Forward to the ancien regime

Geneva, 20 Jan (Chakravarthi Raghavan) - In issuing Monday a report by his ‘Consultative Board’ of advisors on the future of the WTO, Director-General Supachai Panitchpakdi, said that the report is not meant to be approved by the membership and thus will not be submitted to the General Council or any other meeting, but that it will be “introduced” to the membership on 24 January, when they will have a chance to enter into initial discussions with the Chair and consultative board members.

A reading of the report, printed on glossy paper, suggests that it is a mixture of fundamentalism in trade theories, attempts to resuscitate past ambitions of the secretariat and restore the ancien regime of the old GATT and its decision-making processes - with a few commendable points about the gradual negation of the basic most-favoured-nation principle, outweighed by a larger number of bad points.

Overall, it is like the proverbial curate’s egg - but with the bad and noxious parts overwhelming a few good parts and suggestions. Far from a viable multilateral trading system based on rules - ensuring transparency and predictability - it will bring down the system itself.

If accepted and implemented, trade negotiations and arriving at agreements and rules, will be back to the bad old GATT days - of ‘green rooms’ which are more often ‘black-rooms’ or ‘black-boxes’ - with secret talks and secret agreements arrived at among the powerful and advancing the interests of a few, and thrust on others.

Many straw-men are set up to be knocked down - such as in the report’s discourse on sovereignty questions, almost arguing that in a globalizing world it is irrelevant. The real issues are matters of policy and political choices within countries which are not conducive to all or nothing assertions.

However, economic multilateralism cannot work or deliver results to the public, who are the final arbiters of any system, unless there is an effective State and a functioning government to balance various interests within a country, administer the affairs of a country, and be accountable in a democratic way to the public.

On this matter, the wise men in the Consultative Board might have usefully browsed through Gerry Helleiner‘s 10^th Prebisch lecture (Markets, Politics and Globalization: Can the Global Political Economy be Civilized?) given at the WTO‘s neighbouring trade institution, the UN Conference on Trade and Development.

In terms of ‘governance’ - if the idea of an annual ministerial meeting, and capital-based senior officials coming to the quarterly General Council meetings, and the institutionalised mini-ministerial Green Rooms, are accepted and implemented - it will make redundant the entire system of diplomats and envoys and plenipotentiaries negotiating agreements in Geneva, representing their countries at the WTO (conceived in the treaty as a permanent negotiating forum) and presenting their government’s considered views.

Even more, trade ministers and officials will be running around the world (with benefits to the civil aviation industry) without being able to attend to the affairs of their governments at home. When this is combined with the realities of politics and democratic governance in the large number of member countries, it would enable the US and EC to run the affairs of the WTO to suit their own mercantilist interests.

In the US, the trade representative is an appointed official, who does not even have to be confirmed like cabinet ministers by the Senate, but negotiates trade accords and works with the Congress; there are separate commerce and agriculture secretaries to run their affairs at home, and a separate Treasury Secretary too.  In the EC, similarly, the Trade Commissioner is only negotiating trade agreements, and it is member countries who run the affairs behind the scenes.

Developing countries can’t afford this type of luxury.

The Marrakesh Treaty and the WTO as an institution was sold to the member countries in 1994 as a new era in the multilateral trading system - which will no longer be run (as in the bad old GATT) by a series of ad hoc ministerial meetings, decisions and methods of governance - but as a “rules-based” institution and an international treaty, in effect governed by international law.

At the time it was negotiated, and in the final stages - among a group of about 20-30 key countries - given the nature of the proposed new, almost self-executing, treaty provisions with rights and obligations and its vast economic and other implications for member countries - the negotiators unanimously decided on the role of the secretariat (as a servicing institution, where the membership from time to time will decide what it should or should not do), and the governance structures - the General Council and the once-in-two year Ministerial Conferences, and many checks and balances.

Peter Sutherland, the chairman of the Consultative Board (a high-sounding name for a body of consultants to advise Supachai, and not set up by the WTO), who was the then Director-General of the GATT (brought in to conclude the stalled Uruguay Round negotiations) twice went before the negotiators to convince them to give the Director-General of the new body powers similar to those of the UN Secretary-General (who incidentally, can only bring issues to the attention of the Security Council or the General Assembly, but can’t act beyond that without specific mandates from them).

Sutherland, it should be noted, was brought in when both the US and the EC found themselves uncomfortable with GATT Director-General Arthur Dunkel (who had put forward a compromise text on the lines that the two majors wanted, and had presented it as a text to be accepted as a whole, and subject to parts being reopened only by consensus).

