APEC STUDY CENTER

The Future of the WTO and the International Trading System

n 26 February 2002, the APEC Study Center and the OProgram in International Economic Policy, School for International and Public Affairs, sponsored a keynote address given by Dr. Supachai Panitchpakdi, the Spring 2002 Distinguished Speaker in International Economic Policy. Moderated and introduced by Professor Merit E. Janow, Director of the Program in International Economic Policy, Professors Jagdish Bhagwati and Joseph Stiglitz of Columbia University joined Dr. Supachai in extensive discussion following the address. Excerpts of their presentations are presented below.

Co-sponsored by: Program in International Economic Policy, School for International and Public Affairs, Columbia University 2 APEC Study Center

Merit E. Janow Director, Program in International Economic Policy, School of International and Public Affairs; Co-Director, APEC Study Center, Columbia University

MERIT E. JANOW never been greater. Dr. Supachai comes Introductory Comments to this difficult task after a long and successful career as a scholar, diplomat he WTO is operating in an and politician. He served as Deputy environment of growing demands T Prime Minister and Minister of Commerce and cross-pressures: Developing in . He also spent time in the countries are urging the WTO to more financial sector and in academia. fully reflect their economic interests and concerns. Issues such as the envi- Professors Joseph Stiglitz and Jagdish ronment, health, labor and investment Bhagwati are with us to exchange views remain contentious both within nations with Dr. Supachai and help us think and between nations and much work together about the challenges facing the is necessary to advance international international trading system. Professor treatment of these issues. There is Stiglitz’s unique contribution in the also active discussion on the need for field of economics was recognized by greater cooperation between interna- the Nobel Prize last year and his contri- tional institutions like the World Bank butions to public policy have also been and the WTO and expanded efforts are enormous. His leadership has been bold underway (or at least under discussion) as Chairman of the Council of Economic on how to expand capacity building and Advisors and Chief Economist of the technical assistance programs toward World Bank at a time of economic developing countries. Some believe that crisis in Asia. policy makers need to push global eco- In the field of international trade, nomic integration still further and that Professor Bhagwati’s enormous contri- the WTO is the place where this can bution to economic scholarship and occur. Others believe that the world public policy cannot be overstated. He’s is still digesting the the author of more than 200 articles and experimentation with broader and and 40 volumes. There’s no important deeper formal integration or liberaliza- aspect of this field that he has not tion should occur more slowly or, addressed. His famous wit and wise perhaps, elsewhere. We are here today counsel served the previous Director to examine these and other questions. General of the WTO, Arthur Dunkel, Dr. Supachai Panitchpakdi will take whom he served as economic policy the helm as Director General of the advisor. He is a special advisor to WTO in September 2002. He does this the UN on globalization and external at a time when interest in the WTO has advisor to the WTO at present. The Future of the WTO and the International Trading System3

SUPACHAI PANITCHPAKDI of difficulties, disputes, and conflicts. Director General Designate, The GATT would try to mediate and solve these disputes, but countries were not legally required to comply. Under entered the race for the position the DSM, the decisions of the final of Director General of the World I panel, the , must be put Trade Organization because I thought into practice. The WTO allows those that after fifty odd years, the time had who argue that they have been harmed come for an institution with the global to retaliate against those countries who responsibilities of the GATT, to have violated the agreement. Quotas may be a kind of global governance as well. We imposed against goods from violating need global governance at the major countries, as well as higher tariffs or international institutions, if we’re going surcharges. Normally, these violate to manage the process of globalization WTO rules, but if they are imposed to so that each and everyone can benefit. compensate for an injury agreed upon Today, we have 144 members, with by the appellate body, they become 28 countries waiting in the wings to legitimate. join the WTO. If we can facilitate The WTO is becoming a very accession procedures, membership significant organization with all kinds could expand to cover more than 170 of old and new responsibilities. Of countries in a few years time. Imagine course, if you look at the body of this global institution, with the vast the WTO, it’s a very small office. We responsibility of looking after the rules Asia used to be a place have about 540 staff members. If you of the trade game, policing violations of compare that with 7,000 people at the where trade expansion those who try to avoid their past com- World Bank, a few thousand at the IMF, mitments, trying to think of ways to was taken for granted, this is a very small unit with, again, a strengthen the rules in order to nurture very small budget of around $100 mil- but during the financial trade expansion in a way that is as free lion a year. That amounts to only part of and frictionless and as fair as possible meltdown, there was a the travel budget of the World Bank for each and everyone concerned. We contraction of around talk always about a level playing field. My friend, Mike Moore, who is You will hear a lot of talk about the the present director general, has been 30% to 35% per year field not being very level at all. If this going around with his hands open seek- for intra-Asian trade. is the case, then it is the WTO that will ing donations for the WTO. Everyone have to see to it that we level the field wants technical assistance, capacity —Supachai Panitchpakdi as much as we can. building, training courses. The WTO differs from other Look at ’s entry into the WTO. organizations and is culturally different At least 20 subsidiary committees at the from the GATT for two major reasons. WTO will have to work on all of China’s One is that every agreement under the commitments in cultural services, indus- auspices of the WTO is legally binding. try, intellectual property, environment, When governments sign onto any market access, legal infrastructure, etc. agreement with the WTO, they have to This will involve hundreds of people. enact new laws back home. For exam- On the Chinese side it involves thou- ple, to follow up on the Trade-Related sands of people because they have to Intellectual Property Rights Protection explain what things have been executed Agreement (TRIPs), there would be six according to their WTO commitment. or eight laws that would have to be put China will also need to train thousands into practice on patents, trademarks, of people every year. They will do it on copyrights, geographical indications, their own and with the collaboration of trade secrets, etc. institutions around the world but, of course, the WTO will have to help. The second major difference of the WTO is the Dispute Settlement Another new assignment is to Mechanism (DSM). Under the GATT, look into the interplay between trade, countries could have round after round finance and debt relief programs. We’ve seen in recent years that despite the fact 4 APEC Study Center

