After devaluation

Peter Walker on monetary reform and freer trade

John Szemery

An interview with Mr Peter Walker, Secretary of State for Trade and Industry Szemerey: Some international commentators have expressed the fear that devaluation of the dollar will bring about a trade war between the US and the EEC. Do you agree? Walker: On the contrary, as the measures taken in mid-February to resolve the currency crisis result in more realistic relationships between the world's major currencies, a major cause of friction has been reduced.

Szemerey: Would it be fair to take dollar devaluation as a victory for the European Community, which refused to be panicked into precipitate action? Walker: It is good that neither Germany in particular nor the European Community as a whole took inappropriate precipitate action. The major changes, of the dollar and the yen, were appropriate because the two countries concerned are the ones whose trade and payments have been in extreme disequilibrium. Szemerey: If it is agreed that the devaluation was forced to some extent by Europe's subbornness and new-found strength, can this same strength be used to good advantage in the forthcoming GATT negotiations? Walker: It would be a misconstruction of the purpose of the forthcoming multilateral trade negotiations to regard them in terms of a trial of strength. All participants in the negotiations will be working for the further liberalisation of world trade. As between industrialised countries, progress to this end will depend on measures based on reciprocity.

Szemerey: What will be the Government's reaction (and possibly the EEC's reaction) if the US introduces variable tariffs and import quotas in direct relation to a country's balance of trade with the US? Walker: As a member of the GATT the US cannot consistently with her obligations impose quotas or introduce tariffs on the basis suggested. GATT permits the use of import restrictions by countries in balance of payments difficulties in strictly limited circumstances and on specific conditions. One of these is that there must be no discrimination between members of GATT. Szemerey: Does the Government feel there is any obligation on the UK or EEC to help America with its current balance of payment problems, bearing in mind that Europe's prosperity is directly attributable to America subsidising its economy through aid and investments over the last twenty-five years?

Walker: Clearly, both the UK and the EEC have the closest interest in America's current problems. The US is our and the Community's most important trading partner. What the UK needs for its own prosperity is a continuously expanding world economy, and this is hardly possible if one of its major pillars remains for too long in serious balance of payments difficulties: So I would say that we are not dealing here with questions of moral obligations or repayments of past debts. What we have to ensure — both Europeans and Americans — is that the economic relations of the situation are dealt with in a mature, expert and nonrecriminatory spirit by both sides. This is the spirit in which we shall be approaching both the forthcoming multilateral trade negotiations and the discussions for the world's monetary system. I need hardly add that the Japanese government has an equally important and heavy responsibility in both the trade and monetary discussions that lie ahead.

Szemerey: It is reported that the EEC will be ready with a 'global approach' covering all aspects of trade by the beginning of this July. What will be the major considerations?

Walker: The Community has given itself to July 1 to decide on a global approach to the negotiations, and will n'ee4 by then to arrive at a common view on its negotiating aims in the fields of tariffs, non-tariff barriers, agriculture and trade with developing countries, ensuring that its objectives for each sector, and the methods for achieving the objectives, are realistic. Guidelines for the approach were adopted at the summit conference last October, when the Community reaffirmed its determination to encourage the development of international trade on the basis of progressive liberalisation.

Szemerey: The feeling of US experts that international trade and monetary systems are weighted against the US has been hardened by dollar devaluation. Would the Government (or EEC) support their contention that the EEC should offer concessions before Congress gives a mandate for another round of trade negotiations?

Walker: No. It is important that trade concessions as between industrial countries should be given, and should be seen to be given, on the basis of a proper quid pro quo and, generally, the time to settle such concessions will be in the course of the multilateral trade negotiations.

Szemerey: Would you agree that international monetary reform and international trade reform should be discussed at one conference, as they are so closely interrelated?

Walker: They are indeed interlinked at many • points. But the two sets of negotiations — in the GATT for reciprocal reductions of trade barriers and in the IMF for monetary reform — while necessarily relevant, are best carried out separately.

The time scales of Monetary and trade negotiations are different. The work of the IMF Committee of Twenty is well under way; but the trade negotiations will not begin until the autumn. Channelling the two sets of negotiations into one conference could simply hamper rather than hasten progress.

Szmerey: If the UK loses trade with America as a result of the dollar devaluation (and of any increased trade barriers) where should we concentrate our trading energies?

Walker: If our trade declines with the US, the obvious alternative is Western Europe, particularly the EEC. But there are many other markets, for example Canada, Australia and Japan, offering scope for further expansion of our trade. However, our aim must be to hang on to our trade with the US and indeed to increase it. As a result of the change in exchange rates, we should at least be more competitive in price vis-à-vis other foreign suppliers.

Szemerey: Is the UK (and Europe) prepared for increased Japanese competition, which will undoubtedly result from the reduction of their American market? Will the Government take any protectionist measures?

Walker: Where that competition causes, or threatens to cause, serious disruption we will take action consistent with our international obligations to remedy the situation. We need to be able to contain these problems without triggering off a lurch to protectionism. However, we shall also pursue the important objective of getting the vast and growing Japanese market opened up more rapidly to British (and European) manufactured goods and investment.

Szemerey: What are we doing to increase trade elsewhere, particularly in Japan with its float and de facto revaluation?

Walker: A major trade drive has been launched to promote British exports to Japan. A British Export Marketing Centre is expected to open in Tokyo in September, designed to enable British firms to complement their existing marketing effort. An annual programme of eight to ten specialised trade exhibitions is planned. A special adviser on the Japanese market has been appointed, and an ' Exports to Japan' unit has been set up in the DTI. The adviser and his staff will alert firms to the opportunities in the Japanese market and advise on the future trade missions.

Szemerey: How does the Government expect international trade to develop now, in both the short and +long term? How would it like it to develop?

Walker: It is expected that the development of international trade will show a strengthening of the tendency for trade to increase between the developed countries and particularly perhaps between the members of the enlarged EEC. There should be further growth in the trade of the developing countries, with the help of the General Preference Scheme already introduced by the UK, EEC and a number of other countries, and which it is hoped the US will also introduce shortly. The British Overseas Trade Board have been charged with supervising the. Government's export promotion effort. As part of a general global approach to export marketing, it is mobilising its resources to help British industry to improve its export performance in markets across the world.

John Szemery is the Westminster columnist of the Journal of Commerce (Liverpool).