The two majors, when they wanted major revisions and got stuck with the Dunkel formula (that he had put forward at their instance), decided to get rid of their embarrassment, by bringing a new man. Sutherland left a very lucrative private sector job, to take over the job of GATT DG, on the basis that he wanted to complete the trade talks and would then go back to the private sector.

At that time (November-December 1993), Sutherland had also wanted the putative head of the WTO, when it came into being, to be put on the same footing and status as that of the IMF and the World Bank. The secretariat staff also wanted their status (salaries, terms and conditions etc) to be on the same footing as the IMF and World Bank.

After a serious discussion among themselves, the Uruguay Round negotiators turned it down. The Sutherland report now resurrects the same ideas in a different form.

And post-Marrakesh, in the run-ups to the ministerials, the secretariat has exhibited its partisanship in such a way that many developing countries seek knowledge and help from civil society groups, who willy-nilly have been drawn into this activity.

This has undoubtedly unnerved the WTO leadership and the secretariat and the majors, who find that the civil society groups (with considerable help from many academics) have brought to bear superior expertise to analysis.

Now all this is being sought to be negated - when there is increasing demands, and not merely from a few NGOs, the ‘well-meaning NGOs’ (Oxfam and ActionAid), who have been singled out for sharp criticism by Prof. Jagdish Bhagwati in a Wall Street Journal article, comparing their budgets (spent on local community work to help people across the developing world) and calling them ‘big business’.

Their budgets are compared to that of the WTO secretariat research staff - when in fact these NGOs have at best 2 or 3 individual trade experts that they have recruited, who have been seeking and getting help from academics and others, to produce studies and reports from the public perspective on these issues.

While undoubtedly the ‘trade agenda’ and WTO have proved ‘sexy’, many of the NGOs have been drawn into it primarily because when working at grass roots to assist local communities to survive, they found themselves running against the rules and obligations of the WTO system, and its rule-making (done among a small group of powerful countries and forced on others). The NGOs then have the option of accepting these commands, or like any sensible group trying to change them by highlighting its inadequacies and inequities.

Neither Bhagwati nor Sutherland have mentioned or inveigled about the enormous money and resources devoted by major corporations and their groups to lobby and influence the rule-making processes.

After the Marrakesh treaty was signed, and by the time the WTO was entering into force (with a short transition for both the old GATT and the new WTO to co-exist), Sutherland who had initially said he would take the job of the GATT Director-General only for a limited time - to re-start the stalled Uruguay Round negotiations and conclude it - had a change of mind and wanted to continue.

However, the EC which by then had agreed to the Italian Trade Minister, Renato Ruggiero, running for the job, would not nominate or back Sutherland, and he could not run even though many developing countries were willing to support him.

Similarly, at that time, Bhagwati, a US national of Indian origin (now a member of the ‘Consultative Board’ and perhaps the one who wrote large parts of the report), also was sounding out the idea broached to him by his friends that he should run for the WTO top job. India is known to have been approached for New Delhi to nominate him, but Indian officials said that as a US national, only the US government could nominate him.

And in the current race to succeed Supachai, when then EC Trade Commissioner, Pascal Lamy wanted to run, he found himself initially in difficulties - since the French President Jacques Chirac had been opposed to re-nominate him for the Commission or for any international job - for the top post at the IMF, or the European Central Bank. It was only at the last moment, after Lamy got the endorsement of the other EU members, that Chirac was persuaded to nominate him.

Now the Consultative Board broaches the idea that the nomination of a candidate should not be left to the country concerned, but any eminent individual could be nominated by anyone, and be appointed to the top job, and be enabled to propose initiatives in the trade area and go round the world to canvass support among ministers and get it through.

Initially, the Sutherland report was interpreted as promoting the candidacy of Lamy.

However, Bhagwati’s Wall Street Journal article, in one way appears to question Lamy’s credentials for the job, given his forceful advocacy of new issues into the WTO, and also the preferential trade arrangements to split the developing countries. For, says Bhagwati (in drawing attention to the need to prevent PTAs and other such issues), “... at this critical juncture requiring leadership, the next director general be examined carefully on his views on these matters.”

In terms of trade and economic theory, and the benefits of trade and open economies, the problem with liberal ‘mainstream’ economists is that they often cite each other, and ignore the contrary views in other studies.

