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Optimists claim that the debacle in Cancún is just a temporary setback. As old trade hands were quick to point out, world trade summits have an unfortunate habit of failing: just cast your mind back to Seattle in 1999, Brussels in 1990 and Montreal in 1988. Eventually, though, negotiators haul the show back onto the road and a deal is clinched. It may happen again this time. But what if the acrimonious breakdown of the World Trade Organisation’s Doha round last September is actually much more serious? We cannot afford to be complacent. If the WTO is in serious trouble, the consequences could be devastating  not just for international trade, development and the world economy, but also for multilateralism and global progressive politics.

Pessimists can point to a worrying pattern of failure. 10 years have elapsed since the conclusion of the Uruguay round, the last big market-opening deal. The fault lines  notably, agriculture  on which negotiations repeatedly founder are clearly deep-seated. The WTO seems to lurch from mishap to misfortune: riots in the streets of Seattle, bruising battles over bananas, hormone-treated beef and much else besides, and now the stand-off by the beaches of Cancún. Even its biggest recent success, the launch of the Doha round, owes much to chance. It occurred only two months after September 11th, when governments wanted to make a show of working together to calm jangled nerves and restore confidence in the global economy. Until then, a new WTO round had looked unlikely; since then, it has scarcely progressed.

Some on the Left can scarcely contain their delight at the collapse of the talks in Cancún. They consider the WTO a tool of American and/or corporate power, which enforces unfair rules that entrench US and/or corporate control. Somewhat paradoxically, the same people also often see the WTO as a handmaiden of ‘neo-liberalism’ that destroys, or at least undermines, government regulations. Critics therefore consider the WTO a threat: to workers, the environment, the poor and even democracy itself  indeed, to pretty much anything they hold dear.

Yet this is plainly nonsense. Although the WTO is not perfect  indeed, it urgently needs reform ­ a rules-based system, which protects the weak in a world of unequal power, is far better than the law of the jungle, where might equals right. Because its rules apply equally to all, the WTO acts as a curb on US and corporate power: witness the Bush administration’s recent climbdown on steel after the WTO judged that the US tariffs were illegal. Nor is the WTO a threat to social democracy. Free international trade does not preclude active government intervention domestically: just look at Denmark, a small open economy with a generous Welfare State, strong labour rights and exceptionally high levels of environmental protection. And while the WTO ought to be more open and accountable, it is hardly undemocratic. Representatives of our elected governments negotiate on our behalf; every country has a veto (unlike at the United Nations, where only big powers do); and WTO agreements are ratified by parliaments.

The WTO is a vehicle of progress. Lest we forget, trade liberalisation has been the engine of the world economy over the past half century, boosting living standards in rich countries and helping millions of people in developing countries such as China escape poverty. The sustained economic growth that springs from trade liberalisation is a prerequisite for funding improvements in public services and helping the poor. Trade with developing countries is a mutually enriching form of international solidarity. Indeed, the Doha round’s potential to tear down remaining trade barriers, notably in agriculture, is central to many poor countries’ development hopes. And the assumption that global markets will remain open underpins the nascent economic recovery. Confidence – that all-important catalyst for economic success – rests on the stability and predictability of transparent and consistently enforced rules.

But there is another important reason why all progressive people have a stake in the WTO’s success. On its young and fragile shoulders rest the best hopes of showing that multilateralism can still work. A progressive vision of international relations requires that arbitrary power ­ however benevolent  be constrained by generally agreed and impartially enforced international rules that apply equally to all: big and small, rich and poor, strong and weak. Multilateralism is the means; the end is a fairer, safer, richer and greener world of greater opportunity for all.

Multilateralism has taken quite a battering in recent years. The Bush administration appears to believe that international rules should bind others, but not America. It revels in the United States’ unrivalled power and rides roughshod over those, within America as well as in Europe and elsewhere, who object. Such is America’s primacy that in most areas even its allies can at best aspire to exercise a voice of influence. With one big exception: world trade.

