TCS Daily


The Politicization of Trade

By Alan Oxley - October 14, 2004 12:00 AM

Britain's Peter Mandelson has been tagged as a free-trader, so his appointment as the EU's next trade commissioner has been generally approved. Al Gore is said to be a free-trader, yet his book, Earth in the Balance, shows he is a faux free trader. He wrote that to save the environment, Adam Smith's "invisible hand" needed guidance. This is the sort of "free trade" the EU wants to practice. Mandelson will have to start off better if he is not to become just another faux free trader.

Pascal Lamy, the retiring European trade commissioner, has left Mandelson an unusual legacy. Lamy faced a fundamental dilemma in his portfolio. Unsurprisingly for an intellectual, French socialist, Lamy's solution was to craft a "post modern" global free trade policy[1]. Lord, spare us. But if we look at what he had to deal with, we can see why.

First, there was the frustration. Consider the conference of trade ministers in Cancun in November 2003. He and Bob Zoellick, his US counterpart, arrived ready to get negotiations in the WTO to open world trade in agriculture back on track. Developing countries had been demanding this for months.

What did he find? Developing countries threw a hissy fit over customs administration, an uncontroversial and minor issue. Like campus radicals, they demanded this be removed from the agenda if their cooperation was expected. Agriculture had not even been discussed. The chair saw no prospect for success at this meeting and called it off. Zoellick and Lamy were furious. Lamy branded the WTO "a medieval institution". He had a point. It took seven more months, time effectively wasted, before WTO negotiators finally finished what they should have started in Cancun.

Then there is the conundrum that EU leaders and the European Parliament have created for the trade commissioner. They want the European Commission to insert environmental goals into the WTO and to make adherence to labor and environment standards a precondition for trade. These objectives are fundamentally incompatible with an open trading system.

Free trade is the lifeblood of the world economy. The heart is comparative advantage. The WTO creates an open trading system which keeps the arteries clear and comparative advantage healthy. Demanding preconditions is like introducing clotting agents. That is why no one else in the WTO, except Switzerland, supports this. Lamy conceded at Cancun that the EU was "isolated".

Back on the moral high ground in Brussels, no one was listening. Officials in the Trade Directorate are reminded daily by the missionaries in the Environment Directorate that it is over-arching EU policy that environmental goals have to be inserted into everything. For good measure, the most common but least valid criticism of free trade is endlessly intoned. Globalization went too far. The "social dimension" of development has been neglected.

There is more to this than sloganeering. The EU is introducing a raft of environmental policies that will require that imports meet EU environmental standards. A recent study estimates it has unilaterally imposed 20 such trade barriers over the last decade. [2] Around a dozen more are proposed. The electronics and chemicals industries are already feeling the pinch.

Europe's environmental policy makers don't want to propose that agreements be negotiated to establish international environmental standards. They know others won't agree with their standards and that negotiating agreements takes a long time. The short cut is to force others to adopt EU standards as a condition for trading with the EU. That is exactly what an open trading system was designed to prevent: politicization of trade. It gives poor countries basic protection against the power of larger trading partners.

How does anyone meld fundamentally irreconcilable ideas into a common policy? Post modernist philosophy provides for such intellectual gymnastics. Pascal Lamy used them in a paper released last month, entitled "The Emergence of Collective Preference in International Trade". This is now essential reading. The international trade community should be alarmed. No old fashioned ideas like state, sovereignty or legal commitments here. The European Community has developed a new concept of "collective preferences": particularly their own.

"We just want to make sure that we get all that we should get from those international commitments (which, in relation to the WTO, means no protectionist or excessive trade restrictions) but without having legitimate social choices threatened." writes Lamy.

It is clear the EU does not regard the provisions of the WTO agreement as adequate to protect its "legitimate social choices". It wants new ones. It wants its trading partners to accept its preferred position on labor and environment as preconditions for trade.

This is not good news for free trade. How will Peter Mandelson approach this question? He has been attacked by the Greens. That is a good start. But basic values are what count.

When asked to express his philosophy by the European Parliament, Peter Mandelson endorsed its approach to sustainable development in its trade policy. He probably had to say that. It is also reported during the hearings that he pointedly munched on a bar of "Fair Trade Chocolate". That is a very ominous sign. The Fair Trade people (Oxfam and their allies) are not free traders. They advocate regulation of trade. Peter Mandelson might as well have sung "The Internationale".

Alan Oxley is host of the Asia Pacific page of Techcentralstation and a former Chairman of the GATT, the predecessor of the WTO.



[1] (Free Trade Publisher note: this is an oxymoron).

[2] "European Unilateralism", Australian APEC Study Centre Monash University (www.apec.org.au)


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