There are many beneficiaries and there are many drivers of globalization. In fact, free trade is one of the most powerful guarantors of fair trade, which should be high on the list of anyone really interested in helping the so-called developing countries. To make the world fairer, we need to make trade freer.

At the moment, we are still living with a trading system that has many forms of open and hidden protectionism, including undue tariff barriers, cumbersome customs procedures and trade distorting subsidies of all kinds. This creates a trading environment that is both far from free and also far from being fair.

Trade distorting subsidies don’t even always work for those they are supposed to protect. The European Union’s Common Agricultural Policy and farm policies of other OECD countries are very good examples of this problem. Approximately 70% of EU subsidies go to 30% of the biggest farmers. Most small farmers usually struggle to break even – despite the subsidies.

Real CAP reform would send a powerful message of free and fair trade to the world as it would end the effective locking out of farmers from developing countries. Latin America and many Asian sugar producers, for instance, who at the moment find it impossible to successfully enter European markets despite being very competitive, could finally sell their goods on the continent. Such free and fair trade would be mutually beneficial: European consumers would be able to buy cheaper products while Latin American and Asian farmers could make a better living. Unfortunately, Europe is not alone in wasting billions in farm subsidies – the U.S. is also guilty of handing out distorting farm aid. America’s 25,000 cotton farmers alone receive each year $3.5 billion in subsidies, effectively locking out some of the poorest African countries that could offer American consumers much cheaper cotton of comparable quality. This kind of protectionism hurts the livelihood of a large part of the more than 3 billion people living in rural areas of the developing world.

A constructive free trade agenda would help lift emerging economies out of poverty. This should also include the liberalization of trade between developing countries. Just as free trade helped Switzerland – the home of Nestlé – in the 19th century, free trade can help the developing world in the 21st century. Reducing trade barriers is vital to increase the efficiency of global economic structures and systems and to promote the economic development of some of the world’s poorest countries.

In October 2002, Rubens Ricupero, Secretary General of the United Nations Conference on Trade and Development, went so far as to tell international business leaders that their most important corporate social responsibility was to advocate free trade and capacity-building in developing countries. Only when governments lower barriers can local and international companies invest in new capacities, thus attracting investment and improving living standards.

It is certainly right that businesses can gain from globalization but so can emerging economies. The two are not mutually exclusive. The dichotomy of the anti-globalization movement is a false one. But while it is true that lowering trade barriers creates new opportunities, it also intensifies competition. And some businesses are simply afraid of this competition and don’t want to adapt to the new challenges, rejecting therefore free trade. The same debate is raging among governments around the world, but as long as they hold on to protectionism they will continue to frustrate economic progress of developing countries.

Contrary to the anti-globalization slogans, there is no single business voice at trade summits and no powerful monolithic force driving the opening of international markets. However, the unambiguous message at the heart of all campaigns for free and fair trade is that it will increase prosperity in both the developing and developed world. This holds the key to the eventual success of future trade talks.

Businesses cannot allow themselves to become bystanders in trade negotiations. They need to develop a strategic, long-term perspective on trade liberalization, appreciating its overall benefits as well as its risks. Strong, balanced and successful advocacy from companies in all sectors and of all sizes, from rich and poor countries, need to muster a common effort to guarantee the proper functioning of the multi-lateral trading system that will emerge from future trade rounds. Before business leaders are able to convince others, however, they may need first of all to convince themselves.

Mr. Oberhaensli is head of economics and international relations at Nestlé. This opinion editorial is adapted from “Free and Fair: Making the Progressive Case for Removing Trade Barriers”, an essay collection published by the Foreign Policy Centre.

European qualms are understandable. But the EU could now implement a number of programmes that would make a significant contribution to improving the security situation in Iraq and creating the building blocks of democracy. Laying the foundations for a deeper European engagement in Iraq need not compromise sincerely-held convictions about the wrongs of the invasion. The Iraqi people need help to build a peaceful, prosperous and open society – it must not continue to get caught in the cross-fire of transatlantic politics.

As yet Iraq has received no convincing answer as to how it can guarantee security and build viable and democratic political institutions from the international actors best equipped to help – its Middle Eastern neighbours and regional players. Nothing more was agreed at the regional conference at Sharm el-Sheikh this week than a vague expression of support for Iraqi elections, optimistically scheduled for January 30th 2005. The EU, with its expertise in post-conflict reconstruction and strong track record in dialogue with local groups, is now the most important organisation for Iraq. And the prospects for a constructive EU plan are more favourable than previously. In June 2004, the EU agreed a common strategy paper promising consideration of further cooperation. To create a serious partnership for democracy with Iraq, it must now take this forward with concrete proposals for assistance.

The EU must first of all recognize that it can no longer legitimately criticize the US for neglecting human rights issues and focusing overwhelmingly on infrastructure and security forces training, without contributing itself to democratisation. With the notable exception of Germany, European members outside the US-led coalition have so far declined to offer any significant amount of development assistance to Iraq. This has been a source of bitter disappointment to many fledgling grassroots groups eager for non-US funding. For 2004-5, out of a total Commission commitment of 200 million euros, only 10 million euros was set aside for the construction of new democratic institutions in Iraq.

The second step is to recognize that Europe can make a unique and vital contribution to reconstruction that the US cannot provide. The US has for instance been attacked for imposing overly harsh neo-conservative market solutions on Iraq, and for focusing on high-visibility, “white elephant” projects devoid of relevance to the daily concerns of ordinary Iraqis. The EU has been particularly successful in other post-conflict zones in creating efficient economic structures at the local level and inclusive “social market” reforms, principles that could usefully be applied to Iraq.

Well-developed regional partnerships are another asset that the US cannot claim to share, and where a European contribution would have real added value. Despite the disappointing outcome of Sharm el-Sheikh, the EU should use its leverage with other Middle Eastern states to push them into more constructive partnership with the new Iraqi government. The EU has signed a trade agreement with Syria; it should use dialogue with Damascus – which Washington lacks – to push for a commitment from Bashar Assad to clamp down on the recruitment of jihad fighters from Syria. Europe must inscribe Iraq into its region-wide strategy on democracy, creating partnerships stretching across the region.

The third step is to outline concrete recommendations for European action that would make the best use of EU expertise with local groups at the sub-national level. Improving the physical security of Iraqis is the first priority. So far European nations have only trained hundreds of police officers instead of the necessary thousands. Just a fraction of the 100,000-strong security force needed in Iraq is properly equipped, and the resources allocated to this must be dramatically increased. Europe could also make a vital contribution by agreeing to train Iraqi border guards to stop the passage of foreign fighters into the country. More generally, Europeans could place greater emphasis on the democratic control of Iraqi security forces, something that is not far enough up the list of US priorities.

The disarmament of local insurgents is a major security issue that will become increasingly important as and when rebel groups choose to buy into the democratic process. European nations – including Germany – have a good record from Kosovo and Bosnia in running social, political and economic reintegration programmes for insurgents. This should be put to immediate use in Iraq, where weapons ownership among the population is rife and initiatives such as cash-for-guns sorely missing.

Non-coalition European states have also blocked proposals to make money from the EU’s large MEDA funds quickly available for Iraq. While a massive diversion of aid from other recipient countries is undesirable, there is scope for including Iraq in some of the softer social and cultural EuroMed programmes, which would be relatively low cost and symbolically important.

On the political level finally, the international media has focused on the importance of national elections. But building legitimacy through local structures is just as important – and is a longstanding European specialty. Here a more coordinated EU effort could build on the British approach in Southern Iraq of fostering citizens’ participation in local institutions. This assistance could give Iraqi citizens the perception of participation in the decisions affecting their daily lives – something they are unlikely to get from amorphous national coalition that is likely to emerge from January’s elections.

