trade negotiations when President Clinton said they should be invited to the negotiating table.

Never mind that the rioters included greens who oppose free trade and any other policy that stimulates economic growth, students whose idea of alleviating Third World poverty is to reduce foreign investment in those countries and job opportunities for their young men and women, and trade unions that want to close off imports from countries whose labour standards they find inadequate. No amount of persuasion will get these protesters to support further trade-opening measures.

And now they have found support from both the extreme right and the extreme left. Ralph Nader, the Green party's anti-capitalist presidential nominee, has pledged to abolish the North American Free Trade Agreement (NAFTA) and other instruments negotiated by free traders. And Pat Buchanan, the hard-right news commentator who has wrested control of the Reform party from Ross Perot, is equally vehement in opposing free trade, which, he argues, impoverishes America's blue-collar workers.

These opponents of free trade have no hope of being elected, of course. But Nader in particular is having an important effect on Vice-President Al Gore's campaign. Some of the unions on which Gore was counting for support are angry with him for supporting Nafta and most-favoured-nation treatment for China. They are withholding their support and cheering Nader to the rafters. Polls show the so-called consumer crusader might take 10% of the vote in the key state of California, once thought to be a sure thing for Gore.

So the Clinton-Gore people are currying favour with the unions by supporting such trade-stifling measures as a call for international labour and environmental standards, at levels unattainable by developing countries.

Add to this the usual French-led EU intransigence, and little disputes become magnified. The banana war has been raging for years, with the EU refusing to abide by a World Trade Organisation (WTO) ruling that its discrimination in favour of former colonies violates WTO rules. The beef dispute stems from the EU's insistence that hormone-treated beef is unsafe, a contention without scientific support but pleasing to the inefficient farmers who have so much political clout in the EU. As for aircraft, government subsidies of Europe's Airbus give it an edge over Boeing, in violation of agreements to limit such government support.

And now there is rum. Bacardi of Bermuda and France's Pernod Ricard are in a dispute over the rights to the Havana Club trademark. American law does not recognise Pernod's claim, since the Havana Club rum factory was confiscated by Fidel Castro. Instead, America says the rights belong to Bacardi, which purchased them from the Cuban plant's expropriated owners. The EU is challenging the American law before the WTO. Whatever the merits of this dispute, an EU defence of Castro's right to confiscate property without compensation will not win friends for Europe or the WTO in the Congress.

These disputes are being played out against a broader background that contains a few bright spots for those who want to continue the trade-opening process that has added to economic growth in most parts of the world.

On the personal level the relationship between America's trade representative, Charlene Barshefsky, and her EU counterpart, France's socialist Pascal Lamy, seems to permit a civilised discussion of a range of trade issues. Lamy thinks he must prevent American dominance of the world economy but he and Barshefsky are at least on speaking terms, which was not always the case with his predecessor.

Another bright spot is the emergence of a constituency for a reopening of trade negotiations. A group of heavyweights, including Henry Kissinger, Paul Volcker and Sir Leon Brittan, has drafted a report recommending a new round of negotiations.

But no progress will be made unless America abandons its post-Seattle insistence that trade talks include discussions aimed at imposing American wage and other labour standards on developing countries, a move that those countries know would eliminate their comparative advantage in world markets.

Gore, if elected, would be beholden to the unions, and would probably support their demand that products of "cheap foreign labour" be barred from America. That would put paid to efforts to open a new round of talks.

Meanwhile, policymakers are keeping an eye on the American economy. If it is indeed slowing and consumers are curtailing their spending, imports should decline. Simultaneously, if Europe does achieve the 3.5% growth rate now forecast for it and Asia continues to recover, American exports should rise. This would cut the trade deficit, something that might give a President George W Bush the opportunity to back calls for a new round, ignoring the conditions demanded by the unions to whom he will owe little. Alternatively, Bush just might go along with a suggestion from several of his advisers that he back Senator Phil Gramm's recent inititiative to invite Britain to join Nafta and let EU protectionists attempt to protect the battered euro as best they can.

But do not expect anything significant to happen until after the presidential election in November.