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«November 4, 2005 From Seattle to Hong Kong: Are we Getting Anywhere? By Jagdish Bhagwati Jagdish Bhagwati is Senior Fellow in International Economics ...»

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November 4, 2005

From Seattle to Hong Kong:

Are we Getting Anywhere?

By

Jagdish Bhagwati

Jagdish Bhagwati is Senior Fellow in International Economics at the Council on Foreign

Relations and University Professor, Economics and Law, at Columbia University. He was

Economic Policy Adviser to the Director General of GATT and of the WTO-appointed

expert group that recently reported on The Future of the WTO. He is currently a member

of the Eminent Persons Panel on Enhancing UNCTAD’s Impact and of UN Secretary General Kofi Annan’s Advisory Group on the NEPAD process in Africa. His latest books are Free Trade Today (Princeton, 2002) and In Defense of Globalization (Oxford, 2004).

There were eight successful Rounds of Multilateral Trade Negotiations (MTN) under the auspices of the General Agreement on Tariffs and Trade (GATT). The first was at Geneva in 1947 and the last, the Uruguay Round (which, the witticism ran, was often mistaken to be a new Latin American dance), was launched in Montevideo in 1986 and finished in 1995 in Marrakesh, leading to the creation of the World Trade Organization (WTO).

It is important to recall that, in few of these MTN Rounds except at the outset, was the going smooth. Over time, the task faced by the negotiators has grown in complexity as the negotiators’ ability to close trade deals has increasingly been impaired by the added visibility and participation in the process by a variety of lobbies, or stakeholders, and by the complexity of issues raised by non-trade barriers and by sectors such as agriculture that had been shunted aside by waivers. It is not surprising that the Uruguay Round, which went through mid-way breakdowns and cascading crises of confidence, took nearly eight years to conclude, whereas the preceding Tokyo Round took five and the previous ones took much less.

The Doha Round, technically the Doha Development Agenda, is the first WTO Round. Its history to date is in keeping with the way GATT Rounds have turned into rides on a roller coaster, with near breakthroughs followed by near breakdowns. The attempt at launching the WTO’s MTN Round was first made at Seattle in the United States in November 1999 at the two-yearly WTO Ministerial. But it collapsed among the eruption of unruly demonstrators and the disruption of the WTO’s scheduled business.

By the time of the next Ministerial at Doha, Qatar, the twin towers in New York had been destroyed on 9/11; and the negotiators brilliantly used the tragedy to affirm that democracy and openness to the world economy were virtues to be affirmed under the terrorist threat and that the launch of the WTO Round would be part of that affirmation.

The result was the launch of the Doha Round.

But by the time of the next meeting at Cancun in Mexico, the anti-globalizers who had crowded the streets of Seattle and vandalized its storefronts were back in business, but they were singing in a lower octave. This time, due to dissensions among the member nations themselves, rather than disorder courtesy of the NGOs, the end of Doha seemed close at hand when the Cancun Ministerial ended without an agreement. But everyone, 148 WTO members today, returned to the drawing board. And, after missing several deadlines to arrive at agreements on diverse issues at stake, the negotiators are now scheduled to reach Hong Kong in mid-December, with no agreement in sight but nonetheless hoping that a significant agreement will be reached in that bastion of free trade, which then would provide the final stepping stone to a successful conclusion before the expiry of the fast-track authority in the United States on June 30, 2007.

Is optimism justified? Why might the step to be taken turn into a stumble, the stride into a sprain? No one has a crystal bowl. But nonetheless, something can be said and cautious optimism seems to be in order for Doha.

Doha’s History: Some Successes, Not Failures Of course, all MTN Rounds have succeeded in the end. The roller coaster analogy therefore does not work fully: the roller coaster comes back to where the ride began whereas the Rounds go on to success! But success does not always breed success: there is always the first time for failure.

