Of stakeholders and interests at the WTO

I had earlier blogged about a business survey conducted by the WTO to access how businesses feel about the WTO here. A more recent meeting took place reported here.

Pascal Lamy recently commenting on it said:

"What really makes this year’s exercise unique is the information from the private sector. More than 600 replies have been received so far and still counting. Particularly impressive though is the geographic spread. The replies have come in from over 120 countries and territories, from Antigua to Zimbabwe. But some are still missing; notably from several partner countries that replied in 2011. The final cut off is the end of this month and I would urge you to get your reply in.  And beware!  You may find that even if your government has not replied, your private sector has."

Another step by the WTO to broaden the base of stakeholder involvement? Today, governments are the only representative of varied stakeholder business interests at the multilateral institution. In dispute settlement, it is the State that represents the interests even though major business interests may be impacted. is there scope for more private sector involvement? Is the WTO attempting to create that window of opportunity to directly reach out to the business community? How will member country governments react? Should affected, private businesses have a greater role in the dispute settlement process? Should they bear the cost of litigation hen their interests are affected? Should public funds be used to protect private business interests? While the need for multi stakeholder consultations and involvement at the domestic level is a given, who should represent State interests at the international level? Many contend that multiple voices of civil society, business and non-state representatives should be heard. Others argue that they should be heard through the prism of the State since they may not be as representative as they claim to be but pursue their self interest. A debate of representation that is going to stay for some time.

Will Bali be able to deliver what Doha could not?

The Doha Development Agenda or Doha round has been written off by many as not being capable of producing any exults in the coming years, already having lingered on for more than a decade. Will the 9th Ministerial Conference in Bali (I have blogged about it here and here) break the impasse, at least partially?

Pascal Lamy alluded to the possibility of a basket of credible results in Bali in December 2013 here. Referring to the way forward on these negotiations:

"To ensure that the process runs as smoothly as possible and to avoid any surprises, we need to stick to a few simple guidelines.  

First, we need to work towards what is reasonably doable.  Members should be realistic in their demands, take into account other Members’ red lines and stay clear of what are known to be unattainable objectives.  

Second, when advancing a proposal, it is the proponents’ responsibility to build consensus around it.  Make sure that you are working towards convincing the other Members, not yourselves.
Third, avoid being confrontational.  Any proposal should not be framed as a kind of take-it-or-leave-it position.  The negotiating process entails a trade-off between concessions and demands.  Be flexible and work together with other Members and around their sensitivities to achieve a common understanding.  

Certainly, none of these points are new.  They have guided the last couple of MC preparatory processes.  They are mainly dictated by common sense, but they are fundamental if we want to act responsibly and with collective determination in the run-up to Bali. 

Without setting new and unworkable deadlines, MC9 provides us with an opportunity to show that WTO Members can advance the negotiating front of the WTO agenda.  Of course, we should be under no illusion about the breadth of what we can achieve in the short timeframe between now and MC9.  Nor should we create unrealistic expectations. The main stumbling blocks of the DDA are still standing and many of the toughest nuts will likely not be cracked by the time Ministers meet in Bali. 

But although we must manage expectations and keep ambitions in check for Bali, we cannot fall short of delivering on a credible basket of issues that would signal your confidence that the rest of the Doha agenda can be addressed in due course."

Will Bali be the golden opportunity to bring negotiations back on track with some 'credible results"? T.S.Vishwanath feels Bali can perhaps provide a breakthrough:

"To a great extent, Bali can resurrect WTO and help member countries look at the organization to resolve some of the emerging issues in global trade. The next six months would be critical in developing an agenda that can be resolved by the end of the ministerial"

Trade Facilitation, may be? WIll there be an acknowledgement to move away from the single undertaking principle? A lot of expectations on Bali - Let the preparations begin! Indications of it were probably found in the Davos meet about which was alluded to here.

The Rushford Report on WTO elections

I found this interesting website by Greg Rushford called "The Rushford Report" which analyses the political underpinnings of many international economic law and policy developments. A great read!

The WTO DG's election is round the corner and many commentaries on the process and likely successor to Pascal Lamy have been written. I happened to find this piece (courtesy the IELP blog) titled "The WTO's "Dangerous" Election" (part 1 of a two-part series) on the WTO DG's election a storehouse of information written in an inimitable style (rarely found in literature related to international economic law and policy) on the candidates and the likely result of the DG election. Summarizing the nature of a WTO DG's election process well, it explains:

"Whatever they want, this WTO election sure is different than what many would consider a “normal” one. There won’t be public polls. No focus groups.  No campaign rallies. No television commercials. And there will never be a recorded vote. 

