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The WTO round : more free trade or reverse?

A Note by the Director (Ditchley 2002/04)
 
22-24 March 2002
Over the weekend of 22-24 March we looked at the WTO as an organisation, the results of the Doha negotiations, the way ahead and at some of the fundamental principles underpinning the whole enterprise. At times our discussions resembled a three dimensional game of chess - at one level, technical trade issues with their proliferating acronyms; at another, the new developmental dimension and, at a third level, questions of values and priorities. The difficulties of establishing on which board a participant was playing at any one time and of finding the right links between the issues raised, led to lively and direct debate. I am grateful to the Conference Chairman for his experience and humour in steering us through this complex field to some valuable insights and conclusions.
We began by looking at the historical background to the WTO which included, the Uruguay Round, the failure at Seattle and the impact of the events of 11 September which had influenced the atmosphere at Doha away from confrontation. These, taken together with close cooperation between the EU and the USA, had led to a significant outcome. We were reminded that the primary purpose of the WTO was to formulate and administer global rules to remove obstacles to trade. We were cautioned, however, that agriculture and services were very different from the regulation of industrial trade which had been the mainstay of the GATT. One participant commented that "competitive advantage" was often now man-made through modern technology which was not available to less developed countries without help from the industrialised countries. We were also advised that doubts had been raised about the economic case for further trade liberalisation, a point we returned to at various times during our discussions. We noted that the WTO had grown enormously from the original 23 members in 1948 to 144 now and that the old distinction between "developed" and "developing" no longer adequately reflected the wide spread of countries which were now members of the WTO. The range of questions under discussion in the WTO went far wider than trade and affected social, investment and other areas hitherto regarded as domestic matters.
As far as agriculture was concerned we were told that, in the eyes of many less developed countries, this was a test of the engagement of the EU and USA. We considered the impact of the Farm Bill on the US negotiating position and on the dynamics for reform of the Common Agricultural Policy as a result of the expected enlargement of the EU. We noted, however, there was a clear timetable for Mr Harbinson in Geneva to produce a draft text on agricultural modalities. None of us thought that any of the participating countries, even Japan where agriculture posed serious domestic problems, would be prepared to block a conclusion of the round on this issue. Another area of interest to the less developed countries, textiles, had not been such a big issue at Doha, mainly we thought because of uncertainty about the effect on the textile trade of China's accession to the WTO. We speculated whether the industrialised countries would adhere to their Uruguay commitments on textiles despite the fact that these were heavily "backloaded".
We noted the new importance of services which accounted for two thirds of GDP in industrialised countries and half in less developed countries. But liberalisation in this area was opposed by a number of NGOs, and businessmen, who were the potential beneficiaries, were not particularly vocal in their support possibly because the long time frames for trade liberalisation made it of less immediate importance to them. On antidumping, another sensitive area for future negotiations, we thought that the USA would eventually need to accept a tightening of the rules. But this was not simply an issue for the industrialised countries. The majority of anti-dumping cases were brought by less developed countries against each other.
The free movement of labour and labour standards occupied our attention. One participant thought that differences between the demographic trends in the industrialised and in the less developed countries would influence the former to accept increased movement between the two. Another pointed out that, viewed in terms of trade, this was already covered by WTO regulations. Child labour and labour standards generally were matters of public concern and, it was pointed out, the WTO had responded by inviting the ILO to go into countries where such concerns had been raised to monitor core ILO labour standards. Interestingly, corporations had welcomed such moves as they provided them with some protection from random consumer boycotts. On mechanisms to enforce environmental and ILO standards we did not reach specific conclusions but a number of us thought that "something which will cost a wrongdoer" was desirable. This had to be balanced against the need to avoid the use of labour and environmental issues and any enforcement mechanisms for "protectionist" purposes. Options for mechanisms included, ostracism, trade penalties, fines and positive incentives. Domestically, it was thought that coordination between the many Ministries involved in trade within national Governments was highly desirable.
Against this background one participant expressed the view that we needed to see trade liberalisation in a wider framework. In August a UN conference in Johannesburg would be considering the related question of sustainable development. The central issue was whether we could meet the needs of the present without compromising the future - we should treat the earth as if we intended to stay. Pressures of increasing population on soil and water resources coupled with changes to the atmosphere raised questions which had not been discussed at Doha. We needed to ask ourselves about the yardsticks we were using to measure the real value of trade and whether market determined prices reflected the real costs. In some ways the economy could be regarded as a wholly owned subsidiary of the environment. This was not to decry the value of trade but to put it into its correct context. This point of view was rejected by another participant. There were ways of measuring the true costs. The market did work, indeed it was probably the lack of markets rather than the opposite which was causing problems. Property rights would help to cure some of the difficulties which had been identified. Growth was the best chance for the less developed countries. The price mechanism would do more good than a direct tax on carbon fuels.