always easy to reconcile with one another. Industrialized countries, for example, look at trade from different Supachai Panitchpakdi angles compared with developing coun- Director General Designate, tries. Tariffs in industrial sectors have World Trade Organization already been reduced to a very low level, around 3% on average for indus- trialized countries. If you talk about market access in the industrial sector for industrialized countries, there’s not much to do. You can go down to 2%, to 1%, to zero, but that is a small change. The developing countries, of course, have different sets of tariffs, mostly in the industrial sectors, ranging from 10% to 15%, even 20%. These are still quite substantial and should be reduced in due time. The interests of the advanced countries lie not only in the areas of negotiations to improve market access for industrial goods, but also in new areas like services, banking, finance, telecommunications, transportation, that we have created a lot of room for express delivery, management consul- more trade through hard negotiation, in tancy, etc. These, of course, are things a couple of months time all those gains that can be delivered more efficiently would be wiped out because of the fail- by the industrialized countries. Advanced ure to meet financial commitments. countries are also very mindful of con- Some countries have not been adopting sequences on the environment. The rational macroeconomic policies and European Union has even looked into have become an easy victim of preda- the trade consequences for their culture. tors—the so-called hedge fund managers. Cultural diversity is something to be Asia used to be a place where trade preserved, but it can also be used as a expansion was taken for granted, but pretext to block trade in certain areas, during the financial meltdown, there motion pictures, for example, and in was a contraction of around 30% to various services industries. 35% per year for intra-Asian trade. The demands coming from the A lot of traders were destroyed and a less advanced economies, from poor lot of trading nations in Asia injured countries, are more down to earth. The severely, mainly because of the lack of main thing they want is market access attention paid to financial policies. The for their labor-intensive industrial prod- WTO has been tasked to look into the ucts and agricultural products. They nexus of finance, trade and debt. want the advanced countries to avoid There have been quite a number of using non-tariff barriers (NTBs). If demands placed on the shoulders of the you look at NTBs these days, they are WTO. There may be a trend that the applied to a larger degree on goods institution is evolving into a world eco- coming from the developing countries, nomic organization, not just a world rather than on those from the more trade organization. This, I think, is not advanced countries. Developing coun- something we want. The WTO cannot tries’ goods are found mainly in the aspire to have the competence to handle more sensitive areas of agriculture, all kinds of economic issues. and textiles and clothing. Most of the Of course, some of the demands that mature economies have outgrown have been placed on the WTO are not the need to nurture their textile and The Future of the WTO and the International Trading System5 clothing industries, but this is still one member-driven organization. I agree of the most sensitive areas. So, even the WTO is member-driven but, some- simple demands for more market access times the members need to be advised for these goods have not met the expec- what to do and what not to do by some- tations of the developing countries. one who is neutral. When I sit in the Anti-dumping is supposed to be a chair of the Director General, I will see trade remedy measure, meaning that things as they are around the world, you apply it only when you find that more so than any particular country another country is hurting your econ- would see things. While the WTO omy by selling goods below the cost of should remain member-driven, I believe production. Then, you retaliate and use that members can be driven by the anti-dumping. If you look into the hun- Secretariat, as well. We will be opening dreds of cases of anti-dumping that up, having dialogue with civil society, have been applied in the last few years, but it will have to be on an informal however, they extend from steel to steel basis. Gradually, there would be more pipe, to videotapes, to television sets, structured dialogue. microwaves, etc. In the eyes of the There are demands coming from developing countries this has become different parts of the world, from differ- a guise for NTBs. The new rules on ent parts of society, but if you add to sanitary and phyto-sanitary measures these demands the evolving environ- (SPS) are also becoming very useful in ment surrounding the world trading I think we need to blocking trade because, of course, you system you see how difficult and how listen and discuss how can find some residue of chemicals in complex it is to operate this institution. we’re going to structure nearly any fruit or vegetable, if you First, there is demand on the WTO look carefully enough. to look into some of our competition. the way the WTO will Without certain controls or interna- The WTO works on multilateral agree- operate in the future so tional criteria so that we can have a ment, but these days you are seeing a simple standard for all of us, we’ll proliferation of bilateral and regional that we can take care see a proliferation of NTBs to which agreements, the so-called Regional of trade and at the developing countries will be subject. Trading Agreements (RTAs). Informally, Simple things are being demanded by there are about 250. Some are working, same time take care of developing countries: market access, some are not. Roughly 150 have been those who are part of treatment along the same lines as more notified officially to the WTO. advanced countries, and as little appli- The WTO has for many years had a our society. cation as possible of the so-called council on RTA’s, supposedly to review —Supachai Panitchpakdi non-tariff barriers. them, as we have been reviewing indi- Different entities, the so-called vidual countries’ trade policies and civil society and the Non-Governmental steer them toward being building blocks, Organizations (NGOs) are also relevant. not stumbling blocks to multilateral I used to chair the UNCTAD meeting in agreements. a few years ago where we had The council cannot operate very a daily encounter with NGOs. Everyone effectively, mainly, because most could come and vent their anger and RTAs do not want their performance their complaints. Wherever you go, reviewed. If you look at some of the consumer unions are not satisfied, the advanced regional groupings like environmental lobby is not satisfied, the European union, ASEAN in Asia, OXFAM is not satisfied, etc. I think we NAFTA, MERCOSUR—they don’t need to listen and discuss how we’re want their policies reviewed. They going to structure the way the WTO don’t want others, least of all an inter- will operate in the future so that we can national organization like the WTO, to take care of trade and at the same time tell them what to do. This proliferation take care of those who are part of our of RTAs and bilateral agreements society. sometimes takes away interest in the The mantra of the WTO is to multi-lateral assignments that are deal with member countries. This is a supposed to be in the hands of the WTO. 6 APEC Study Center

