16 September 1993 - 18 September 1993

Global Competition and Free Trade, Including NAFTA: Experience and Prospects

Chair: Sir Michael Franklin KCB CMG

In the late seventies Ditchley housed a meeting which played a part in the launch of GATT’s Uruguay Round, and it was therefore apt that, as the Round neared a key deadline, Ditchley should again be discussing international trade. We almost overdid the aptness, indeed, for the extreme topicality of the issue prevented us in the end from securing directly either a European Commission or a French voice; but we heard much of their views.

In basic attitude we were all of us natural free-traders, whether happy to take the market’s invisible hand on trust or preferring to negotiate guarantees that the benefits of the international distribution of labour and comparative advantage were honestly and stably reaped. On the long view this was best for the prosperity of everyone, developed and developing, as the long history of trade advance since 1945 mostly showed. We were deeply aware of the anti-competitive consumer-disadvantaging reality usually underlying terms like “fair” and “managed” trade, and “dumping”; we preferred to put our faith in proper procedures and regimes, not manipulated outcomes.

We accepted that key political leaders themselves remained mostly of this view; but in today’s circumstances of recession and employment difficulty they found themselves increasingly often swimming upstream. It was hard to carry conviction and mobilise democratic consensus in favour of Adam Smith’s diffuse-seeming abstractions against the narrowly-focused reality of painfully specific job loss. Accelerating structural change was the latter’s main cause, and flexibility of labour - enhanced by responsive training, pension and healthcare portability, and (as even the EC might be recognising) the avoidance of excessive social overhead - the proper main response; but it was easy for xenophobic conspiracy theory to make free trade the scapegoat. That mis-advocacy was heightened by the deficiencies in relevant data about trade effects - the NAFTA debate in the US, we heard, risked becoming the Battle of the Anecdotes, some of them flatly untrue. If leaders were to fend off demands for fortified insulation, or for “adjustment-compensation” policies that simply froze the status quo by providing bulwarks against change rather than assistance through it, they needed both political courage and help in presentation.

We noted that the question of labour norms posed especially awkward issues in this regard. There was much still happening, across the world’s diverse economies, that the liberal conscience rightly deplored - virtual slavery, child labour, the denial of free association, the ignoring of health and safety at work. Were our trade arrangements to ignore all this? But if we insisted on first-world standards in these matters, we offered - as history showed - the ideal cloak of respectability to protectionism, whether from business or from labour interests. The demand to equalise every characteristic as between trade partners could ultimately stultify trade. The imposition of first-world criteria stood to pin poor countries in poverty, and so in the bad labour conditions which would-be imposers claimed to deplore; low labour costs were often their key comparative advantage (and one whose power to determine business location, as against other decision factors like productivity, infrastructure and environment, was in any event often vastly overstated by myth). There were in the end, most of us accepted, lines that had to be drawn, for example over slavery; but we should be honest with ourselves in recognising these as part of a political human-rights agenda, not a trade agenda. For all that trade levers were now among the most powerful available to governments, truly concerned about such issues, we were reluctant to abandon a strong general presumption that trade should be approached as in this sense value-free.

It was against this general background that we took stock of how matters stood on the Uruguay Round. The 15 December deadline, we gathered, had to be seen as real, and the effective options then a flat Yes or No, without half-way house or difference-splitting. The odds were hard to call, and the poker-game could still play out in ways that no player’s rational self really wanted. French industry would suffer with others if the Round failed, but the fight with the US over agriculture issues touched deep springs of national sentiment. France alone could probably not in the end bring the Round down; within Europe, the key would be how Germany, torn two ways or more, reacted should France remain intransigent. We were unsure of the US prospect. The Administration probably recognised GATT as economically more important than NAFTA, but the near-term political dynamics were complex; bargaining with Congress over one might shift the odds over the other, and we heard differing views about whether success or failure in NAFTA (as reaching decision first) would raise or lower the probability of a similar outcome in the Round. Japan, we conjectured fairly confidently, would not let rice become the final breakdown issue. We noted an intriguing possibility that if the US did give ground to the EC over agriculture the Cairns Group might find itself challengingly caught in the spotlight.

What if the Round did fail? Opinions differed. Some thought that good habits would not die; the acquis of long negotiations would not evaporate; healthy “work-around" contrivance would blossom. Others were much gloomier, warfare would break out, and even if the initial front were narrow - oilseed, for example - it would broaden under political pressures, as countries armed themselves with 301s, Voluntary Restraint Agreements, Voluntary Import Expansions, special agricultural subsidies and the like. Some of us were concerned that businessmen - notably but not only in the US - had too relaxed a view of how much the Round mattered, both absolutely, and in comparison, with regional arrangements like NAFTA; just for example, only a healthy GATT could handle successfully the emergence of major new market traders like Russia, China and Ukraine. A high-level voice from Brussels had just reminded us all, moreover, that trade fortresses might constrict the flow of capital, not just of goods. Beyond that, a Uruguay Round collapse would be a seismic political event whose echoes would reach beyond trade into relationships like the Transatlantic one and the development of European Union. We were not confident of the damage-limitation capabilities of the key leaders amid today’s difficult domestic settings.

