Problems widen with trade pacts

JUST AS EUROPE is urged to expand its free trade borders to the east, the US is under pressure to go further south. The next great trade pact of this century should be a vast Western Hemisphere Free Trade Agreement, or WHFTA, to build on the recently completed North American Free Trade Agreement (NAFTA) between the US, Canada and Mexico. Already, a campaign has begun to make this commitment the centrepiece of the Summit of the Americas that President Clinton will host in Miami on 10 December.

Proponents predict that the US, the dominant industrial power, would benefit most from increased exports of about dollars 36bn (pounds 23bn) a year.

So much for the theoretical. In western Europe, too, the trade debate is one of self-interest. By encompassing the economies of east-central Europe, it would gain exports and jobs while its consumers benefited from low-cost imports. Meanwhile, countries less fortunate would be helped. This is the rationale for a rescue of the Marshall Plan variety.

However, the reality on both sides of the Atlantic is that trade schemes which are based on the orthodox view that a rising tide lifts all boats are headed for stormy seas.

This is particularly apparent in the US. The euphoria that accompanied the signing of an accord in the Uruguay round of the General Agreement on Tariffs and Trade has given way to the cold reality of special interests, secret deals and even gridlocks. The small fears that first surfaced over passage of the GATT agreement are now big fears.

Unaccountably, the Clinton administration caved in to big industrial users of US anti-dumping laws in the House-approved version of the GATT legislation. Environmentalists, labour rights organisers and consumer advocates mounted a huge campaign against the new World Trade Organisation (WTO). They claimed that it would undermine national sovereignty, much as critics of the Maastricht Treaty claimed in the European debate.

Those against the WTO note that it could overturn environmental and labour laws in industrial countries, thus becoming a tool for huge multinational companies intent on undermining national laws against petrol-guzzling cars, among other things. The result has been acrimony and congressional compromise.

Last week, the Senate finance committee approved its version of the GATT legislation minus the fast-track negotiating authority that the administration urgently needs for future negotiations. Fast- track allows for expedited consideration without qualifying amendments, meaning that the US administration can negotiate a treaty in good faith, without fear of congressional interference.

This week House and Senate conferees will meet to negotiate differences in the two Bills and to agree on a final version for congressional ratification. Neither Bill includes the fast-track negotiating authority - which sends a clear message to the Clinton administration and its allies. The message is that Congress, at least for now, does intend to interfere - by attaching qualifying amendments to international trade agreements that could undermine their original intent.

Thus, the administration's goals to open free trade talks late this year with Chile and possibly other Latin American countries may well be compromised. At least a part of the blame belongs to the administration itself.

In addition to its earlier cave-in to US industrial interests, the Clinton administration last week took another wrong turn - this time against Canada.

Canada was forced to agree to a one-year limit on its wheat exports to the US. In shutting out these wheat exports, the Clinton administration paid its IOU to farmers in the US Midwest whose support was crucial to passage of the NAFTA agreement.

As a result, US consumers will pay higher prices for pasta, bread and other commodities. Ironically, these imports are necessary because of byzantine US agriculture policies which keep prices high and supplies low by paying farmers to keep land out of production. The unfortunate message seems to be that if the special interests hold out long enough, they will get what they want.

A free trade agreement linking all of the western hemisphere is a lofty, admirable goal. It would build on regionalising trends already in place, notably NAFTA, the Mercosur and Andean Group agreements and other sub-regional agreements.

Recent studies estimate that it would lift the entire region - much as a Greater Europe would be lifted, resulting in dynamic trade flows, job creation and much larger capital investment.

It seems an appropriate goal for the upcoming Summit of the Americas, but with caveats. Such an agreement, if negotiated in an open field of special outcomes for the favoured few and powerful, as current US trends suggest, would make a mockery of the spirit of free trade pacts.

Similarly, if a WHFTA was constructed with the intent of diverting trade and investment away from Europe and Asia - and thus was seen to undermine the global trading system - the result could only be dangerously negative.