SUNS 4288 Friday 25 September 1998





Trade: EC pushes comprehensive agenda, millennium round



Geneva, 24 Sep (Chakravarthi Raghavan) -- On the eve of the special session of the WTO General Council this week, the European Commission set out Wednesday its 'wish list' while pushing for a comprehensive agenda of trade negotiations, covering all old and new issues, to be launched by the 3rd Ministerial meeting in the United States in first week of December.

The US is "cool" to a new round - both because it is not sure whether its own trade agenda (agriculture and services) would be best advanced by sectoral negotiations or in a new round taking on an agenda that might attract internal opposition too and slow down accords, as also the domestic political preoccupations that would inhibit any administration (even apart from President Clinton's problems over his sex life) until the next presidential elections in 2000.

The General Council meeting on 24-25 September, has been mandated to set in motion a preparatory process, and a work programme, for next year's Ministerial meeting.

The Geneva Ministerial meeting of the WTO in May set out an agenda for the Council to draw up process for recommendations on a work programme of further liberalisation, sufficiently broad-based to respond to the interests of all members. The mandate to the General Council identifies
a preparatory process and work under four indents and sub-indents:

issues including those brought up by members over implementation of WTO agreements and decision, negotiations already mandated at Marrakesh (services and agriculture), future work mandated under existing agreements;
other possible future work on basis of work programme initiated at Singapore (a reference to investment, competition policy and trade facilitation studies);
follow-up to the High-level meeting on LDCs;
and, other matters proposed by Members on their multilateral trade relations.

At a press briefing Wednesday, Peter Carl, a senior official of the EU Commission, the main demandeur for a "Millennium round", said the Council should agree on "comprehensive" agenda, not only traditional market access questions in agriculture, services and industrial tariffs, but also new issues including international rules on investment, competition policy and trade facilitation, so as to enable Ministers to agree on the launch of the negotiations, beginning 2000.

The Asian economic crisis, now spreading across to other parts of the world was an added reason for comprehensive negotiations for trade liberalization, Carl argued, citing data to show that the EU's exports to the Asian region had sharply fallen, while its imports had increased.

Carl laid special emphasis both on industrial tariff cuts as well as on opening up all markets for "services". Over the last year or more, he said, capital flows had slowed down to the countries most affected by the crisis, and the way to reverse it would be through WTO investment rules.

The OECD negotiations for a Multilateral Agreement on Investment would be concluded in 1999, but the EC did not envisage bringing it and putting it into the WTO. Rather the EC envisaged WTO negotiations that would take account of interests of all parties.

Earlier this week, at an UNCTAD-convened meeting of ad hoc group of experts on a positive agenda for developing countries and research priorities, several participants, including some UNCTAD officials, questioned the need for separate negotiations at the WTO on investment, and said any trade issues relating to investments and competition policy could be addressed in relation to the agreement on TRIMS and the services negotiations (where commercial presence or  investment is a mode of delivery).

Investment rules as in NAFTA and related rules of origin, have only distorted and diverted trade and investment flows, with US as well as other TNC investments being diverted to Mexico, a participant from the Dominican Republic said.

The MAI negotiations at the OECD has been in trouble because of its over-ambition, said Mr. Edward Graham of the Washington-based Institute of International Economics (IIE). The Washington think-tank (close to the Clinton administration) has been a prominent exponent of the
socalled "Washington consensus" and pushing for trade liberalization through multilateral and regional accords.

The extensive literature on foreign investments, Graham said, has much data about investment flows, and sales by TNCs. The literature also had much to say from the perspective of economic theory and policy on the benefits of investment liberalization. But there was little or no  empirical evidence in the literature of benefits to host countries. The WTO and other international negotiations on investment could have a less ambitious agenda, but the rules must ensure among others "national treatment" for foreign investors.

The Asian financial crisis was having its impact on other regions too, Carl said at the EC briefing. Over the past few months, he said, there has been a sharp change in patterns of trade, and certainly between the EC and the Asian countries affected. The EC exports (in ECU value  terms) had dropped by 30 percent, while imports had gone by 20 percent - a cumulative change in trade of 50 percent. All this will lead to increase in protectionist pressures both in developing and industrial
countries.

The financial crisis was all the more reason why WTO negotiations should be brought forward, he argued.

But despite such statements from the WTO head, the EC, and trade diplomats of all regions at the WTO, it is clear that the crisis has forced some rethinking in all countries, including in government
ministries and departments other than the trade constituency.

Some trade observers say that unlike in the Uruguay Round -- where under the rubric of trade, many other issues were negotiated in private and trade officials presented the outcome in their countries as a "package" that had to be accepted -- reaching accords in new WTO negotiations and getting local businesses, and parliaments in countries, to swallow and accept everything is going to be very difficult.

A participant from the World Bank at the UNCTAD consultations said the old GATT was like the Catholic church, where wisdom came from the top, while the WTO was more like the Protestant churches. He said that in the old GATT negotiations, agreements were reached at the top and
pushed in countries by trade officials. But under the WTO, and its transparency, business lobbies and domestic enterprises were using it for protectionist purposes and this made negotiations difficult.