The candidates will present themselves to the WTO’s General Council in Geneva on Jan. 29, in public proceedings that will be broadcast on the Internet. They will take questions, drawn from a box at random. And then they will get on the road for the next couple months, making their cases to the usual suspects in various word capital cities: trade officials, political leaders, and — horrors, if the WTO’s pesky band of vociferous anti-trade activists gets wind of this! — even corporate lobbyists. Some of the latter, to be sure, will offer enlightened perspectives in the public interest of strengthening the WTO as an institution. Others will have parochial axes to grind. But all will know how to whisper in the ears of the mighty and good in world capital cities."

The next few months will see hectic "consensus" building over the future WTO chief. Considerations will range from qualifications to nationality of the candidates, including the political economy of trading relations. May the best candidate win.

No more wars?

Pascal Lamy recently commented on the ability of the dispute settlement mechanism of the WTO to prevent trade wars thus:

"I think one of the great things about the WTO is that we don’t have to wage wars anymore. We have trade frictions. The more trade you have, the more occasions you have to have frictions. Part of this friction becomes trade disputes. If there is a trade dispute we will adjudicate it, but there is nothing like a trade war, like there was in the past. So, in many ways, the existence of the WTO provides a sort of collective insurance policy against trade friction degenerating into political problems."

The significance and role of the dispute settlement mechanism is often underestimated in world trade. Though anointed the "crown jewel" of the WTO system, trade disputes are often seen as a negative thing. The other way to look at it is as a "safety valve". With increased trade in a globalized world there are bound to be disputes. National measures are bound to be challenged. Instead of domestic measures being a cause for embarrassment and rising diplomatic wars, what better way than to solve it within the rule-based system. With this, trade can go on while disputes can be resolved amicably through a channel. It is definitely better than a "power-based" system where the economic strength of the trading partner determines the result of the dispute. There are of course questions about the efficacy of the dispute settlement in terms of the time taken and compliance levels. However that does not take away the positives. We are not in a perfect world, are we?

Pascal Lamy on the "fallacy of protectionism"

I have often blogged about the growing signs of protectionism in recent times.While some are manifested in "buy local" measures others are in the form of increased "import licensing" measures. Though countries espouse less protectionism, the facts indicate that countries in times of crisis do tend to look inward to protect domestic industry, growth and interests.

Pascal Lamy in this post titled "The Fallacy of Protectionism" in YaleGlobal Online has highlighted the dangers of a protectionist world in the context of global realities of trade. Referring to the global supply chains and the active role WTO has played in monitoring international trade, protectionism though in existence, is not as pervasive as it could have been.

"The internationalisation of production that had so visibly bound economies together prior to the crisis was underpinned by the predictable trading environment provided by WTO rules. When the crisis broke, the WTO's combination of monitoring and surveillance and a firm framework of rules worked to deter knee-jerk protectionism.  Since January 2009, the WTO has issued regular reports on governments' use of trade restrictive measures. Together with the United Nations and the Organization for Economic Co-operation and Development, the WTO monitors how the Group of 20 leading economies comply with their pledges to refrain from trade and investment protectionism, documenting new policies to restrict or facilitate trade."

Will the reality of international supply chains, integrated markets and internationalization of production be the key to a less protectionist world? How much of global production is integrated? Pankaj Ghemawat tends to believe that we are less integrated than we think we actually are. Why are there clamours for "buy local" even from developed countries which are part of this integrated supply chain? Is there a difference between global corporations being part of integrated supply chains and countries representing vast majorities who are cut off from the realities of trade? Is there a disconnect between global supply chains and the vast majority of people who vote? Is democratic politics and the pressures of local, domestic interest different from value chain trade and internationalization of production? We need to critically look at this aspect if one has to find answers to some of the discomfiture with international trade and openness in many parts of the world. I am not suggesting that more protectionism is the answer. However, we need to understand what the reality actually is. It surely may be somewhere in between, as usual.

Next WTO chief - Should geography matter?

