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Why the President isn't among Peter's friends (on free trade agreements).

Why the President isn't among Peter's friends (on free trade agreements)

There is no love lost between French president Nicolas Sarkozy and European Union trade commissioner Peter Mandelson. The former went so far as to blame the latter for defeat, in the Irish referendum, of the Lisbon Treaty proposals to reform the way in which the EU conducts its business.

At the heart of the disagreement is agriculture. Sarkozy wants to protect the considerable subsidies French farmers receive through the EU’s common agricultural policy. Mandelson, in contrast, favours a more liberal approach to world trade. He would like to see big cuts in farm subsidies and agricultural tariffs in the USA and EU, in return for lower barriers in developing countries to the import of industrial goods. Rather disingenuously, Sarkozy went to far as to claim that, if Mandelson got his way, agricultural production would fall at a time when price rises are putting basic foodstuffs even further out of the reach of the world’s poorest.

There is, of course, much more to the issue than that. Soaring world prices of grain and milk are actually increasing agricultural production in Europe and across the world – not reducing it – and causing around 1 billion euros earmarked under the common agricultural policy to subsidise farmers in Europe to go unspent.

Moreover, European farmers are not alone in trying to protect their subsidies. Beattie (Financial Times, 14 May 2008) highlights how the US rural community, too, is trying to defend its subventions and tariff protection despite rising food prices and increasing farm incomes. They have fiercely resisted recent attempts by US president George W. Bush to reform agricultural protection in the USA.

Despite these various pressures, the outline of a deal on world trade is on the table – one that World Trade Organization director-general Pascal Lamy thinks has a chance of success. It involves what US trade representative Susan Schwab describes as ‘enormous cuts’ in US farm spending, cuts by the EU, and lower barriers to the import of industrial goods by the emerging-market nations led by Brazil and India.

The alternative to a deal is more bilateral and regional trade agreements – in other words, a continuation of protectionism in all but name. And what, some may ask, is wrong with that?

While protectionism can provide short-term benefits to the protected sectors, it impedes efficiency and growth in the long term. It can even be the cause of wars. Look no further than the eighteenth century, when major European powers squabbled as they divided the world into parcels of protected trade.

The trouble is, too few people know this because they fail to get to grips with even the basics of financial literacy, let alone the complexities of international trade. Cory and Pickard (Strategic Finance, May 2008) reveal that less than half of US school pupils in a recent survey could answer simple questions on personal finance and economics. The situation is so bad that the Federal Reserve chairman has called for more courses in personal finance and money management, and has urged bankers and accountants to contribute.

The authors describe the efforts the Jump$tart Coalition for Personal Financial Literacy is making to improve matters by supplying educational materials to US schools. The indications are, though, that there is a long journey to travel.