We may not always recognise it as such, but this is more or less what has also happened in India over the last decade. Dr Manmohan Singh used a Balance of Payments crisis to initiate the widest series of economic reforms in the Indian economy till date. More recently, the BJP government used the WTO to initiate public debate over property rights laws in the country.

By advertising the benefits to emerging sectors such as the software industry from this move, our reformerstried to counter the pressure from the lobbies that would lose out from such a move. Friedman calls this process `globalution', where reformers rely on external pressures to import stringent standards and rule of law systems. We need to do more of the same, but with a difference.

For, this time, the target will not be so much the protectionist lobby in India as their counterparts in Europe and America. The US economy for example, has undergone a number of structural changes that have strengthened the voice of protectionism in the American polity.

The median real income of families in America has stagnated over the last decade, while technological changes have reduced the relative demand for unskilled labour in the economy. This has meant that while people at the top fifth of the income bracket have done rather well for themselves over this period, the people at the bottom are relatively worse off.

Protectionist idealogues such as Pat Buchanan have seized on this as a direct result of increased tradewith poor countries with abundant supplies of low wage labour. Their point is that trade with low-income countries tends to reduce the demand for the goods produced by American labour.

More orthodox economic thinkers such as Paul Krugman of the Massachusetts Institute of Technology, on the other hand, tend to see this as more a result of the technological evolution of the American economy. But the important point is that the Buchanan view tends to have more emotive appeal than the cold scientific reasoning of the Paul Krugmans. And that, as Indians well know, is all that matters in the end.

Europe has more of the same problem. It has a set of labour laws and exit policies that make it difficult for an employer to adjust the supply of labour according to the market situation. This has meant that the unemployment rate has stayed higher than it would have in a more flexible labour market. The demand for low skilled labour in Europe has followed the same pattern as in America, which has meant an increase inthe unemployment rates among the unskilled. This has predictably set off the same demands for protectionism.

This demand is often cloaked in the form of cries for subsidies and dumping duties. Even more worryingly, protectionist tendencies often result in the formation of preferential free trade areas with other high-income countries. The problem with such free trade areas is that it tends to result in trade diversion. Take for example the European Union. Monetary integration is likely to increase intra-EU trade rather than EU trade with other countries.

This is because, by reducing the transaction costs of doing business with only countries in the EU, it reduces the incentive to trade with third party countries outside. Already more than 60 per cent of global trade is carried on within free trade areas. The EU has agreed to form a free trade area (called the EUROMED) with the Mediterranean countries.

Thirty-four countries will form a free trade area of the Americas by 2005. The east Asians alreadyhave the ASEAN and the APEC. If protectionism fuels a rise in the numbers of such agreements, third party countries such as India will lose out. (The SAPTA countries are too insignificant to count for much here).

The only way to prevent this is to appeal to pro-trade interests in America and Europe. This almost always means lobbying to exporters and others who gain from trade. We have to open our markets to US and European exporters, without imposing too many conditions on their business. In any case, research from the Institute for International Economics points out that developing countries have not benefited much from imposing conditions on market access. In fact, asking for joint ventures and local content requirements often discourage firms from transferring their best technology to our markets.

America's policy-makers need to trumpet the benefits of free trade to their local audience. Even in America, export jobs pay between 15 to 20 per cent more than other jobs. Worker productivity is estimated tobe between 20 to 40 per cent higher (!) in exporting firms, which obviously means higher wages.

If the American audience is to be convinced of the benefits of trading with nations like India, they have to see reciprocal concessions from Indian markets. We have to give American negotiators something to crow about back home. This means we have to be far bolder in our attempts to liberalise our external sector than we have been prepared for so far. The shoe is on the other foot now. If developing countries do not take steps to prevent a rise in protectionism in rich countries, all the efforts of the rich nations to free trade in the past will have been wasted.