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Tough report issued on importance of global trade

Published by The New York Sun on 2005-01-18

A group of eminent academicians and financiers yesterday urged the complete elimination of global tariffs, the promotion of a more liberal trade regime internationally, and the strengthening of the World Trade Organization to make it more transparent and also immune from national pressures to appoint chief executives of the 148-nation body on the basis of geography or regional sequence.

On the occasion of the WTO's 10th anniversary as the main global forum for negotiating trade agreements and settling trade disputes, the group, led by Peter Sutherland -- chairman of BP and also of Goldman Sachs International, and a former director general of the WTO -- emphasized that the WTO is not part of the United Nations, and that it should not be allowed to come into that beleaguered body's ambit in order to retain its independence.

"The WTO is a sui generis international organization," the group said in a report released in Geneva, where the WTO is based. The seven-man group, known as the Consultative Board, was appointed by the WTO's outgoing director general, Supachai Panitchpakdi of Thailand to produce yesterday's report. It was characterized by one of the members, Jagdish Bhagwati, University Professor at Columbia University, as a "one-stop shopping document for a total view of the international trading system and of the WTO's critical role in it."

In an interview with The New York Sun last night, Professor Bhagwati -- who is widely considered one of the world's foremost authorities on free trade and recently authored a best-selling book, "In Defense of Globalization" -- said that the report was certain to trigger fresh debate not only about the WTO's role and effectiveness in promoting freer trade but also about the growing importance of liberal trade regimes in an era of rapid globalization.

He said that the Consultative Board was particularly dismayed by the proliferation of bilateral preferential trade agreements that have been spring up in recent years.

"There's been an excessive reliance on preferential agreements," he said, referring to arrangements that are known trade parlance as "Most Favored Nation" agreements, or MFN. The Consultative Broad analyzed and "brought home the enormous damage done by such bilateral deals," Professor Bhagwati said, adding that MFNs were often driven by domestic political consideration of nations -- particularly developing countries -- than by any thought to wider international benefit accruing from trade treaties.

Indeed, in one of the 37 conclusions reached by the Consultative Board, its report said: "The long-term remedy to the 'spaghetti bowl' discriminatory preferences is through effective reduction of MFN tariff and non-tariff measures in multilateral trade negotiations."

In a clear admonition to governments that embraced the notion of MFNs, the report said: "Governments need to show restraint or risk even more damage to the multilateral trading system."

In an earlier interview, Director General Supachai said that he was concerned that tariffs still remained high in most developing countries.

"In fact, developing country tariffs on industrial products are far higher than those in the developed countries, where the average tariff is less than 4 percent," the 58-year-old Dr. Supachai, whose three-year terms ends in September, said. "This is not to say that developed countries can't do more to reduce tariffs. The fact that rich country duties applied to products from 'Least-developed Countries' are often three or four times higher than those applied to products from other rich countries is troubling to say the least. But bound tariffs in many developing countries average 30 percent, 40 percent even 50 percent. Applied rates are lower but are often in the 20 to 30 percent range."

He acknowledged that, in a global economy where annual trade is in the range of $20 trillion, trade between the 135 countries of the Third World -- or "South-South trade," as it is generally called -- has been expanding at a faster rate than overall global trade and that "this has made an important contribution to development."

"But the fact is that developing country tariffs are much higher than those in developed countries. This is somewhat ironic given the impressive performance of developing country goods exporters," Dr. Supachai said. He pointed out that during the 1990s, developing country exports rose on average by 8.5 percent annually and export revenues from manufactures rose from 15 percent of GDP to almost 25 percent. Today, some 80 percent of developing-country export revenue comes from the sale of manufactured products. Twenty years ago, 70 percent of such revenue came from natural resource-based commodities.

Yesterday's report is intended to generate more discussion about the future of the WTO, a body that critics of the Left as well as the Right frequently charge is secretive in its deliberations.

Professor Bhagwati -- an Indian-born naturalized American whose name has figured prominently as a potential successor to Dr. Supachai -- said that the WTO had indeed caught "serious flak from the anti-globalization lobby."

"There has been irresponsible criticism from those who think that free trade is not desirable," he told The Sun. "Our report lays to rest a number of fallacies circulated by what I call irresponsible and ill-informed charities, especially in the developing world, whose efforts scarcely help sustainable economic growth in poor countries and emerging markets."

Mindful of those critics of the WTO who argue that its rulings -- some 300 in the last decade -- undermine the sovereignty of nations, yesterday's report said: "Ultimately what counts is whether the balance between some loss of 'policy space' at the national level and the advantages of cooperation and the rule of law at the multilateral level is positive or genitive."

The Consultative Board's position on this conundrum was: "The Consultative Board says it's already a positive."

In the interview, Dr. Supachai himself referred to the dispute resolution mechanism of the WTO.

"Governments have brought more than 300 disputes to the WTO and they have done so because they believe the system has integrity and credibility," he said. "This does not mean governments are pleased with all of our rulings. Generally speaking, when a Member loses a case it is unhappy. This is normal. What I say to governments, all governments, is that compliance with panel rulings is essential because failure to implement those rules strikes at the heart of the system's credibility. If one wants others to change their trade regimes to bring them into compliance with WTO rules, one must comply with the rules as well. In the end, all Members benefit from a smoothly functioning dispute settlement system."

The Consultative Board's report asserted that the WTO's Secretariat -- which occupies a sprawling facility on the shores of Lac du Geneve in Switzerland -- should resist efforts by groups seeking to undermine the organization's legitimacy or even destroy it. A coalition of such mostly leftist groups succeeded in shutting down the WTO's triennial ministerial meeting in Seattle in 1999, setting back a move to start new global trade negotiations to replace the Uruguay Round, which started in 1986 and ended in 1994. It was at the conclusion of the Uruguay Round that the WTO was created to replace the General Agreement on tariffs and Trade (GATT), which had been created in 1948 to promote a liberal international trade system.

"The Secretariat is under no obligation to engage seriously with groups whose express objective is to undermine or destroy the WTO," the Consultative Board's 90-page report said.

It also urged nations to rely more on the dispute settlement mechanism of the WTO and to refrain from compromises that adversely affected the prospects of freer world trade. "The 'buying out' of obligations is harmful to the system," the report said, referring to post-ruling deals made by plaintiffs and defendants in trade disputes to reach settlements through financial means.

The report urged that the WTO's meeting of ministers -- which is held every three years, with the 2005 meeting scheduled for Hong Kong from December 13 to 18 -- be held annually. It also suggested that world leaders should convene a summit every five years under the auspices of the WTO.

And in a clear allusion to the current political maneuvers concerning the naming of a successor to Dr. Supachai -- the Europeans are arguing that it's their "turn," and are actively pushing the candidacy of Pascal Lamy of France, a former European Union Commissioner of Trade -- the report said: "Any tendency toward alternating between developed and developing countries and any regional sequencing should be avoided." Dr. Supachai's predecessor was Mike Moore of New Zealand.

In addition to Mr. Sutherland and Professor Bhagwati, the other members of the Consultative Board were Kwesi Bothchwey of Ghana, the executive chairman of the Africa Development Policy Ownership Institute; Thiery de Montbriel of France, president and founder of the French Institute of International Relations; Celso Lafer of Brazil, professor at the law School of the University of Sao Paolo; John H. Jackson of the United States, University Professor of Law at Georgetown University; and Koichi Hamada of Japan, professor of economics at Yale University.

Pranay Gupte,
Senior Writer and Global-Affairs Columnist

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