Alison Smale
What stood out for me from this was the prospect you dangled right at the end of a $300‑400 billion injection into the global economy with the completion of the Doha Round. If that is not an incentive to us all, I do not know what could be.
Dr Sanjaya Baru, Consulting Senior Fellow for Geo-Economics and Strategy, IISS-Middle East; Editor, Business Standard; former Spokesman and Media Adviser to the Prime Minister, India
Mr Lamy, I will preface my question with a comment. You said in your presentation that what we see in the Doha Round is an attempt by the developing world to set the trade record straight. The other side to that coin is resistance from the developed countries. You mentioned the interest in agriculture, but presumably there are others. I recall that, in 2008, there was a lot of criticism of India as the country that was blocking the Doha Round, while many in India believed that it was being blocked by the run‑up to the US presidential elections and the fact that the US had not given trade‑negotiating authority. In the light of the financial crisis, both in the US and in Europe, do you see any energy in trans‑Atlantic economies to take the Doha Round forward? On the first day here, we heard the India Planning Commission Chairman, Dr Montek Ahluwalia, say that India is now ready to take the Doha Round forward, and therefore it can no longer be blamed for holding it back. Do you see a similar willingness in Europe and the US to return to the Round?
Ala'a Al Yusuf, Chief Economist, Gulf Finance House, Bahrain
Mr Lamy, let me just preface this by saying that the WTO likes to describe itself as a ‘membership‑driven organisation’. That is convenient and important to remember because, if there are any implied criticisms, they are of the membership rather than the secretariat, with you at the head of it, your Excellency. With that in mind, do you think that the WTO has missed an historic opportunity to broaden its mandate to include sovereign wealth fund flows and the protection that is needed against any protectionist measures? In particular, I refer to a paper by a couple of former WTO economists and colleagues of mine, Mattoo and Subramanian, which suggested that the problem that perhaps prefaced the financial crisis was the global imbalances. There was a lot of talk for many years about addressing global imbalances. That is something for which the WTO should take either blame or credit. In addition, a lot of financial services’ cross‑border activities ought to have been captured by relevant agreements under GATT or whatever. This is really somewhere that the WTO should have been more prominent. With that in mind, given the problem of global imbalances, cross‑border financial services and, something that is very important to this region, protecting sovereign wealth fund investments, how do you see the WTO improving its record?
Professor Wang Yong, Director, Center for International Political Economy, Peking University, China
Mr Lamy, thank you for your very important remarks. Frankly speaking, I would like to see a WTO that has not moved quickly to meet the expectations of people in times of global financial crisis, finding reasonable solutions to the impact. I understand the situation: the WTO is an organisation driven by its members, based on the principle of reciprocity, and constrained by the domestic politics of members. My question is: in your opinion, how do reflections on the costs and benefits of trade and the domestic politics driven by these reflections alter the process of Doha Round negotiations following the crisis? How can the WTO bring new consensus to these new circumstances to balance the different interests and voices of stability, employment and development?
Dr Dhafer Al Umran, Director, Bilateral Relations, Ministry of Foreign Affairs, Bahrain
I happen to be one of the members of the WTO national team in Bahrain. Bahrain joined the WTO a long time ago; we are active; and we respect all the international rules and regulations. One of the challenges to some of the countries that have not yet joined may be that models are country‑specific, and each country has its own way of trading with the world. You have to create a way to convince some countries that they are all beneficiaries. This is the challenge: many countries want to join and maybe can by training or creating a model to work with them closer. It is important for everybody to join in, because the survival of everybody in the world comes from being part of this movement.
Participant
The question to Mr Lamy is: do you have evidence of the change of position of key players regarding the agricultural sector? Do you see changes in position from the US, the EU, Australia and Brazil with regard to solving the agricultural problem? Are there prospects for Russia to join the WTO? How long will Russia remain outside this very important body? As a global player, Russia cannot really remain outside this body for too long.
Ahmad Abass Ramadan, Ambassador of Palestine to Bahrain
Thank you, Mr Lamy, for your important role and your important speech. I think the WTO also has an important role to play in the issue of peace in the world, especially in our region, the Middle East, particularly with the Palestinian issue. Do you think the WTO has an agenda in our Middle East? Palestine has requested to become a member of the WTO. As a Director‑General of the WTO, what is your opinion about this, which we consider to be a very important issue for our economy and situation? The world now supports a two‑state solution in our region, and I think our presence in the WTO will reinforce this solution.
