WTO secretariat uses expected slowdown to push for a new Round

by Chakravarthi Raghavan

Geneva, 23 May 2001 - World merchandise trade, which grew at an estimated 12% rate by volume in 2000, is facing a sharp slowdown and is expected to grow by about 7 percent in 2001, the World Trade Organization projected Wednesday in its annual report.

But Karl-Michael Finger, the WTO official responsible for Economic Research and Analysis, admitted at a press briefing that even this 7% estimate may be a ceiling, and that the trade growth may be much lower given the indications of the performance of the European economy.

The WTO secretariat in its annual report 2001 has used the ‘clouded’ prospects for trade and output growth, following the slowdown in the United States (after the long expansion from March 1991) and the uncertain outlook in Europe, to make a pitch for the launch of a new round of trade negotiations.

And in doing so, it has promoted the need for a ‘broader agenda’ (a code word used by the EU, Japan and others for negotiations covering new issues including investment, competition, government procurement etc) that the WTO Director-General Mike Moore and high secretariat officials have been promoting single-mindedly despite the differences among the membership on this issue over the past year and more.

The secretariat views the odds in favour of launching a new round at Doha as improving.

The report said that the value of world merchandise trade reached $6,180 billion in 2000, and value of commercial services trade at $1,415 billion. This represented a 12.5% rise in merchandise trade in 2000 over 1999, and of five percent in commercial services trade over 1999.

Considering that the attempts to promote a new round with new issues collapsed at the Seattle 3rd WTO Ministerial in such a fiasco, world output and trade seemed to have done very well after the shock.

But the secretariat has sought to back up its promotion of a new round with the argument that the trade rules and disciplines of the organization help restrain protectionist pressures and keep markets open, and that this reduces the severity of a downturn and brings earlier recovery.

“This is especially true when a formal round of multilateral trade negotiations is under way,” the report says.

GATT/WTO trade economists, and free trade ideologues, postulate their case for periodic trade rounds and trade liberalization exercises on the premise that this sends a strong signal to the business community, unleashes the ‘animal instincts’ and results in investment and output growth and increased trade.

However, it is as easy to argue that strong output growth, spurred by macro-economic policies, rise in employment and earnings leading to increased consumption leads to increased trade as the other way round, since in any event trade essentially and directly helps to redistribute the benefits of growth, and only indirectly to the benefits leading to more investments and output growth.

And, if the postwar history of business cycles of expansions and downturns are examined, there have been as many cases of correlation or association between trade rounds and downturn as of trade rounds and expansion, and a trading system and its promoters can’t claim credit for one without also claiming responsibility for the other.

Recessions technically are counted as such when there is contraction of output for two consecutive quarters, though the onset of downturns or upswing in economies can only be recognized retrospectively.

In the United States where generally data are more easily available and over a long period of time, the National Bureau of Economic Research has tracked the US business cycle expansions and contractions, including the dates of the bottom of the trough of the business cycle and the peak, the duration of the expansions and contractions, and the dates when the actual troughs and peaks were recognized and announced. And most, if not all, the long expansions appear to be correlated to war-time expansions.

Prior to the GATT Kennedy Round, all tariff negotiations were on bilateral basis, subsequently multilateralized, and thus on a product-by-product, and request-and-offer basis, and thus product/sectoral tariff cuts were tailored by those demanding and receiving to their domestic conditions and could not and did not have direct economic- wide effects of ‘liberalization’. Only in the Kennedy Round (1964-67), after the amendment to GATT introducing Art. XXVIII bis, was it possible to have general tariff liberalization efforts.

The Kennedy Round was launched in 1964 and concluded in 1967, during a long period of economic expansion (associated with the Vietnam war). The trough of the US business cycle was in February 1961 and the economy grew for the next 106 months until December 1969, when the downturn started.

The Tokyo Round was launched in 1973 but virtually went into hibernation, with some serious negotiations only in 1979. Far from the launch of the Round in 1973, providing a boost, the US business cycle (and that of the world economy) took a downturn, suffering from stagflation. The peak of that business cycle was in November 1973, and then the downturn began reaching a trough in March 1975.  The Tokyo Round was concluded in 1979. But the upturn, which had been in progress since 1975, reached its peak in January 1980 and began a downturn, reaching the trough in July 1980.

The data is such that no positive or negative correlations can be conclusively set, leave aside a cause and effect correlation to trade negotiations, their onsets and conclusions.

The secretariat report says that a number of factors were behind the “lack of progress” at the Seattle Ministerial meeting of December 1999 and identified the chief among the causes as: concern on the part of many Members regarding opportunities for all WTO members to participate in the deliberations and decision-making on important issues; the perceived difficulties many developing and least developed countries have in implementing the new obligations agreed in the Uruguay Round; and important disagreements regarding what should be on a new negotiating agenda.

The report then claims: “Intensive discussions and negotiations this past year have produced progress in all three areas (especially in the first two), improving the prospect that the 4th session of the WTO Ministerial Conference - to be held in Doha from 9-13 November - will be successful.”

The report also claims that though it is not certain that the political will needed to launch a new round of MTNs will manifest itself this year, the prospects have “improved,” and cites progress on developing-country participation in the WTO system and the implementation issues.

The report then makes a reference to progress in negotiations on agriculture and services, and uses the term ‘many’ to project the view of the EC/Europe-Japan-Korea that “significant liberalization in these two sensitive areas will require a broader agenda in order to increase the opportunities for countries to make important trade-offs.”

There is no serious discussion and reference in the report, not even under the ‘implementation’ issues (which are viewed in terms of difficulties of developing and least developed countries to implement the obligations) that despite the very broad agenda of the Uruguay Round, there were no important trade offs to benefit the developing world, and this is the main thrust of their grievances now.

In some carefully couched language, the report even cites the critics of globalization to support the calls for a new round, saying that both governments and critics of globalization share the growing perception of the importance of a global framework of multilaterally agreed, enforceable, non-discriminatory rules and disciplines to guide trade relations in an open and equitable way.

The secretariat argues that many member governments and WTO critics agree that adjustments to the WTO rules are needed if the trading system is to better reflect the social, economic and political conditions of a rapidly changing world, but that agreement remains elusive on how existing rules should be changed or whether new rules need to be agreed.

The report then says: “But even the sternest critics of globalization today point out the dangers of a completely ‘hands off’ approach to commercial relations in an increasingly integrated and interdependent world and warn that the alternative to multilateral rules is reliance on the law of the jungle.”

That the advocates of a WTO liberalization regime, where governments are forced to take a ‘hand-off’ approach to trade and economic activity in their countries and across their borders, could cite critics of globalization (who make no bones of their opposition to the neo-liberal dogma and policies) to claim support for the WTO approach to commercial relations, is not merely a case of the devil quoting the scripture, but the extraordinary straits in which the WTO trade officials are finding themselves.

The report notes that the WTO functions on the basis of consensus, essential for the acceptance and enforcement of its rules, and then claims that this also gives negotiating agendas “a solid basis in democratic legitimacy and accountability”.

It makes making the evolution of an agenda a complex process, calling for flexibility and realism on all sides, the report says and adds: “Launching of a new round or a wider set of negotiations is among the most difficult subjects for consensus-building, second only to concluding negotiations” and these points appear to be well- understood as informal discussions on a possible agenda intensified.

“No one can yet predict whether the factors favouring the launch of a major new round at Doha will prove strong enough to outweigh the difficulties, though - as noted above - the odds in favour are improving.”  - SUNS4902

The above article first appeared in the South-North Development Monitor (SUNS) of which Chakravarthi Raghavan is the Chief Editor.

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