Personally, I have no objection to against how long it will take Russia regional groupings. If they want to before they can actually handle those advance the course of free trade by rules. For China, a special concession reducing impediments among themselves, has been given with respect to their why not—if they do not discriminate 2,000 trade laws. The Ministry of against the rest who do not participate Foreign Trade and Economic Coop- in this grouping? We may need to eration in China has about 2,000 trade devise a system to review the regional laws that they have to abrogate, to and bilateral trade agreements, so that amend, to throw away and to merge and they are consistent with the multi-lat- that will take years. Now, at least, they eral agreement, but this will be difficult are out to work in the direction that we as it may conflict with some of the can monitor them. Russia will have to multi-lateral trade goals of the RTA’s. take that up with their bilateral trading The second pressure on the WTO partners and ultimately with the WTO comes from the non-member side. itself for purposes of the multilateral You know how long and arduous the commitment. Chinese session has been in the last Demand is strong on the WTO to fifteen years. They have gone through rationalize accession procedures for trials and tribulations. Premier Zhu the poorest countries of the world. The Rongji went to the United States with least developed countries (LDCs), 49 the thought of having wrapped every- all together, have a hold on something thing up in 1999, but was told to go like 0.4% of the total volume of world home empty-handed. If he had known trade. The 10 or 15 LDC’s that have not We need to get Russia this would happen, I don’t know yet joined the WTO would have a very and the rest into the WTO whether he would have decided to come small, almost meaningless trading vol- to the United States, because back ume. They should be allowed to join as as soon as possible and home he was criticized harshly for his soon as possible so they can make use we will be trying to find failure. The commitments he showed of their membership of the WTO to the United States in 1999 were quite advance their trade regime. ways to expedite the wide-ranging—very, very serious com- The third pressure on the WTO is process of accession. mitments. The Chinese government has the strain on our dispute settlement been determined to accede to the WTO, mechanism. The DSM has been func- —Supachai Panitchpakdi mainly, of course, for their own good, tioning very well but in the last few to drive their own domestic reforms years there have been close to 100 cases forward. The pressure to rationalize the presented to the DSM, more than in the accession procedures is something that whole 50 years of the GATT system. the WTO may have to work on in the Unlike when the GATT was around future and I find it delightful that in this (GATT could not make its final judg- Doha meeting we have had some dis- ments stick—it had no enforcing cussion on that. I hope that we translate power) and no one wanted to refer their this into action, because among the 28 dispute to the GATT, the WTO’s dispute aspiring countries, some big countries settlement body does require member like Russia and are still countries follow up on its verdicts. waiting in the wings. So many cases are being sent to We need to get Russia and the rest the DSM and this is creating problems, into the WTO as soon as possible and not only for the system itself (because we will be trying to find ways to expe- you have to find experts in all areas), dite the process of accession. Of course, but because it’s not only trade rules we cannot say that Russia can come in that are being disputed. For example, and not abide by the international trade the interpretation of the Multilateral rules, as every one of the 144 members Environment Agreements (MEAs) is have to do. Russia will have to abide by not always in harmony with WTO rules. the same rules, although some rules that So, when people resort to MEA rules would involve large scale adjustment of (saying they are allowed to do so as the trade laws may have to be balanced signatories to the MEA), sometimes The Future of the WTO and the International Trading System7 they violate the trade rules under the systems. We need consensus, but the GATT regime. We also have disputes way we build consensus will have to be in the area of TRIPS involving public different. We cannot always refer to the health and the accessibility of drugs. general council because out of 100-odd These issues are coming to a head more countries meeting you there will always so than in the past. be someone who says, “I don’t like When disputes involve developed that. I object.” Consensus is a majority economies, it is not so bad because they agreement with no one having any seri- can take care of themselves; they have ous objection to a particular resolution. officials who know their way out of Of course, when I talk about having legal entanglements, but when disputes an executive body to look after the involve developing countries it becomes consensus building process, no one a very costly affair. Developing coun- agrees, because it is seen to take away tries do not have the kind of legal know the rights of the countries themselves to how to take a case to the DSM and fin- negotiate. In time, however, we need to ish successfully. We need to take a good work with this kind of a system; maybe look at this and ask for more restraint not an executive board but a representa- from the advanced countries in taking tive board that will be able to represent these disputes to the WTO. Moreover, constituencies of countries that can we should not refer all disputes to the agree among themselves to appoint DSM, particularly when developing some representative in rotation. Then, Demand is strong on countries are concerned. we can have a group that is not too the WTO to rationalize numerous, maybe 20–30 countries, like Written into the DSM rules is a accession procedures role for the Office of Director General. the current green room process. The Normally, however, the Office of the green room process is under heavy crit- for the poorest countries icism now, particularly from developing Director General will try to stay away of the world. The least from some disputes. When you look countries, mainly due to the fact that it into the beef hormone issue, the banana is an unofficial, informal process. The developed countries Director General can invite some coun- issue, these involve major economies (LDCs), 49 all together, and sometimes you risk a lot by being tries to attend and choose not to invite part of this dispute. I think in the future, others. My suggestion is that we find a have a hold on something away to rationalize the process, not do the Director General may have to get like 0.4% of the total himself more involved, mediating away with the process of building a between countries before the dispute consensus, but make it more efficient. volume of world trade. comes to a head in the panels, in order I would end by saying that, of course, to avoid unnecessary delay, unnecessary we will have a new round. We have all —Supachai Panitchpakdi injuries, unnecessary compensation and sorts of pressures and demands on the retaliation. WTO. In the meantime, I would like to The fourth strain on the WTO is the see a “New World Trade Order.” We decision-making process. The WTO need free and fair trade, that is one ele- with 144 member countries is quite ment. The second element is a trading manageable, but if you go to the general system that is related to the develop- council having, let’s say, 130-something ment process of countries, not isolated members convening to decide on all from it. A trade order should serve sorts of things: new and old negotia- developmental goals. tion, procedural matters, membership, Lastly, while trying to advance the etc., imagine how cumbersome it is to trade frontier, we should be mindful of have a decision-making process based other consequences that result, know- on consensus. I’m not saying, “let’s do ingly or unknowingly, from trade. away with the consensus process.” I While we cannot use trade as a means think we need to keep consensus a basis to intervene all the time, we should, at for our final decision-making, because a minimum, be well informed of the it involves legally binding countries consequences of trade on society, on that will have to put into play all these our forests, our water, etc. agreements within their own legal 8 APEC Study Center