This exchange opened up a debate with proponents and opponents expressing their views forthrightly. On one set of statistics, average income had risen, longevity had increased etc in the less developed countries as a result of the 38 years of the GATT. Those countries which had embraced free trade or globalisation had grown three times as fast as those which had not. This was contested by those who thought the neo-liberal agenda was not the only one. The rising tide of the free market had sunk some countries. It had caused great harm in countries which were not ready for it, Russia was a good example. It was unwise to try to impose a single system on the whole world. Trade should be accompanied by a redistributive mechanism. Many of us seemed to agree at the end of this exchange that trade liberalisation was a necessary but not a sufficient cause of wealth creation. It should be accompanied, not just by technical assistance, but by aid to help some countries to build their capacity to benefit from the market, and, added one participant, it was important that such countries had the capacity to implement their undertakings. It was also clear that free trade required adequate institutional underpinning. A further voice was raised to argue for capacity building for the WTO itself. The multiplicity of tasks now laid on it required a greater investment in resources in Geneva. Could not the IMF or IBRD, rather than individual states, be asked to fund the WTO?
This led us to question whether the WTO was being asked to deal with tasks that should properly be carried out by other bodies. Had it become the victim of its own success? If labour, environment, development and other wide questions were to be loaded onto the WTO, would it not be overburdened? Had Doha gone too far in encouraging expectations on the development front? We came to no clear conclusion other than to remind ourselves that one of the reasons for the WTO's popularity was because it was a rules based organisation and had some mechanisms for enforcing its decisions. Venezuela could win a case against the USA. While agreeing that the WTO was not a developmental institution, it was argued, that following Doha, there would not be a satisfactory outcome to the round unless less developed countries aspirations were satisfied. One of the outcomes of Doha had been that rule making and agenda setting would in future be strongly influenced by the less developed countries. Further progress in liberalisation would be linked to further progress in development.
We were all in agreement that a rules based system was the best basis for regulating trade. But what sort of rules reflecting whose values? If markets needed Governments then Governments needed democracy, commented one participant. We acknowledged the difficulty of reconciling the narrow legal framework of trade with the broader framework of development which had been such a feature of the negotiations at Doha. A plea was made to retain some flexibility in our efforts to regulate through rules. The system should not become too rigid. This led us on to the dispute settlement mechanism which some thought was in danger of being overworked with the EU and USA among the main culprits. Greater attempts should be made to settle issues through informal consultations. The problem of Genetically Modified Organisms was quoted as a good example of an issue which would be best settled outside the formal disputes settlement channels. The time taken to reach settlements came in for further criticism. In the WTO you "could win by losing" given the months and sometimes years it could take to arrive at a decision.
We also examined the question of rules and public opinion. This was particularly relevant to food safety but went wider. We inclined to the view that the right approach was to base our decisions on " sound Science". But recent cases such as BSE and GMOs had shown the problems which arose if public confidence in the scientists was lost. We agreed that further study of the precautionary principle, particularly where science was evolving and of some of the other complex questions underlying this issue, would be valuable. The wider question of the relationship between WTO rules and multilateral environmental agreements had also come up at Doha and we hoped that Article XX of the GATT would help to avoid a conflict between the rights of parties to multilateral environmental agreements and the rights of parties to the WTO.
Looking to the future we came to the relatively optimistic conclusion that it ought to be possible to find an outcome to the Doha Round which further extended market access, especially in agriculture and services. We hoped that expectations on new issues like investment and competition would be kept fairly modest. In discussing the timetable set at Doha we divided between those who thought it an illusion to expect the round to end at a time when electoral considerations in the USA and in the Commission would be uppermost, and those who thought Lamy and Zoellick would have an interest in seeing a deal reached during their terms in office. We were warned however, that negotiations were directed from capitals and not decided by representatives at Geneva or by negotiating considerations. We were also given a more sombre view from the USA where one participant commented that the mood had become more unilateralist than it had been at the time of Doha. In Japan, it was suggested, the issues of environment and food safety did not bulk so large in public debate. NGOs were not so influential there. In China, it appeared, the issues were more complex. Accession to the WTO had brought many changes. In the Chinese legal system some 300 Government rules and 4,000 regulations had been amended in accordance with WTO requirements. But is was doubtful if China was really ready for the new round. As foreign investment increased there was a danger of new monopolies replacing many small Chinese businesses. This could eventually lead to the perception that the WTO was all pain and no gain.
At the end of the conference, we looked back at the history of the GATT and now the WTO. We were reminded of the ground travelled since 1948. We were now at ease with a rules based approach to such questions. The central aim originally had been to underpin world peace. Trade, and the integration between countries which resulted from it, led to peace. Rules lead also to peace in establishing a system based on law rather than power. The WTO was part of the new international order to which this principle was integral. These, it was argued, were the real lessons of the WTO.
This report reflects the Director's personal impressions of the conference. No participant is in any way committed to its content or expression.
PARTICIPANTS