The Sutherland report cites Bhagwati (for his ‘extensive review’ of evidence of benefits of open economies and trade and in defence of Globalization).

The substantial work on benefits of trade on growth and poverty is the oft cited work of Dollar and Kraay (following up on an earlier Sachs-Warner study).

But when these studies are looked at over a long enough time perioid and applying the same yard stick. A different picture emerged.

Some of these more critical studies including that by Francisco Rodriguez and Dani Rodrik (Trade Policy and Economic Growth: A skeptic’s guide to the cross-national evidence) bring out the methodological problems with the neo-liberal studies, and find that when the same yardsticks were applied over a long enough period to a large group of countries there was “little evidence that open trade policies - in the sense of lower tariff and non-tariff barriers to trade - are significantly associated with economic growth.”

Other academic studies by Greenaway, Helleiner, Panic, Stigltiz, Taylor and many others back up Rodrik’s call for a more balanced and nuanced perspective. And it is not that Rodrik and his associates are advocating closed economies or trade protection, but called for a mix of policies and policy-measures tailored to specific circumstances. Such a conclusion has been upheld, with extensive empirical research, by multilateral bodies, such as the ILO, UNCTAD and the UN’s regiional Commissions.

Despite all this, the Sutherland report insists on the view that economies with ‘open trade policies’ grew faster and that faster growth in China and India is due to this. And for the view that trade and globalization has diminished inequality in the world, the Sutherland report cites the study by Sala-i-Martin.

However, several other studies that went into the Sala-i-Martin’s study and the World Bank studies, found methodological problems with both, and on basis of some contrary evidence reached opposite conclusions.

For example Sanjay G Reddy and Thomas W Pogge (#SUNS 5180, 13 August 2002) looked at the World Bank studies and in particular that by Martin Ravallion (the Research Manager for Poverty in the World Bank’s Development Research Group).  The Reddy and Pogge study, and further comments and exchanges with Ravallion can be found at (www.socialanalysis.org).

Also, Branko Milanovic, of the World Bank’s Research Department, in a paper ‘The Ricardian Vice: Why Sala-i-Martin’s calculations of world economic inequality cannot be right’ (a simple google web search enables downloading a pdf document), notes that Sala-i-Martin had succumbed to the temptation of piling one assumption upon another for his Ricardian building blocs for his calculations.

Milanovic points out that in the Sala-i-Martin study ( a) data on countries with disturbing rises in inequality have been eliminated; ( b) five data points have been used to approximate entire distributions; ( c) when the five data points are not available (84% of the time), there has been extrapolation forwards and backwards in time; when only one observation is available it is assumed that distribution remains the same and when no observation is available, everyone in the country is assumed to have the same income; ( d) distribution of household income across households is treated as if they were distributions of household per capita income across individuals; ( e) there has been a mixing of national account data or GDP per capita and household survey data; and ( f) mixing of expenditure and income data.

“All these produce world income distributions across individuals of the world for the last 30 years. To paraphrase, ‘never was so much calculated with so little’,” observes Milanovic.

Bhagwati, one of the important members of the Sutherland group, and according to WTO insiders a major author, in his Wall Street Journal article, attacking the NGOs and their campaigns against the domestic agriculture support of the rich countries, says “perhaps the greatest damage they have done is in their energetic campaign against agricultural subsidies in the rich countries.” He then cites a study by Alberto Vales and Alex McCalla that removal of these subsidies would hit the net importers of food and agricultural products among LDCs.

“As prices rise with the removal of subsidies, surely importers will be harmed, not helped, except in the singular cases where the importers switch to becoming significant exporters.” And in effect, Bhagwati blames the developing countries for their neglect of agriculture and pursuit of industrialisation for the Faustian bargain of industrial countries’ agricultural protectionist rules of the old GATT and the WTO.

In fact however, it is the erroneous interpretations of the GATT rules on primary products in the 1950s by a GATT working party and panel rulings (on subsidies for using local content in making wheat flour, and the Italian pasta dispute), that enabled the EC, and also the US and other rich countries, to launch their massive agricultural subsidy programs. All that the developing countries and NGOs like Oxfam etc are seeking is to create a level playing field - since the developing countries cannot match the treasuries of the rich countries to provide domestic subsidy and support.

These are just some of the samples of faulty analysis that lead to faultier conclusions, and WTO members, particularly from developing countries, would do well to consign the report and its recommendations to a well-known basket. – SUNS 5724

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