The World Trade Organization Millennium Round

Klaus Gunter Deutsch, Bernhard Speyer, Klaus Gunter Deutsch, Bernhard Speyer

• Publisher: Routledge
• Year: 2001
• ISBN:
  9781134557165
• Edition: 1
• Topic: Business
• Subtopic: Business General
• Index: Business

This book draws together key issues resulting from the World Trade Organisation's planned 'Millennium Round' and the hope that it will lead to freer trade as we begin this new century.

Part I

International trade policies

1 The Millennium Round
Prospects for trade liberalisation in the twenty-first century

Bernhard Speyer and Klaus Günter Deutsch

Introduction

In the 1990s, the internationalisation¹ of economic activity made a great leap forward. The long boom in the US economy, the transition to the European Single Market and European Economic and Monetary Union, and economic growth in Asia and Latin America created an environment that enabled international trade to prosper. The internationalisation of economic activity also extended to foreign direct investment and global capital flows. The pursuit of economic growth using sound macroeconomic policies, market economics at the microeconomic level, trade liberalisation and international financial integration became the mantra almost everywhere around the globe.

Even though several ‘emerging market economies’ suffered severe financial and economic crises in the late 1990s, the world economy did not lapse into a recession. Despite this shock, the international trading system proved surprisingly stable. The regime based on the World Trade Organization came to be widely regarded as the cornerstone of a market-oriented world economy. The People’s Republic of China, one of the trading nations that is not yet a member of the WTO, is on the verge of joining the institution. There is no longer any rival power to oppose the system—a situation unthinkable fifteen years ago. There is a virtually global intellectual consensus—among governments at least –that liberal, rules-based trade is a desirable policy objective. The unprecedented rise of democratic governance and economic openness should also bode well for free trade.

Despite these breathtaking developments, the international trading system has entered a phase of great policy uncertainty. There is less threat of a sudden bubbling up of protectionism, which then leads to a collapse of the world economy, as in the aftermath of the Great Depression of the 1930s. The real threat is that the structures of international governance established in successive rounds of multilateral trade negotiations fail to be adapted to a changing world economy and gradually become less relevant to traders and governments. The symptoms of crisis are easy to recognise: policy squabbles abound between powerful players; the US Congress discusses whether the USA should leave the WTO; the EU often finds itself at odds with rules established with its consent and shows no readiness to correct its behaviour; the least developed countries cannot afford the implementation of elaborate rules; and large and small traders (firms, farmers, electronic service providers) increasingly take trade policy into the private realm of single-handed talks with governments about changing this or that rule. Finally, the 1999 meeting of trade ministers of WTO member states in Seattle, USA, brought into the open a certain amount of disagreement on the very usefulness of multilateral trading rules, the desirability of a new round of trade negotiations, the potential agenda, the benefits and the risks.

As in previous phases of pre-negotiating a new round of trade talks, confusion reigns and controversies abound (see Winham 1986 on the Tokyo Round; Croome 1995 and Preeg 1995 on the Uruguay Round). New ideas about what to tackle at the multilateral level have to match the policy preferences of the powerful players and also, increasingly, of the developing countries. A balance has to be sought between market liberalisation, making rules and institutional reform. Whereas member states used the Tokyo Round as the first round encompassing far more than just tariff cuts to focus on rule making, they turned the Uruguay Round into an even larger venture covering new sectors and issues (on the results, see also Whalley and Hamilton 1996; Ostry 1997). This included making rules in areas such as services, intellectual property rights, anti-dumping and investment; opening up markets in agriculture, textiles and clothing, as well as tariff cuts and reductions in non-tariff barriers; and institutional reform, which culminated in the establishment of the WTO itself and the creation of a binding mechanism of conflict resolution, the dispute settlement mechanism (DSM), one of the most supranational of legal arrangements.

The trade debate has not stopped since then (Krueger 1998; Schott 1998). A multitude of issues have been raised worldwide that could or should be dealt with in the WTO. The number of parties to the debate has increased. Apart from traders and governments themselves, unions, non-governmental organisations (NGOs) embracing social or environmental purposes, and others are putting forward their demands. Almost every conceivable international economic problem has been linked to trade policy by some important player on the globe.

This implies that it is no longer possible to strike trade deals without public scrutiny. Even disregarding the riots, the media attention devoted to the Seattle ministerial conference was certainly far more intense than anything that Punta del Este saw almost fifteen years ago.

