Jagdish Bhagwati
Columbia University

The North-South divide that was fully exposed at the World Trade Organization (WTO) Ministerial meeting in Seattle in December 1999 was one of many factors that contributed to the failure to launch a new round of multilateral trade negotiations at that time. Since the world trade system works by consensus, the developing countries have to be brought onside in order to achieve the launch that ministers, trade officials and the WTO are actively working toward. The following are some key elements of a framework that would work for the developing countries.

The concept of different economic systems for developing versus developed countries (special and differential measures, in the parlance of trade policy) has essentially been discredited: it is now understood that there is a single economics for all. Institutional differences must be taken into account when applying this same economics; the developed countries, however, are looking for some reciprocity. By implication, developing countries will not get a "free lunch."

Indeed, one reason why the trade system has not worked all that well for developing countries (some countries have "graduated" while others have regressed) was that they never did have much of a free lunch. The system of consensus on a most favoured nation (MFN) basis works against those who make no concessions; thus the developing countries that offered little got little. For example, key markets such as textiles and agriculture remain subject to tight restrictions that are only now being incrementally eased as a consequence of the Uruguay Round.

It is essential that developing countries come to accept that their future participation in trade will depend on an exchange of mutual benefits -- in other words, they must be fully part of the "give and take" of trade negotiations.

There is first a need to understand that this perception exists and that it needs to be addressed. The concept of general equilibrium shows that everything is eventually related to everything else. This is not very helpful, however, and some lines will have to be drawn as to what is trade and trade-related policy -- and what is not. Several, if not many, of the issues that have been brought into the realm of trade policy issues are in fact broadly trade-unrelated. Continuing to deal with them in a trade context is damaging to the cause of getting developing countries to support a new round.

The Trade-Related Intellectual Property Rights (TRIPS) agreement concluded in the Uruguay Round was the first intrusive element and has had many, largely unanticipated, consequences. On the economics of the issue, while there is arguably some limited need for patent protection, the evidence does not show much of a supply-side effect on production from intellectual property rights protection.

Moreover, TRIPS does not involve mutual gain; rather, it positions the WTO primarily as a collector of intellectual property-related rents on behalf of multinational corporations (MNCs).¹ This is a bad image for the WTO and in the view of many, especially the non-governmental organizations (NGOs), reflects the "capture" of the WTO by the MNCs.

Several high-profile cases in recent years have entrenched this perception among NGOs and underpin their claim that the WTO should do the same for nature, human rights and other causes. At present, the General Agreement on Tariffs and Trade (GATT), General Agreement on Trade in Services (GATS) and TRIPS form a tripod within the WTO. But the tripod threatens to turn into a centipede as other issues are introduced. It is scarcely surprising, given the way that the NGOs frame these issues -- the name of the game being to encourage the use of trade sanctions to advance their agendas -- that they are perceived as threats by the developing countries, undermining for them the traditional perception of the WTO as a safeguard for the weak against the large players within the trade system.

In particular, labour and social issues need to be separated from trade sanctions -- indeed, they need to be moved completely out of the trade picture. The United States and European Union pushed for a working party at the WTO Ministerial; however, while the U.S. was saying that this was "not a foot in the door," the developing countries saw it as "two feet in the door." President Clinton's statement that trade sanctions were in the picture had an electrifying effect on developing countries in Seattle.² To get developing countries into the trade round, children’s/workers’ issues, legitimate as they are, need to be clearly moved to the International Labour Organization (ILO), where they can be addressed without the threat of trade sanctions.³

For better or for worse, environment is well established in the WTO. The Dispute Settlement Mechanism is already pronouncing on the issues, and developing countries cannot afford to be on the sidelines. Of particular concern to the developing countries is that processes and production methods (PPMs), which experience has shown can be used for trade protection purposes,⁴ have been addressed within the context of the Dispute Settlement Understanding (e.g. the shrimp-turtle decision), although it is an open question whether issues such as those surrounding PPMs should be negotiated rather than litigated within the WTO.

Having environment dealt with at the WTO raises many issues -- in particular, the compatibility of trade rules and the environment accords needs to be sorted out. At a minimum, a grandfathering approach needs to be established. This is an argument to get developing countries into negotiations because they stand to lose if judges and other legal experts are left to decide the issues in the WTO.

The effort to negotiate a Multilateral Agreement on Investment (MAI) in the OECD touched raw nerves; this is a good time to keep investment issues low-key. At the same time, some sense of stakeholder commitment is needed from multinational corporations; having no obligations on MNCs is inconsistent with where Western societies are heading.⁵

This issue, and competition policy as well, is being pushed primarily by the European Commission without an apparent or clear political rationale.

There are three elements to the concerns about the democratic deficit: negotiations, dispute settlement and everyday work. There is no problem with letting the world see what goes on in the WTO, including in the dispute settlement process. The WTO should open its doors, but NGO observer status and/or direct participation are false issues. The democratic deficit issues need to be sorted out because developing-country positions have hardened against NGO participation in negotiations following Seattle.