If the Round succeeded, what next? There was a case, in domestic political realism, that there would have to be a pause for digestion, and that any further Round should be of less ambitious scope. Against that, much remained to be tackled - new topics, like environmental concerns, and more tariff reductions to be made; maintaining and refining the world’s trade framework was bound to be a task without tidy end; and broad ambit might well be necessary to ensure that further advance offered something for everyone. We reached no clear conclusion; but Ditchley stands ready.

Our discussion of regional arrangements focused largely on NAFTA. We heard that in Canada the basic battle for free trade had been salutary won in Mr Mulroney’s campaign over the US/Canada Free Trade agreement five years ago. The main real importance of NAFTA, some believed, lay in the political effects within Mexico of success or failure, and US opinion might increasingly be swayed by this; but the prospects in Congress involved a complex mix of factors including concern, on the Hill as well as in the White House, about the future credibility and authority of a Democratic President now showing strong commitment to the Agreement. Beyond the vote, the likelihood of wide NAFTA expansion, for example as a Western Hemisphere trade area, was low, for reasons of limited economic coherence as well as of political saleability - perhaps Chile in due course, possibly one day Argentina, probably some analogous arrangements growing in the Caribbean, but not more. Further afield, some speechmaking in the US, and even some in Asia, spoke aspiringly of an Asia-Pacific Economic Community; but few of us saw much reality in the idea of special more-than-GATT cohesion in an area so vast and with so many countries of such diverse economic condition, containing moreover the special forces of Japan and China.

This scepticism about APEC exemplified a general belief that the trade significance of new regional trade groupings, whether in their own right or as “bloc-iste” threats to the global GATT systems, was frequently exaggerated. Technology-driven structural change, sometimes overriding geography, was tending to erode their economic relevance. They might on some matters be able to go further and faster than GATT, but not against it, and even then, only where coherence existed or could be secured through convergence on a manageably-constrained scale. Their prime motivation and importance were often political, as indeed the European case showed. We had not time to explore that fascinating case in depth, though we" noted its uncertain current condition and its particular difficulty (compounded by regional-subsidy practices which some participants thought a very damaging incubus) in coming to candid and adequate terms with new events and economies to its East

The discussion confirmed in almost of all of us, if that were needed, a conviction that free trade was of huge moment, politically and socially as well as economically; that it needed crusading presentation amid severe current stresses; and that it faced over the next few months some tests of very great importance. We wanted to be optimists, and for the most part - on balance, fingers crossed - we were. We hoped and expected that political leaders recognised the magnitude of the stakes.


This Note reflects the Director's personal impressions of the conference. No participant is in any way committed to its content or expression.

Chairman: Sir Michael Franklin KCB CMG
Director: Agricultural Mortgage Corporation


Mr Robert Walters
Counsellor (Commercial), Australian High Commission, London

Dr Vincent Cable
Group Senior Economist, Shell International

Mr J A Cooke
Head of International Trade Policy Division, Department of Trade and Industry

The Rt Hon Edmund Dell
London Chamber of Commerce and Industry (Deputy Chairman, 1988-90, Chairman, 1990-92); author

Mr Alan J Donnelly MEP
Member (Labour), Tyne & Wear, European Parliament

The Hon Peter Jay
Writer and broadcaster; Economics and Business Editor, BBC

Mr Anatole Kaletsky
Economics Editor and Associate Editor, The Times

Mr John Macgregor
Head, European Community Department (External), Foreign and Commonwealth Office

Mr David Morphet
Director, Government Affairs, BICC pic

The Lord Plumb DL MEP
Member of the European Parliament (Conservative), The Cotswolds

Mr Jim Rollo
Head, International Economics Programme, Royal Institute of International Affairs

Sir Derek Thomas KCMG
Chairman, Liberalisation of Trade in Services Committee, British Invisible

Mr Serge April
Deputy High Commissioner of Canada, London

Mr J Trevor Eyton
Member, The Senate of Canada; Chairman, Brascan Limited, Toronto

Mr Neil De Koker
President, Automotive Parts Manufacturers’ Association

Herr Hans Helmut Kotz
Chief Economist, Deutsche Giro Zentrale, Frankfurt

Dr Rüdiger Soltwedel
Director, Research Department, Regional Economics and Infrastructures, Institute of World Economics, Kiel

Professor Kazumasa Iwata
Professor, Department of Social and International Relations, Tokyo University

Mr L Gerald Carlisle
Secretary-Treasurer, International Union of Bricklayers and Allied Craftsmen

Mr Harry L Freeman
President, The Freeman Company

Dr Dale Hathaway
Director and Senior Fellow, National Center for Food and Agriculture Policy, Washington, DC

Dr Gary N Horlick
Partner, O’Melveny & Myers (Attorneys), Washington DC

Mr Gary Hufbauer
Reginald Jones Senior Fellow, Institute for International Economics, Washington DC
Mr Robbin S Johnson
Corporate Vice President, Public Affairs, Cargill Inc., Minneapolis

Mr Christopher J Matthews
Washington Bureau Chief, San Francisco Examiner, nationally-syndicated political columnist and broadcaster

Professor Riordan Roett
Sarita and Don Johnston Professor of Political Science and Director, Latin American Studies Programme, Paul H Nitze School of Advanced International Studies (S AIS), Johns Hopkins University, Washington DC