Save your own skin. Will free trade yield to bunker politics?

Wildcat strikes over 'British jobs for British workers', 'Buy American' slogans, EU hints of tit-for-tat. Is protectionism back, ask Mark Leftly and Simon Evans

'Protectionism" has been the dirty word of western capitalism for the past quarter of a century. The rise of monetarism and the long march of globalisation have ripped down trade barriers, bringing great wealth from London to Mumbai. The notion that countries could place taxes on foreign goods or insist on the employment of local labour was considered both illiberal and a potential cause of poverty.

However, the economic crisis has challenged this orthodoxy. "British jobs for British workers" was a catchy phrase for Gordon Brown, but as someone who views protectionism as "the greatest danger the world faces", he surely did not mean to offer a jobs guarantee. But as unemployment soars towards two million and beyond, so UK workers have wanted to take the Prime Minister's words at face value.

The result has been anger at the perceived breach of that promise. At the end of last year, oil giant Total awarded Italian group IREM a sub-contract at the £200m Lindsey refinery in Lincolnshire, leading to the employment of 200 Italian and Portuguese workers. A series of wildcat strikes followed and it was only on Thursday that an agreement was put in place all but guaranteeing 102 additional jobs for Britons. But the issue is not dead, with more strikes in the pipeline at major projects employing overseas workers .

In the US, President Barack Obama's $900bn stimulus package has been saddled with a "Buy American" clause. This ensures that any projects in the plan will use US-made steel, iron and manufactured goods.

Most bizarrely, India has issued a six-month ban on the import of Chinese toys. There are fears over the toxicity of these products, but the Chinese look certain to protest to the World Trade Organisation.

If protectionism is back, some key questions need to be answered.

What did Total and the unions agree?

Overseen by conciliation service Acas, Total and its main contractor, Jacobs, agreed to provide an additional 102 jobs on the project. Unions had accused the employers of hiring the Italians and Portuguese on far poorer terms and conditions than their UK counterparts (see below), which would have been in breach of the European Union "posted workers" directive. This guarantees that foreign workers from within the same economic bloc are employed under the same conditions as people in the host countries. The measure seeks to avoid labour exploitation and ensure that the host country's workers have a fair chance of employment. Total rejects suggestions that it breached this rule.

Is the deal struck by unions and Total enforceable under EU law?

Yes. Coverage has suggested that the additional jobs are guaranteed for British workers, which would be in breach of the EU's freedom-of-labour laws. However, other nationalities will be free to apply for the positions. A spokesman for Total says that the jobs will only be advertised locally, which should ensure the bulk go to Brits.

Paul Callaghan, an employment law partner at Taylor Wessing, warns that any company discriminating in favour of British applicants could face heavy fines. "An individual from another country within the EU could bring a UK employment tribunal against a company on discrimination," he explains. "The law is pretty clear that if you hire someone on nationality rather than ability, they would be granted compensation on loss of earnings and an amount for injury to feelings."

Are these extra jobs real work?

Total insists that the additional 102 jobs have not simply been created to placate the unions but are crucial to completing the project. A week and a half of strikes has delayed the refinery expansion, meaning the extra labour is in fact now more necessary.

What is the Government's view of the strikes?

Lord Mandelson, the Secretary of State for Business, said last week that "European labour markets also allow British firms and workers to take advantage of contracts and opportunities elsewhere in the EU". He also warned that strikes and protectionism would be "a surefire way of turning recession into depression".

How easy is it for UK workers to follow Lord Mandelson's advice?

His basic point is correct: as part of a free trade area, Britons are able to work in any of the other member states. But Paul Maloney, national officer at the GMB union, condemns the remarks as "flippant". He points out that they avoid answering the concerns that led to the wildcat strikes, which were based on good pay and conditions. Mr Maloney claims the overseas workers at Lindsey came over for up to €1,000 (£880) a month less than their British counterparts, which in his view is an "exploitation of the migrant workforce". He adds: "The Government hasn't put its foot down on attempts to abuse [employment] laws in the UK."

How did "Buy American" get into the US stimulus package?

The slogan harks back to the protectionist era of the 1930s and President Franklin Roosevelt's policies to dig the US out of depression. President Barack Obama has warned that the country "can't send a protectionist message" to its 50-plus trade partners. However, even though the protectionist elements of the Stimulus Bill were watered down on Wednesday after a tug of war between the Senate and House of Representatives, it still, in effect, limits overseas spending on major stimulus projects.

How has this gone down with US trade partners and big business?

Badly. The EU has warned that it "will not stand idly by and ignore" a Bill that prohibits the sale or purchase of the bloc's goods. There have been warnings that this could result in reciprocal protectionist measures, potentially hurting America's ability to export. General Electric's senior counsel, Karan Bhatia, is reported to have warned: "You would be creating an ample basis for countries to close their markets to the US."

What are the international bodies for trade agreements?

The World Trade Organisation (WTO) was created in 1995, replacing the General Agreement on Tariffs and Trade (Gatt) that emerged in the post-war period. Some 153 countries are signed up to the WTO, which is responsible for negotiating and observing the implementation of agreements between countries.

There are four main free trade groupings. The European Economic Area (EEA) is a bloc of 30 countries comprised of EU member states, Iceland, Liechtenstein and Norway. Switzerland rejected proposals to join the region. Membership of the EEA allows free movement of goods, people, services and capital among participating nations.

The North American Free Trade Agreement (Nafta) is a trading bloc between the US, Canada and Mexico. It was created in 1990. The International Monetary Fund estimates that products created in the region are worth $15.7 trillion (2007), making it the second most important trading bloc in the world.

The Asean free trade area was created in the wake of Nafta. There are six full members including Singapore and Thailand. China, Japan and South Korea, the region's economic powerhouses, are not members of the bloc but maintain close ties.

South America's attempt at a free trade bloc, Mercosur, is made up of Argentina, Brazil, Paraguay and Uruguay.

What can be said in defence of protectionism?

The vast majority of economists sit in the free trade camp but a small band of protectionist champions exist. Take the American Protectionist Society, which advocates the implementation of a 40 per cent tariff on goods being imported into the US where there is a domestic industry for the same product. According to this society: "This simple international sales tax asks foreign corporations and governments to simply pay for the valuable access to our enormous consumer market."

The protectionist theories of economist Ravi Batra provided the cornerstone of right-wing politician Pat Buchanan's manifesto in his ill-fated 2000 election campaign. Mr Batra claims in his book, The Myth of Free Trade, that "laissez-faire has wrecked US industry and shattered the American dream". He adds that free trade has forced down real American wages by 80 per cent. His solution? Drive up tariffs and promote domestic competition to spur innovation by prohibiting most mergers and monopolies.

Other more moderate economists sometimes advocate protectionism in instances where an industry is in its infancy and needs time to develop, free from outside price pressures. Free trade is also cited by some economists as a factor in holding back burgeoning economies.

What are the dangers of protectionism?

Proponents of free trade cite four main risks. First, a country's export sector could be hit hard: demand will fall as prices become less competitive compared to domestic rivals, so fewer goods are then made and unemployment could follow. Second, consumers are forced to pay higher prices for imported goods; you can forget those cheap clothes from China. Third, the chance for companies to grow quickly through economies of scale is snuffed out. Finally, with less competitive pressure, domestic firms get flabby as the need for efficiency is eliminated.