In this These are rules that are very new there are a lot of references to capacity to a majority of the countries around building, development assistance, tech- the world. Many developing countries nical assistance, to trying to modify do not have competition laws. They TRIPS in a way that doesn’t help have investment laws, but these are only the drug firms, but also enhances targeted for their own use, for their accessibility to essential drugs. My own economic management. They are conclusion, again, is that we need not targeted to be harmonized on an advanced countries to be mindful of international basis. these problems. After all, developing It might be useful to have one countries are more numerous. Of the rule for all kinds of activities that serve 144 WTO member countries, more than trade. (on investment, on technology 100 are developing countries. The core transfer, etc.), but the rules will have countries, among them, United States, to be adjusted in a way that countries Canada, and Japan, together comprise will know that they are not going to more than 70% of world trade. They yield all their sovereign rights to these carry the kind of weight that can be new rules. Remember how hard it was fully, finally decisive on almost any to negotiate the Multilateral Investment issue. They need to be more mindful Agreement (MIA) process in the OECD of that in order to achieve a balanced a few years ago. It broke down after world trade system. We need to do The Dispute Settlement six or seven years of discussion. Now, more for those who have not benefited similar treatment of MIAs is going to Mechanism has been enough from past trade rounds. be introduced into the WTO caucus. functioning very well Of course, we should not be mindful Things will have to be simplified and only of issues coming from the third rationalized, focused so that the poorer but in the last few years world. We have to be mindful, too, of countries of the world can join. Key there have been close opening up new frontiers. E-commerce to all this is for the advanced countries should be in the new round, services to be mindful that technical assistance to 100 cases presented to should be there, too. Still, all this for members of the developing world the DSM, more than in should be beneficial to developing should have highest priority. If we have countries, not only to the advanced a good set of technical assistance pro- the whole 50 years of countries. We need to close the gap as grams and projects, before we go to the GATT system. we go along, because if you go quickly the conference next year, we would into e-commerce activities the gap probably have a good round. —Supachai Panitchpakdi of the so-called digital world will be enlarging all the time. We need to do technical assistance, to tie in programs of the World Bank, of the UNDP, of UNCTAD with the WTO. At Doha, they agreed that this is going to be a three-year straight round and you know, trade rounds rarely last three years; they last eight years, if not eighty. Trade rounds can only be useful when they do not go on forever. I sug- gest, to make this round as useful as possible, that we have a para-round going alongside the Doha development round. One round, a single undertaking, may be completed within three year’s time and deal mainly with market access, but another round could go on to discuss the new rules that involve investment competition. The Future of the WTO and the International Trading System9