In international trade, a multilateral approach stands a better chance of success than elsewhere. For a start, America’s economy is not as dominant as its military. It accounts for only 21 per cent of the world economy and 12 per cent of global exports. The European Union, which makes up 20 per cent of the global economy and 39 per cent of exports, is its economic equal. Even excluding intra-EU trade, the EU accounts for 19 per cent of global goods exports, to the US’s 14 per cent. Indeed, Germany alone recently overtook the US as the world’s biggest exporter. Nor, despite all the hype, has America been the locomotive of the world economy in recent years: China has delivered a bigger share of global growth.

In the world economy, the US is not the only game in town. Moreover, whereas political relations are typically a zero-sum game, economic relations are positive sum. Every country ­ however weak or powerful  has an incentive to engage with the rest of the world to reap the mutual gains from trade. In economics, the clichés about living in an interdependent world are true. Even for America (or Europe), the costs of trying to go it alone economically would be huge.

The WTO itself has many unique strengths. With China’s accession in 2001, and Russia and Saudi Arabia among many countries queueing up to join its 148-strong membership, the WTO encompasses  or will soon include  nearly every significant trading country. Moreover, unlike talking shops such as the United Nations Environment Programme, the multilateral trading system has produced results: five decades of liberalisation. Unlike the International Labour Organisation, it has teeth: a dispute-settlement mechanism enforced by sanctions. And unlike the International Monetary Fund or World Bank, its rules are binding on all countries  even the United States. Perhaps most importantly, and despite the constraints it implies, it still commands America’s full support, unlike the United Nations, the Kyoto Protocol or the International Criminal Court.

Unfortunately, a combination of factors is hampering the WTO’s effectiveness. Since the end of the Cold War, and especially since the bitter battle over the North American Free Trade Agreement (NAFTA), the United States is no longer willing to take the lead in opening up world markets. Freeing trade was once seen by most Democrats and Republicans as an essential part of the war against communism; few consider it vital to President Bush’s war on terror. The NAFTA debate shattered the free-trade coalition: right-wingers like Ross Perot and Pat Buchanan joined left-wingers like Ralph Nader in warning of the ‘giant sucking sound’ of good US jobs disappeared to Mexico.

President Bill Clinton only secured Congressional support for NAFTA by tacking on side-agreements to ensure that Mexico did not compete unfairly by abusing labour and environmental rights. But this tactical victory came at a big cost: unions and many Democrats felt cheated when the side-agreements proved less binding than they wished, while companies and many Republicans feared that they might become too stringent. The upshot is that the US is not only divided as never before on trade, but that it has swung much further in a protectionist direction. Both George Bush and John Kerry pay lip service to free trade, while promising to protect constituencies that feel threatened by it. At the WTO, the US demands better access to foreign markets but is unwilling to reciprocate with big liberalising moves of its own. The US is not yet an obstructionist, but it is certainly no longer a leader.

Sir Leon Brittan, Pascal Lamy’s predecessor as EU trade commissioner, dreamed that Europe could take up America’s baton. But this has yet to happen. The EU has always been a reluctant liberaliser, keener on creating a single European market than a single global one. It is hamstrung too by the need to secure approval from 15  soon-to-be 25  member governments with diverging views and interests. But by far the biggest obstacle to Europe playing a constructive role at the WTO, let alone exercising global leadership, is its stubborn defence, in an unholy alliance with Japan, South Korea, Norway and Switzerland, of the Common Agricultural Policy. This poisons relations with big agricultural exporters and many developing countries, for which freer farm trade is a key demand. Worse, it gives the EU a vested interest in seeing the Doha round fail, or at best achieve only modest results, since Europe is not prepared to give ground in an area where others consider progress essential. Now that the Bush administration has responded by upping American farm subsidies to $190 billion over 10 years, the US could yet emerge as a foe of freer farm trade too.

Together, European and American farm subsidies conspire to deny developing countries’ vital export opportunities. They also give succour to those who believe that rich countries prosper from protectionism and that poor countries would therefore be ill-advised to open up their own markets. Yet the main benefits from trade liberalisation arise domestically: if developing countries keep their markets closed because they are denied export opportunities in rich countries, they are shooting themselves in the foot. People, especially the poor, have to pay higher prices; firms face less competitive pressure to become more efficient; economic growth in general is slower. The pattern of dependency on the West is also entrenched, since by keeping their own trade barriers high, developing countries stifle trade among themselves.