European opponents of the war have attacked the US for favouring former exiles and allowing Iraq to drift towards religious-sectarian politics. But they themselves have done nothing to help foster secular and ethnically diverse grassroots parties. The EU must move to support the development of a dense web of national institutions, such as professional associations, chambers of commerce and universities. If power is to be dispersed from US-backed former exiles, the 100-plus political parties that have emerged must be helped to develop coherent manifestos and effective election strategies.

The challenge lies in formulating a united European strategy that can reconcile the bitter differences over the invasion. Some European leaders apparently still feel that scoring political points over Iraq is more important than helping it – as the last-minute cancellation of the Iraqi president’s talks with French ministers in Paris appeared to confirm. Conversely, European supporters of the war have been insensitive to the depth of moral and political opposition to the war among other nations, which make them reluctant to contribute without qualification to the reconstruction process. But when Iraqi democrats came looking for European support during the 1990s they were rebuffed – broad strategic calculations were deemed more important than fostering Iraqi democracy. To repeat this oversight today would represent a mistake of historical magnitude.

Dr Richard Youngs is Senior Researcher at the Fundácion para las Relaciones Internacionales y el Diálogo Exterior (FRIDE), Madrid, and Senior Research Associate at the Foreign Policy Centre. “Europe and Iraq: From Stand-Off to Engagement” is published by the Foreign Policy Centre, http://fpc.org.uk/fsblob/331.pdf

Certainly, UNMIK’s record in Kosovo is distinctly mixed, as was spelled out by Kai Eide, Norway’s Ambassador to NATO, who last July produced a devastating report, at the request of UN Secretary-General Kofi Annan. During the course of UNMIK’s stewardship, Kosovo’s economy has shrunk alarmingly, while the organisation was totally unprepared for last March’s outbreak of inter-ethnic violence, which led to the death of 19 Serbs, with hundreds injured and thousands driven from their homes.

This is not the time, however, to consider a new protectorate. The election, in October, of a new parliament and provisional government for Kosovo, has already led to the handover of some of UNMIK’s responsibilities, and more are likely to follow.

Yet the authority of the provisional government is distinctly fragile. Only some 300 Kosovo Serbs actually cast their votes in the election, which was boycotted by most of the Serb parties, which meant that they won none of the 100 seats up for general election, and their representation is restricted to the ten seats specifically reserved for Serbs. Another 10 seats are reserved for other minorities, which means that the Albanian Kosovars control about five-sixths of the 120-seat Parliament.

Nor does the composition of the new government do much to reassure the Serbs. President Ibrahim Rugova’s moderate LDK party won the most seats, but without an overall majority. They chose to form a government with the more hard-line AAK party of Ramush Haradinaj, rather than with Hasim Thaci’s PDK, which is seen as less hostile to the Serbs,

Haradinaj has become Prime Minister, but his tenure may not be long, as there are persistent rumours that he will soon be indicted for war crimes by the International Criminal Tribunal for the former Yugoslavia (ICTY).
If so, he is likely to be charged in connection with the killing of 40 Serb and Albanian civilians near his home village of Giodjane in the summer of 1998, when he was the leader of the Kosovo Liberation Army (KLA).

Haradinaj’s indictment would cause a major political crisis in Kosovo, which many fear could spark off further violence. Meanwhile, Haradinaj has shown himself very conciliatory towards the Serbs since he became Premier, but neither the Kosovo Serbs nor the Serbian government in Belgrade have shown any willingness to have dealings with him.

Haradinaj, together with Rugova and most of his ministers, met with the United Nations Contact Group on the former Yugoslavia (UK, US, France, Germany, Italy and Russia) in Pristina on 16 December, and pledged the closest co-operation with UNMIK in the run-up to the Final Status talks due next summer.

Haradinaj’s team declared their “immediate priorities” to be “reformation of local power, increase of dialogue between communities, security for minorities, the return of internally displaced persons and the completion of reconstruction”, while it asked from UNMIK the “successful transfer of competences”.

The European Commission was not represented at this meeting, though its help, financially and otherwise, will be an essential ingredient of a successful implementation of these policies. Even so, it will require a larger and much better focused contribution than in the past.

A recent report, by Professor John Bradley and Mr Gerald Knaus for the Berlin-based think tank, The European Stability Initiative*, pays the EU a backhanded compliment. It suggests that the very success of its efforts in helping to improve the economies of eastern European countries which have been candidates for EU membership, through pre-accession aid, has made life more difficult for Kosovo.

It has increasingly become a less attractive proposition for foreign direct investment than near neighbours whose economies are rapidly expanding. By contrast, Kosovo, where a high proportion of the population is dependent on remittances and subsistence agriculture, is caught in a downward spiral.

The IMF, which in December 2001 had estimated Kosovo’s GDP at €1.85 billion, reduced its estimate to €1.57 billion in June 2003. Six months later, UNMIK and various financial institutions, put it at €1.34 billion.

The key priority for the new Kosovo government and its successors, Bradley and Knaus argue, is to identify ways in which Kosovo can catch up with the rest of Europe. The overriding goal of their economic policy must be to bring about a substantial process of convergence towards European living standards within the next generation.

The first step, they argue, must be the drawing up, with the co-operation and material assistence of the EU, of a National Development Plan comparable to those adopted by the former candidate states of central and eastern Europe. The EU contribution would not only consist of the provision of pre-accession-style funds, but the close monitoring to which the candidate states submitted during the long process leading up to their admittance as full members last May, or, in the case of Romania and Bulgaria, until the newly confirmed target date of 2007.

If help was given on an equivalent scale, the cost to the EU would not be enormous, given that the population of the territory is not much more than two million, compared to 22 million for Romania and 8 million for Bulgaria. The cost to Europe of letting the territory collapse into an economic ‘black hole’ would be far greater.

Whatever decision is taken over the Final Status, the chances for Albanians and Serbs to live peaceably together can only be improved if the future economic prospects for the territory are put on a firmer footing.
*Towards a Kosovo Development Plan (www.esiweb.org).

The relief operation is well underway, faster in Sri Lanka than in Indonesia, but both of these countries will face a difficult task as they try to recover. You would not believe it if you saw it. I have never seen anything like it.

The events of 2 weeks ago have seen the world reach out to fellow human beings in deep distress. Compassion, practical help, comfort and support for people who have become in a sense our neighbours even though they live on the other side of the world.

What matters now is to see this through. That support, compassion and determination are needed to help the people of the countries affected to rebuild their lives. And yet if we think about it, disaster of a different kind and, in a way, on a different scale, strikes poor people around the world every single day. We think about 150,000 people have died in the tsunami. No one know for sure and we are still waiting for a full assessment of the west coast of Aceh. Last year 2.5 million Africans died of AIDS; that’s the equivalent of nearly 17 tsunamis. On the same continent, a quarter of a million women die every single year unnecessarily as a result of complications in childbirth – for want of skilled medical attention; the equivalent of one and a half tsunamis.

So many people live with these deadly, silent tsunamis that also take away people’s lives that the world does not appear to see or hear. They don’t fill our television screens or thousands of our column inches day after day. And yet I refuse to believe that the generosity of spirit, the compassion of heart, the practical help we have witnessed in the past 14 days from people in the countries themselves – who have received little coverage and who are bearing the brunt of this disaster, picking up dead bodies, comforting the bereaved – and from people and governments across this small and fragile planet that is our home – I refuse to believe that we can only do this in response to one kind of disaster. I believe that our clear and moral responsibility at this point in human history is to act to save and to change lives in all the disasters there are whether on TV or not. I came back with renewed determination that it does not have to be this way.

Now we look deep into ourselves and ask what we can do to help – and developing countries and their people ask ‘what can we do to help ourselves’, rightly as their future rests in their hands. The other thing I did on my trip was to go to Nairobi for the signing of the Sudanese peace agreement. This was a historic moment. The conflict in Sudan is Africa’s longest running civil war and has left 2 million dead. They have now decided that politics should replace conflict; and hope, fear. It was remarkable to witness this – it reinforced that without peace and stability, there is no development.