JOSEPH E. STIGLITZ We have come to an impasse unless Professor, Columbia University there is a basic change in the attitudes of American and other developed coun- et me express my support for the tries. There is a level of intransigence concept that Dr. Supachai has L that will not allow us to go forward. expressed for his new world trading The intransigence corresponds to a high order which emphasizes not only free level of hypocrisy which I saw first-hand trade but fair trade related to develop- in the Clinton White House and which I ment and mindful of other issues such continued to see in the subsequent Bush as environment. However, I want to White House. I got a chance to see it express my pessimism about the ability first-hand at the World Bank, too, and to achieve success, not only over three I’ll give you several examples. years, but over longer periods of time. I want to explain why I have that pes- Doha and the launching of a Develop- simism, although I wish him the best ment Round have been a success, in of luck in his endeavor. rhetoric. There is wide recognition throughout the world that the last round There is and has been a bipartisan of trade negotiations, the Uruguay agreement in the United States about Round, and the previous rounds have the virtues of trade liberalization and been terribly unbalanced. Studies of the the fact that trade liberalization is a World Bank point out that after the last centerpiece of American international round of trade negotiations, the poorest policy. If you look at what is really region in the world, Sub-Saharan meant by that, however, it is a cause Africa, was actually worse off as a of some concern. What they really are result of the terms of trade effect. It saying is that trade is good, but imports wasn’t just that the United States and are bad. That is reflected, for instance, advanced industrial countries got a dis- in the discussion of our Secretary of proportionately large share of the gains, Treasury when he gives an eloquent the poorest countries were worse off. talk about the value of competition, how the world needs more market Unless the imbalances of the capitalism, and then shortly thereafter, previous rounds are addressed it will argues for the creation of a global cartel be very hard to go forward. What I find in steel and speaks with approval of striking was how hard the negotiations the cartel he helped create when he was were to get certain issues on the table. chairman of the board of ALCOA (a It wasn’t a question of getting a bal- global cartel in aluminum). anced agreement. It was that the United