Exacerbating this deadlock over market access are serious issues about rules and process. The Uruguay round, which gave birth to the WTO in 1995, burdened developing countries with a set of rules that are often costly to implement and sometimes inappropriate. In particular, they must enforce the same stringent intellectual property protection  patents, copyrights and trademarks  as rich countries. This not only impedes development, by increasing the cost of using technical knowledge. It also endangers lives, because it forces up the price of life-saving drugs to combat AIDs and other killer diseases. The WTO’s intellectual property agreement is harmful in itself. But it has also made developing countries wary of signing up to new rules in areas that would actually benefit them, such as transparency in government procurement or trade facilitation (helping goods clear customs more quickly and cheaply).

Another difficulty is that WTO rules increasingly impinge on sensitive areas of primarily domestic regulation such as food safety and environmental protection. Most explosively, the US is challenging the EU’s system for approving genetically modified crops at the WTO, alleging that it is unduly slow and burdensome, and thus in effect protectionist. Although the US is right that the EU’s failure to approve any GM crops since 1998 acts as a protectionist barrier that aids European farmers at the expense of American ones, the bigger picture is that most European consumers, for health and environmental reasons, do not want to eat them, or even see them planted in Europe. At the heart of the issue are differing tastes and attitudes to risk that are not always compatible with free trade. Pascal Lamy’s office has suggested that new WTO rules are needed to accommodate such differences in ‘collective preferences’, allowing countries to restrict trade if necessary. But existing WTO rules allow the EU to maintain, for instance, its ban on hormone-treated beef. For sure, it pays a price for this, as the US has retaliated by imposing punitive tariffs on some European exports. But the EU could avoid this if it chose to reduce its trade barriers in other areas as compensation for the damage to US interests caused by its beef ban.

More broadly, the WTO’s legitimacy is undermined by not being transparent and accountable enough. This lack of legitimacy provides populist cover for vested interests in rich and poor countries who oppose freer trade for their own sakes. And it gives the pressure groups who demand a seat at the table, those self-styled representatives of true popular opinion, greater scope to impede (mostly elected) governments’ work at the WTO. Unlike governments, they have no incentive to compromise  indeed, they lambaste governments that make the necessary compromises to achieve a deal.

The longer the Doha round is stalled, the greater the risk that governments will conduct their trade policy through other means. The greatest danger is not economic isolationism. Although a limited return to protectionism is quite possible, a wholesale retreat behind national tariff walls is unlikely because it would clearly cost all countries, not least America, dear. But there are still potentially alluring alternatives to multilateralism: a unilateral, bilateral or regional approach. America’s Helms-Burton act, for instance, unilaterally penalises companies and countries that trade with Cuba. The US has bilateral trade pacts with countries such as Israel, Jordan and Chile. And it aims to extend NAFTA, its regional deal with Canada and Mexico, throughout the Americas (except Cuba).

The EU professes to be the global champion of multilateralism. Yet it is no stranger to unilateralism: think of its ban on hormone-treated beef. It has bilateral deals with most of the rest of Europe, North Africa and the Middle East, as well as with South Africa. And, itself a product of regionalism, it aspires to looser regional links with the four Mercosur countries in South America and a panoply of former European colonies in Africa, the Caribbean and the Pacific. Taking into account the 100 or so other poor countries covered by the Generalised System of Preferences, the EU’s network of preferences already covers most of the world. In fact there are only six countries  Australia, Canada, Japan, New Zealand, Taiwan and the US  with which it trades on a ‘normal’ basis.

Bilateralism and regionalism can, to some extent, coexist with a successful multilateralism. But it is a delicate balance  and the longer progress at a multilateral level remains blocked, the greater the danger that the global rules-based system could be permanently undermined by a tangled web of overlapping preferential pacts that tie the world economy up in knots.

What, then, needs to be done? The immediate task is to get the Doha round going again. Above all, the EU needs to be willing to negotiate meaningfully on agriculture. Removing the tariffs and subsidies that distort farm trade does not preclude the EU helping farmers in other ways, by paying them to look after the countryside, for instance. It would also enable the EU to reap gains in other areas, such as services trade. If the EU is serious about making multilateralism work, both to curb US power and because it is fairer than the alternatives, it has to be willing to accommodate most other WTO countries’ demands for freer farm trade.

