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Creeping protectionism worries policy-makers

Washington, Nov. 21 (Reuters): Federal Reserve chairman Alan Greenspan and top IMF policy-maker Anne Krueger, fearing that decades of trade liberalisation are being reversed, issued stern warnings on Thursday against signs of creeping protectionism.

Their biggest concern is that governments are succumbing to short-term domestic political pressures over job losses and overlooking the biggest benefit of trade — long-term economic growth.

“We cannot afford — at this juncture — any risk of a return to protectionism. Trade can sometimes be a controversial domestic policy issue,” Anne Krueger, IMF’s first deputy managing director and top trade economist, told an emerging market conference in New York.

“But governments need to resist the pressure to give in to the lobbying of narrow interest groups who cannot benefit at the expense of the wider public,” she said.

US steel tariffs, ruled illegal by the World Trade Organisation last week, European curbs on farm imports, and this week’s US import caps on some Chinese textiles, are some of the protectionist tendencies emerging everywhere, say economists.

Key world trade talks broke down in Cancun, Mexico in September over farm subsidies, a divisive issue between rich and poor countries.

Gary Hufbauer, a trade economist at the Institute for International Economics, cited signs of slowing momentum in trade liberalisation. “Textiles is troublesome and just the harbinger of more to come,” said Hufbauer, expressing doubt that a US plan to end all textile and apparel import quotas in 2005 would survive political pressure.

US in election mode

In the United States, President Bush, a supporter of free trade, is under pressure to protect the ailing US manufacturing industry, which has lost 2.8 million jobs in 39 months, concentrated in states that are key for the 2004 US election.

US manufacturers have blamed China, saying it is keeping its currency artificially low which gives Chinese exports an advantage. Greenspan warned that protectionism could significantly erode the flexibility of the global economy.

“Some clouds of emerging protectionism have become increasingly visible on today’s horizon,” Greenspan told a monetary conference in Washington on Thursday. “Consequently, it is imperative that creeping protectionism be thwarted and reversed,” he said.

Hoping to influence governments, the heads of the pro-trade IMF and World Bank on Thursday released a joint letter calling for the resumption of world trade talks after Cancun.

The letter noted the benefits of free trade for growth, saying it had been the single most powerful tool in reducing poverty and raising living standards.

The IMF’s Krueger said industrial countries could do far more to reduce agricultural subsides and open their markets.

Equally, developing countries could liberalise themselves more, she said. “Failure to resolve the problems encountered at Cancun and restart the Doha process would have unpleasant consequences,” she said.

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