But if one only probes the short history of the Doha Round --- it will only be completing four years in Hong Kong after its launch ---, one can find progress in many directions, even at Cancun, that augurs well for the eventual success of the Doha Round.

Thus, leading up to Cancun, one major bone of contention was the EU’s (and Japan’s) insistence that the four so-called Singapore issues --- an investment agreement, competition policy, transparency and trade facilitation --- be part of the final accord. The then EU Trade Commissioner and present Director General of the WTO, Pascal Lamy, was deeply committed to them, having inherited the issues from his predecessor, Sir Leon Brittan. Aside from their intrinsic appeal to both, one reason for the EU’s insistence was that they might provide an element of “reciprocity” when the EU, which has no comparative advantage in agriculture, made concessions on agriculture. Many tried to wean Lamy away on the ground, not as some in the European Parliament among others argued that these issues did not belong to the WTO but that the time was not ripe to bring them in; he remained adamant. But at Cancun, he yielded; and only the innocuous issue of trade facilitation, largely relates to rationalizing cumbersome and other administrative customs procedures handicapping trade, survived. This EU concession has doubtless increased the EU desire to match agricultural concessions with liberalization in manufactures and services where EU presumes it has comparative advantage (as argued below). The key point, however, is that one serious bone of contention was jettisoned, leaving the conclusion of the Doha Round less problematic.





But then there was also the question of the TRIPs agreements on intellectual property protection. This issue does not belong to the WTO simply because it is a matter of royalty collection. In bringing the matter forcibly into the WTO, by “capturing” the USTR and then holding the Uruguay Round by the jugular, the pharmaceutical industry was turning the WTO into a royalty collection agency. To use an analogy, as always somewhat imperfect, it was as if a loan shark had taken control of a legitimate enforcement agency to collect on its predatory demands. By putting the issue into the WTO, the pharmaceutical industry (and also the software producers) were essentially creating multilateral legitimacy for the use of trade sanctions so as to replace the increasing reliance on unilateral threats and sanctions under the Special 301 provisions of the 1988 Omnibus Trade and Competitiveness legislation to extract royalty payments from users in the developing countries.. Tough restrictions were put down on the manufacture of generic drugs and the poor-country access to them.

Interestingly, while virtually everything that has been negotiated in the past is renegotiated in the future, with each Round seeing re-negotiations on multiple issues (e.g.

anti-dumping rules and the subsidy regime), the pharmaceutical industry had taken the position that the TRIPs agreement of the Uruguay Round was a done deal and was to be reopened only to make intellectual property protection tighter, not less demanding. This game plan backfired when the spread of the AIDS crisis in Africa created a huge pressure for the pharmaceutical industry to back down. The US firms resisted for long but were finally bribed or threatened by the Bush administration, and doubtless by public opprobrium no matter how meritorious, into accepting a scaling down of the obligations by generic producers and by user developing countries that they had worked into the TRIPs agreement in the Uruguay Round. Thus, Ambassador Zoellick could go to Cancun with key US objections to TRIPs effectively behind him. Along with the Singapore issues, the contentious TRIPs agreement was also not a matter of fractious disputes any more, though currently some key details of a revised agreement (e.g. the question of maintaining an International Register for Wines and Spirits and the issue of Geographical Indicators where the EU insists on maintaining exclusive access to historical use of geographical “brand” names such as Burgundy wine, Parma ham and Roquefort cheese, and is joined by India which worries about “Darjeeling” tea and by Kenya which wants exclusive use of “safari”) are being worked out for the Doha Round in a relatively low-key fashion.

But the central breakthrough at Cancun was the emergence of the G-20 group, whose principals were Brazil, India and South Africa. Seen at first as “spoilers”, these were the larger developing countries whose political presence in earlier Rounds was relatively negligible. Even the world’s media typically confined their major stories on the MTNs to the interplay between the EU Trade Representative and the US Trade Representative. They wrote ceaselessly about Commissioner Andriessen and Ambassador Carla Hills, about Commissioner Sir Leon Brittan and Ambassador Mickey Kantor --both incidentally Lithuanian Jews with roots in the same shtetl, but one a suave Englishman and the other a Los Angeles lawyer ---, and about Commissioner Pascal Lamy and Ambassador Zoellick. These were the stars; the rest were, at best, extras in the melodrama of trade negotiations.