So we know that tackling conflict, confronting corruption, building effective states, creating a climate in which people want to come and invest their money, action to relive debt, giving increased, predictable and effective aid – we know that this is what is needed. And so is allowing countries to earn and to trade their way out of poverty. And it is about that I want to speak today.

Now, just over three years ago the World Trade Organisation (WTO) met in Doha and agreed for the first time to put developing country concerns at the heart of the WTO. As we know, at the end this year, WTO members will meet in Hong Kong– a real political opportunity to turn words into progress. Progress we want to see.

Before that, we will gather in New York for the Millennium Summit to review the Millennium Development Goals. Everyone knows what we will say to ourselves: we are not doing well enough. If we mean it, really mean it, then we have to use the unlocked potential of trade to change lives for the better. We must seize this opportunity to make the case for trade to lift people out of poverty, help children into school and improve healthcare. Studies show that an ambitious outcome could produce annual global benefits of up to $600 billion and reduce the number of people living on less than $2 a day by 144 million. I would call that real progress if we can achieve it. The world now needs to deliver on the promises it made in Doha.

Now, we all know that the current trade rules are stacked against some of poorest countries in the world.

Take one of the worst examples – West African cotton producers. In Benin the cotton industry accounts for 85% of total exports and 20% of national income. They are very heavily dependant on cotton. Benin and three other West African cotton producers are potentially very competitive. They followed the prescriptions of the World Bank and IMF and ended all subsidies to farmers. But they liberalised into trading in highly distorted markets. They are paying the price.

Their cotton industry is now in crisis and with it, the livelihoods of over 10 million people in West Africa who depend directly on cotton. This is because they have to compete with heavily subsidised EU and US producers. In 2001, the US gave to cotton farmers nearly $4 billion in assistance – that is more than the entire GDP of Benin, to put it into perspective.

We need to tackle trade distorting subsidises and further open our markets. Total support to agriculture by OECD countries was US$318 billion in 2002 – roughly 5 times more than all of the aid which the rich world currently gives. Agricultural protection is damaging to developing country producers. It costs them $20 billion a year by shutting them out of EU markets.

That is why the Government has been at the forefront of those pushing for further reform of the CAP, and will go on doing so.

That is why we agree with the Make Poverty History Coalition that we need to tackle export subsidies. The EU has now committed itself to abolishing all its export subsidies. But this will be of limited benefit if there is no parallel movement from other WTO members in addressing their export subsides. An end date must be agreed in the next stage of negotiations.

That is why I welcome the agreement reached in July last year by the WTO General Council. It represented a significant step forward. It is significantly better for developing countries than what was on offer in Cancun, especially in agriculture and the Singapore issues. Now that was rejected by developing countries but the good thing is that, in making their voice heard, it showed that developing countries are capable of recognising their own interests, as is right and proper.

Developing and developed countries alike stand to benefit from trade facilitation so it’s good that negotiations are going forward on that. Clearly measures should focus on well-trained staff, effective border controls and standardisation of procedures and forms in customs. For example the establishment of the East African Customs Union has created new opportunities for trade between Kenya, Tanzania and Uganda.

So development really is at the centre of the UK’s trade policy. The UK was one of the first countries to call for the launch of this round of multilateral trade talks with a much greater focus on development and poverty reduction.

It is no coincidence that Africa, whose share of international trade fell from 5% to 2% between 1990 and 2000, now has one of the highest levels of poverty in the world. Global trade flows are now worth $ 25 million a minute. Africa’s are only $500 thousand a minute. This is one fiftieth of the total.

We all of us have to work hard in 2005 to make trade work for developing countries, and that’s why this essay collection “Free and Fair; Making the Progressive Case for Removing Trade Barriers” is particularly timely.

The Make Poverty History Coalition will be leading a global campaign for Trade Justice. It is calling for fair trade and argues that this is not free trade. The words free and fair can be very emotive when applied to trade. I have no doubt debate will continue to rage about whether on one hand they are compatible or on the other, mutually exclusive.

The new Trade Commissioner, Peter Mandelson in his recent speech to the ACP, advocated progressive trade liberalisation. I support this view, but we must ensure that it is a properly sequenced process which recognises the needs and interests of developing countries, not all of which have the same needs or the same interests.

I also believe that free trade on its own is not the answer.

The extent to which more open trade helps to reduce poverty depends on broader economic and social circumstances and policies. Experience shows that if a country liberalizes without putting in place the right institutions, transport and marketing arrangements then the result can be a sudden surge of imports. And that can wipe out small producers and increase poverty.

However protectionism is not the answer either.

There are strong links between more open trade and growth. In a group of eighteen developing countries that became much more open to trade after 1980, the average growth rate has accelerated. This group included most of the world’s poor people – among the eighteen countries are Bangladesh, China, India, Ghana, Nepal, Uganda, and Vietnam. Growth in turn has helped reduce poverty. As you know, poverty in China has decreased by two thirds since 1981 and in Vietnam, poverty was halved in a decade. I call that progress. However, in sub-Saharan Africa where trade and growth have fallen, poverty has almost doubled since 1981.

So the question is how should we support the adjustment to more open markets. Trade barriers need to be removed in a way that is properly organised. Unless protectionism is phased out, industries fail to innovate and lose competitiveness; we saw that in Latin America in the 60s and 70s. Governments need to resist pressure from inefficient industries demanding permanent protection – governments, as history has shown, can’t always pick winners!

Countries can end up locked into sectors in which they have no export competitiveness. When economic restructuring takes place, there will be losers in the short term. People and resources will need to be transferred from sectors which are no longer competitive to new areas and this takes time and it takes money.

Developing Countries need flexibility to introduce reforms at a pace they can deal with. That is why the UK strongly supports – excuse the jargon – effective special and differential provisions in the WTO. This means giving developing countries longer to open their markets and implement agreements, more flexibility and fewer procedural burdens than developed countries.

That is why the UK welcomes the recognition by European Commission of the need for the Least Developed countries and “other weak or vulnerable developing countries” to be treated differently and asked to make less commitments than other WTO members in the negotiations.

That is why the UK Government, like the Trade Justice Movement, supports proposals from poor countries that enable them to protect special products that are essential to poverty, food security or rural development. We are working with NGOs and developing countries to amend WTO rules to this end.

Now we all recognise that there will be winners and losers from more open markets in the short to medium term. In the short-term, the losers from trade liberalisation will need transitional assistance – providing social safety nets for those that lose their livelihoods and helping diversification of their economies to more competitive export products.

That’s why the UK will work to ensure that help is given to those affected by, for example, the reform of the sugar regime. The rules on sugar arbitrarily give advantages to some producers over other more competitive suppliers, like Mozambique, like Malawi, and like Tanzania. For every dollar of aid given to one group of developing countries by the US and the EU, $2.75 of economic damage is done to others. We need to ensure changes to this system are accompanied by proper assistance.

That is why the UK is working closely with the World Bank on what policies will best give developing countries the flexibility they need to pace and sequence carefully their trade reforms so that they encourage national development.

That is why we are also working with developing country governments and other development agencies to ensure trade issues are carefully integrated into donors and the country’s own plans to reduce poverty. If they are then developing country governments should be able to access the development funds they need, for example to improve roads, to improve the business and investment. Since 1998 the UK has allocated £174 million to support a range of initiatives to assist developing country governments in designing these trade policies that work for the poor, as well as participate more effectively in trade negotiations.

We recognise, I recognise, that too often in the past low income countries have had little say over the terms under which they receive World Bank and IMF support. This has led to criticisms, including from the NGO community. This support has often been conditional on the adoption of trade liberalisation and privatisation policies. The UK believes, I believe, that aid terms and conditions must support, not “buy” reform.