Alison Smale
Thank you very much ambassador, now I would like to turn to Mr Lamy and then we will take the next round of questions. Thank you.
Pascal Lamy
In answer to we need to conclude the round. As usual, these negotiations are a mix of extremely complex technical issues that need a lot of investigation, hearing, maturing, ripening and cooking. On the list of 20 topics which we have bundled into the negotiation bag, there is one exception where in my view there still is some technical cooking to do which is disciplines for fisheries’ subsidies which many not be the most well known of these 20 topics.
The second ingredient which is needed is political energy and I will come back to that when I answer another question but trade negotiations are one-third between trade negotiators and two-thirds between trade negotiators and their own domestic constituencies. I agree that there was a time two years ago where India was a problem, since then the negotiations have moved in a direction that creates less problems for India. The EU could probably sign the deal which has appeared on the table with a few changes here and there. The main player in the negotiations is now the US for a variety of reasons, some having to do with the competitiveness of the US economy and the sort of outreach it needs to have in exiting the crisis with a strong export drive. As could be expected, the target of this export drive is the part of the world economy which is growing the fastest which are emerging countries.
We have a combination of a new impetus which the US has put into this negotiation with more pressure on dynamic markets such as China, India or Brazil, plus the classical problem with Congress which all trade negotiations have always had, starting with the non-creation of the international trade organisation in 1947. As we all know, US politics is heavily influenced by the sort of constitutional, institutional and political relationship between the administration and Congress and this is especially the case in trade matters where a variety of interests with strong lobbying capacity are in operation within the US congressional system. These often create heavy turbulence on trade agreements between the administration and Congress.
My own view is that the US is seriously attempting to conclude these negotiations on more US terms than with what is already on the table. Whether this is possible or not is being tested by negotiators to see if more from the US from China, India or Brazil would trigger counter requests from China, India or Brazil for the US not only get more of what is on the table but also to give more than what is on the table and the price of getting more remains to be seen.
This is roughly the pattern of the negotiations today and technically speaking, this is perfectly possible. Politically speaking we still need a stage in the negotiations where the US President will take the risk of sending a Doha bill to Congress with enough chance of getting it through, even if experience has shown that the administration always has to sweat in order to push any trade negotiation in Congress.
On whether or not WTO mandates should be broadened in order to address a number of concerns which you mentioned. Sovereign wealth is a matter for international investment regulations. The WTO has no mandate in the field of multilateral investment regulations. There have been attempts in the past, notably by the European Union to insert this into the Doha agenda; they were resisted and if you look at the legal picture internationally, investment rules and regulations stem from bilateral treaties and there are hundreds of them but not from a multilateral level playing field.
Whether members would agree or not I do not know; the reality is that for the moment and at this stage, there has not been a consensus in the WTO to address these investment issues.
I will be very frank on the issue of global imbalances. They may take the shape of trade imbalances but addressing these global imbalances are not a matter of trade policy or trade measures; these global imbalances are there because of macro economic imbalances between consumption investment for instance and saving and consumption. In most of the cases that we worry about such as the US and China, there being surpluses on the Chinese side and deficit on the US side, addressing these global imbalances will not happen with trade measures. They will happen by rebalancing the macro economy pattern with the US saving more and China spending more. This is not a 100% rule; there are cases where the bilateral relationship between the small economies, which may be heavily dependent on trade and may be related to trade issues but the ones which you care and worry about are not a matter for trade policies.
In the third field which you mentioned is financial regulation. We have a general agreement in trading services and within this agreement we have commitments, processes and rules to open trade in financial services but that does not mean that the WTO has to step in on regulatory issues. We are in the business of opening trade; others are in the business of regulating activities whether it is distribution, banking, insurance, food safety, health or environment, in the name of opening trade, we should not penetrate into the more or less sovereign capacity which countries have to regulate their own activities.
Opening trade is one thing but regulating trade is another thing and if you take the example of the financial services, the only connection between these two issues is that when you have opened your trade to a foreign operator, you have renounced the right to regulate it in such a way that this foreign operator would be discriminated against. You open you market which means that you will regulate your foreign operators in the same way as you regulate your domestic operators and whether you regulate a lot, or a little or this way or that way, you are fine with the WTO so long as your regulation does not discriminate. Of course, if you dig into the issues, there are more subtle cases, notably the dispute settlement of the WTO where we have had to look carefully at whether a new, very clever regulation, once you have opened your market is not de facto discriminating in reality but this is the only proportion in which we penetrate into this regulatory area. Our connection to regulation is only in cases where a regulation in the name of the necessity to cover risk for example, would be something protectionist in reality and this is a matter of balancing the impact on trade and the risk you want to cover.
