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European
Economic Perspectives 26
Humpty
Dumpty
What
are the chances of launching a new round of world trade talks after
Seattle? A new CEPR Policy Paper outlines
a plan for ‘putting Humpty together again’ – one that balances the
needs of the developed and developing worlds.
The
Seattle Ministerial meeting of the World Trade Organization (WTO) in
December proved incapable of initiating a new round of world trade
talks. This failure reflected several negative forces: the parties’
widely disparate positions; the lukewarm attitude of many governments
towards further trade liberalization; and the difficulties experienced
by the WTO as an institution. The trust necessary to span the large
differences in attitudes and interests encountered in trade negotiations
was completely absent, and among the worst fractures was that between
the developed and developing countries. The latter felt completely
excluded from the process, both procedurally and because they were
unable to make their voices heard in the substantive debates.
If
the WTO is to recover from Seattle, it will need to bring the developing
countries much more securely into the trading system. That is the
conclusion of Zhun Kun Wang and Alan Winters in the latest publication
in CEPR’s new Policy Paper series. After all, developing countries comprise a
large majority of WTO membership and account for an increasing share of
world trade and the bulk of its growth. At present, they feel frustrated
about the difficulties of implementing the Uruguay Round and by the
unsympathetic attitude of the developed countries towards their
aspirations. They were reluctant to come to Seattle and the outcome made
it worse.
Having
torn the fabric of the world trading system, it will be impossible to
put it together again without the active enthusiasm of a majority of its
members. But restoring the system’s legitimacy in the eyes of a
majority of its members is not mere charity: rather, it is a matter of
self-interest for the developed countries. They still have much to gain
from both the further liberalization of world trade and the disciplines
that an effective WTO imposes on domestic policy discretion.
An
effective coalition in favour of the trading system must be constructed
before starting another round of talks. This requires paying greater
attention to both the substantive needs of developing countries and
procedural reform of the WTO. Wang and Winters argue that the best
strategy for developing countries is not to resist the liberalization of
a new round, but to focus it on their development needs. They should
take a firm view of their development priorities and seek to ensure that
WTO obligations they take on will assist in achieving them. But to be
plausible in the current circumstances, that requires real concessions
from the developed world.
To
balance the needs of the developing and developed worlds, Wang and
Winters propose an eight-point plan:
1)
A broad-based liberalization of
trade in agriculture, manufactures and services. Agricultural
liberalization is a job for developed countries – particularly the EU
and Japan. It calls for reducing bound tariffs from their current
50-150% range to 0-15%, a ban on agricultural export subsidies, and cuts
in domestic support. Developing countries need to act too, by
liberalizing manufactured imports, where tariffs alone currently average
over 10%. This will stimulate mutual trade and provide ‘specie’ with
which to ‘buy’ other concessions from developed countries. Among the
latter, tariff escalation should be eliminated.
Developing
countries have been reluctant to liberalize services, fearing that they
have nothing to gain. This is wrong, the researchers argue. As
importers, a supply of reliable and cheap business services would aid
efficiency in all sectors of their economies. As exporters of services,
particularly through the temporary movement of workers to supply
services in foreign markets, the potential gains are huge. The current
success stories of developing countries exporting services, such as
Indian software or Cuban health services, rely significantly on provider
mobility, but this is severely constrained at present.
The
fundamental problem is that developed countries make almost no
distinction between temporary and permanent labour movement. With
suitable provision for short-term mobility of workers, many more
developing countries could export services (such as construction,
distribution and health and transport) to the great advantage of
consumers and many businesses in the developed world. Preliminary
estimates suggest gains from ‘ordinary’ trade liberalization like
this running into hundreds of billions of dollars per year.
2)
Credit for past unilateral
liberalization. Developed countries should treat part of developing
countries’ recent unilateral liberalizations as something to be
reciprocated by their own concessions. This would recognize that
developed countries have also been beneficiaries from unilateral reforms
as well as reassuring developing countries, which feel that they often
have to make concessions twice to persuade developed countries to
liberalize. But for their
own sakes, developing countries should use credit not to avoid making
cuts in actual tariffs but as a way to encourage deeper liberalization
by developed countries.
3)
Reinventing special and
differential treatment for the 21st century. This would recognize
developing countries’ needs for cheap and effective institutional
routes to implementing liberalization and allow them greater procedural
flexibility in some rules areas. Old-style special and differential
treatment, which just let the developing countries off many GATT
obligations and offered extended adjustment periods at random, should be
junked.
4)
Legally binding promises of
technical assistance. Where developed countries persuade developing
countries to accept a policy with promises of technical assistance in
implementing the policy, these promises should be legally binding. In
the past, such assistance has not always been delivered. One way to
ensure this happens is for the developed countries to pay for the
assistance when it is agreed, by depositing earmarked funds with the WTO.
5)
Honour the agreement on phasing
out the MFA. Developing countries need to make plain that there will
be no settlement to the next round if the textiles and clothing
agreement negotiated in the Uruguay Round is not implemented in good
faith. That means that quantitative barriers must be removed and not
replaced by alternative restrictions such as anti-dumping duties. The
intention, floated in Seattle, of a three-year round was never very
plausible, but developing countries have a clear interest in postponing
its conclusion well into 2005, when the MFA quotas should have all been
off for some time.
6)
Keep labour and environmental
standards off the agenda. The fear that introducing labour and
environmental clauses might foster protectionism is well grounded: think
how anti-dumping measures have been abused. Labour discussions should be
moved to the International Labour Organization. If that body’s lack of
teeth is a problem for developed countries, let the agenda include
discussions on enforcement.
7)
Drop investment and competition
policy. These will certainly be contentious and they will divert
attention from the more straightforward and rewarding business of trade
liberalization. Comprehensive rounds are desirable because they increase
the opportunities for trade-offs, but in the aftermath of Seattle, it
seems better not to burden developing countries with threatening and
complex issues. The last thing they need is the external imposition of
another set of institutions that they cannot operate effectively.
8)
Dramatically improve the
governance of the WTO. This clearly involves strengthening
developing countries’ capacity to deal with trade issues and with the
WTO. In the WTO itself, more streamlined governance would be desirable.
This would facilitate pre-negotiation discussions, but it could not
create binding agreements, which, for sovereign governments, can only be
agreed by consensus.
Wang
and Winters acknowledge that their plan is no walkover; indeed, it will
require considerable courage. Developing country policy-makers will have
to tackle fundamental institutional problems and confront domestic
protectionist interests. Developed country leaders will need to get over
their blind insistence that their own models of policy and institutions
are the only acceptable ones. They will also need to confront their own
interest groups in order to make the significant concessions necessary
to ensure that, in the long run, the world trading system survives
intact and that all countries can benefit from it.
This
article summarizes ‘Putting “Humpty” Together Again: Including
Developing Countries in a Consensus for the WTO’ (CEPR
Policy Paper No. 4,
March 2000) by Zhen Kun Wang and Alan Winters. Wang is at the Royal
Institute of International Affairs; Winters is at the University of
Sussex and a Research Fellow in CEPR’s International Trade programme.
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