Chairman : The Hon Roy MacLaren PC
Ambassador and High Commissioner to United Kingdom (1996-2000); formerly: Member of Parliament; Parliamentary Secretary, Energy Mines and Resources; Minister of State (Finance); Minister for International Trade
CANADA
Mr Barry Appleton
Lawyer and managing Partner, Appleton and Associates
Dr John Curtis
Department of Foreign Affairs and International Trade: Senior Policy Advisor and Co-ordinator, Trade and Economic Analysis
Mr David Plunkett
Minister (Economic/Commercial), Canadian High Commission, London
Mr Grant L Reuber OC FRSC
President, Canadian Ditchley Foundation; a Governor, The Ditchley Foundation
Professor Debra Steger
Visiting Professor, Faculty of Law, University of Toronto, Secretary, Committee C (Competition and Trade Law); member: Council of the World Trade Law Association; formerly: General Counsel, Canadian International Trade Tribunal, Ottawa, Director, Appellate Body, World Trade Organization, Geneva
Mr John M Weekes
APCO; Chair, Global Trade Practice, Geneva, Vice-Chair, Advisory Center on WTO Law; Free Trade Agreement; Chair, WTO General Council
CANADA/WTO
Dr John Hancock
Counsellor, Trade and Finance Division, WTO Secretariat
CHINA
Dr He Maochun
Director, Information Centre of the Chinese Academy of International Trade and Economic Cooperation; Deputy Director, WTO Research Center, China Law Society
EC
Mr Roderick E Abbott
Deputy Director General, DG Trade, European Commission
GERMANY/INDIA
Dr Mahrukh Doctor
Research Fellow in International Political Economy, Centre for Brazilian Studies, University of Oxford
GERMANY
Herr Wedige von Dewitz
Lecturer on Trade Policy, University of Saarland, Institute of European Studies, Saabrücken; formerly: Deputy Director General, Economics Ministry
INDIA
Dr Jairam Ramesh
Secretary, Economic Affairs Department, All-India Congress Party; formerly adviser to Finance Minister, economic aide to Prime Minister
JAPAN
Mr Kazuyuki Kinbara

Keidanren (Japan Federation of Economic Organisations); Deputy Director of International Economic Affairs Bureau
NETHERLANDS
Dr Steven Everts

Senior Research Fellow and Director, Transatlantic Programme, Centre for European Reform
OECD
Mr Herwig Schlögl
Deputy Secretary-General, OECD
TUAC/OECD
Mr John Evans
General Secretary, Trade Union Advisory Committee on the OECD
UNITED KINGDOM
Sir Nicholas Bayne KCMG
Fellow, International Trade Policy Unit, International Relations Department, London School of Economics and Political Science
Sir Samuel Brittan
Principal economic commentator, Financial Times; author; member, Programme Committee, The Ditichley Foundation
Mr Richard Carden CB
Director General, Trade Policy, Department of Trade and Industry
Mr Simon Featherstone
Head, European Union (External) Department, Foreign and Commonwealth office
Dr Noreena Hertz
Associate Director, Centre for International Business & Management, Cambridge University, Milliband Fellow, London School of Economics
Mr Guy de Jonquières
World Trade Editor, The Financial Times
Mr Christopher Roberts CB
Senior Trade Adviser, Covington & Burling, London; Director General for Trade Policy, Department of Trade and Industry (1986-2001)
Sir Crispin Tickell GCMG KCVO
Chancellor, University of Kent at Canterbury; Director, Green College Centre for Environmental Policy and Understanding; a Governor, The Ditchley Foundation
Lord Tugendhat
Chairman - Europe, Lehman Brothers; Chancellor, University of Bath; Member of Parliament 1970-1976; Member of the European Commission 1977-85; Vice President, European Commission 1981-85; Governor and Member of the Council of Management, The Ditchley Foundation
UNITED STATES OF AMERICA
Dr Arthur I Cyr

A W and Mary Margaret Clausen Distinguished Professor, Political Economy and World Business, Carthage College
The Hon Richard N Gardner
Professor of Law and International Organization, Columbia University and Counsel, Morgan Lewis LLP; formerly Member of President's Advisory Committee on Trade Policy and Negotiations; Vice-President and Member, Board of Directors, The American Ditchley Foundation
Dr Robert Jerome
Assistant Provost, University of Maryland University College (UMUC)
Mr Charles J O'Mara
Founder and President, O'Mara and Associates; formerly: Counsel for International Affairs to the US Secretary of Agriculture; Special Trade Negotiator, Department of Agriculture
Mr Timothy Reif
Chief Democratic Trade Counsel, Committee on Ways and Means, United States House of Representatives
Mr Elliot Stein
Chairman, Caribbean International News Corporation; Managing Director, Commonwealth Capital Partners, LP
USA/GREECE
Ms Julie Wolf

Author; formerly correspondent for the Wall Street Journal and The Guardian