2001 – Make or break year for WTO

There is little doubt that the year 2001 could be make or break for the multilateral trading system and the Geneva-based World Trade Organization. The system, which has served the world well for over 50 years, must be seen to move forward for the first time since the successful completion of the Uruguay Round of trade negotiations in 1993. If it does not, there is a real risk that many governments will fall back on bilateral and regional trade agreements as the best means of securing new access to markets. In doing so they will run the risk of fragmenting the foundations of the global economy, and leaving the poorest nations out in the cold.

The Uruguay Round created a credible new trade body, in the shape of the WTO, and a set of modern rules and tough dispute settlement arrangements. The new institution was probably more relevant and geared to the times than any other multilateral organization, including the World Bank and the International Monetary Fund. In part, it has delivered. Major agreements on financial services and telecommunications were tied up in the late 1990s and the dispute settlement system is hardly ever out of the headlines.

Yet the 1999 ministerial meeting in Seattle demonstrated that all was far from well. Contrary to the impression given by the international media, the meeting did not fail because of pressure from the streets, significant though it was. Nor did it fail because the meeting was ill prepared in Geneva and badly managed and chaired by the US hosts, though each of these elements was a factor in the calamity. In fact, the WTO ran up against several new realities.

An end to secretive negotiations

The first was a realization that the secretive and narrow decision-making processes of the past could no longer work. The second, almost a reflection of the first, was that far more developing countries were not only WTO members, but wanted to play an active part in any new deal. Third, some poorer countries considered they had already taken on enough obligations under the Uruguay Round – some they were unable to implement – and they were not comfortable with taking on more in a major new multilateral trade negotiation. Fourth, there was a perception that the industrialised countries had not lived up to their part of the Uruguay Round bargain, especially in the key agriculture and textiles sectors. And, fifth, the case for a broad new negotiation – as distinct from simply proceeding with the “inbuilt” agenda set out at the end of the Uruguay Round – had not adequately been made by the European Union and Japan, the biggest proponents.

Everything that has happened, or not happened, since is a reflection of these new realities. They have been exacerbated by a wider public feeling of discomfort with some of the practical implications of globalisation – lost national sovereignty, food safety issues and employment dislocation, among them – which they encounter in their daily lives and which politicians cannot ignore.

Those keen to see a new trade round have begun carefully working through these issues – insofar as they are resolvable – and there is now a chance, but only a chance, that such a negotiation could be launched at the meeting of WTO ministers coming up in Qatar in November next. But there are many “ifs”.

Preparing a new trade round

The period since Seattle has not been an idle one in Geneva. The “inbuilt” agenda included commitments to launch new negotiations on services and agriculture last year. This was done, and solid work has been conducted which will provide the foundations for real bargaining whenever that becomes possible. For the moment the process is largely blocked because of the refusal of many countries to negotiate new farm trade concessions in isolation. Essentially, all those who are on the defensive in agriculture – notably the EU, Japan, Korea, Sw itzerland and Norway – insist they must be able to show gains in other areas if they are to accept new commitments which will require further reform in their politically sensitive farm sectors. Hence, they want a big negotiating agenda – in its own right (because they have genuine commercial interests elsewhere) and for political cover.

Alongside this work is a third process which has sought answers to some of the developing country concerns about “implementation” of the Uruguay Round. It has so far reaped few positive results and is widely considered a big disappointment among countries whose support is necessary if a new trade round is to be launched. Some major trading nations insist that many of the demands put forward under the “implementation” agenda require the re-opening of WTO agreements, something that can only be done in the context of a major trade round. And while the EU’s efforts on the “Everything but Arms” initiative are recognised, there is comparatively little else which has been offered the world’s poorest nations as short-term market access opportunities.

