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Wednesday, 4 April, 2001, 16:13 GMT 17:13 UK
Greenspan backs free trade
Alan Greenspan and George Bush.
Greenspan labelled protectionism "unwise and surely self-defeating".
Federal Reserve Board chairman Alan Greenspan said on Wednesday that trade has been good for the US but he criticised the past trade policy as "essentially adversarial".

He also criticised anti-globalisation protestors for doing more harm than good to developing countries.

"In the end, economic progress clearly rests on competition," Mr Greenspan said, speaking before the US Senate Finance Committee on Trade Policy.

In veiled criticism of those in government advocating protectionism, he called for all markets to be opened "unilaterally" and labelled closed markets as "unwise and surely self-defeating".

"The best single action that industrial countries could actually take to alleviate poverty in many developing countries would be to unilaterally open markets to imports from these countries," Greenspan said.

"Those who protest against 'globalisation' appear too often to be self-designated representatives of developing country interests. These protests, however well-intentioned, are wrong-headed."

Trade talks

Mr Greenspan's testimony comes at crucial time for US trade policy, with sensitive negotiations beginning with Latin American countries to accelerate progress towards a Free Trade Area of the Americas - a priority for the Bush administration.

President Bush has been meeting with both Democratic and Republican leaders in Congress to be given "fast track" approval to negotiate new trade deals.

Bush wants those powers to be able to make deals when he travels to Quebec City later this month to meet with leaders of 33 Western Hemisphere countries to negotiated a American free trade zone.

Productivity not jobs

The Fed chairman said it has been a mistake for supporters of globalisation to promote free trade on the grounds that it would create jobs.

"It is difficult to find credible evidence that trade has affected a level of total employment in this country over the long run," Greenspan said.

Rather, Greenspan said it would be better to argue that globalisation increases standards of living through the effects of competition on productivity.

Protectionist danger

But, he warned the slowing US economy means that Americans might become more protectionist and less inclined to support international trade.

"There is no question in my mind that as the economy slows, we of necessity must accelerate our endeavours towards free trade because we are going to find that it will become increasingly more difficult," Mr Greenspan said.

"History shows that were we to move in a protectionist direction, that would create some very significant problems for the American economy."

The US economy has slowed sharply in recent months, growing at an annual pace of only 1% in the fourth quarter of last year. The Fed has cut interest rates three times so far in 2001 to try and keep the economy out of recession.

Japan's woes

Mr Greenspan also said that Japan needs to improve its flagging economy because it was affecting the overall global economic outlook.

"You cannot have the second largest economy in the world essentially stagnating without ... impacting the rest of us," Mr Greenspan said.

Greenspan said that the effect of Japan "moving from a major factor of growth to stagnation has created significant dampening in world economic activity."

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See also:

28 Feb 01 | Business
Fed: Slowdown not over yet
28 Feb 01 | Americas
Bush pushes tax cuts
31 Jan 01 | Business
US interest rates cut to 5.5%
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