However, not everything is new. The fundamental mechanics of trade negotiations remain unchanged. Trade politics is still a ‘two-level game’, where governments bargain with each other at the international level and have to sell the results of those bargains at home (Putnam 1988; Evans et al 1993). The stance and the room for manoeuvre of each government is therefore circumscribed by its influence in international trade diplomacy as well as by the demands and the influence of domestic interest groups favouring or opposing liberalisation and rule making in the multilateral trading system.

Governments also still face the perennial dilemma of being torn between strengthening international rules and preserving national autonomy. Governments know only too well that the stability of the international trade regime, indeed of the global economic system, is in their own interests, given that international trade accounts for a higher share of GDP than ten years ago in most countries and given the interdependencies stemming from the international flows of capital, investment and knowledge. It is fairly obvious that international trade will flourish if governments pledge to accept some basic rules. Of course, this constrains national autonomy. As trade increasingly affects public policies pursued for entirely different reasons inside the borders of the nation-state and not only covers tariffs and other border restrictions, multilateral trade rules have to extend to the realm of domestic affairs. National autonomy has to be rebalanced with the cross-border effects of economic internationalisation.

Trade policy has moved firmly into the area of deeper integration. Trade negotiations are no longer just, or even primarily, about telling governments what not to do at the border but are instead about prescribing what to do inside. Almost all border measures (e.g. tariffs, quotas) indisputably had a protectionist motivation; consequently, trade liberalisation was all about shifting rents between different groups of society and sharing the efficiency gains to be reaped from trade liberalisation. By contrast, rules and regulations within borders have a multitude of motivations, making it more difficult for governments to find acceptance at the domestic level.

At the same time, at the international level, trade negotiations are no longer just about swapping market-access concessions but are about dealing with the intricacies of deeper integration issues. This implies that new forms of bargains must be struck between WTO member states, bargains that take into account different stages of development and different economic and social orders.

The players are also changing. Deeper integration has brought into the game representatives of ‘civil society’ that often have little knowledge of, or little interest in, the purely economic side of international rule making or trade and investment liberalisation. Neither the institutions—first and foremost the WTO—nor the processes of international trade negotiation are designed to accommodate these groups. At the same time, another trend can be observed: multinational companies, which had hitherto been vocal supporters of the multilateral trade rounds and in doing so had often tilted the domestic balance in favour of liberalisation, have remained rather silent. There are a number of possible explanations for this: either they are content with the market access available; or they use technology to circumvent barriers; or they are increasingly in a position to pursue trade policy privately.

While new players enter the scene, the mature players seem to have forgotten their script. For almost fifty years, the USA took the lead. Trade policy was a presidential matter, and Congress delegated its powers to the president. US President Bill Clinton concluded the Uruguay Round, which his predecessors Ronald Reagan and George Bush had launched and negotiated to a large extent. In Seattle in December 1999, President Clinton could not persuade WTO member states to agree to start a new round of trade talks. Many observers noticed a lack of interest in a new comprehensive trade round on the part of the US government. This can partly be explained by the fact that after ten consecutive years of strong economic growth the USA may not perceive any urgent need for the extra economic boost that would flow from trade liberalisation. In addition, a strong and vibrant USA was undoubtedly in no mood to grant substantial concessions to bring other nations to the negotiating table. But the stance taken by the USA reflects a more fundamental change in attitude. Ever since the ratifications of the North American Free Trade Agreement in 1993 and of the Uruguay Round results in 1994, it has been impossible to forge a coalition and provide the intellectual leadership for further liberalisation. US trade policy thus has become tangled in domestic disputes. This leaves the WTO ship without a captain—just at a time when the growing heterogeneity of WTO membership means that more leadership is required rather than less.

However, there is no easy substitute for US leadership. The prime contender is the European Union, which certainly made a strong pitch to position itself as the heir to the American throne; it surprised everyone by presenting a wide-ranging, substantial negotiating position that even laid an extensive groundwork for some of the more difficult deeper integration issues, such as competition and investment policy. However, few, and possibly not even the EU itself, would seriously claim that it is yet capable of carrying the world with it.

Uncertainty therefore abounds about the politics of global trade talks and the desirable objectives of trade policy. At present, there is a serious possibility that Seattle may prove to have been the end of multilateral trade negotiations. This is not a victory for the protesters but rather a reflection of the above-mentioned structural changes in the world economy since the end of the Uruguay Round. This is not to say that the world will return to outright protectionism and economic isolationism beyond the usual measure of restrictive practices (anti-dumping actions, special safeguards, and so on). The multilateral trading system is very robust; the rules are by and large intact, dispute settlement is used widely and observed in most cases; and there is little sign of large trading nations resorting to full-blown protectionist instruments. Noticeably, even at the height of the financial crises of 1997/98 countries did not shy away from their commitments. Also, technological progress in general and electronic commerce in particular make it more difficult to impose trade barriers, although this should not be exaggerated, as governments retain substantial tools at their disposal to hinder trade.