For that reason I published our review of the UK’s use of aid conditionality. At this year’s Annual Meetings, the UK secured a commitment from the World Bank to review its policy and practice on conditionality and report back at next year’s Meeting. I think there is a need to address the scope and content of conditions, particularly in relation to sensitive policy reforms, such as privatisation, such as trade liberalisation.

There is a lot to do to realise the aim of free and fair trade but we are making progress. This year our presidencies of the EU and G8 give us the opportunity to put trade high up the international agenda. The Africa Commission will be producing their report in Easter. This will also create opportunities to explore how trade reform can help Africa’s development.
In 2005 we will work with partners how we can provide additional support for developing countries to meet the costs of trade adjustment and additional supply capacity. In 2005 the UK will work to reach agreement in the EU and G8 on simplifying rules of origin. This does sound techy but it has the potential to deliver real benefits for developing countries. Preferences schemes are a way of offering better access for developing countries to developed markets that are offered to others. But for many of these schemes, they have clauses that restrict take up. For example, Tanzania can’t benefit from the preferential access it receives under the ‘Everything but Arms Agreement’ to the EU market if any processing takes place in its non-LDC neighbour – Kenya. We want to see, I want to see, reform of these restrictive rules on the origin of products.

We will also be working to ensuring the EU negotiations with the ACP on Economic Partnership Agreements – an issue on which I know a lot of people have a view – to help make a tangible difference to trade working for the poor. We want to preserve the current high levels of market access for the African, Caribbean and Pacific countries access to the EU. But in return, to be WTO compatible, the ACP countries will need to offer some market access to the EU. Preferences have failed to boost exports as intended. ACP countries have enjoyed long-standing preferential access to the EU market yet by 2002, only 3% of EU imports originated from ACP states, as compared to 6.7% in 1976. We will be pressing in the EU for longer transition periods for the ACP, which will take into account the needs for the ACP countries.

In 2005 we will be also producing research to help inform the WTO negotiations.

Above all, we need political will from all WTO members. And this is my final point. If we had sat here 10 years ago, no one would have thought it possible to reach this point. 3 weeks ago, no one would have predicted that we would see the biggest humanitarian relief operation yet – but people were determined. We live in an era where it is fashionable to decry the power of politics. But I believe in that power. Look at what we have achieved in 8 years on development. This is a result of your campaigning too. So we must try this year to deliver a Round which genuinely supports development and helps change people’s lives for the better.

ENDS

Can Europeans continue to send troops to Africa, as several European countries — including France and Great Britain — do on occasion to stabilize areas of conflict?
Inevitably, memories of empire undermine the legitimacy and efficacy of such efforts to address problems such as civil war, regional conflicts and bad governance in former colonies. A formal commitment and a tailor-made institution to tackle Africa’s problems would be a valuable step towards preventing future Rwandas and Darfurs.
France’s recent intervention in Côte d’Ivoire’s civil war, for example, has been bitterly denounced by African observers.

Yet, a strong case can be made that Europe should become more, not less, forcefully involved in addressing Africa’s security crises — and that this will be the basis for a “new deal” that moves beyond the colonial legacy.

This is not simple idealism. If anything, we have become over-familiar with Africa as a “scar” on our consciences. The question is what can be done on the ground in a hands-on fashion to contribute to regional stability in conflict areas in Africa. The international community’s painful slowness to act on Darfur in 2004 underscored that the genocide in Rwanda in 1994 has not led to a reassessment for Europe’s role in preventing such horrific acts.

More broadly speaking, the memory of Rwanda has also not led to the creation of new humanitarian norms that would call for intervention even before a similar crisis erupts. But there is increased U.S. and European interest in African problems, largely driven by strategic calculations. One of these calculations is that West Africa combines the Saudi formula of oil and emergent Islamism.

Because of the EU’s relatively modest military resources, NATO assets would be crucial for medium and large-scale African missions. Another is that the ever-volatile Congo boasts an abundance of natural resources — not least uranium. In addition, the “new threats” of terrorism, weapons proliferation, AIDS and uncontrolled migration increase the need to confront underlying conflicts and state failures across the continent.

There is a real opportunity for a new approach to these challenges. While Iraq ostensibly discredited the concept of multilateral action, Africa provides encouragement: 50,000 soldiers are currently involved in peace operations across the continent.

If the Balkans were the peacekeeping laboratory of the 1990s, both the UN and EU have recently conducted new experiments in Africa. In the summer of 2003, the EU launched Operation Artemis — its first autonomous military operation outside Europe — in north-eastern Congo.

The mission’s aim was to reassert order in a region where a UN force had effectively lost control — a welcome opportunity for Brussels to assist New York. Carried off without casualties, Artemis was a short, sharp military success.

If the Balkans were the peacekeeping laboratory of the 1990s, both the UN and EU have recently conducted new experiments in Africa. In the same year, the UN launched a groundbreaking “integrated” mission in Liberia, involving soldiers, policemen and civilian experts. Even though the effort was flawed for a number of reasons, it was at least an attempt to transfer to Africa the techniques that have worked in Croatia and Bosnia.

But the most significant initiative has, crucially, been of African origin. In 2002, the “African Union” replaced the sclerotic “Organization of African Unity.” Its bold Constitutive Act explicitly declares that the Union can override sovereignty in cases of “war crimes, genocide and crimes against humanity”.

The African Union has hinted at its potential by sending forces to Burundi in 2003 and Darfur in 2004 — and gained significant international support.

The European Commission created a €250 million African Peace Facility to support African Union missions, offering some €92 million for Darfur.

While Iraq ostensibly discredited multilateral action, Africa provides encouragement: 50,000 soldiers are currently involved in peace operations across Africa. The African Union could well be the institutional partner that the international community so desperately needs in order to gain legitimacy. Yet international cooperation with the African Union has so far been poorly coordinated, racked by institutional rivalries, and sometimes self-defeating. The EU and the UN have failed to agree on a unified response to Darfur. And even within Brussels, there are ongoing tensions between the European Commission and Council over relations with the African Union. NATO, meanwhile, has interpreted the EU’s new interest in Africa as a bid for an autonomous sphere of influence — and responded by declaring its own interest in African operations.

The United States has been promptest to act, offering logistical support to African forces while others bickered. Nor has the African Union found it easy to act on its principles. While African leaders’ commitment to find a solution in Darfur is genuine, they have been extremely reluctant to condemn the Sudanese government for its role in the crisis.

The United States — heavily committed across the world — should be glad to see Europe getting serious about hard security.
This shows that state sovereignty is still a daunting barrier that few African leaders dare to cross. Moreover, African diplomats have expressed concern that the West wishes to turn the African Union into a military subcontractor — not a strategic partner. Asked to conduct peace operations in the Côte d’Ivoire in late 2004, the AU declined.

How can these challenges be resolved? While a plethora of organizations may wish to play a part, Africa needs a new and simplified security framework.

The EU’s cooperation with the African Union through the Peace Facility may provide the best available basis for this innovation. Rather than working on an arbitrary case-by-case basis, the EU and African Union should conceptualize and implement a single, unified security organization — a “NATO for Africa”.

Just as NATO was designed to give Europe confidence that the United States would defend it in the event of a Soviet attack, so a NATO-style arrangement for Africa would compel Europe to respond to genocide, invasion, civil conflict and humanitarian disaster.

The key innovation of an EU/AU partnership would be to give African nations a greater say on their security arrangements for the new century. It would enable the African Union to request EU assistance in dealing with the security threats defined in the act, while European leaders would have the right to request African Union participation in joint operations. Of course, the treaty’s security guarantee would differ substantially from NATO’s Cold War Article V, designed to address the threat of invasion by another state. It would instead be oriented towards the “new” problems of failing states and non-state actors.

This would not necessarily create a clash with the rest of the international community. The AU/EU arrangement could — and should — be negotiated with reference to Chapter VIII of the UN Charter, which allows for “regional arrangements” to play a part in global security.