Meanwhile, trade disputes proliferate. The new dispute settlement system of the WTO has worked in high gear for the past five years. It has treated well over 150 cases – the high profile transatlantic clashes like those of bananas and beef hormones, and the many other differences which increasingly involve developing countries as complainants or respondents. It is a much faster, more automatic system than its ponderous predecessor in the old GATT, and it has the capacity – too often used – to permit retaliation where findings are not adequately implemented.

The dangers of trade litigation

Some would argue that the very strength of the system, is its biggest shortcoming. We have moved the trading system from one based upon consultation, mediation and negotiation to one based almost solely on litigation. That is dangerous. There are many issues of vast public import which ought not to be resolved by simple reference to WTO jurisprudence and the judgement of unaccountable dispute panellists and appellate body members.

The public outcry if a WTO member sought to resolve the complex and sensitive issue of genetically modified foods through a WTO dispute judgement can be easily imagined. The outcry would be justified. This is a matter which requires careful consideration by accountable bodies within nations and between nations. There are many others – the domestic regulation of public services or the impact of the Internet are among them.

It is, perhaps, this failure to negotiate or even consult in favour of legal remedy that makes the best case for a new trade round. Life has moved on since the last major transformation of the system. There are issues which require the careful collective consideration of WTO members. E-commerce is among them as are some biotechnology issues. As the EU argues, it may now be time to talk about global rules on investment and competition policy. There are services sectors – energy, tourism, express delivery, health, among them – which were hardly touched during the Uruguay Round services negotiations. The potential commercial value of making commitments in these and other areas is huge, and especially for developing countries seeking investment and new trade opportunities. And there is still plenty of room for bargaining on traditional trade issues like industrial tariffs and agriculture.

The Challenge for Europe

So how is the process going to get off the ground? Several things have to happen if the Qatar meeting is going to succeed in launching a new trade round. First, and foremost, industrial countries are going to have to convince poorer nations that when they say development should be at the centre of the negotiations, they mean it. That will not be easy, distrust is rife.

Second, the European Union and the other players defending their trade-distortive farm support systems must agree to an agenda which signals a credible intention to negotiate and make meaningful concessions which will improve the global market for efficient exporters.

Third, the European Union must continue its welcome recent flexibility in seeking new approaches to some of its agenda demands, notably on investment and competition policy. It may even have to come to terms with the possibility that these issues are just not ripe for anything other than further exploration.

The Challenges for the US

The new US Administration will also need soon to decide if it wants to move the multilateral trading system forward seriously or not. There is little doubt the new Bush team would be content to launch a new WTO round if at all possible in Qatar. The real question is what price it is prepared to pay – and what price it will be allowed to pay by the Congress from which it now needs negotiating authority?

Two elements stand out as incurring the expenditure of political capital by the Administration. The first concerns a willingness to negotiate on anti-dumping rules. For the US steel industry, which is currently calling for ever more protection from “dumped” imports, the sanctity of US anti-dumping rules is of almost religious importance. Yet a new round will almost certainly include some review of the trade protection disciplines of the WTO.

The second issue for the US is labour rights. It is clear that the Republican Administration wants nothing to do with any link between labour rights and trade which involves trade sanctions. However, to get “fast track” negotiating authority from Congress, President Bush will have to make some undertaking to pursue the trade/labour link. It cannot be in the WTO since developing countries remain implacably opposed. It may be in the ILO, through some tightened disciplines there. There may be some other mechanism.

In the final analysis, Washington may calculate that multilateral and even regional trade negotiations just take too long and involve too much political pain back home. That is why the bilateral route is being seen as an alternative. It could be a very dangerous alternative. Yet many in the US point to the proliferation of bilateral deals built up by the EU over the past five years.

The idea that US leadership in trade would be restored through bilateralism is seen elsewhere as a folly. But it may ultimately be less a question of maintaining a coherent and effective global trading system than securing quick results. Counting bilateral deals for Mr Bush may become the equivalent of counting dispute settlement cases in the Clinton Administration. If it does, the world – and especially the developing countries – would have much reason for concern.

, Editor,

World Trade Agenda

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