European Affairs

Summer 2000

 

The Importance of Global Economic Governance
by Pascal Lamy

It has been argued that the 21st century began in Seattle at the end of last year, when protestors disrupted a Ministerial meeting of the World Trade Organization that had hoped to agree to a further opening of the global economy. I would like to put a positive spin on that interpretation. Perhaps we shall come to see Seattle as the end of "business as usual" and the start of real progress towards international economic governance.

While a few of the demonstrators wanted to thwart the entire move to liberalize the world economy, the majority quite rightly wanted to draw attention to the dangers of unchannelled and uncontrolled globalization. It is true that, at its most raw, economic globalization can widen differences in wealth and incomes, creating a new pattern of winners and losers which is sometimes unfair.

That is one reason why the European Union has called for a new round of multilateral trade negotiations, which would include the development of the WTO as a rule-making institution. Differences between the United States and the EU contributed to the failure to launch such a round in Seattle. But we still have a shared interest in a new round that deals with the realities of the globalizing economy, and we need to find a better way of expressing that shared interest.

For it is clear that any new round cannot just be about market access, but must overhaul the WTO rule-book. Negotiations on investment, competition, trade facilitation, labor standards and the environment will be of critical importance if the WTO is to stay relevant, and to reflect and respond to public opinion.

In short, international economic governance is needed. But some want us to run before we can walk. We are not trying to create a world government, a perfect, Utopian democratic model all at once. If we had an effective model of international governance with a democratic deficit, we could fix the problem. But the problem is that we do not yet have a functioning model.

Some of the non-governmental organizations that oppose globalization take the extreme view that the WTO is a capitalist plot, determined to crush all obstacles in its way - whether they be workers, consumers, turtles, dolphins or even monarch butterflies. To this group, my message is simple: the absence of a round means that you leave in place what you regard as an unreformed, dangerous institution. The WTO still stalks the land.

There are signs, however, that a number of NGOs are starting to think through the whole question more clearly. Opposition to globalization is certainly the easiest part, but it is really not enough.

For our part, we want to engage in discussion with everyone who wants a real debate. We should ask what are the right starting principles for real international economic governance? Where do we go with the international trading system if not towards stronger, more predictable rules?

Sometimes, I think that if the WTO did not exist, civil society would probably be calling for it. For the alternative is a stark, Hobbesian world where dog eats dog, where rich countries choose who they want to trade with and where the winner takes all.

We must also help developing countries, who for the most part left Seattle angry and frustrated, to regain their confidence in the WTO. That is an absolute priority, and, over the last few months, I think we have made an effective start: We have agreed a package of tariff and quota-free treatment in Geneva; we agree on the high priority to be accorded to effective delivery of technical assistance; and we have agreed a work program to study the entirely legitimate concerns of a number of developing countries over implementation of provisions agreed in the last major round of multilateral trade negotiations, the Uruguay Round. The real push on implementation, however, will only come in the context of a new round, when we must take major steps to integrate developing countries more effectively into the world economy.

Meanwhile, Mike Moore, the WTO Director-General, has started to rebuild confidence in the institution, with our full support. Among other things, that means a number of small, short-term, institutional improvements. Bigger, long-term questions should be addressed later.

The first priority is the start of a new round, even though many doubt it can be launched this year. The conventional wisdom since Seattle has been that it will be impossible to launch a new round before next year at the earliest - not least because of the U.S. elections in November - and that we should await the arrival of a new Administration and Congress in Washington before trying again. I do not believe this is right. We should not allow ourselves to be paralyzed into inaction.

Of course, there is a need for caution. The greatest mistake would be to call Ministers together for another high-level meeting, only to fail, once again, to launch a round. The WTO cannot afford a second failure.

So we have to prepare our ground extremely carefully. We stand by our view that we need an inclusive new round. But all WTO members, including the EU and the United States, have a duty to reexamine their positions in Seattle and ask whether they were tenable. With a renewed commitment to flexibility on all sides, and I stress, on all sides, we may yet find a way through this year.

At the same time, we need to reflect how the WTO will change with China's entry. First, we need to ensure that China implements, and is able to implement, all the commitments it has made. This will not be just a question of monitoring, surveillance, and waving the big stick. China will also need technical assistance. It is unquestionably a good thing for the WTO that China is coming in from the cold, but equally unquestionably, the WTO will not be the same.

In any case, we must reform the WTO. We need a few concrete, low-key, operational steps in the short-term to restore the credibility of the WTO as an institution. Those steps should include improving the preparation of Ministerial meetings, and better internal and external transparency.

Many believe that we need to take reform further, and I agree with that. We must look at ways of making the WTO more democratic, more transparent, more efficient, and give it a better "fit" with the other Bretton Woods institutions, the International Monetary Fund and the World Bank. I also favor establishing some form of Eminent Persons' Group to look at the big long-term questions, such as the role of the WTO in a new system of international governance.

But we must be careful about the timing. Too heavy a short-term focus on reform plays into the hands of those who do not want a round, for whatever reason. We should tackle the major questions of reform in the second stage of this process, when they can be considered in parallel with a new round. That way, we improve the chances of getting reforms accepted.

Meanwhile, Brussels and Washington must try to manage our bilateral disputes better. Of course, as the world's two largest trading blocs, we will have our disputes. The question is: how do we handle disputes when they arise? I think there are essentially two principles, both rather simple, but not always easy to follow.

First, the basic test is conformity with WTO rules. In other words, the presumption should be that the losing side should come into conformity, rather than declare that it is too difficult and pay compensation or accept retaliation. That is my position on bananas and hormones in beef, where I am determined that the EU should conform with the rulings against it at the earliest opportunity. I am sure it is also the position of the U.S. government.

The second principle is that we must move from megaphone diplomacy to telephone diplomacy, as Romano Prodi, the President of the Commission, said at the EU-U.S. summit meeting in Lisbon at the end of May. My underlying presumption is that both sides want to conform to WTO rulings, for all sorts of reasons. So when the other side trips up, there is no point shouting about it. Trying to box the other into a corner is not politically smart, and is unlikely to resolve the situation.

That is why we particularly regret the recent passage of the U.S. "carousel" legislation, designed to rotate U.S. trade sanctions among different groups of EU exporters. It is not in line with WTO rules, it runs directly counter-productive to our efforts to resolve the bananas and hormones disputes, and frankly goes beyond megaphone diplomacy to gunboat diplomacy. Many small and medium-sized European exporters - not to mention American importers - will be paying a needless price.

It does not seem so long since we managed to launch the Uruguay Round largely without public debate or attention. Since then, the world has become much more complicated. Globalization means that governments have to do different things - not necessarily more, not necessarily fewer, but different things.

We also need to do them in different ways. The continuing rise of the global media, for example, means that as the world moves ever faster, the media is there to tell us about it in real time. Government by subterfuge is no longer an option. We now work under the arc-lights, so everyone knows what is going on. That makes life more complicated, but it is basically a good development.

If the world is more aware of globalization, and of the complaints against it, as was the case in Seattle, it is even more important that we should move the system forward. That will be the real test of political leadership in the coming months.