More problematic would be tensions with the United States and NATO. But an AU-EU organization could not succeed without Washington.

Because of the EU’s relatively modest military resources, NATO assets would be crucial for medium and large-scale African missions. While a plethora of organizations may wish to play a part, Africa needs a new and simplified security framework.

Ultimately, the United States — heavily committed across the world and systematically retreating from “entangling alliances” — should be glad to see Europe getting serious about hard security.

Similarly, NATO could find a new, post-Cold War identity in assisting its African counterpart.

The key innovation of an EU/AU partnership would be to give African nations a greater say on their security arrangements for the new century.

Some European nations always doubted whether the United States would, when it came down to it, risk world war and a nuclear holocaust to defend them from a Soviet invasion. Similarly, African leaders may well be skeptical about the firmness of Europe’s security guarantee. But a formal declaration of commitment and a tailor-made institution to tackle Africa’s problems would be a valuable political step toward preventing future Rwandas and Darfurs.

My second visit in two years and its an enormous pleasure to be in China again. Our two countries’ relationship is going from strength to strength. In saying that, may I express my solidarity with the families of the eight Chinese hostages kidnapped in Iraq, and sympathy for the terrible ordeal these men will be suffering.

British trade with China has doubled over the last five years alone. This growth is faster than that of any other G8 country. Britain is the largest European investor here. Our Ministers, in all fields of government, are regularly in touch. We have regular and valued dialogue on the issue of Hong Kong, in which Britain naturally maintains a close interest; and on human rights.

Culturally our links are also strong. More students from China study in the UK than from any other country, and partnerships between our schools are growing. We have just launched the ‘UK-China Partners in Science 2005’ campaign, to strengthen our scientific links across the board.

When British Prime Minister Tony Blair visited China in 2003, Britain and China decided to establish Task Forces to strengthen our cooperation even further. Led by British Deputy Prime Minister John Prescott and by State Councillor Tang Jiaxuan here in China, they have made a great contribution to our relationship. Your Premier and Prime Minister were able to describe it last May, on the Premier’s visit to the UK, as a ‘comprehensive strategic partnership’. This autumn, the British Prime Minister will visit China as EU President for the EU-China summit, and combine that with intensive bilateral talks to develop our relationship even further.

For my own part I greatly value the regular dialogue which I have, both in person and by telephone, with my Chinese counterpart Minister Li. I am delighted to have been able to continue that here in Beijing today.

The partnership between our two countries is important not just for what it brings both of us; but also for the common work which Britain and China can do together in the world. I want to focus on that theme today. But let me start by setting out why I think it is so important.

Two weeks ago, I visited some of the areas stricken by the catastrophic tsunami on 26 December. No-one who has seen the devastation wrought by that violent explosion of nature could fail to be awed by it.

But that disaster also brought home to me, and to many others, the interdependent nature of today’s world. The tsunami claimed the lives of people from every continent – including, tragically, from Britain and from China.

What was striking, however, was not only the destruction which the tsunami caused, terrible though that was. The tsunami united the world in the generosity of millions of people’s response to it. I know that the response here in China has been unprecedented, and Chinese government aid was among the first to arrive in the stricken areas.

There is a wider message in the global response to the tragedy of the tsunami. It is that people around the world feel that the inter-dependence of nations, so long talked about by statesmen, is today more than ever a concrete reality.

This reality is also a challenge to which governments must respond. The first part of the challenge is economic – finding the determination not to seek shelter from the global market, but to exploit the opportunities which it offers.

In Britain, we have been determined to meet that challenge. And thanks to our open and flexible approach, and the investment which we are making in skills and in innovation, Britain is now Europe’s most successful large economy, and experiencing our longest unbroken period of economic growth on record.

British service industries are world-beating. And so too – though less well-known – is our manufacturing sector. The UK now produces 75% more cars than Italy. We are spending twice as much on science and innovation as seven years ago, so as to ensure that we continue to compete with the very best.

The challenge of responding to global competition is also one which China has embraced. And the results are simply staggering. The world has never before seen growth on the scale which China is producing. It is turning this country into a central player in the global economy, and lifting millions of people out of poverty.

This is the rise of China which many had predicted. But as it is happening, I think one fundamental thing has changed.

Where some years ago the world may have worried about the rise of China, now it welcomes this as truly an opportunity for us all.

The world welcomes China’s success not just because of its economic contribution. The second challenge posed by globalisation is one for our foreign policy – the need to act globally to promote safety and prosperity at home and in the world. As China’s prosperity has grown, so too has its stake in global security and global prosperity.

China’s partners warmly embraces this country’s growing international role. As chairman of the six-party talks, China is steering international efforts to deal with North Korea’s nuclear programme. It is a crucial partner in the fight against proliferation more widely, and in international efforts to combat terrorism. China’s contribution to UN peacekeeping missions is growing, and I greatly welcome President Hu’s recent commitment to increase that contribution further.

Meanwhile China is embracing more fully globally-accepted rules and standards. I particularly applaud China’s ratification of the International Covenant on Economic, Social and Cultural Rights. I look forward to China’s ratification of the International Covenant on Civil and Political Rights which China signed in 1998 and which I discussed with Foreign Minister Li today.

China’s engagement in the world is strengthening as well the partnership between our two nations.

The UK is working with China in encouraging progress towards a solution in the conflict between Israelis and Palestinians; helping to tackle other global conflicts through the United Nations; and pursuing the continuing international engagement with Iran, to ensure that its nuclear programme is for exclusively peaceful purposes. We are cooperating on practical initiatives too, such as Britain’s recent help with training Chinese civilian police officers deployed as part of the UN peacekeeping operation in Haiti. In Afghanistan we have co-operated to provide help with irrigation, and to face the threat from the drugs trade.

But there is more which we can and should do together, to strengthen further our growing global partnership.

I would like today to suggest three areas on which we should focus that effort. They are in pursuing reform of the United Nations; working for a better future for Africa; and tackling climate change.

Let me take those three areas in turn.

As permanent members of the UN Security Council, both Britain and China base our foreign policy on the maintenance of a strong and effective international system. But we both know too that the United Nations, designed 60 years ago, needs reform to meet the challenges of the new century. Many of those challenge are very different to those faced by those who drafted the Charter in 1945 – from terrorism to AIDS, from the environment to weapons-proliferation.

We both recognise that reform certainly does not mean tearing up the UN Charter and starting again: neither we nor any other nation favours such an approach. But we can use the United Nations’ capacity to evolve and to adapt as it has in the past, building on what I call the developing jurisprudence and practice of the organisation.

Our two countries were ably represented by Qian Qichen and David Hannay on Kofi Annan’s High Level Panel on United Nations reform. The Panel has produced an excellent set of recommendations for the way forward. It is now for the members of the United Nations to discuss them – and our two nations are already doing so.

The Panel has also put forward recommendations for reforming the Security Council, so that it better represents today’s world. We have a clear position on this; we favour option A but we also believe that if agreement on change is not possible, Security Council enlargement – just one issue of many- should not hold up progress on other vital reforms. It is only one part of a much wider process of change and evolution.

The Millennium Review Summit in September should set the direction for the way ahead on United Nations reform. In the preparation for that summit, I hope that Britain and China can continue and indeed enhance our productive dialogue on this issue of such importance to us both.

Let me now turn to the second issue on which I suggest we can deepen our co-operation: namely Africa.

I have mentioned the enormous need for international help over the coming year to rebuild the lives and the livelihoods of those stricken by the tsunami in Asia. But meanwhile the enormous problems faced by Africa have become no less acute. So we must resolve to rebuild on this continent not at the expense of our work on Africa, but in addition to it.

Britain has made Africa a priority of our work as Presidency of the G8 in the coming year. And I should like China and Britain to work together on this as close partners.