Joseph E. Stiglitz Professor, Columbia University 10 APEC Study Center

States and the other developed coun- of golf carts was in . The U.S. tries refused to have these questions Department of Commerce administers even discussed. Now, after they said this. It serves as prosecutor, judge and that they would discuss them, it appears jury. It said, “Well, what’s a comparable in some of the interpretations presented country to Poland?” This was prior to by our U.S. trade representative before its moving to being a market economy. Congress, that there is a backing off of They said, “Let’s look at countries with at least the common understanding of roughly the same standard of living.” I what the concessions were at Doha. hope I’m not going to offend any of you I want to discuss several issues. One when I say they determined that Poland of them is dumping and broader issues was comparable to Canada. Then they of competition policy. Any economist asked, “How much does it cost to pro- will tell you that there is a concern duce golf carts in Canada?” The next about unfair trade, but the principles problem was that Canada didn’t pro- that should guide what is fair or not duce golf carts, as it wasn’t economical. should be the same principles going So, they asked, “How much would it across countries that prevail inside have cost to produce golf carts in Canada, countries. Inside countries we have had Canada produced golf carts?” competition laws; the area that dumping That was the basis for judging whether is related to is predation policy and Poland was engaged in dumping. That the standards that we use in predation is supposedly our fair trade rule. policy and antitrust are completely dif- These are the things that we as ferent from those used in dumping. zealots are supposed to be addressing If you use those standards domesti- in the next trade round and I think that Unless the imbalances of cally, somewhere between 50% and unless we do, other countries are going to ask, “Why should we engage in these the previous rounds are 90% of American firms are engaged in predation. If you use those standards, trade negotiations? As soon as you addressed it will be very every firm in the world is dumping and eliminate your trade barriers, you’re going to use these non-tariff barriers hard to go forward. right now the United States has moved up just behind China as the number to stop us!” —Joseph E. Stiglitz two country dumping. We don’t think The agenda of trade liberalization of ourselves as engaging in these bad has been directed at liberalizing goods practices, but in fact, one of our export which are in the comparative advantage industries is teaching other people how of the advanced industrial countries, to use dumping laws against us. not in areas of comparative advantage It is not only the laws, but the way to developing countries. You see this they are implemented that is problem- over and over. Take agriculture. One atic. I was involved a lot in fighting the of the big stories in freeing trade is not design of the regulations and I can tell only liberalization, but elimination of you, unambiguously, those regulations subsidies. Subsidies in agriculture in are designed to be unfair. I can give you the United States and Europe are esti- a capsule example of how bad this can mated to exceed the total income of get. This was under old regulations but, Sub-Saharan Africa. How can poor still, it gives you a picture. One of the developing countries compete in that things you have to do when you have kind of an environment? dumping is ask, “Are you selling the The United States passed a law goods below cost?” The problem is: about seven years ago that was intended how do you get the data on “below to phase out our subsidies. What hap- cost”? There are procedures that are pened instead was that as we were called “BIA,” best information available. talking about fairness in Doha, we This is usually information supplied by actually passed a law increasing our the guy making the charge. One case agricultural subsidies. Another aspect went further. There was a case brought of the unfair trade agenda occurred against Polish golf carts. We couldn’t when we said in the Uruguay Round get data on what the cost of production that we wanted to go beyond goods and The Future of the WTO and the International Trading System11 into services. What were the services have been raised on access to drugs are talked about? Financial services, serv- the kinds of concerns that we worried ices that represent the comparative about, but there were also issues con- advantage of the United States. What cerning charges of bio-piracy and issues services were kept off the agenda? of that kind. Maritime services, construction serv- A fifth issue involves the structure ices, and services involving unskilled and process, not only of decision-making, labor, which represent the concerns of but also of dispute resolution. Who par- the developing world. . ticipates in economic decisions and is A third issue is the environment. there transparency? As Dr. Supachai Everybody is worried about green tariffs, expressed, it is clear that the WTO does but there are limited ways of enforcing not want to become the world economic global agreements and addressing the organization. On the other hand, it is problem of global environmental exter- very clear that trade affects other aspects nalities. The notion of using trade of society. Yet it is only trade ministers sanctions to enforce global environ- who sit in Doha and in the trade negoti- mental goals has been long reflected. ations. One of the real challenges is The Montreal convention had that how other stakeholders can be more embedded. The recent shrimp/turtle adequately represented, so that what decision suggests that it may be possi- comes out of these decisions is a more ble to reconcile concerns about trade balanced trade agenda—one that reflects The agenda of with environmental concerns. That sug- the kinds of concerns for a new world trade liberalization gests that countries have the right to trade order that were so eloquently take environmental concerns beyond described. has been directed at their borders. There’s a natural and an liberalizing goods which important example of a global environ- mental concern that is beyond the are in the comparative borders of any country: our atmosphere. advantage of the It seems to me that an appropriate extension of the shrimp/turtle decision advanced industrial would be to the degradation of the countries, not in areas of atmosphere caused by greenhouse gases, even if the United States does comparative advantage not subscribe to the Kyoto convention. to developing countries. A fourth issue I’d like to address has to do with intellectual property. —Joseph E. Stiglitz One has to recognize intellectual property law is not natural law, it is man-made and it should represent a balance between users and producers. At the time the Uruguay Round TRIPS agreement was being negotiated, I was at the Council of Economic Advisors. We got involved in discussions over this issue with the Office of Science and Technology Policy. Both of us argued that the U.S. Trade Represen- tative (USTR) was taking a position that was not in the best interests of the United States and the world. Our view was that the position of the USTR reflected only the producers—the pharmaceuticals, the movie industry— and did not represent a broader set of global interests. The concerns that 12 APEC Study Center