On making the WTO processes transparent, the EC official said the EU favoured making public quickly documents, but the negotiating process should not be thrown up to press and public.

And while the US, WTO head, and the EC are trying to promote this version of transparency to the NGOs, along with their ability to file "amicus curae" briefs before panels, and meet periodically with WTO officials, and some Northern environment groups have been promoting this, other NGOs from the North and the South have rejected such a narrow approach - and insisting on the right of civil society, including business, in their countries knowing clearly what was being negotiated and the proposals on the table, sufficiently in advance to be able to "dialogue" and influence their governments.

While trade, in the old narrow sense of exchange of goods across frontiers, is not responsible for the crisis, the "WTO trade remit" now involves a whole range of non-trade issues, including WTO rules on domestic policies of countries, and the ability of countries to use a variety of other instruments to cope with the crisis.

Political economists point out that the 19th century "globalization" drive collapsed early in this century -- when it lost social support because of the iniquitous distribution of benefits. A similar situation has arisen now in respect of the current globalizatiuon models where there is emphasis on property rights of all kinds of owners and IMF led international efforts to rescue foreign owners, while local enterprises are asked to be made bankrupt, with only a modicum of payments on local
property rights - whether arrears of wages and earnings and pension benefits of workers or small savings of domestic investors.

The Asian fire-storm was already raging in May this year, when the Geneva Ministerial took place. But it has now enveloped most of the developing world and threatening the industrial world too - as the US Federal Reserve's attempts to rescue the Long-Term Capital Management Fund, a hedge-fund, which was considered hitherto as a well-managed arbitrage fund, using derivatives and swaps, and credit lines from banks to put up the margins on such transactions.

While the consequences and problems of the Asian crisis have originated outside the trading system, notwithstanding exhortations on further liberalization and globalization, governments and legislatures everywhere are unable to ignore the varying pressures from their domestic business sectors, but also politically active public.

Asked about the second thoughts among many mainstream economists on capital liberalization and international trade rules on investment etc, in the light of the Asian crisis, and the growing public opposition to negotiations on new issues, including on investment, in developing and developed countries, Carl said that those working for industry supported trade liberalization negotiations.

The WTO, EC drives for trade liberalization negotiations got support Wednesday at a "dialogue" organized by the Paris-based big business lobby, the International Chamber of Commerce. Heads of international organizations and agencies were attending the meeting.

But the participation of UN heads, and particularly the proclaimed policy of the UN Secretary-General Kofi Annan for partnership with the business sector, came for sharp criticism from a Swiss non-government group, part of the global NGO movement against investment rules. The group which organized and held demonstrations before the UN in Geneva on Wednesday, said they were launching a big signature campaign in all countries, and said their aim to present it at this time had been frustrated by the Swiss police who had raided one of their meetings and seized their email lists, but had now agreed to return it to them.

They complained that UN head, and the UN system was yielding to the ICC, and promoting "voluntary" codes and self-regulation and monitoring by TNCs - a line promoted by the ICC to prevent WTO and other rules, placing obligations on TNCs.

Carl, who is the Deputy Director-General for External Relations, said comprehensive negotiations were needed at the WTO as there were signs of "back-tracking" by some WTO members.

The EC wish-list, characterized it as illustrative, and not excluding others, call for:

across-the-board negotiations for "significant reductions" in industrial tariffs, with no sector excluded (as against the sectoral approach favoured by the US) to start in the millennium;
new round of negotiations on trade in services covering all sectors and all "modes of delivery" (implying delivery via investments) and including maritime transport; and
new international rule-making to address questions on international investments, competition policy and trade facilitation.

Asked about the negotiations on agriculture tariffs, which did not figure in his illustrative list, Carl said that in 1999 the EU member-states, under the German presidency (Jan-June 1999), are to
agree on further reforms to their own common agriculture policy, and the EC would formulate its position after that.

While, under the Agriculture agreement, the review of the first stage of reform and further reforms are to be taken up in 1999, realistically, the negotiations could be in 2000. And along with agriculture the Sanitary and Phytosanitary Agreement as well the Technical Barriers to Trade agreement would need to be taken up to cover issues of food safety and consumer problems.

There should also be the high-level meeting of Environment and Trade Ministers early in 1999, and this the EC hoped could lead to negotiations in the Round on some of the environment issues, like
eco-labelling and trade measures under multilateral environment agreements. The work at the WTO in the Committee on Trade and Environment was making no progress, despite considerable preparations, and the EC proposed meeting of Environment and Trade Ministers should help in nudging the process forward.

With the launch of new negotiations at the 3rd Ministerial, there should be a standstill commitment by all WTO members to refrain from protectionism and protectionist actions, the EC official said.

Negotiating a range of issues, but concluding negotiations in areas where agreement could be reached, looks attractive on paper, but extremely difficult in practice, and the EC therefore supported the idea of a single undertaking, he said.