At Cancun, this finally changed. Brazil’s Minister Celso Amorim crashed through this duopoly of adulation and planted the flag of the developing world on the MTN map, finally fixing the media’s attention deficit disorder regarding the developing countries.

Cancun saw the emergence of the developed countries on to center stage: Amorim could no longer be ignored. The change was even more dramatic as, later, the Quad which consisted of the US, EU, Japan and Canada, and had conventionally set the terms of the negotiations, gave way to a Group of 5 which consisted of the US, EU, Brazil, India and Australia (as member of the Cairns group).

The developing countries now have a political stake and recognition: without this, no real progress is possible. Cancun achieved this indisputably: the G-20 not merely achieved political recognition but successfully asked EU and the US to go back and come with a better agricultural offer. Negotiations can only occur among equals; finally the negotiators of EU and the US were facing negotiators their own size. This could only be good for Doha and for the WTO.

But Cancun’s failure to close the Doha Round also has to be seen in historic context. After all, the time lapsed between Doha and Cancun was only two years! Both Tokyo and Uruguay Round had taken much longer to close. It would have been a miracle if the Doha negotiators had closed the Round at Cancun; unfortunately, miracles do not happen in trade. And when you see Hong Kong in that same perspective that will also have been only four years from the Doha Ministerial!

Reasons for Pessimism But there are reasons for pessimism also. The most difficult issue is agriculture, of course, where we have had the US and EU playing ping pong with offers and counter offers, with Commissioner Peter Mandelson playing for maneuver between France and its allies, who want to make no serious accommodation, and principally the Nordic countries and Britain who do.

Unfortunately, the French position is animated by the popular and populist conviction that agricultural trade liberalization is an attack on both French agriculture and French culture, by the conviction that endorsing globalization is a surrender to AngloSaxon, US-inspired “neo-liberalism” that stands in contrast to the more just French views of how society and economy must be managed, and by the fact that French unemployment has been running almost at 2-digit levels --- at nearly 10 percent in 2003 and 2004 when adjusted to a US-comparable estimate--- that are mistakenly attributed to globalization by the populace rather than to French structural and macroeconomic policies. In fact, there is a long-standing association between high unemployment rates and low enthusiasm for opening markets to foreign competition. In that regard, former Chancellor Schroeder’s endorsement of globalization has also been handicapped by Germany’s high unemployment rate --- increasing to almost 11 percent during 2005 so far from a high of 9.3 percent in 2004 ---- whereas the razor-thin electoral victory of the Chancellor-in-waiting Angela Merkel, and the resulting unstable coalition with Schroeder’s SPD, have left German reforms and pro-liberalization, pro-globalization forces without a clear mandate, and agricultural reforms hostage to support from CSU’s pro-agriculture leadership from Bavaria.

By contrast, the US administration has been clearly for the Doha Round, with President Bush unambiguously declaring himself in favor of it. But this conceals a serious erosion in political support for trade liberalization. The Trade Promotion Authority legislation HR3005 attracted only a majority of one (215-214) in December 2001 while passing (as part of the omnibus trade bill HR 3009) with an almost equally slender margin of three (215-212) on July 27, 2002.. The Central American Free Trade Agreement (HR 3045) also passed with a majority of two. A frivolous pro-trade inference may be made in jest. recalling that the President must pass out pork to all whose votes must be bought, the razor-thin majorities can be regarded as suggesting optimal corruption rather than lack of support for free trade: you want to hand out just enough pork to get the legislation enacted, so that larger majority margins would imply merely that pork in excess of the amount necessary to pass the legislation was handed out!



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