As I think I said in my remarks, the role of the WTO during the financial crisis has been to provide an insurance policy against protectionism which is at the core of our mandate and at this stage this has worked. We are administering the rules of international trade as they were built by eight rounds of negotiations, the latest one ending in 1994. Of course we have to adjust and create the ninth edition of the WTO rule book but in the mean time we administer the existing rule book and this has worked until now and again, we have to be prudent. If you look at the relationship of this with the round it is basically good news and bad news. The good news is that the system is worth investing in because it has worked and a stronger system will help with the next crisis and there will be a next crisis. The bad news is that as the system has worked, spending domestic political sweat to provide for edition number nine may not be that urgent.
Mr Yong, as you rightly said, the conclusion of the round now mostly has to do with domestic politics. We live in a world where economists will tell you to open your economy as it is good for you. If economists were running the world we would not need the WTO, we would not need these sorts of disciplines; things would be natural. Economists do not run the world thank God, politicians, most of whom are democratically legitimised and those who are not are legitimised politically, do and the reality is that if you look at the people there are zillions of people who benefit from trade opening and who ignore it and there are millions of people who suffer from trade opening, who know full well why they have lost their jobs. This creates a sort of imbalance in trade politics which is that the vast majority which benefits from trade opening is silent and the small minority which suffers from trade opening and there is inevitably social and economic pain in trade opening, this small minority is vocal. Balancing this politically is always difficult and I do not think I need to go back the US example I just gave.
At the end of the day it is a question of the capacity of governments to push through their parliaments or the equivalent of the parliaments the necessary tradeoffs and convince public opinion that this is a win-win game.
I can confirm publicly that Bahrain is a good, solid member of the WTO. The strategy you have chosen for this country is a strategy of openness. You have not backtracked on this at any stage and I think the reason why you have kept this strategy on the on the right track is because it has worked which is probably a much more convincing argument than any scientific reasoning. We have 30 countries on the waiting list negotiating their WTO accession. It is like the round; acceding the WTO means firstly putting your economic trade, investment, intellectual property and legal system in line with the WTO standards which most of the time implies quite a solid chunk of domestic reform which have to be accepted by constituencies which have to go through parliaments. On top of that you then have to pay the price of the entry ticket for benefitting from the insurance policy and you pay in market opening and this is the result of the negotiation. Inevitably it is also complex although we have rules for less developed countries which are normally less stringent.
If you look at the reasons why a number of members are still negotiating their accession and you took the example of Russia which has now broken the Chinese record of length of accession negotiation. China took 15 years to join, Russia enters its 16th year of its accession process, it has to do with the balance between the willingness and the capacity to reform the domestic system and the price which has to be paid in terms of market opening and the balance is not yet there. I hope it will be there soon but it remains under negotiation.
On agriculture, we had a Cairns Group meeting in Uruguay some weeks ago and the Cairns Group in the WTO is the group’s most offensive agricultural exporters. The result of this discussion was basically that the agricultural deal is on the table. At this stage, that is not what is preventing the conclusion of the round. With exception of a complex issue which is a special safeguard for developing countries in case they have to face import surges in agriculture, the rest is there. The US, the EU and Japan have accepted to zero their export subsidies as part of the round which was huge problem for developing countries for a long time. The amount of trade distorting subsidies by the EU, the US and Japan which is already on the table would go down by something like 70 or 80% which is a big deal compared to the Uruguay round. Market in access in agriculture through tariff reductions or quota increase would be very substantially increases and this is already on the table.
I am not saying that the agricultural package is 100% there, not least because, for tactical reasons, people will keep a few chips in their pockets in the agricultural negotiation, waiting for industrial tariffs or services for instance to be in the same position but politically speaking, most, if not all of the agricultural deal is on the table.
Finally in answer to whether WTO accession follows a procedure. The first step of which is a decision by WTO members to accept a country as an observer in the WTO and this country is an observer as long as it negotiates it accession. We took this decision for Syria a fortnight ago and we know that Palestine has requested to be an observer. This will be dealt with later this year by the instance which takes these decisions in the WTO which is the general council. This decision will be preceded by consultations in which the WTO DG officially plays no role. The consultations are driven by the chair of the general council who is currently the Canadian ambassador in Geneva so he is the person who will have to confess delegations before this comes to the floor of the general council and as you can imagine, the question of whether Palestine should join the organisation as a member at some stage in the future is a politically sensitive question.
