November 30, 2003	Sunday	Shawwal 5, 1424

KARACHI, Nov 29: The euro touched this week a record high of over 1.20 to the dollar on concerns of growing US trade deficit. Global traders saw the dollar weakening to make American exports cheaper and imports costlier to reduce widening trade gap.

The developing states, which depended heavily on exports to America, may find that the going is not as good as in the 1990s. Washington is also indicating that it will protect its industry against foreign competition. It does not seem to be willing to implement the WTO decision against its tariff on steel imports.

A stronger euro and a weaker dollar will enhance the fierce trade competition between Europe and the United States in a global market not growing fast enough due to sluggish or uncertain long-term recovery in industrial economies.

As 10 more countries join the EU next year, the size of the EU market will be nearly as large as that of the United States. The enlargement of the market may satisfy some appetite of the European industry, but it may not be enough with its Middle East market partially destabilized by the Iraq war and with access to the US market curbed or declining.

The US government makes no secret of its views that world economic growth can no longer be propelled by “one-engine” (America) alone. Its merchandise import bill is nearly twice its export earnings and its trade and current account deficits are financed by debts raised from Asian countries. Americans live in luxury on borrowed money and one of the lowest rate of savings. Like Asians, the European governments no longer oblige Washington with falling returns on dollar holdings and mounting debt.

The “one-engine” (US) contributed to two-third of world economic growth in the last decade and made America the sole super power after the demise of the Soviet Union. It translated into a policy of unilateralism that is now encountering unsurmountable difficulties in promotion of its exports.

America is trying to create a regional bloc with Latin America along with bilateral free trade agreements with individual countries. The outcome of trade talks held in Miami last week is entirely different from the wide-ranging accords these nations have been negotiating for years. A “flexible” 34-nation agreement, says a US magazine, comprises only few common standards and some tariff cuts. Not all, including Mexico, are satisfied with the outcome.

Given the differences that needs to be reconciled, Newsweek says: “The only feasible, pan-regional deal may be one allowing individual nations to pick and choose which provisions they can live with.”

With the US finding the going difficult in its backyard, (Latin America led by Brazil), it would have to evolve a long-term policy, to tide over its trade, current account and fiscal deficits.

Meanwhile, the world’s fastest growing economy, China is emerging as the engine of growth for East Asia as Europe begins to build its economic muscle independent of the Atlantic Alliance.

For countries like Pakistan, it is time to review it’s foreign trade policy and to adjust it with the changing global trade environment. Here it may be worthwhile to quote the example of India. The European Union accounts for 25 per cent of Indian exports and imports. It is now entering into agreement with the EU to boost its trade from current level of Rs27 billion to Rs50 billion by 2008.

As it appears, the global economy would initially be propelled by three engines — surely the EU whose market will be enlarged by the entry of 10 new members and China, that is absorbing huge export surplus of East Asian countries and the United States, that is still the largest economy in the world.