The greater challenge is to restore popular support for the WTO in particular, and globalization in general. Politicians need to be more forthright in putting the case for globalization in terms of increasing opportunity and choice. But they also need to do more to help people adjust to economic change, whether driven by domestic productivity gains or foreign ones. The US could take a leaf out of Europe’s book by providing a more generous safety net when people lose their jobs. It should also make it easier for workers to hold on to their health and pension benefits when they lose their jobs, with the ultimate aim of providing healthcare and security in old age for all. Europe needs to reform its labour and product markets, so that people can more quickly shift from yesterday’s jobs to tomorrow’s without spending years wasting away on the dole. Both America and Europe need to do more to equip their workers with the skills needed to move to new and better jobs.

More broadly, progressives need to be clear that far from threatening government action, globalization complements it. It provides the means to pay for social democratic policies. And it may increase the demand for them if it increases the pace of economic change. The flirtation of some mainstream progressive parties with the anti-globalization agenda, in France and Italy for instance, is a blind alley. It would align the Left with the Luddites, on a course opposing modernity and progress, at huge economic and social expense.

We also need to look at new ways to tackle the problems thrown up by the differences in labour and environmental standards across the globe. Restricting trade is not the answer: it would condemn poor countries to penury, stifling the economic growth that ultimately increases the demand for, and provides the means to pay for, higher labour and environmental standards. We also need to accept that labour standards are necessarily lower in poor countries than in rich ones. This is neither a sign of exploitation nor a source of unfair competition: it is a consequence of poverty. Even so, there are basic standards that should apply everywhere.

The International Labour Organisation has drawn up four core labour standards: the right to set up a free trade union, including the right to strike and bargain collectively; the abolition of forced labour; a ban on the worst forms of child labour; and the elimination of discrimination in employment and occupation. All ILO member governments have signed up to these standards, but many do not enforce them. Rather than impose trade sanctions, rich countries could pay into a fund that gave aid to poor countries that the ILO deemed were in compliance with its core labour standards. That would give poor countries a big incentive to clamp down on sweatshops, whoever owns them and wherever they sell to. It would reward good behaviour, rather than punishing bad. And it would not be open to protectionist manipulation.

The time has also come for an effective World Environment Organisation (WEO). Action to tackle environmental problems is haphazard, patchy and uncoordinated. A sprawl of environmental law  over 200 separate multilateral environmental agreements  is not a substitute for focused, joined-up action. The world needs an authoritative global voice on the environment to match that of the WTO on trade or the WHO on health, a body to drive research and share information, and a forum for debating environmental issues and resolving disputes. Without a WEO, the environment will suffer more, and bodies that are ill-suited to dealing with green issues, such as the WTO, will be pressed into doing so as a second best.

Last but not least, we need to reconnect the WTO with voters. The WTO needs to do away with its culture of secrecy. In a democratic age, it is simply unacceptable. Even when the WTO does good, it is treated with suspicion because decisions  trade negotiations and dispute-settlement hearings  are made in private.

Defenders of the status quo object that the WTO will grind to a halt if it becomes more open. But that is not a valid defence. Our parliaments meet in public so we can see what is being decided in our name. Our courts operate in public so that we trust that justice is being done. Trade policy is now too important to people’s lives to take place in private. If that forces governments and lobbyists to behave more respectably, all the better. It may even make trade negotiations easier not harder, because governments might be too ashamed to face the public with their brazen defence of sectional lobbies at the expense of the national interest. And it would dispel fears that the WTO is conspiring to take over the world.

Greater openness is one requirement. But the WTO also needs to be more accountable. It is a government-to-government organisation, so it is mostly held to account through its member governments. Yet governments also need to develop better procedures for informing parliaments and voters about their work at the WTO, just as some EU members have done about their work in Brussels. The US is a model in this respect. National parliaments (as well as the European one) should also more become involved in the WTO’s work. Parliamentarians could hold hearings before or after meetings, and could themselves become national delegates to WTO meetings.

It is time to move beyond the old dividing lines of pro- and anti-globalization and seek instead to build a better globalization. Through the actions of elected governments, we can harness the vast potential of globalization to create a better world of opportunity for all. The starting point is reviving the Doha round.

Posted 01 Mar 2004 in Published articles

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