I am refrained from giving any personal view on this, like everybody I have my personal view but it should not matter and I will limit my answer to this question in saying that the experience of history is that as Montesquieu said: ‘where trade is open, armies have more problems crossing frontiers.’ I think that, as a general rule, this is one of the main benefits of open trade. Opening trade has been and remains a strong incentive for peace. It creates links and interests which knit the tissue of relationship little by little, which in time becomes solid and which - for political reasons at some stage - it becomes difficult to destroy. This is why, generally speaking – and please do not interpret this on this specific case – opening trade and making sure it remains open is a big contribution to peace.
Alison Smale
Thank you very much. I am not quite sure where Montesquieu stopped and Lamy started there.
Dr Alexander Dynkin, Director, Institute of World Economy and International Relations
Dr Lamy, as you know we are moving to ascension to WTO and in your previous capacity you were very involved in the understanding that Russia had to be accessible and support the Kyoto process. We do support Kyoto, however we are still not a member. I presume that you understand that WTO accession is a very important part of our domestic agenda and debate. My President Mr Medvedev considers joining the WTO as an important forum anchor for the whole process of modernisation in terms of improving competitive climate, investment climate, FD and also our very important improvements in intellectual property rights. At the same time, there are some new arguments forming in our domestic debate. Looking at the experience of China where joining the WTO boosted the Chinese economy, some people may be afraid that Russia could follow this case become an unexpected competitor.
Daniel Price, Partner, Sidley Austin LLP; former Assistant to the President and Deputy National Security Advisor for International Economic Affairs, US
Mr Lamy, just two quick questions upon which I think we would all appreciate your views. In your opening remarks you characterised this round as a rebalancing or setting the record straight and you placed it within the context of the ascendance of the developing world. At the same time you noted that the term developing countries really did not capture the diversity within developing countries. On the first point, could you comment on the growing importance of trade among developing countries, and therefore the importance of trade liberalisation by the large emerging markets in terms of the impact on development of such market openings. Secondly, given that we are in Bahrain, and given the importance of services to this economy, can you comment on the status of those negotiations and their prospects in the area of services. Thank you
Professor Richard Cooper, Maurits C Boas Professor of International Economics, Harvard University
Pascal you have gone part way toward answering my question but I would like you to finish it. What would it take to close the deal in your judgement. What I have heard you say up to now is that subsidiaries to fisheries are still an unsettled issue - is that a make or break question? Also, I heard you say – well you didn’t quite say this, but I will fill in what I thought you said – President Obama has to make the political decision essentially to take the package to Congress. To do that, the Americans have asked for some more concessions from Brazil, China and India – you mentioned ‘concretely’. I know it is a big assumption, but I assume that the American administration knows what it is doing in terms of sufficiency in terms of getting it through congress. What would it take to satisfy the Americans on that score? And if those two issues were settled, would we have a deal?
Xu Xiaojie, Head, International Energy Program, CASS Institute of World Economics and Politics; Advisor, National Energy Administration; Advisor, China National Petroleum Corporation
My question is very simple and is related to the Energy Charter Treaty in Brazil. I was in Brazil visiting their head of quotas, and the people told me the Charter Treaty adds WTO-Plus to the energy sector, meaning that that the treaty has many more principles and provisions for the treatment of energy, especially cross-border energy between export and import countries. I would like to know your attitude to the Energy Charter Treaty Mr Lamy. Especially as Russia has now declined to improve cross-border protocol for energy shipments.
Pascal Lamy
On the Russian accession, I am sure you have the right interpretation of President Medvedev’s stance on this. The issue remains a negotiation and I think the comparison with China is not one that works. The historical reason why China took the formidable step of accepting that a court of nine people in Geneva would decide whether or not China is right or wrong was of a totally unprecedented magnitude in the Chinese system. The reason was because they had a view that - given the growth pattern of China - they needed a lot of international trade and a lot of exports which would not work without benefitting from an anti-protectionist insurance policy. It was a perfectly rational decision but with a great deal of political input. The debate with the Chinese leadership at the time was a very tough one. I remember it that in a previous life I negotiated the final terms of China’s entry into the WTO as a European trade commissioner with the then Prime Minister Zhu Rongji. At the time I had a real impression of what was at stake. The Russian example is very different. If you compare what Russia and China trade with the rest of the World, it is totally different. If one asked Russia to join the WTO in 2010 with the same terms that China accepted in 2001, Russia would say no. The amount of reform and trade opening that China accepted in 2001 is something which is in my view, if you look at the overall quantum, Russia would not accept today. This is why there is not a standard price for joining the WTO. It is a negotiation.
