How the WTO Can Recover from the Seattle Fiasco

‘Seattle was a mess. If the WTO is to recover, it will need to bring the developing countries much more securely into the trading system’, argue Zhen Kun Wang of the Royal Institute of International Affairs, London and L Alan Winters of the University of Sussex in the latest CEPR Policy Paper. To be successful, a new WTO Round requires the enthusiastic support of the developing countries.

They felt ignored in Seattle because their views went unheard by the rich and the procedures excluded them. Yet developing countries comprise the majority in the WTO and account for an increasing share of world trade and the bulk of its growth. Restoring the legitimacy of the world trading system in the eyes of the majority of its members is a matter of self-interest for developed countries. They will gain from further liberalisation and the disciplines that an effective WTO imposes on domestic policy.

Wang and Winters present an eight-point programme to give the developing countries a greater stake in an open multilateral trading system. The key elements are:

• developed countries – particularly the EU and Japan – must liberalise their agriculture. They should reduce their bound tariffs from 50-150% to the 0-15% range, ban farm export subsidies, and cut domestic support;
  

• developing countries must reduce their tariffs on manufactured imports, which currently average over 10%. This liberalisation will give them a bargaining counter for concessions from developed countries, aiming at ending tariff escalation;
  

• developing countries should support the liberalisation of trade in services, where their potential gains are huge. Liberalising the temporary movement of workers, for example, would help the construction, distribution, health and transport sectors in developing countries to become significant exporters;
  

• developing countries should refuse to conclude the next Round if the MFA agreement negotiated in the Uruguay Round is not implemented. Quotas must be removed and not replaced by, say, anti-dumping duties. The developing countries have a clear interest in postponing the end of a new Round well into 2005, when MFA quotas have all been off for some time;
  

• developed countries should match developing countries’ recent unilateral liberalisations. This would reassure developing countries, who say that they often must ‘pay twice’ for developed-country liberalisation.

Old-style special treatment should be junked. It should be replaced by agreements that recognise the developing countries’ need for easy institutional routes to liberalisation. Developed countries’ promises of technical assistance to implement WTO obligations must become legally binding.

Labour and environmental standards, investment and competition policy must be kept off the agenda or there will be no new Round. Adding labour and environmental clauses into the WTO would foster protectionism. Negotiating issues such as investment and competition policy will divert political and bureaucratic attention from trade liberalisation. Comprehensive trade rounds increase the opportunities for bargaining. Developing country administrations do not need the external imposition of more institutions they cannot operate effectively.

The WTO must help developing countries to deal with trade issues and with the WTO itself. And it should be more streamlined to facilitate pre-negotiation discussions, but not create binding agreements. These must emerge from consensus.

Developing country policy-makers will have to tackle fundamental institutional problems and confront domestic protectionist interests. Developed country leaders must not insist that only their models of policy and institutions are valid. They will also have to confront domestic interest groups to make the concessions necessary to ensure that the trading system survives.

There must be an effective coalition in favour of the trading system before starting another serious round of talks. This requires greater attention to the needs of developing countries and procedural reform of the WTO. And that means real concessions from the developed world.

Notes for Editors:

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The Authors:

Zhen Kun Wang is from the International Economics Programme at the Royal Institute of International Affairs. L Alan Winters is Professor of Economics at the University of Sussex and is also a Research Fellow in CEPR’s International Trade research programme.