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Sun, Sep 11, 2005 - Page 12 News List

To be free, trade has to be able to flow both ways

The dispute over Chinese textile imports into the EU has thrown the whole question of just what free trade is into the balance

By William Keegan  /  THE OBSERVER , LONDON

The farce over the EU's handling of the textile dispute with China has provided light relief against the background of the continuing horrors of Iraq and the devastating natural disaster in New Orleans -- a natural disaster with, alas, a man-made contribution: resources diverted from flood protection to, yes, Iraq.

The man in the public eye over the textiles dispute -- all those bras, shirts and pants hanging in warehouses on the EU borders with no particular place to go -- was none other than Britain's home-grown spin doctor, EU Trade Commissioner Peter Mandelson.

Unlike most other EU posts, the job of trade commissioner is one with real clout, because while the members countries of the EU continue to behave as nation states in many other matters, the trade negotiator acts for the EU as a whole, and has considerable powers.

Powers, in Mandelson's case, to make a complete buffoon of himself over the management of a transition -- a negotiated lowering of the EU's barriers to textile imports from China (which was a long time coming), the details and implications of which the trade commissioner's office should have mastered long before the dispute flared up.

RESPONSIBILITY

In one classic remark reported in the French press, Mandelson said that he was not responsible for the problem, but would most certainly take responsibility for the solution.

The problem, of course, goes back to a different kind of spin than that associated with the kind of massaging of the media which Mandelson was long accustomed to do for British Prime Minister Tony Blair, both in opposition and government.

In fact the problem goes back to all that real spinning associated with the spinning jenny, invented in Britain when Britain began the Industrial Revolution.

LONG DECLINE

After years at the workshop of the world, Britain began to go into what economists call "relative" economic decline. That is, although economic growth has average some 2 percent or so a year in real terms (after allowing for inflation) since the 19th century, Britain's share of world trade inevitably declined as other countries industrialized and developed their economies.

For textiles it has has been one long story of decline, but at a reasonably measured pace. What has upset the apple cart in recent years has been the sheer speed of the rise in Chinese exports to the UK and other European countries.

The accepted wisdom among economists is that free trade is good and protectionism is bad.

To hear some trade experts laud the virtues of the free market, you would never think that most modern prosperous economies, including the US, Germany and the UK, indulged in protectionist policies on the way up -- and in the case of agriculture still do.

PROTECTIONISM

Nor do they draw attention to the undoubted fact that major Asian economies such as Japan and South Korea -- much admired for many years in the West -- required a protectionist strategy in order to reach the stage at which they could compete successfully in world markets.

But these days the "competitive threat" does not necessarily come from the countries whose economies are cited as posing the problem.

In the so-called "globalized" economy, multinationals and entrepreneurs generally try to minimize their costs of production by locating parts of the supply chain in cheap labor economies such as China.

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