Both our countries already have strong links with the continent. Your own Foreign Minister, my colleague Li is of course an expert on Africa, having visited most of its countries – and speaking Swahili. We share our experiences of work on poverty reduction, and have opened a dialogue on our co-operation in Africa. We are exploring the possibilities for development co-operation on the ground in Ghana and Tanzania.

Last year Prime Minister Tony Blair launched the Commission for Africa to generate action for a strong and prosperous Africa. I am delighted that China was able to nominate a Commissioner, and even more delighted that China’s Commissioner, Ji Peiding, is making such an active and very constructive contribution to the work of the Commission. The Commission will this March be proposing recommendations on how the international community can work in partnership with African leaders and people in the cause of development. Its report should give us a real chance to put Africa right back at the top of the international agenda.

Africa will require an even greater investment of aid than it receives today if it is to meet its goals for development. But it is also crucial that we set the conditions which allow the people of Africa to build a better future for themselves.

That means tackling poor governance, corruption, and weak institutions; dealing with AIDS. And it means breaking down international barriers to trade, giving developing economies fairer access to world markets. Success in the Doha Development Round could deliver benefits equivalent to three times what developing countries get in aid.

Alongside its own position China now presides the G20 group of developing nations. And the United Kingdom Britain has assumed the Presidency of the G8 and will, from July, take on that of the European Union. That makes us both crucial players in the success of the world trade negotiations.

And your own example here in China is a powerful example of what economic reform and WTO membership can achieve. Others can learn from the energy and enthusiasm for growth and development which China has unleashed from its people.

So we must work on better governance, financing, on tackling disease, and on liberalising world trade. But to make a real impact in Africa we must also help to resolve the terrible conflicts which, quite apart from their human toll, are a brake on the whole continent’s ambitions for the future.

In this regard, we must do more to see peace in Sudan.

The Naivasha Accords, now endorsed by the UN Security Council, are a good and welcome basis for building peace in the conflict between North and South. But in the West of Sudan, in Darfur, the situation for millions is still one of urgent crisis. With every day that passes, the human toll only gets worse – and the need for international action only more acute. Already 70,000 people have died, and 2 million have been forced to flee.

UN Resolution 1574 represented a powerful consensus in the international community that the Sudanese Government and the rebels must fulfil their obligations and end the conflict in Darfur. We will only see progress if we can maintain and indeed increase that pressure. And whatever our differences of view on specific questions, the interests of the whole international community coincide in our desire to see the growth of stability and peace in Sudan. We now need to do more to help deliver that.

The third issue which I want to highlight today, and also a priority of Britain’s G8 presidency this year, is tackling the threat from climate change.

I want to deal first with two misconceptions.

The first is that climate change is a threat which matters mainly to environmentalists. In fact it matters to everyone – to farmers facing drought and changing conditions, householders and businesses worried about extreme weather and the threat of flooding, doctors concerned about the spread of disease.

And more widely, climate change is a potential source of conflict over scarce natural resources, and of the displacement of millions of people from their land, with all the instability which that would provoke. I went to Darfur in August last year, the encroachment of the desert, and the reduction of land for both nomadic and pastoral peoples has exacerbated tensions there. Climate change is an economic threat too: Swiss Re, the world’s second-largest reinsurer, has estimated the insurance costs at an extra $265 billion per year by 2010.

So for all these reasons, this is a threat which we must tackle. But the second misconception about climate change is that there is a necessary trade-off between limiting global warming on the one hand, and promoting economic growth on the other.

In fact, as those figures from Swiss Re demonstrate, inaction on climate change will have an enormous cost of its own. As we work to reduce our emissions there are opportunities for greater efficiency, and for innovation in low-carbon technologies and renewable energy sources, which business in both our countries can exploit.

And, as we mitigate the effects of climate change, we also have to work to ensure access to the secure and affordable energy supplies which our economies need, both from traditional and from more innovative sources. There are especially exciting opportunities for that here in China. About three-quarters of the energy capacity which China will need by 2010 has yet to be built. So if I may say so, China has a great opportunity to lead the way in building clean-energy technology, with all the environmental and economic benefits which that offers.

I’m delighted that Chinese Ministers will be represented at the joint conference of energy and environment ministers which the UK will be hosting in March. We held a valuable Round Table on climate change here in Beijing last October; we have established a High-Level Dialogue on sustainable development; and we are co-operating on a number of practical projects such as promoting more energy-efficient homes, sharing expertise on flood defence, or sustainable energy planning. All of these initiatives show how much we can achieve together – and I want us to strengthen that work further.

Ladies and Gentlemen

I am confident that the year ahead will be marked by a growing and strengthen global partnership between Britain and China.

Britain and China have a shared commitment to meeting the challenges posed by globalisation – and to exploiting its opportunities. Of course we won’t always agree. But there is an enormous amount of work for us to do together.

I’m delighted to be able to contribute to that during my visit here this week and in the years ahead. And let me thank all of you for the part which you play in strengthening the partnership between Britain and China, as we work together on the pressing challenges of today’s world.

FORTHCOMING EVENTS

India and the Globalising Economy
19th Jan 2005, 5pm to 6pm
Committee Room 10, House of Commons, Westminster, London

Seminar discussion with H.E. Mr. Kamalesh Sharma, High Commissioner of India to the United Kingdom, on how globalisation is affecting India and its sense of itself.
To attend please RSVP to Jessie Zhang at china@fpc.org.uk, 0207 388 6662

Rule of Law in Russia: Economic Impact
26th January 2005, 8am-9.30am
The Foreign Press Association
Breakfast seminar with Andrew Jack, recently returned Moscow correspondent for The Financial Times, Professor Phil Hanson, University of Birmingham and Dr Alena Ledeneva, University College London
To attend please RSVP to Jennifer Moll, Russia@fpc.org.uk , 020 7388 6662

Coming Soon: FPC Publications

Public Diplomacy in the ‘Age of Schisms’, by Mark Leonard and Andrew Small with Martin Rose (February 2005)

The emergence of new global schisms on issues such as military intervention, the role of religion in government, and the international economic framework necessitates a rethink of Britain’s public diplomacy strategy, according to the pamphlet authors. They examine how Britain is currently perceived in the world and argue that effective communication with the public abroad should be at the heart of its diplomatic strategy.

Energy and Power in China: Domestic Regulation and Foreign Policy, by Angie Austin (February 2005)

Much has been made of China’s growing energy consumption and its potential repercussions for world energy supply and security. Australian economist Angie Austin argues that changing internal patterns in energy efficiency and domestic regulation will prove more significant than external supply policies.

Post-war Civil Affairs Policy and Results: A Comparison between the Iraq War and the Second World War, by Correlli Barnett (February 2005)

The reconstruction of Germany in 1945 ranks as one of history’s most successful post-conflict operations. Renowned World War 2 historian Correlli Barnett examines why the planning that preceded the invasion of Iraq in 2003 was so inadequate by comparison and calls for civil affairs to be put at the centre of post-conflict planning.

Global Europe: Implementing the European Security Strategy

Four pamphlets on the strategic, economic and political capacities available to EU member-states internationally and a European policy on effective multilateralism, failed and authoritarian states, and peacekeeping.