I have blogged about the news of the selection of the next WTO chief here. Should "geography" matter in the selection process of the next WTO Director General after Pascal Lamy whose term ends in August 2013? Pascal Lamy himself contended that geography should not be the deciding factor in the selection of his successor. Should the next chief be from an emerging economy (Argentina, Mexico) or from the BRICS (Brazil, Russia, India, China or South Africa) member countries? Should nationality matter at all? Would having a person from the developing world at the top post make the organization more "representational"? Is it not representational yet? Would it make the WTO more "sensitive" to developing countries interests? Is it not so yet? Would the nationality of the chief have a bearing on the interpretation of the trade agreements? Would the chief being from Africa make a difference to the participation and interests of African nations in the WTO?

I am not sure it will have an impact on the dispute settlement mechanism. However, would the strategy of the negotiations change or the role of the WTO secretariat in dealings with the Doha impasse change? Is selection of a person from the developing economies (non-US non-EU) merely a representational, symbolic step or a more substantive step? Reuters covered some of the issues here.

Too many questions. Not sure if there are answers to all of them ...

Developmental state, globalization and reducing inequity - Is there a way?

I have often argued in this blog about the inequitable impact of globalization and the need to recognize that large segments of population may not be able to participate in the development that international trade offers. While the benefits of international trade in terms of employment and development is not disputed, the limited role international trade plays in bridging income inequities is often a subject of criticism.

Pascal Lamy, the Director General of the WTO referring to Amartya Sen's works, contextualized this dichotomy recently:

"Trade has been a vehicle for prosperity in many areas of the globe. By promoting economic growth and higher incomes and by offering access to better goods, services, capital, knowledge and technology, trade offers new and diverse opportunities for all.  

However, the persistence of widespread poverty in many areas of the world and the growing inequalities in most of our societies are also a stark reminder that the benefits of the global economy have not accrued to everyone in an equal manner. Economic growth is a necessary but not sufficient tool for poverty alleviation. Skewed patterns of income distribution — both at international level and within a country — mean that economic growth does not often trickle down to the most vulnerable in our societies and that the poor are often denied access to the opportunities of trade opening. 

What Prof. Sen teaches us is that to ensure that trade opening works for the poor, trade reforms need to be accompanied by policies that guarantee an equitable distribution of trade gains. Health and education, safety nets and access to credit are part of poverty reduction strategies as much as economic growth itself. These complementary policies protect the poor against the potentially destabilizing effects of trade opening, while ensuring that trade unlocks income-generating potential for all layers of society. This requires overall coordination between government institutions as well as multilaterally in all areas of international cooperation. In other words, it requires a strong domestic and international set-up. In many ways, we are all in dire need of institutional capacity building."

The role of the State in a globalized world becomes crucial. While the retreat of the State has been a common theme since the early 1990's, recent years have seen the reemergence of the developmental state. Is an active, developmental state compatible with WTO rules? Can a redistributive, developmental state policy go hand in hand with an active engagement with the multilateral system? Is an aggressive state policy of involvement in the economy compatible with the multilateral trading system? As countries battle inequity and provide solutions, these questions will increasingly come up in the multilateral setting. A balanced, mature approach shunning ideological positions needs to be taken to harness the benefits of a global trading system along with the positives an active, liberal, equitable state has to offer. This balance will often be tested and questioned. It nevertheless has to be pursued.

Knowledge@Wharton interviews on globalization

Knowledge@Wharton had two interesting interviews recently. One of Pankaj Ghemawat and the other of Pascal Lamy

Pankaj Ghemawat essentially argues that the world is not as integrated as it is made out to be. In this semi-golbalised world, the benefits of integration, he feels, are immense. I had blogged about his views earlier here.

"So what I do in this particular chapter in World 3.0 is put together a lot of existing literature rather than just saying the gains are large, suggesting that when you pay attention to the customarily excluded components, you can bring the gains from trade liberalization itself up to 2% to 3% of the GDP without even really relying on very far-fetched estimates. Then there is service liberalization which people think can add and get us up to 4% or 5 % of GDP. Then there are flows other than products and services. There are flows of capital, flows of people, flows of information. 

People flows are really the big numbers. Some people at Stanford have done an analysis suggesting complete liberalization of immigration could double the world's GDP. Of course, that seems a bit optimistic given where we are. So I rely on estimates that more moderate increases might add another couple of percentage points to global GDP, around 3% to 4%. Around immigration, the gains are just huge as all the studies suggest."

