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Mon, Feb 27, 2006 - Page 12 News List

Traders fear the return of barriers

PROTECTIONISM Lack of progress in trade talks and several blocked mergers have fed fears that the US and Europe are reneging on the principles of free trade

THE OBSERVER , LONDON

Wonders will never cease. Against the background of predictable congressional opposition to the commercially agreed takeover by Dubai Ports World of several US port operations as part of its purchase of P&O, US President George W. Bush has intervened to say US lawmakers must "step up and explain why a Middle Eastern company is held to a different standard."

After Bush's recent and current adventures in the region, this is quite something. Perhaps it means that, just as he did not invade Canada's Alberta for the oil, he seriously regrets having applied a different standard to Iraq. This conversion should surely be posted on the US Vice President Dick Cheney "Shoot a Friend" Web site.

But the Congressional opposition to the deal is an important sign of the times, and has been lent weight by the support of Senate Majority Leader Bill Frist, who said he would introduce legislation to place the deal "on hold" in the absence of intervention from the White House.

worries surfacing

Why is this an important sign of the times? Because one of the big worries that has recently surfaced in international financial and trading circles is fear of a revival of protectionism.

This was a major theme of the recent meeting of the World Economic Forum in Davos, and, behind all the frantic special meetings of trade ministers and officials concerned with the Doha Round of trade talks is the terrifying thought that failure to agree so far may not just be a result of ritual stuff but may actually reflect insolubly intransigent positions.

Most of those concerned with such negotiations seem to be convinced that, unless there are tangible signs of progress, the eventual result will not just be an impasse but the beginning of the taking of retrograde steps.

So we have a concurrence of stalled trade negotiations and great political difficulties over cross border mergers. Such difficulties even arise within the EU, which is supposed to be a single market in which cross border mergers ought to be welcomed as an integral part of the process of economic integration and the achievement of what economists call economies of scale.

Only last week Charlie McCreevy, the European Commissioner for the "internal market" complained that France's attempt to protect the steel group Arcelor and other domestic companies from cross border takeovers was against the ongoing trend of decades of European legislation.

Europe has for more than half a century lived in dread of a revival of protectionism, which is still closely associated in the memories of the older generation with the economic disintegration that led to the rise of Adolf Hitler and World War II.

Paul Hofheinz, president of the Lisbon Council, an open market lobbying group, said this week: "Frankly, if the EU doesn't fight protectionism, then nobody else will."

This may seem a bit far fetched, but everyone is aware of the protectionist tendencies of the US Congress, and of how liberal-minded US leaders -- yes, including Presidents -- have fought their own Congress in the interest of an open trading order.

The irony of the present outbreak of protectionist forces on both sides of the Atlantic -- and undoubtedly a reason for concern -- is the very different economic background to these forces.

no vote

Thus with unemployment so persistently high in most of the EU bloc, it was not surprising that protectionist sentiment and anti-globalization reactions were factors behind the No vote on the European Constitutional Treaty.

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