Trade war looms after G7 setback

PAUL WALLACE

Halifax, Nova Scotia

After a day in which proceedings had been dominated by Bosnia, the Group of Seven got back to the business of economic summitry with a ringing declaration "to resist protectionism in all its forms" and a commitment to hold a ministers' meeting on jobs in France next year.

But world leaders were unable to come up with a solution to the most serious problem overshadowing the meeting, the looming trade war between the United States and Japan.

The final communique had admonitions for the Japanese and American approaches to trade. But the rebuke for the US unilateralist position was the stronger.

The G7 called for "the reduction of remaining internal and external barriers in order to improve market access". One up for the Americans, whose quarrel with the Japanese centres on "invisible barriers" to the imports of cars and car parts into Japan.

On the other hand, the group gave a strong endorsement of the World Trade Organisation, committing themselves to "ensuring a well-functioning and respected dispute settlement mechanism". Two down for the US, whose threat to impose punitive sanctions on imports of luxury cars from Japan is widely considered to be an illegal flouting of the writ of the WTO.

The dispute between the Americans and the Japanese now moves to Geneva for last-ditch talks, among widespread expectations that the sanctions will now go ahead. After discussions which European trade commissioner Sir Leon Brittan held with Mickey Kantor and Ryutaro Hashimoto, sources said there was no sign of the gap between the two parties being closed.

The most unexpected initiative to emerge was the agreement for ministers to hold a jobs conference in France next year. In the morning working session, John Major portrayed the UK approach to freeing up the labour market as a model for other countries. This view was not shared by European leaders, who believe job security is vital if employers and employees are to invest in training.

In contrast to the leaked draft communique, which boasted about the robustness of continuing economic growth, G7 leaders acknowledged that there had been some slowing in the world economy. In summit discussions, economic conditions in Europe were seen as relatively buoyant, despite recent signs that growth in Germany and countries closely linked to the mark has taken a knock from the appreciation of the mark.

Over lunch, the French President, Jacques Chirac, described currency speculation as "the Aids of modern economies". But despite these strong views, there was no change in the line on exchange rates. The leaders endorsed the position reached in April at the Washington meetings of finance ministers - that the key to stability in currency markets was sound domestic economic policies rather than intervention.

As expected, the most important change backed by the summit was an enhanced role for the International Monetary Fund, both in trying to avoid crises like the one that blew up in Mexico and in sorting them out. The IMF's surveillance powers are to be increased considerably and it is to be given an additional $27bn of resources.

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