Pascal Lamy speaks about the future of the multilateral trading system in the context of the impasse in the Doha round of trade negotiations.The risk of bilateral trade agreements and the relevance of multilateral trade negotiations are touched upon. Highlighting the political economy of trade negotiations and the complexity of concluding multilateral trade negotiations I found this point interesting:

"The second reason, and this raises a fundamental problem of trade negotiations, [is that] in this game, the losing parties know precisely why they lose and are able to form coalitions to support their causes, while the winning parties are often unaware they won. The tee-shirt you are buying cheaper today doesn't come with a "Thank You, WTO" sign on it! I have been working on international trade for 20 years, and unsurprisingly, it turns out that in emerging countries, public opinion is more and more open to trade liberalization, while in developed countries, it is less and less favorable to it -- not in the name of the poor in the South anymore, as was the case in radical circles in the 1990s, but on behalf of the poor in the North. The positive impact is obscured by the difficulties associated with the restructuring of Western economies -- by the crisis, of course -- but also by the great shift from industrialized countries to emerging countries, which may lead [some] to think that unemployment is due to relocation. Under these conditions, negotiators from developed countries now have less room to maneuver."

The debate about the extent of globalization, trade rules, the political economy of reducing barriers to trade and the way countries react to it continues. 

After Pascal Lamy, who?

(Tim Groser, Minister of Trade, New Zealand)

(Pascal Lamy, DG, WTO)

News of Tim Groser being in the race for the next WTO DG after Pascal Lamy (his second four year term ends in September 2013) is trickling in. The NZherald news confirmed this. Tim Groser has served New Zealand in a number of capacities including being New Zealand's chief negotiator in the Uruguay Round of trade talks. He is presently Minister of Trade of New Zealand. The IELP blog carried a speech of his recently highlighting his views on international law and the loss of sovereignty.

Tim Groser speaking at the 8th Ministerial Conference at Doha recently had opined about the way forward in the Doha round and how to get over the impasse:

"While we strengthen the existing system, deal with the 20th Century problems that lie at the heart of the Doha Development Agenda, we also need to look forward to emerging issues. The WTO is the place countries deal with the whole gamut of trade issues. The Doha mandate covers a subset of those issues. We need to accelerate our understanding of these emerging issues. This will be politically possible only if it is done explicitly on the basis that we are not trying to redefine the mandate. The developing countries would reject such an approach out of hand. But we need to start understanding emerging issues like the implications of the global supply chain for WTO Rules. Similarly, there is a whole set of issues in the trade and environment space that are going to demand attention, not simply the issue of environmental goods and services and the agreement we need on fishery subsidies that must be part of any Doha outcome. If we can develop a sense amongst negotiators that there are some solutions out there, this will exert positive gravitational pull on the Doha mandated issues and deal in part with the legitimate concern that we need to keep our system up to date. 

Our thinking is based on a frank admission that the path forward is by definition unclear. Therefore a more subtle, less prescriptive approach aimed at three levels - strengthening the existing defences against protectionism, finding ways forward on the 20th Century agenda defined by the Doha Mandate with development at the centre of that mandate, and starting to point the way forward on 21st Century issues - is the way forward."

His speech recently too highlighted the Doha impasse, the way forward and the need to recognize the multipolarity of today's global governance, especially in international trade:

"We are moving towards a multi-hegemonic system of power but the global governance system that would match that is remarkably immature My central view is that it is not a fundamentally different system that needs to be designed, but rather the informal modus operandi of the system needs to change to reflect the shift in relative power. 

The issue here is about leadership: no system of global governance can work without it. When China joined the WTO I heard some deeply experienced people speculate on how the WTO would work with the ‘800 pound gorilla’ in the ring. The concern is entirely the wrong way round. The greater danger is the opposite – these great emerging economies may not use their huge weight and influence to provide leadership but behave too passively. 

There can be no definitive conclusion to this. I think we are in a process of transition and the trick here will be to ensure that something gets done on both trade and climate change during that transition."

The race for the next WTO DG might have just begun. Some have argued that the next head must be from a developing economy to reflect changed dynamics and realities of world trade. Whoever the next chief is, the task would be an arduous one - to get Doha back on track and ensure multilateralism prevails in the context of increasing trends of protectionism.

Is Protectionism rising?

The fears of rising protectionism (of rising barriers, both tariff and non-tariff barriers) loom large across the world. The failure of the Doha Development Agenda has created an impasse to further liberalise trade rules. The trend of a drift towards protectionism is often reported. This is despite public commitments of opening up of trade and resisting protectionism. The 8th Ministerial Conference of the WTO had unequivocally advocated the commitment to multilateral rules in its statement of political guidance:

"1. Ministers emphasize the value of the rules-based multilateral trading system and agree to strengthen it and make it more responsive to the needs of Members, especially in the current challenging global economic environment, in order to stimulate economic growth, employment and development.