JAGDISH N. BHAGWATI University Professor, Columbia University

JAGDISH N. BHAGWATI million worth from the United States. University Professor, Columbia University Think of GMOs—genetically modified products—that could be billions. Think he GATT was kind of a loose of our tax case, which we’ve lost and organization (if you could even T correctly in my judgment that could call it an organization), but there are involves billions. If you’re dealing with two respects in which the WTO has nuclear winter kinds of retaliation, we become rather repressive. One is that have to get back to more sense. it is a single undertaking. If you want to introduce any new issue like intellec- We also raised the issue of getting tual property protection, or labor money for the WTO. The kids in the standards, etc., then you have to sign street and on campus somehow believe or get out. You don’t have the ability to that the WTO is a gigantically powerful go back to the Tokyo Round approach and organization. Actually, it’s a very weak say, “I sign on to it. I accept more obli- organization. Why does the WTO get gations and receive more benefits.” It’s less than $100 million? It’s not an acci- all or nothing. That will insure gradu- dent. When did the World Bank, which ally that things get in without having is controlled by us, to a large extent, to talk about the fairness game Joe was last have a developing country president, talking about. no matter what pro-poverty slogans he mouthed? There’s been none at all. The other thing, of course, is the Rated voting does matter and, therefore, dispute settlement mechanism. In the the monies don’t go to the WTO—even previous era it was not binding. It could for trade research. When I was advisor be completely blocked by the party that to Dunkel in 1991, we had an annual lost. Now, it’s the other way around. It’s report coming up on regionalism and I become like domestic legislation. You wanted a little conference put together can’t go in and argue with the Courts. on different aspects of it. After about You have to accept it. three months, Arthur Dunkel managed When you get decisions coming to get $25,000 for it. I had to ask my down repeatedly like that one on hor- friends to come on frequent flying mone fed beef, where, in my view, the and a lot of them did that, pro bono, dispute settlement panel was imple- because they were pro-GATT and partly menting what member countries had because they’re my friends. agreed to, the effect was that you could Take the ABCDE conference, which authorize massive retaliation, over $200 is the Annual Bank Conference and The Future of the WTO and the International Trading System13

Development Economics as one exam- Should they pay in terms of intellec- ple, (I often say that conference is stuck tual property protection? I’m not saying after several years at the first letters of there should be zero intellectual property, the alphabet). That costs at least $500,000. I’m just talking about it being in the It goes to fancy places, lots of econo- WTO system. Do we pay through labor mists like it (I’ve never accepted an standards? Do we pay through trade- invitation), but it takes a weekend to related measures? write the kinds of papers they want. As Joe and Dr. Supachai pointed Money is crawling out of the Banks’ out, we do have the possibility of trade- ears and the IMF’s ears and there is an offs. We do have high peaks and high undernourished, impoverished organi- tariffs. The tariffs and the subsidies we zation called the WTO. When we were have in agriculture boggle the imagina- asked to go to Doha, Mike Moore tion. Those can be traded for still couldn’t get money for us to go, even further opening—often in industrial for economy class airfare. We asked products and in services of the develop- the WTO to interact with NGO’s and ing countries. So, within the normal since the Singapore Declaration we’ve agenda of trade liberalization we have increased that, but I’m told there’s no trade-offs where we can really swap money to arrange for systematic con- things with one another. We don’t need tacts. We ask the WTO to do things to put it to non-trade issues, so where without the big powers putting muscle are they coming from? behind it. I think they have some reason They’re coming because of our not to do so. Let’s think about it, lobbies. It’s the American way. If some- The kids in the street because young people, certainly over thing is doing well, we piggy back on here, have understood the notion of and on campus some- it. Our lobbies—and I mean that in a hegemonic powers. non-pejorative sense—want to use how believe that the Joe gave us the cynical view of what the trade process, which they know WTO is a gigantically we do from Washington. Let me look at is working. This means what from a it from a slightly different perspective developing country’s point of view? powerful organization. and ask, “Why is it that some undevel- The developing countries don’t have Actually, it’s a very oped countries are unhappy with the lobbies. If they do have them, they’re way the WTO is going?” Traditionally, not very important. Compare the kinds weak organization. GATT was about trade issues by and of unions there with the AFL-CIO here. —Jagdish N. Bhagwati large, lowering trade barriers of one The AFL-CIO is very limited in funds kind or another. Through successive compared to the corporate sector, but rounds they managed to bring down compared to the unions in India, it’s trade barriers, not all of them—we still enormous. Developing countries do had a lot of developing country peaks not have the lobbying approach of the on textiles and agriculture and part United States. of the reason is political economy. In The developing countries see this trade, you never give something for and say, “the system is being captured nothing. With aid, altruism sometimes increasingly by lobbies.” First, you get disguised as enlightened self-interest intellectual property protection, then works, but in trade, reciprocity is the labor says, “You get it from capital” name of the game. Congressmen and and they forget that it’s being done politicians find it very difficult to make for our capital, not for the developing concessions if the other guy doesn’t country capital or corporations. Yet make at least some in return. The mis- they argue, “we must do it for labor.” take of the developing countries was to The next day something else will come opt out. If you insist on a free meal you up—the state of sanitation or maybe can’t expect to eat at the Lord Mayor’s the drug trade—any lobby can piggy banquet. What we’ve inherited is pre- back because you use the phrase cisely a consequence of the fact that “trade-related” and it goes up like a developing countries would not pay— helium-filled balloon. My view is that, but now they are. except when it is truly trade-related, 14 APEC Study Center

