GLOBAL ECONOMICS


Patrick Grady and Kathleen Macmillan
Looking Ahead
from Seattle and Beyond: the WTO Millenium Round (1999), Chapter 15.

The Millennium Round Gets Underway

After the end of Seattle's four-day stint as the protest capital of the universe, it will be back to business as usual and the WTO Millennium Round will be officially underway. The Seattle Ministerial Declaration, which was already circulating in draft form in Geneva in September, will set the parameters of the talks. In addition to the WTO committees, which will still continue to function in support of the talks, the traditional negotiating structures will be created. Negotiating committees will be set up to deal with the main issues. Working parties will be established to grapple with more technical questions. Bilateral negotiations will be scheduled. And all will be governed by ambitious timetables with tight deadlines. There will be little time to waste arguing about the size and shape of the table.

The Millennium Round negotiations will have the largest number of participants ever. And many of the new participants will be transitional or developing countries, that export resources and labour intensive goods and have much different concerns than the industrialized countries. This will make for a much more complex negotiations and a more volatile negotiating dynamics. In addition, huge external imbalances, including most notably a US trade deficit of $250 billion, have been allowed to build up to unsustainable levels to promote recovery from the Asian crisis. The need to reduce these imbalances will be a source of friction in the trade round. On the other hand, the issues are easier this time than in the Uruguay Round. The WTO already exists and doesn't need to be created out of nothing. Most of the difficult areas outside the GATT were already brought into the rules-based trading system.

The Negotiating Agenda

The Quad countries, particularly the United States and the European Union and to a lesser extent Japan, will as usual be in the driving seat for the Millennium Round. Canada will be going along for the ride, but maybe able to do some selective back seat driving. Other countries, especially the developing countries, will be even further away from the steering wheel, and less likely to influence the direction of the vehicle. But to get a final agreement it will be necessary to find something that is acceptable to a majority of them as well as to the United States, the European Union and Japan.

The big issues are already on the table in the position papers prepared by the main players. The APEC Leaders meeting in Auckland in September was a dry run for Seattle, minus the EU. The accommodation reached there provides an indicator of the likely parameters of the Millennium Round negotiations. The Leaders' Declaration called for a new round that would:

This language of the declaration was carefully crafted to embrace the positions of all the participants, particularly the Americans and the Japanese. The Japanese desire for comprehensive, single undertaking negotiation was accepted without precluding the possibility of an early harvest of provisional sectoral agreements as was sought by the United States. Such sectoral agreements could include those covered by the Accelerated Tariff Liberalization initiative, which the United States is pushing and which had its origin in APECs EVSL initiative. The sectors covered are: chemicals; energy equipment; environmental goods; fish and fishery products; gems and jewelry; medical equipment and scientific instruments; toys; and forest products. Japan has dug in its heels in the fish and forest products sectors.

A three-year time frame was endorsed in the Declaration reflecting the American objective of keeping the negotiations "manageable." It probably represents wishful thinking given the number and complexity of the issues likely to be on the table. But it is necessary to set an ambitious timetable to make sure that the negotiations don't go on forever like the Uruguay Round.

The need to abolish agricultural export subsidies and prohibitions and restrictions was emphasized. This is an objective that is strongly supported by APEC agricultural exporting countries like the United States, Canada, Australia and New Zealand and by some of the ASEAN agricultural exporting countries. It was much less enthusiastically embraced by Japan, a country that is known for its protectionist agricultural policies. It also won't be welcomed in Europe whose Common Agricultural Policy is its chief target.

The question of modalities for the market access negotiations was left open. They could be zero/zero initiatives, proportional, offer-request, harmonization, or peak tariff cuts. Nothing was said about the desirability of lowering bound tariff rates to the level of applied tariffs.

No mention was made of the American objective of doing something on core labour standards and the environment. The developing countries of Asia, and even Japan, don't see any need to do anything in these controversial areas. There is a concern that any such initiatives could easily turn into some form of disguised protectionism to their disadvantage.

In its informal paper on the Millennium Round, the EU also accepted the need for a comprehensive three-year round covering the built-in agenda of agriculture and services as well as industrial tariffs. The EU argued in favour of a single undertaking, but allowed the possibility of an early harvest as long as the final package did not become unbalanced.

