European Affairs

Summer 2000

 

World Trade Needs Atlantic "Big Boys" to Get Together
by Mike Moore

When I was a minister back in New Zealand, I worried about the big boys of international trade - the European Union and the United States - getting together and forcing their trade agenda on the rest of the world. Such is the trading power of these two giants that when they agree, the rest of the world must not only take notice, but must shape its trade policy strategy accordingly.

Now I worry that if they do not agree, there is nothing for anyone. As a vocal proponent of trade liberalization, generally, and a new trade round, specifically, I know there is no substitute for leadership from Brussels and Washington. Without agreement between the two powers, there is no hope for a round.

As I say to representatives from developing countries, the only thing worse than the big powers getting together, is that they not get together.

Undoubtedly, there is resentment of this power in some quarters. Many in the developing world take the position that their views are not adequately considered in trade negotiations. The World Trade Organization came under sharp, though undeserved, criticism at its meeting in Seattle last year for holding informal talks in which developing countries were not represented. In fact, at the end of the Seattle meeting seven African and seven Latin American countries were present in the "Green Room" negotiations. A majority of those present were from developing countries.

The WTO is an organization in which all decisions are taken by consensus. Every member government, whether modest or mighty, in essence holds the equivalent of a UN Security Council veto. But there is also no denying that some members are more equal than others when it comes to influence.

In 1999, the United States and the European Union together accounted for 35.3 percent of global exports, or just about $1.5 trillion. Just as importantly, the two comprised 42.5 percent of global imports or $1.9 trillion. That's a lot of negotiating leverage.

Given the great similarities between the two powers and their mutual interests, one would expect they would share similar positions in the WTO, and one would be right. But that is not the story you read in the newspapers. To read the European or American press would lead one to come away with the view that these two powers are perpetually at each other's throats.

In fact, the total value of their trade disputes before the WTO comes to only a bit more than one percent of the total two-way trade. Moreover, on the fundamental question of trade liberalization, there is broad agreement between the United States and the European Union.

Behind the general concurrence there are differences, both in terms of presentation and of substance. On bringing the issue of labor standards into the WTO, for example, U.S. and EU negotiators agreed before Seattle on the need for such a step but offered different approaches on how this controversial issue might be considered by the organization. Most developing countries are opposed to even discussing the issue in the WTO.

On other matters, we see more divergence. Take trade and competition, and trade and investment: EU officials want these questions to be the subject of negotiations aimed at achieving a global agreement. The Americans are less comfortable with this notion and prefer more discussion and contemplation. On agriculture, the United States is far more aggressive than the EU in pursuit of deep cuts in government support to farmers. With maritime transport, the positions are reversed, with the EU seeking greater liberalization.

Still, there is much upon which the two sides agree. Both sides fully back a broadening and deepening of the WTO agreement on trade in services. Washington and Brussels would like to see more WTO member governments participate and undertake more comprehensive commitments to liberalize in sectors like telecommunications, banking, insurance and professional services. In the main, both parties have contributed constructively to the negotiations now underway in both agriculture and services.

The two agree as well on the need for deeper tariff cuts on industrial products and for more transparency in government purchasing. The two have much in common on the need for greater consideration in the WTO of the environmental issues.

The point is that there is wide scope for agreement between the two on how to proceed with future negotiations on trade liberalization. Remember, we are not speaking of striking trade agreements here, but are speaking of establishing a negotiating framework, with timetables and benchmarks for future work. Should Brussels and Washington agree on a general framework, and should they be able to persuade their "Quad" partners, Japan and Canada, to sign on to this proposal, the chances of launching a round increase significantly.

Make no mistake, however. agreement within the Quad does not constitute consensus among 137 member governments that a round should be launched. More than 100 of our member governments represent developing countries or economies in transition. Many of these countries insist that the pace of liberalization be throttled well back. They point out that the first priority within the WTO should be to tackle the problem of implementing the Uruguay Round agreements which were signed in 1994.

Still, a Quad agreement is necessary for the start of any round and there are important indications that the Quad governments are prepared to take on board the points of view expressed by developing countries. Recently, the WTO General Council reached important agreements on how to handle future discussions on implementation and on how to address cases where some member governments have been unable to implement the agreement on Trade-related Investment Measures. For a variety of reasons, these developing country governments were unable to remove such measures by 1 January, when the five-year transition period for developing countries expired.

By agreeing to discuss implementation issues in a Special Session of the General Council and by working constructively with developing countries to deal with the TRIMs problem, the Quad have made a good faith effort to give fair consideration to issues of paramount importance to their developing country partners.

Furthermore, the Quad - and nine other countries - have agreed to open their markets wider to imports from Least Developed Countries. The General Council agreed to create a system of monitoring the degree of market-opening and has instructed the WTO to improve our coherence with the World Bank, the IMF, UNCTAD, UNDP and the International Trade Centre in operating the Integrated Framework of support for LDCs.

Constant monitoring of LDC market access offers ensures that the issue will be on our front burner for years to come, but lasting, profound change will probably only come inside a round. We, at the WTO, have already begun to improve our play in the Integrated Framework, and I will soon meet with senior officials from the other five organizations to press forward with necessary improvements in assisting the world's poorest nations to move in from the sidelines of the world trading system.

All these achievements have gone a very long way toward restoring confidence in the WTO and the world trading system. Is this sufficient for the launch of a new round? The launch of a new round requires consensus of our member governments and at the moment several developing countries have made clear that they see no automatic linkage between the confidence-building measures and the start of a new round.

Personally, I have not seen the necessary flexibility from member governments on issues like investment, competition and labor standards to give me confidence that a new round can be launched in the short-term. But I am doing all I can to make it happen. Should the launch of a round not be possible this year, it does not mean we will not be busy in Geneva. Our work in agriculture, services and implementation will keep us very busy. I suspect, as well, that absent a new round, other issues will come to the forefront in our consultations here.

I put the odds on the launch of a new round this year at about 20 percent, not great odds perhaps, but long shots have certainly come through before. If there is to be a round, much will depend on the demands put forward by the biggest kids on the block, the United States and the European Union. Realistic positions from Washington and Brussels, positions which reflect not only their national interests but the sensitivities of developing countries offer the most promising way forward. The world awaits their decision.