meaning it is truly integrated (I think world and the third world and say, “Let one can argue that for competition us appoint a Jubilee 2010, where we policy), then I think we need to worry. think about the effect of our protection The fine print that goes into these on poor workers and poor countries in agreements, is unbelievable. Laurie the third world, particularly in Africa”? Wallach is someone I occasionally I was talking to a Bishop two days ago debate and she comes, always, with in Stockholm and I said, “It is morally a very big, fat book and says it’s a unpleasant to see you folks marching 2,000 page NAFTA document. I’ve against trade liberalization in Seattle never opened it, but it is perfectly cred- and elsewhere.” I said, “You’ve been ible that it is a 2,000 page agreement ill-informed” and I suggested meeting with lots of fine print. What’s going on? to him and he said, “You know, that You go to the shrimp/turtle decision and sounds like a good idea.” I think these what do you find? The shrimp/turtle are the directions in which we want to decision reverses the decision ten years go. We haven’t exploited the fact that ago on dolphin/tuna! I’m not saying that these protectionist measures against the judges should not do this, but one of the developing countries are actually the arguments used was that the preamble morally offensive. It doesn’t mean we in Marrakesh mentioned sustainable have to eliminate them instantly—that development. That’s a phrase even God kind of shock therapy doesn’t work; can’t interpret. You can mean almost we need adjustments. If we really work anything by it. I love it. When I want at it and use our altruism, we might suc- to win an argument I use it myself, but ceed in finally making a further dent in I think we need to this is something which was cited from trade liberalization. work with the NGO’s. the preamble. We need to bring The preamble, I’ve always thought, was like the overture in an opera— SUPACHAI PANITCHPAKDI them away from you’re allowed to whisper or read the Director General Designate, World Trade Organization confrontation, libretto and be a bit of a nuisance to your neighbors. In serious business, et me respond to the trade-off into helping us. you’ve got to watch what phrases you Lissue. One of the historical facts put in and now, I’m told by some of —Jagdish N. Bhagwati of the TRIPS equalization in the 1980’s my legal friends in other parts of the was that developing countries were led world, in the Doha preamble, the lan- into believing that they were taking on guage of the shrimp/turtle has been put a simple kind of agreement. That was in. Developing countries do not have the way TRIP was raised in the 1980’s: that capability and never will. Where as a multilateral code against counter- will you train so many lawyers to will feiting codes. There was no proposal to deal with these kinds of issues in poor include patent rights, copyrights, trade- countries? marks, etc. in the TRIPS, but later on, The final point I want to make is through negotiation, the whole thing that I think we need to work with the got more and more extensive. NGO’s. We need to bring them away Developing countries were led, also, from confrontation, into helping us. into believing that with their agreement Agricultural protection is harming the to TRIPS they would be getting two poor countries so badly and it’s not things in return: the liberalization of helping out poor farmers at all. We agriculture and a phasing out of the know that for a fact. There’s a lot of quota system in the Multi-Fiber evidence on that. In textiles, we have, Agreement (now the Agreement on of course, poor workers who are work- Textiles and Clothing). In agriculture, ing, but we are hurting even more, they didn’t get much because at the poorer workers abroad through our tex- end of the day there was a compromise tile protection. Why can’t we get things between Europe and the United States. like church groups, which can think of The developing countries were not this world and the next, to think of this involved at all. It was a Blair House The Future of the WTO and the International Trading System15 accord that settled the issue. The sec- I have been told, “All politics is ond issue, textiles and clothing, was local.” I understand that. I used to be backloaded. The first eight or nine a politician myself. I understand that years nothing happened; only in 2004 when you go to the international meet- and 2005 would there be some liberal- ings you say things and then back at ization of textile quotas that would be home you need to compromise in in the interest of developing countries. a way that you get something done, Joseph and Jagdish raise a very so that ultimately at the international pertinent issue as to the trade-off which meeting you can also get something has always been promised in the past done. I understand what the USTR between new things and old things—it will have to go through. I see this has always been a bit misleading. We happening in various countries around should take care at this time because the world. We go to international developing countries remember this. meetings, we pay a lot of lip service That’s why it will be harder to take on to trade liberalization. Back home we the so-called “new issues.” More will say, “Don’t believe what is happening have to be done to convince developing at the international conferences. Don’t countries that they should go into this worry, we won’t give away anything new negotiation with acceptance of until we get this and that.” This makes inclusion of the new issues on invest- things difficult. ment and competition. My task will be quite challenging: how to bring in every party so that they will enter into all the new issues and put them into a new agreement. Before we advance to the new issues we have to make sure that the developing coun- tries understand the consequences they are taking on, unlike with the TRIPS agreement in the 1980s, where nobody ever explained to them that it would be costly. It’s costly in terms of putting up new laws, new courts; gov- ernments may have to go through some instability, etc.

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