However, avoiding a relapse into protectionism is not the same as moving forward with the multilateral trading system. It will certainly require much stronger political leadership, both domestically and internationally, than in previous rounds to bring together the widely diverging interests of WTO member states, business interests and ‘civil society’, and of governments and their citizens. It will also take a lot of effort to finally open up those industries that have escaped liberalisation for fifty years. Thus, at the start of the millennium, the world trading system is clearly at the crossroads: on the one hand, between maintaining a workable if somewhat precarious status quo, which may be complemented by a few sectoral and/or plurilateral liberalisation agreements; and on the other hand, a serious if arduous effort to lay the foundations for a global, rules-based international trade regime that, while paying due respect to the interests of all countries and all groups in society, provides the appropriate framework for a global economy.

Summary of the book

The contributions to this book discuss the interests and policies of major trading nations, most of the topics that have been on the agenda for the pre-negotiations of a new round for some years now, and some of the systemic issues that trade policy makers around the globe will have to tackle in one way or another. The stakes are high, and the issues require serious study. All our contributors pledged to provide easy-to-understand explanations of the issues, to describe the positions of key players in the respective games and to speculate on the prospects for action. They also agreed to provide some simple and balanced recommendations on how a particular policy problem could possibly be approached in a potentially up-coming new round of trade negotiations.

International trade policies

Andreas Falke gives an introduction to US trade policy making for a new round. He argues that domestic politics in the USA has changed in the 1990s. Despite the long period of economic growth, the traditional champions of free trade in the US business and farming community could not maintain their policy dominance. Instead, other interest groups have gained in prominence, and the US Congress did not provide President Clinton with the wherewithal of international trade leadership: ‘fast-track’ authority. However, the USA launched some important market-access initiatives in the WTO, produced tangible results for export-oriented groups and also used the DSM quite actively. The US stance regarding a new round has been shaped by a multitude of domestic considerations. Apart from exporters, NGOs have become an influential constituency, which the Clinton administration has courted publicly. At least until Seattle, the USA was unable to square the circle. The need to handle the very diverse domestic constituencies conflicted with the requirements of seeking international consensus on an agenda for a new round of talks. Falke argues that once the domestic political storms over the potential risks and costs of ‘globalisation’ are gone, the USA may well return to multilateral trade policy leadership. For the USA, other avenues do not seem to be attractive after all.

The position of the EU regarding the new round has developed rapidly in the late 1990s. Despite the considerable odds against handling itself and its diverse constituencies successfully, the EU managed to produce a rather comprehensive blueprint for progress. It deserves credit for doing so. However, Klaus Deutsch argues that the EU agreed to an overly ambitious set of objectives regarding rule making and put too little emphasis on market-access issues. Also, the EU failed to reach a position that would be sufficiently attractive to other key players, in particular the USA and influential developing countries. This reflected strategic shortcomings such as the lack of a huge and credible incentive of market opening or a credible threat. Contending for leadership is not really a near-term prospect for the EU at the start of the new millennium, Deutsch concludes. However, the outlook is not that bleak after all, as greater willingness to grant market access at home (agriculture, anti-dumping, cars, services) and greater effort to pry open foreign markets (in service industries in particular), a less ambitious approach to rule making, and redoubled efforts at transatlantic and North-South cooperation seem as feasible as they are desirable.

The traditional process of trade policy making in Japan will have to change if Japan is to play a major role in a new trade round, argue Hiroya Ichikawa and Maki Kunimatsu. The business community no longer feels adequately represented by the government, and coordination both between ministries and between the government and the private sector is insufficient. It therefore comes as no surprise that there is no grand strategy for a new round in Japan at present. There is some consensus in Japan for a comprehensive round, which may in any case be the only way to reach solutions for the agricultural sector that would be acceptable on the level of domestic politics. The interest of Japanese business in further liberalisation of services trade might become a domestic counterweight to agricultural protectionism. In contrast to the farming lobby (against) and business (generally in favour), trade unions and NGOs do not play a major role in influencing Japan’s stance on a possible Millennium Round—yet. While being cautious on the inclusion of social and environmental issues into the WTO, the authors nevertheless take the view that mechanisms and institutions should be established to ensure that a dialogue is establ...