The position of the International Monetary Fund/World Bank paper on trade and development -- which proposes free market access for products from heavily indebted poor countries (HIPCs) -- is problematic in that it risks simply shifting limited market access around amongst the poor rather than creating significant new market access for less-developed countries as a whole.⁶ As usual, textiles are the key. As for trade-related technical assistance (TRTA), ultimately countries have to fend for themselves.

If the developed countries are looking for appropriate signals, call the next negotiations a Development Round -- and consider Delhi as the site to launch it.

America is different. A key difficulty for the world community is the way the United States approaches culture and thus how to deal with the U.S. on this issue multilaterally. The United States does not see cultural imports as a threat; indeed it imports and absorbs culture from everywhere. Moreover, the U.S. is a "pill popping" culture -- hence its relaxed view on genetically modified organisms (GMOs). By contrast, European fears of GMOs reflect cultural proclivities. Accepting that cultural diversity is a good thing, alternative ways need to be found to protect culture, since restrictions on market access will not work. Ultimately it is not desirable to dictate to consumers what they should see or read – subsidies, for example, can be used effectively.

China's accession will be beneficial from many perspectives. Not least, it will remove China from U.S. special considerations. As the U.S. actions on Russia's steel exports showed, the United States itself will benefit from having to play by the rules, in that this prevents arbitrary actions harmful to its own constituents.

But China will be hard to move (it is the proverbial 800-pound gorilla) and so progress will be slow even after accession. The point is to get it moving in the right direction. In this respect, the WTO could well be the "bull in the china shop" that helps move it down the right path. For the developed countries, the best policy otherwise might be described as the "open mouth" policy -- be a "mosquito in the ear" that keeps putting the message incessantly.

GATS safeguard mechanism: Acknowledging that a safeguard would facilitate entry into wider commitments by developing countries in the services area, it is difficult to think of a suitable mechanism -- a standstill was one idea advanced. This issue was widely discussed in the Uruguay Round without resolution.

Agriculture and multifunctionality: It is hard to see how this argument can be considered consistent with free trade. There are alternative mechanisms to achieve stated goals.

The WTO needs to have a mix of policy, law, economics and political/diplomatic input to be successful. The transparency issue is real and the WTO needs to be forthcoming; NGO representation is not a real issue. Some issues, if included in the framework of trade negotiations, would be "poison pills" for the developing countries and as such would prevent the launch of a new round. Labour and social issues need to be dealt with in other forums. Investment and competition policy should be put on the back burner. Developing countries need to engage on trade and environment as it is currently playing out in the WTO. However, it is not clear that what is left on the table creates the basis for broad-based or comprehensive multilateral trade negotiations.

1 | This and other concerns emanating from the WTO's role in trade disputes have led some to consider the creation of a World Trade Court or to advocate shifting the Dispute Settlement Mechanism to the International Court.

2 | The U.S. action was highlighted on the day of the NGO meeting in Seattle. The 1930 Trade and Tariff Act was used to take this issue to the WTO; if it gets into the WTO and the WTO strikes down the U.S. action, it was argued that the NGOs will use this as ammunition to say that the WTO is pro child labour.

3 | Trying to get at the child labour issue in South Asia via trade is counterproductive -- an OXFAM study in Bangladesh showed that a ban on child labour drove girls into prostitution. It was argued that the World Bank and International Monetary Fund should also remove themselves from these issues; indeed, even UNCTAD [UN Conference on Trade and Development] is difficult for developing countries because of the "T." The way to go is via ILO programs to get children into school. Apropos this issue, the fact that the United States is not signatory to many ILO conventions is not a sign of non-engagement, but simply a reflection of the fact that the U.S. does not sign on to promises that it cannot deliver on -- unlike many countries that sign everything and can deliver little. One reason for this is the very complex institutional setting. The U.S. ratification process is very difficult and, moreover, there are private enforcement mechanisms in the U.S. not available in other countries.

4 | See, for example, the famous case of Swiss restrictions on German cheese, which were based on processing requirements but were transparently protectionist in intent. A description of the shrimp -turtle case may be found on the WTO website (http://www.wto.org/english/tratop_e/envir_e/edis00_e.htm).

5 | However, pushing for "living wages" is not a good way to go -- this benefits those already with jobs in the developing countries, not those on the outside looking in.

6 | This is one aspect of a larger problem: trade is mutually beneficial provided it is non-coercive -- this is true for the trading partners directly affected, but how about for third parties? Major initiatives such as the Uruguay Round have an impact on marginal countries, and that is where the international financial institutions should come in. The bananas case showed how an E.U.-U.S. dispute can affect mainly Caribbean countries, but the World Bank did not take a leadership role on their behalf.