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The Three Trade Blocs Raise the Drawbridges


Paris.-- The future will see three big protectionist trading blocs in competition, if one accepts as true the assumptions now made by many international businessmen. Business participants at an Ottawa conference last week, assessing the outlook for GATT and Group of Seven trade and economic policy meetings this spring, said that international business executives hope for the best from the new GATT trade liberalization talks, but their companies are preparing for the worst.

Hence current efforts by major industrial producers to install themselves inside all three blocs, the North American, European and Japanese-Asian. The most recent example in Canada is the European Airbus Consortium's bid to buy De Havilland, the pioneering but chronically unprofitable Canadian aircraft manufacturer now owned by Boeing. Success would give Airbus a North American manufacturing presence.

Japanese executives appear to have drawn the same conclusion about what lies ahead. President Bush's project to incorporate Mexico into the existing U.S.-Canadian North American free trade zone -- and later to extend the zone further south into Latin America -- is widely perceived in Japan as implying protectionist policies in the future.

The Japanese are already convinced, on rather more solid evidence, that Europe is headed toward more protectionism. The appointment of Edith Cresson as France's prime minister last Wednesday gave the Japanese more reason than ever for that belief.

Mrs. Cresson has been a ferocious critic of Japanese trading policies, which she considers predatory. She advocates strict reciprocity in controlling Japanese imports into Europe and Japanese investment, and condemns the United States for having submitted to what she calls an industrial "takeover" by Japan.

European protectionist sentiment was also clear in the "negotiating position" adopted by the European Commission April 30 on Japanese auto exports to Europe after 1992. The unexpected element in that position was that Japanese cars assembled or produced inside the European Community (or the U.S.) were included in this proposed import quota, despite the protests of European governments that have benefited from Japanese investment.

This was a frontal challenge to Japanese industry's policy of blocking or circumventing quotas by building plants in other countries. Notable also was that American car producers installed in Europe supported this European Commission position, citing the example of what Japanese competition has already done to the auto industry in the U.S.

Even "voluntary" restraints on imports, agreed between Japan and the Community, are a form of protectionism, of course. And the Community is now debating measures to protect its high-technology electronics industry. The new French prime minister believes in a national industrial policy for France and a European industrial policy for the European Community. This means government intervention to direct or supply investment in areas deemed of crucial economic or technological interest.

It follows in the old French dirigist tradition, which even the avowedly free-market French conservative government of 1986- 1988 never really renounced. It has failures to its account, HTC notably in computers, where repeated government interventions and investments have failed to give France or Europe a really competitive computer industry. On the other hand it is responsible for the highly successful Airbus commercial aircraft and Ariane space industries, and for France's world leadership in nuclear-power generation and modern rail transport.

It is inevitable that Europe will in the future practice an industrial policy, as it has in the past -- and as Japan has, and does. It probably is inevitable that the United States will not develop such a program, despite the efforts of some Democratic Party figures to sponsor such policies in Washington. Thus, a high level of continuing tension among the three is foreseeable on the principles of economic conduct as well as the practice.

"Fortress Europe," if indeed it comes to that, will, however, exist essentially as a response to Fortress Japan. Tensions between Europe and North America are largely negotiable, or are seen as such in Brussels, agricultural policy being the big exception. With Japan, the Europeans are coming to think there is no common industrial-economic vocabulary.

But American-Japanese tensions are worsening as well, if one takes seriously statements issued last week by the Keidanren, the organization of Japanese industry. These claim that Japan has yielded enough in "structural" economic adjustments to improve trade with the U.S., and that it is now time for the United States to produce the deficit reductions, savings and competitivity improvements, and educational reforms promised last year by U.S. trade negotiators but never delivered -- nor with any real likelihood of being delivered under this administration.

If protectionism really is the direction toward which the international economy is moving, Japan, vitally dependent on foreign trade, would seem the short-term loser, although perhaps a longer-term winner if Japanese (and American) businessmen's old dreams of an opened and developing Chinese mass consumer market were fulfilled, or that of a real prosperity in Southeast and South Asia opened to Japanese exploitation.

Europe today is in a strong position, with a highly sophisticated and prosperous internal market and rich medium-term prospects in goods-starved Eastern Europe and possibly in the Soviet Union.

North America may in the foreseeable future prove the more vulnerable trading bloc, because of the persisting weaknesses of the dominant U.S. economy and the inherent limits on U.S. trade with Canada, with only 25 million people, and with the relatively unsophisticated Mexican (and Latin American) markets. It would be prudent for Americans to wish the renewed GATT talks well. But it would be better for everyone that they do not fail.

William Pfaff is a syndicated columnist.

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