ARTICLES

Can Europe build a NATO for Africa? By Richard Gowan
14 January 2005, The Globalist
http://www.theglobalist.com/DBWeb/StoryId.aspx?StoryId=4328

Can trade be free and fair? By Rt Hon Hilary Benn MP
10 January 2005, speech at FPC event
http://fpc.org.uk/articles/305

What the EU should do for Kosovo by Dick Leonard
13 January 2005, European Voice
http://fpc.org.uk/articles/304

In the News

Blair moved to tears by tsunami disaster
10 January 2005, The Guardian
http://www.guardian.co.uk/tsunami/story/0,15671,1387457,00.html

West urged to drop textiles tariffs for Tsunami countries
9 January 2005, The Observer
http://www.guardian.co.uk/tsunami/story/0,15671,1387457,00.html

Questions about royal land test new British disclosure law
8 January 2005, The New York Times

Disclosure of CAP farm subsidies: interview with Jack Thurston
1 January 2005, BBC Radio 4 Farming Today
http://www.bbc.co.uk/radio4/news/ram/farming_today_week.ram

On the web this month

Hilary Benn speaks at FPC book launch:
Launch event for FPC publication on free and fair trade

Rt Hon Hilary Benn MP, Secretary of State for International Development, gave a keynote speech on trade and development on Monday 10 January 2005 at an FPC event with Dr Daleep Mukarji, Director, Christian Aid, and Sir Samuel Brittan, economic commentator, The Financial Times.
http://fpc.org.uk/articles/305

India and Globalisation
India’s Vision of its Future in the World

On 3 February 2005 the Indian Finance Minister, P. Chidambaram, will give a keynote speech at the launch event for a new Foreign Policy Centre programme on India and globalisation.

Through research, publications, forums and public discussions, the programme aims to engage a broader group of actors with new thinking on the social and economic consequences of globalisation on India and the impact of India’s growing influence on the future of globalisation.

Read the programme prospectus: http://fpc.org.uk/fsblob/362.pdf

The Foreign Policy Centre
49 Chalton Street
London NW1 1HY

email info@fpc.org.uk

tel +44 (0) 20 7388 6662

fax +44 (0) 20 7388 8896

Click here for a map:

http://www.streetmap.co.uk/newmap.srf?x=529709&y=182943&z=1&sv=529750,1

May I first say something on the Centre’s publication “Free and Fair: making the progressive case for removing trade barriers”? I find myself agreeing with almost every word of, at least, Jack Thurston’s introduction. What I am less enthusiastic about is the packaging. Words do matter. I dislike “the progressive case for free trade”. Is this opposed to the reactionary case for free trade (history suggests that reactionaries usually are strong protectionists)? Does it suggest that there is a different kind of truth for different parts of the political spectrum?

But my objection to the term “fair trade” goes deeper. It is a weasel term that can be twisted to mean whatever we want it to mean. In the United States fair trade usually means resale price maintenance. I first came across the expression in the British context in relation to the late 19th century political leader, Joseph Chamberlain, who was a Conservative imperialist. He was a great exponent of “fair trade”’ which he promoted in the form of an autarkic British Empire. William Gladstone, who was by far the greater statesmen, remarked in 1881: “Fair trade bears a suspicious likeness to our old friend protection. Protection was dead and buried 30 years ago, but he has come out of the grave and is walking around in the broad light of day. But after long experience underground, he endeavours to look more attractive than he used to appear… and in consequence he found it convenient to assume a new name.”

Today when I see a supermarket product branded as “fair trade”, I wonder whether it merely means that the company producing it is law abiding and observing general accepted conventions. Or whether it means it refuses to trade with businesses using cheap labour in emerging countries. Here is an all too frequent example of those who shout loudest about helping the poor actually harming them. No one likes cheap labour, least of all well fed journalists or policy analysts. But it is nevertheless the main advantage that some poor countries have to offer on the world market and is a stepping stone to better living standards.

A question asked by many contributors to this volume is why it is so difficult to mobilise mass support for free trade. Hilary Benn notes the effects of the Corn Laws on the price of bread, which helped to sweep away Protection in the 1840s. The threat of a dearer breakfast basket saw the defeat of the Conservatives Party by the free trade Liberals in 1906. Yet just as outrageous is the effect on the cost of food (roughly £600 pa for a family of four) imposed by the Common Agricultural Policy. Why does this not lead to similar anger?

My own suggestion is that the reformers in the main British political parties and elsewhere, see the way forward, like Hilary Benn today, as a series of “further changes in the CAP.” The same applies to trade policy in general. The detail of tit-for-tat WTO-and EU- type negotiations is mind numbingly boring even for economic journalists who specialise in other matters, let alone for the general public. If the British government had made a bold proposals for abolishing the whole CAP in the negotiations on the European Constitution, there would at least have been a lively debate. In return it might have had to offer more concessions on other items such as majority voting on a broader range of issues, which will in any case be necessary as the EU expands.

The free trade movement has lost a great deal by becoming too associated with trade negotiations best left to specialists and not brought in to the broader debate about the merits and defects of a free market economy.

Of course there are such things as market failures explained in every textbook. But these do not become better or worse because of the intervention of national frontiers. The protectionists have gained a lot of ground because they have becoming associated with hostility towards large international corporations. We do not have to pretend that these institutions are especially lovable. Personally I hate both government and corporate bureaucracy. Such corporations serve the public interest, national and international, mainly because they are forced to compete. The debate should centre on the extent of competition and the contestability of markets rather than the likability of the organisations

I am not going to argue against a gradual and sequenced approach by some of the poorest countries to reducing import barriers. But the more quickly and thoroughly they can open their economies the more rapidly they are likely to prosper; and in OECD countries the barriers and subsidies should come down tomorrow.

Postscript on Samuelson

When Milton Friedman was teaching me on a sabbatical in Cambridge he said that “that protection is better in theory, but free trade is better in practice.” What he meant was that, although competent economists could find exceptions to the case for free trade, the kind of protection that was politically likely would do far more harm than good. More recently another Nobel prize-winning economist, Paul Samuelson, who comes from another part of the political spectrum and whose textbook will be familiar to many, has recently said something similar.

Samuelson’s analysis which appeared in the in the summer 2004 issue of the American Journal of Economic Perspectives caused something of a stir. Some America commentators have been delighted to talk of Samuelson as a free trade renegade. There was indeed something suspicious about the appearance and timing of the article. Samuelson insisted that it should appear in the issue of Economic Perspectives before the presidential election, instead of with the usual symposium of commentaries, which would have delayed it until nearer the end of 2004. Moreover, he chose as his example of possible losses arising from free trade the outsourcing of services, such as the now famous call centres manned from India. As some of the subsequent commentators pointed out, this is not a good example for the case Samuelson wanted to make. (A Panagariya. Why the Recent Samuelson Article is NOT about Offshore Outsourcing. forthcoming). But the outsourcing of services was however at the heart of John Kerry’s complaints about the Bush domestic policy. It is difficult to escape the suspicion that Samuelson, who now rarely comments on current issues, was being used as a weapon in the presidential campaign – and extremely unsuccessfully at that.

Let us however forget call centres and look at the general case. Samuelson has examined the opening up of trade between two stylised areas, America and China. He has worked out that if China experiences a rapid increase in productivity in an area where America has previously had a large comparative advantage (say computers) then America could be an absolute loser because the gains from specialisation might be more than offset by the losses on the terms of trade. There is nothing new in the theoretical possibility, although it depends on the losing country having a de facto monopoly in the product in question.

In the case he analyses, China becomes better off, the world as a whole becomes better off, but America loses. Not just American unskilled workers, but US GDP per head could fall. I am not mathematically competent to check his assertion that the argument becomes stronger if you take into account more than two countries and more than two commodities. The loss to the US in Samuelson’s example comes basically from the rapid increase in productivity in areas where the US was previously supreme. Productivity increases do not benefit all comers – eg the effect of powerlooms on handloom weavers in the English Industrial Revolution. But going back to autarky would not in this instance help the US.

Anti-globalisers, who claim to have the welfare of poor developing countries at heart, should note that the only point at issue is whether China’s gain is PARTLY America’s loss. If you look at Samuelson’s own conclusions from his analysis, you will find that he is extremely reluctant to draw a protectionist moral. But this will not be noticed by those who regard words as so much guff and look only at algebra.

