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Saturday, 25 December, 1999, 16:31 GMT
Body blow for free trade

Protesters in the Phillipines Protest replaced negotiation as trade talks floundered

By BBC News Online's Steve Schifferes

Free trade did not have a good year in 1999.

There was conflict between rich and poor countries over trade measures, squabbling over who should run the World Trade Organisation, and finally the failure to launch a new trade round amid mass demonstrations in Seattle.

The battle for free trade
But more importantly, the consensus that free trade was vital to world economic growth was seriously questioned for the first time in a generation.

Demonstrators in Seattle claimed that the World Trade Organisation, body that regulates world trade, was unrepresentative and undemocratic, and did not take enough account of environmental interests and those of the world's poor.

Mass protests by environmentalists swamped Seattle's trade talks
And President Bill Clinton, the only world leader to attend the Seattle trade summit, appeared to agree with them, calling for the WTO to apply sanctions against countries which violate trade union rights.

That angered many third world delegates, and led to deadlock at the meeting.

There have been nine trade rounds since 1948 which have lowered tariff barriers substantially, and led to a huge growth in manufacturing trade.

Now it is uncertain whether a new trade round, trying to extend free trade to untested areas like services and e-commerce, will be possible at all.

Conflict among trade blocs

It was not only developing countries that objected to the new trade round.

US cow Europe refused to import US beef despite trade sanctions
Conflict also grew during the year between the world's two largest trading blocs, the United States and Europe - replacing the traditional rivalry between the US and Japan.

The EU and the US disagreed on whether there should be further liberalisation of agriculture, with a goal of ending all subsidies, which could threaten the EU's common agricultural policy.

The EU clashed with the United States first over the import of bananas from Caribbean countries, where the US objected to preferential treatment for former British and French colonies.

More serious were the conflicts over health related issues.

The EU refused to import US beef treated with growth hormones, fearing that this could be a health hazard, despite a ruling against them in the World Trade Organisation.

bananas Carribbean bananas proved a trade flashpoint
And there is another dispute looming over the import of genetically modified food, widely produced in the US but widely feared in Europe.

Following the collapse of the trade talks, the EU has insisted that GM foods should not be treated as a trade matter, but tackled as an environmental hazard in the UN's biosafety protocol negotiations.

Growing protectionist pressures

The growing protectionist pressures in the world were most keenly felt in the United States, the scene of the Seattle mass protests, which united trade unionists, environmentalists and campaigners for the Third World.

That may partly be a function of the increasingly protectionist tone of US politics ahead of the 2000 presidential election.

GM corn Export of US GM crops is likely to be the next trade war
Several fringe candidates have called for the US to raise trade barriers, and the growing US trade deficit has raised fears that US jobs could be at risk from growing imports from developing countries.

And with US farmers making up an important voting bloc, the drive to open up agricultural markets also raised hackles.

But with the United States not providing leadership on trade, no other major trade bloc was willing to step into the breach.

And with the end of the Cold War and the collapse of communism, the political impetus for the world's industrialised countries to stick together has been weakened.

Lack of credibility

The failure of the world trade talks did nothing to help the credibility of the World Trade Organisation.

Mike Moore and Supachai Panachatki Two rival candidates sought to run the WTO
And the row over selecting its new boss, which went on for more than six months, including four months after the incumbent left office, also left a sour taste to free trade advocates.

Developing countries, who were pushing for its head to come from the third world, had to settle for half a term of office for their candidate, Dr Supachai Panitchpakdi of Thailand, after US objections.

The relatively new organisation is charged with enforcing world trade rules, giving them legally binding status for the first time.

But increasingly, the idea that trade rules have the force of law is being challenged within countries, who are concerned that the WTO can over-ride their own laws on issues like competition and environmental protection.

One of the themes of the Seattle demonstrators was that efforts to protect endangered species, such as dolphins or sea turtles, were over-ruled by the WTO.

Business disappointment

If trade unions and environmentalists were delighted by their success, multi-national companies were disappointed that hoped-for gains from trade did not materialise.

In practical terms, business has become more multi-national than ever, with cross-border mergers especially between the United States and Europe reached unprecedented levels.

But rules to regulate international mergers were put on a back burner after the failure of earlier talks under the auspices of the OECD, the industrial countries' club, to reach a Multilaterial Agreement on Investment (MAI).

Companies in fast-growing sectors like services and telecommunications were hoping for more access to developing markets.

Success with China

The one bright spot on the trade agenda was the agreement between China and the United States, clearing the way for China to become a member of the WTO.

In return, China pledged to open its markets - including such sensitive areas as telecommunications and banking - to Western investment.

The deal, if followed by similar agreements with the EU and others, will firmly bind China - now the world's tenth largest trading country - to the international system.

And it cements China's commitment to a modern, outward looking economy - which has led to a tenfold increase in China's economy in the last twenty years.

But many businesses that actually operate in China know that there may be a gap between the principle of open access and the practice, with informal obstacles created by China's state bureaucracy.

China's accession to the WTO could also worry other developing countries, who worry that they may be listened to less once China assumes the mantle of third world leadership.

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See also:
04 Dec 99 |  Battle for Free Trade
WTO tarnished by Seattle failure
02 Dec 99 |  Americas
Eyewitness: The Battle of Seattle
19 Jul 99 |  The Economy
'Breakthrough' on world trade leadership
18 May 99 |  The Economy
Banana war exposes old trade divisions
20 Jul 99 |  The Economy
US hits EU, spares UK in beef war
23 Nov 99 |  Battle for Free Trade
Policing world trade

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