Agriculture is an area where the EU parts company from the APEC consensus. The EU's negotiating position for agriculture, which was approved in September by agricultural ministers, calls for a defence of production subsidies. The rationale is that domestic producers with higher production costs resulting superior standards of animal welfare or environmental protection need to be protected from low-cost competition. The EU also seeks rules on the use of export credit guarantees.

Still smarting from the loss of the recent WTO panel decision on hormone-treated beef and facing consumer concerns about the health risks of genetically modified foods, the EU will be trying to make its approach to food regulation WTO-consistent. This will entail more recognition of the legitimacy of the precautionary principle in regulating foods and/or some weakening of the science test that must be met to ban foods considered hazardous to health. The US and Canada, which were on the winning side of the WTO case, can be expected to resist.

The US and EU will be seeking more market access in the service sector. But the EU is calling for "cultural diversity" to be taken into account in liberalizing the trade in audio-visual services.

The US initiative to develop an Agreement on Transparency in Government Procurement seems to have been proceeding well. It will likely be an early harvest of the Millennium Round at Seattle.

The US, which proposed the moratorium on tariffs on e-commerce, has been championing a permanent elimination of tariffs and barriers. Other countries are likely to go along with the proposal as long as e-commerce is defined narrowly enough, but the devil will be in the details.

Investment is a very sensitive issue politically in the United States and Europe. While there is a recognition of the benefits to be derived from multilateral rules for investment, there is also a reluctance to push the issue too hard lest it stir up the same sort of opposition that scuttled the MAI negotiations and jeopardize other objectives of the Millennium Round. The Japan is pushing more actively for an investment agreement. It have proposed a bottom-up approach to the agreement such as was employed in the Uruguay Round service sector negotiations. Under this approach, countries have to make specific commitments with respect to particular sectors. Japan has also proposed that national treatment only be extended on a post-establishment basis and that the agreement not allow for investor-state disputes. The EU had a similar proposal, but is soft pedaling it, out of fear of a repeat of the MAI.

The EU is seeking to establish a common multilateral framework of rules and principles for competition policy. This is a new and complex area that is not a high priority in the United States and might meet resistance from that quarter if it seems likely to delay the conclusion of the round.

Japan is very keen on negotiating additional disciplines on anti-dumping. The recent application of US anti-dumping actions to the Japanese steel industry has reinforced their desire.

The EU is even more aggressive than the US in pushing for action on trade and the environment. But while the EU favours a strong statement on protecting labour rights and is calling for a new "forum" to monitor labour standards, it is against the use of trade measures to encourage the observance of core labour standards. Instead, it prefers to a "more cooperative and consensus-oriented approach" that includes the use positive measures.

There is also a lot of housekeeping that needs to be done to make sure that all the Uruguay Round agreements are working as they should and that all of the commitments are being honoured.

Table 3

Summary of Positions of Quad Countries on Key Issues in Negotiating Agenda

United States European Union Japan Canada
Three-year time frame yes yes yes ?
Single Undertaking if can be kept "managable" yes yes ?
Early Sectoral Results Accelerated Tariff Liberalization for 8 sectors as long as package doesn't become unbalanced concerned about forestry and fishing ?
Agricultural Subsidies cut defends not so enthusiastic about cutting ?
Food Standards Should be based on science, balance of risk Precautionary principle ? Should be based on science, balance of risk
Fishery and forestry early harvest liberalization ? not appropriate to isolate early harvest liberalization
Services Improved access Improved access, but take account of "cultural diversity" for audio-visual services ? ?
Transparency in Government Procurement Strongly support as early harvest support support ?
E-Commerce No tariffs or barriers goes along goes along goes along
Trade Remedies opposed to more disciplines status quo more disciplines ?
Investment if doesn't get in the way of other issues not too ambitious given previous failure at OECD bottom-up approach to admission,

post-establishment national treatment with no investor state

?
Competition Policy concerned could stall negotiations yes ? ?
Environment yes yes no ?
Labour standards yes yes, but no trade sanctions, forum no ?



Canada's Role

There are so many question marks in the table regarding Canada's position on the key Millennium Round negotiating issues because at the time this book was being written Canada had not yet released a position paper. It's not that no effort was made to study the issues. A discussion paper entitled Opening Doors to the World released in March by the Minister of International Trade launched an ambitious round of public consultations spearheaded by the House of Commons Standing Committee on Foreign Affairs and International Trade. The Committee issued its report Canada at the WTO: Towards a Millennium Agenda in June which provided the Government with detailed, if somewhat vague, recommendations.