Samuelson writes “If the past and future bring both [Type A] inventions that hurt your country and [Type B] inventions that help – even when both add to world real net product welfare – then free trade may turn out to be still best pragmatically for each in comparison with lobbyist-induced tariffs and quotas, which involve both perversion of democracy and non-subtle dead weight distortion losses. In 1900 free traders proclaimed, “Tariffs are the mother of trusts”. In this millennium a more pregnant truth may be: “tariffs are the breeder of economic arteriosclerosis.”

These may not be the most elegant sentences that Samuelson has ever written; but they repay study. As my tiny efforts to make them better known, I will put them on my website (www.samuelbrittan.co.uk).

Sir Samuel Brittan is an author and economic advisor at the Financial Times

Arguably, however, even more important than any decisions taken at the summit will be the debates held in the European Parliament in the coming months over the long delayed Directive on Services in the Internal Market, hitherto widely known as ‘the Bolkestein directive’.

For it is the substantial failure to extend the internal market in goods to the provision of services which has been the main inhibitor of economic growth within the EU. The services sector is by far the dominant element in the European economy. In 2002 it accounted for 116 million jobs, representing 68.1 per cent of the active workforce, with wholesale and retail distribution accounting for 25 million jobs. This compared to 33 million jobs for the whole of the manufacturing sector.

Services represent an ever growing proportion of Europe’s GDP, but the growth has been far slower than it might otherwise have been because of the myriad barriers and obstacles preventing service employers and workers from offering their skills in countries other than their own.

Instead of trying to remove these barriers by a series of sectional interventions, the European Commission took the bull by the horns and proposed a general directive covering all services apart from transport, e-communications and financial services.

Its aim is to promote the free movement across borders of all other services by removing or reducing obstacles and by applying a universal ‘country of origin’ principle, with some limited exceptions (including consumer contracts), and by laying down rules for the provision of information.

The ‘country of origin’ principle derives from the famous Cassis de Dijon ruling by the European Court of Justice, in 1979, that any product legally manufactured and marketed in one member state may be sold in another. It formed the basis of the EU’s 1992 programme, which successfully removed most national barriers to trade in goods.

Since then, the Court of Justice has only sparingly allowed exceptions to be made. One example was the Quietlynn case, where the UK was allowed to prohibit the sale by mail order of pornography freely available in the Netherlands.

The Commission published its draft directive over a year ago. It got off to a poor start, largely because of the aggressively free market advocacy of the former Internal Market commissioner, Frits Bolkestein,. He rapidly alarmed trade unions and left-of-centre parties in the European Parliament by giving the impression that the Directive would be a channel for a frontal attack on social rights sorely won by the unions’ efforts and would give a green light for widespread privatisation.

The more the unions criticised the directive, the more fervently was it supported by business interests, and the way seemed open for a bitter left-right division in the Parliament, which has the right of co-decision on the issue. There was a serious risk that the directive would become bogged down in an increasingly sterile struggle.

The election of a new European Parliament last June, followed by the appointment of a new Commission, enabled a fresh start to be made, and the prospects for the adoption of the Directive, now look distinctly more rosy, though substantial amendments are likely to be made, both by the Parliament and the Council of Ministers.

A key event was the extraordinarily well attended public hearing held by the Parliament in November. This went a long way to clear the air, and effectively forced critics of the measure to spell out their reasoned objections rather than just sounding off in a negative fashion.

One of the more impressive contributions was made by John Monks, the General Secretary of the European Trade Union Confederation. He made it clear that, despite the unions’ strong reservations on various points, they were not out to wreck the measure, but would work constructively for its adoption provided their legitimate concerns were met.

The Internal Market and Consumer Protection Committee has the task of drafting the Parliament’s opinion on the Directive. It is a lucky chance that its newly elected chairman is the veteran British Labour MEP, Phillip Whitehead, who cut his legislative teeth as rapporteur on the European Food Safety Agency a few years ago. He then showed himself a master of parliamentary tactics, persuading an initially very divided committee to produce a positive report, with a minimum of damaging compromises being made along the way.

Whitehead regards the Directive as the over-riding priority for the Parliament during 2005, and is showing his customary energy in pushing ahead with the draft opinion, which the rapporteur, German Social Democrat Evelyne Gebhardt, hopes to present to the Plenary Session in March, with a view to its final adoption before the summer recess.

Another positive factor is the replacement of Bolkestein by former Irish Finance Minister Charlie McCreevy. He has shown himself to be far more sensitive than his predecessor, and went a long way to disarm critics when he answered questions in the Parliament earlier this month.

So the prospects for the Directive emerging from the Parliament in a healthy state now look reasonably good, though success is far from certain. Then its fate will be in the hands of the Council of Ministers, with the British Government, which is broadly in favour of the measure, having the responsibility for shepherding it through during its presidency in the second half of this year.

Schrodinger’s interest was in the moment after the particle slipped into the system but before the box was opened. At that point, no one knew if the gas had been released, meaning the cat could be described as both alive and dead. The uncertainty of a subatomic state had been translated into uncertainty in the visible world.

For the past 25 years, China’s economy has practised a kind of Schrodinger capitalism. Lack of transparency in everything from financial markets to energy use to intellectual property meant China’s growth was occurring inside a black box. Investors often had to guess about the state of the economy, about what regulations they were supposed to follow, about what Beijing would do next. That kind of uncertainty seemed the perfect antidote to 50 years of destructive, ideological certainty. Starting with Deng Xiaoping’s introduction of the household responsibility system in 1980, which could be likened to Schrodinger introducing that particle, China’s economy grew at an average of more than 9 per cent a year; 400m people have been lifted out of poverty. Within the often stark limits of politics, China’s leaders were content to let citizens improvise ways to develop what became known as a “socialist market economy”, something that sounds to westerners like a contradiction in terms (an alive-dead cat).

But Beijing’s leaders, confronted with an economy that is still out of control in important respects and an uncomfortably lively debate about the future of party ideology, have begun to tire of uncertainty. As the Chinese new year begins – the year of the rooster – much of what is now under way can be explained as an attempt to bring clarity into the system. In early January, party leaders surprised much of the country by announcing a party education campaign to send more than 60m cadres off for self-criticism and education. At the same time, Beijing has been cracking down in parts of the country where local officials ignore edicts on economic growth. Despite orders to try to slow growth last spring, it is still common to find regional officials promising 18-20 per cent annual growth. In the autumn, Beijing announced it was relocating all local statistical work to the capital, another attempt to keep local officials from delivering fast growth for friends while lying to Beijing.

Until recently, the rattles of China’s opaque economy were mostly felt on the mainland and in the wallets of investors and foreign companies operating here. But the one area where the alive-dead cat has begun to squeeze global markets is in commodity prices. China plans to quadruple the size of its economy over the next 20 years. To do this it must have guaranteed access to inputs such as oil and minerals. So far, commodity prices have been no object to China’s leaders: without these inputs, their whole social and economic experiment would freeze. But the implications for the world are enormous. Imagine the effects of quadrupling Chinese demand for basic inputs. The economic challenge for developed nations such as the US will be tremendous. For developing countries, the effect may be disastrous, pricing them out of input markets for decades.

A Schrodinger strategy of deliberate uncertainty served China well in the past. It helped the country hold the vast contradictions of reform and development together under a coherent banner of transformation. But it is now time for the country to add transparency to its list of development virtues.

The government announced last month that it will issue an unprecedented energy planning memo this year, which will give world markets a look at China’s future energy demand. It has announced plans to develop a strategic oil reserve. Now China must understand that energy and mineral diplomacy are a vital part of its future.

At the National Peoples Congress in March, China’s leaders should take up a proposal that has been privately floated in many circles to create a ministry of energy. To international commodity markets, China at the moment seems like a mouth that eats but does not speak. It is making people nervous.

The year of the rooster should be known as the year when China starts doing that most rooster-like thing: talking.

The writer is an adviser in China and author of The Beijing Consensus, an analysis of China’s economy published by the Foreign Policy Centre in London