2. Ministers underscore that the WTO’s role in keeping markets open is particularly critical in light of the challenging global economic environment. The WTO has a vital role to play in the fight against all forms of protectionism and in promoting economic growth and development. Ministers also acknowledge that experience has shown that protectionism tends to deepen global economic downturns. Ministers fully recognize WTO rights and obligations of Members and affirm their commitment to firmly resist protectionism in all its forms."

Perhaps statements of political guidance often do not translate into sovereign, national actions of countries across the developmental divide. Moreover, countries often justify their measures as being consistent with multilateral obligations and not being protectionist in letter and spirit.

Pascal Lamy, Director General of WTO recently addressed this issue:

"For the first time since the beginning of the crisis in 2008, this report is alarming.  The implementation of new measures restricting or potentially restricting trade has remained unabated over the past seven months, which is aggravated by the slow pace of rollback of existing measures. 

The accumulation of these trade restrictions is now a matter of serious concern.  Trade coverage of the restrictive measures put in place since October 2008, excluding those that were terminated, is estimated to be almost 3% of world merchandise trade, and almost 4% of G-20 trade. The discrepancy between the commitments taken and the actions on the ground add to credibility concerns.

This situation is adding to the downside risks to the global economy and what is now a volatile global context.

In such a situation, it is important that we collectively and urgently redouble our efforts to strengthen multilateral co-operation to find global solutions to the current economic difficulties and risks and avoid situations that would cause further trade and investment tensions."

What ultimately causes countries to adopt protectionist measures? Does an economic depression or the need to protect a local industry fuel it? Do democratic, political compulsions promote it? Do domestic business interests play a dominant role in policy making to ensure that barriers are raised? Is it politically more expedient to justify a protectionist measure to one's constituency? Does it signify a nation's control over it's own sovereign destiny? Is it a reaffirmation of one's national sovereignty? Are the reasons economic, political or both?

A study titled "Protectionism isn't countercyclical (anymore)" by Andrew K Rose in Vox analyses the relationship between economic depression, unemployment, growth and protectionism in terms of tariff barriers. He comes to the conclusion that protectionism is anything but cyclical - that is a wave of depression does not necessarily lead to the rise in protectionist measures.

"The goal of my recent work has been to show that, at least since World War II, protectionism has not been countercyclic. While this runs counter to conventional wisdom, the evidence is reasonably strong; no obvious measure of protectionism seems to be consistently or strongly countercyclic."

Taking the example of initiation of disputes at the WTO as a sign of protectionist measures, he has analysed the disputes initiated with growth patterns.

"Accordingly, Figure 3 provides a time-series plot of annual global GDP growth and the number of commercial disputes initiated under the GATT/WTO dispute settlement system. This is by no means a perfect measure of protectionism. Complaints are not formally initiated against all protectionism, are not equally important, and are not randomly initiated across countries. The inadequacies of the GATT system led to considerable reform under the WTO in 1995. Still, this measure covers both the world and NTBs.¹ The message from Figure 3 is that, for the world as a whole, global growth is essentially uncorrelated with the initiation of disputes under the multilateral mechanism set up precisely to handle protectionism.

This paper is an interesting economic analysis of protectionism. However, as the author himself indicates, all disputes initiated at the WTO may not signify issues of protectionism. May be a better analysis would be to plot the disputes in which the Appellate Body declared a measure contrary to WTO rules instead of the initiation per se. Another issue is of what constitutes protectionism? Is raising tariffs, even if it is within the bound rates of a country, per se a protectionist measure? Certain measures that raise the barriers of free trade are permitted by the WTO rules. Do they constitute protectionism? Is there a difference between economic protectionism and legal protectionism whereby the former is a much broader concept than the latter? In other words, a measure may be protectionist in the economic sense of restricting competition and not taking advantage of optimum allocation of resources but might be perfectly legal as per international trade law since the exceptions in the WTO rules allow for such a legitimate use of policy space. When we speak of protectionism rising, what form of protectionism are we talking about? Further, a whole host of non tariff barriers like technical barriers and standards are in play now denoting new forms and classes of protectionism. Is protectionism a relative term?