It's unfortunate that Canada could not take the process that final step to produce an official position paper well before Seattle as the United States and the EU did. In the past Canada's influence in trade negotiations, which in the jargon of boxing enabled us to fight above our weight, stemmed from an uncanny ability to come up with creative positions on controversial issues early in the negotiations before the positions of the other players had crystalized. This time Canada will have to play more of a role as a mediator or an honest broker to exercise the same kind of influence.

Canada will also need to get better prepared to deal with sectoral and industrial issues. During the FTA, Uruguay Round and NAFTA negotiations, an International Trade Advisory Committee (ITAC) and Sectoral Advisory Groups on International Trade (SAGITs) provided a unique business and labour perspective on negotiating priorities and strategies, that helped the Government to negotiate more effectively. The ITAC has been replaced by the Team Canada Inc. Advisory Board whose mandate is export promotion, not trade negotiations, and the SAGITs are dormant. These groups need to be resurrected to provide the Government with the kind of focussed business and labour input on overall and sectoral trade issues that it will require to successfully negotiate for Canada in the Millennium Round.

Developing Countries

The developing countries, which are still having difficulties coming to grips with the disciplines of the Uruguay Round agreements and commitments, are not as enthusiastic about a new round as the Quad and other industrialized countries. India opposes a new round outright and Malaysia would like to see the start of the round postponed after 2000. But since there is likely to be a round whether they like it or not, developing countries have to be ready. Consequently, seventeen developing countries came together as the misnomered G15 to prepare a joint negotiating agenda at a meeting in Bangalore, India in August. They will be seeking to improve market access for their products in developed countries' markets. In particular, they will be targeting developed country tariffs on many manufactured goods produced in developing countries which are still relatively high. They will also benefit from any improved access the huge European agricultural market that the United States is able to extract. Developing countries will also be defending their hard-won benefits from previous rounds. The big Uruguay Round, prize for developing countries, which might come under attack around the edges if China accedes to the WTO, is the phased elimination of the Multi-Fibre Arrangement.

The developing countries will also face increased demands from the developed world. This will include pressure for additional reductions in the very high tariff rates levied by developing countries and tougher enforcement of the TRIPS Agreement. There will also be pressure on the developing countries to go along with whatever is negotiated with respect to environment and labour standards. This is something the G15 vowed to resist in Bangalore.

The developing countries that are best placed to benefit from the Millennium Round are the least developed countries, of which thirty are WTO members. Michael Moore, the new WTO Director General, has declared himself their champion and is pushing for guaranteed duty-free access for all their exports. This picks up a proposal initially put forward by the EU. As the least developed countries count for less that per cent of world trade, this should not threaten industry in the developed countries. But the United States reportedly wants to maintain its system granting duty-free access based on their human rights record. Moore also wants to make more technical assistance available so that these countries can participate more fully in the WTO and comply with their WTO obligations. He is likely to get a sympathetic hearing from the Quad countries on his proposals as the US and the EU have already recognized the need in their pre-Seattle discussion papers.

Desired Results

In our view, a successful Millennium Round would include:

World Trade in the 21st Century

The WTO Millennium Round is critical for the future of the world trading system. Since World War II, great progress has been made under the GATT/WTO in bringing down tariffs, and eradicating trade barriers. The global economy that has sprung up is a powerful engine of economic growth. It has created prosperity in the advanced industrialized countries of the world and fostered economic development in the developing world reducing poverty. Continued material progress depends on the preservation and expansion of the WTO-managed multilateral trading system. And global free trade is only a couple of more successful WTO rounds away.

The WTO has come under unprecedented attack from the forces that would turn back the clock of globalization and retreat into the protectionist shells of their national economies. And it's not only the protest groups. Faced with the Asian crisis and growing trade deficits in some countries, some governments have even taken protectionist steps. These misguided forces of protectionism must be resisted.

The new round provides an opportunity to enter the new millennium with a renewed international commitment to a truly global, rules-based international trading system. The achievement of this vision, which inspired all those that have participated in the GATT/WTO, offers the best prospect of a prosperous and peaceful global economy in the 21st century.