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Tuesday, 23 January, 2001, 16:40 GMT
World trade dilemmas
Trade has been the motor of economic growth
Trade has been the motor of economic growth
One of the key issues that will have to be confronted by world leaders at Davos is the future of free trade.

The international trading system is at a crossroads after a year of drift and conflict.

Plans to launch a new round of trade talks stalled in Seattle in December 1999, amid mass protests against globalisation.

Since then the world trade system has been plagued by a series of disputes between major players.

In particular, the EU and the US, who together make up half the total size of the world economy, are at loggerheads.

Now it will be up the new Bush administration to try and restart the trade talks, and resolve any outstanding trade disputes.

Early signs are not encouraging, with Mr Bush indicating that his first priority will be reaching a free trade agreement with other Latin American countries, creating a bigger free trade bloc in the Western Hemisphere.

And the slowdown in the US economy, if prolonged, will increase pressures the new President to take a tough line in trade battles with other countries.

Trade disputes

Of course, many of the business leaders who have backed Mr Bush do believe that expanding trade opportunities is an important strategy in countering the effects of a domestic slowdown.

US high-tech firms, in particular, would like to increase their exports to Europe and Asia.

But attempts at greater trade liberalisation are hampered by disagreements about the nature of any future trade deal.

The US would like any future trade talks to have a narrow agenda, focusing on further opening up of trade in agriculture and services.

However, the EU has put forward a broader agenda, which would cover such issues as competition, environmental policies, and investment within trade talks.

And then there is the question of labour standards, which helped derail the Seattle talks.

Trade unionists and development activists, as well as many Democrats in the US, favour including such standards in any new trade pact.

But delegates from Third World countries have vigorously opposed such criteria, arguing that they are a disguised form of protectionism which will keep out products produced by poor people.

The Bush administration is likely to reject any formal trade link to labour standards, but it may be forced to extend such conditions which already exist in the North American Free Trade Agreement (NAFTA) to other countries.

Planes and grains

Meanwhile, deadlines are looming for some key disputes between the US and Europe.

The US already has sanctions in place against the EU refusal to import bananas and beef - and in the case of beef, the EU says that it will not change its mind because of safety fears.

Meanwhile, the EU has obtained a ruling in the World Trade Organisation against US tax breaks for foreign sales by its multinational companies, which is worth up to $4bn.

In addition, the US is objecting to EU plans to subsidise the development of the super-jumbo A380 by Airbus, the main European rival to Boeing.

And a dispute is looming over EU fears about genetically modified crops (GMOs), which are common in US agriculture but the EU would like to be labelled as such before being sent to Europe.

The rule of trade law

All these disputes could be solved if there was the good will to do so.

But most worryingly, the World Trade Organisation (WTO) itself, the body charged with ruling on trade disputes, is itself coming under unprecedented attack.

The EU has challenged some of the US domestic trade laws - and some US legislators do not accept the principle that the WTO could override US laws.

And the credibility of the WTO has been weakened, first by a damaging dispute between the US and the Third World over who should be named the new head of the organisation, and then by its failure to properly prepare for the Seattle trade round.

Mike Moore, the interim head of the WTO whose term expires in 2002, is keen to restart at least some trade talks in the area of services, the fastest growing area of world trade.

But activists, made more bold by their success in Seattle, are already targeting these talks.

It remains to be seen whether business and political leaders can reconstruct the consensus that lead to the rapid trade liberalisation, and economic growth, of the last 50 years.

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See also:

11 Jan 01 | Business
Bush appoints trade envoy
10 Jan 01 | Business
Bush urged to back new trade talks
21 Dec 00 | Review
Globalisation and its discontents
27 Dec 00 | Business
EU-US trade dispute looms
10 Nov 00 | Business
Campaigners target trade in services
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