You mentioned my previous life when I mentioned Russia’s Accession for the EU. At the time Russia’s price was to join the Kyoto protocol, which was a major strategic goal for the EU. If I am well informed, a number of items that were at the time accepted by Russia, have been questioned since by the Russian side. That is not to talk about the invention of Russia, Kazakhstan and Belarus joining together in a customs union – which has materialised in the last 18 months – and never happened in the WTO. I think we are now exiting this stage, but it has taken 18 months during which negotiations were not very active.
On to Dan Price. Yes, this round is about rebalancing the rules of the game as they were shaped by mostly former colonial powers. You still have traces of this in subsidies, tariff escalation or trade rules for textile and clothing for instance. It is a reshuffling between North and South, and it is also a rebalancing within the South which I believe I recognised in my remarks. It is true that the level of discipline that Benin or Laos have in the WTO today cannot be the same as the level of discipline China, India or Brazil have. This is a view that the USA has been pushing when celebrating the benefits of South-South trade. China, Brazil and India’s response to the USA’s point – which Dan, you did not get exactly right, but it was the flavour – is to thank them for the lecture, but to tell the US that it was their part of the negotiation. What China is asking from Brazil, Brazil is asking from India, and South Africa is asking from Egypt is not for the others to decide. By the way, if you look at the value of the package that is on the table today in terms of South-South trade opening, it is huge. Brazil will take tariff cuts that will benefit China. India will take tariff cuts which will benefit China. China will take market openings or subsidies that will benefit Brazil. This is part of the deal, and we have learned from the crisis that the growth differential adds even more sensitivity to that. I am more convinced by the argument that the USA needs more from these countries as an exit route from the crisis. Given that domestic consumption is not the most energetic part of the USA’s economy and that public budgets are probably saturated in terms of re-inflating the economy, there is a convincing case in my view – and one that President Obama has made - which is that the USA exit strategy has a lot to do with exports and of course it also has a lot to do with the most dynamic economies which is why more weight has to be applied there.
On services, there is already part of the deal on the table . The experience is that given that the technology that we use to negotiate services remains antiquated, which is a request offer per sector and per mode. These services negotiations only catalyse at the very end of the negotiation. It is only when the train leaves the station that people decide whether or not they will step in the train. Therefore, compared to agriculture or manufacturers or trade facilitation, the services negotiation - in terms of quantum - is behind. However, that is to be expected given the way services are negotiated. At the end of the day there will be a large package of services trade opening, notably in areas which have grown in interest in recent years – for instance, energy or environment related - which are part of the mitigation/adaptation of the climate change negotiation. What will it take to conclude the Round? I think you have summed this up yourself. Again fisheries subsidies - which need to be disciplined as the increase in them in recent decades has contributed to over-fishing and the exhaustion of marine resources. Again, this is difficult and may become a make or break issue; notably for the USA. It is an issue that has not surfaced that much in political terms yet. However, if I am the US administration and am trying to build a solid coalition across the parties on the Hill, this issue may be what makes a difference of 15 votes. While it has not attracted a lot of political attention at this stage, my view is that it may be politically fundamental at the end of the day.
What is missing – in a word – is the collective understanding of all the clever negotiators that they are in the end game. You know what a negotiation is about. It is about not revealing your real preferences for as long as possible. That is what game theory says, and my experience say it is right. The end game is the moment when you stop cheating. Where you empty your pockets. Where you reveal your real redlines and what you have in your pockets. That is what is needed now for this complex negotiation. To conclude, we are probably not yet there, although it could catalyse quite rapidly. Once the decision is made that we are in the end game it takes two or three months to get the legal fine-tuning to the right state. Therefore it is a question of six months.
Finally, the energy charter is WTO-Plus. The energy sector regulation under WTO rules is less sophisticated than in other areas for a variety of reasons including the relationship between national sovereignty and national resources. Until recently many big producers were not members of the WTO and if you look at the waiting list – Russia, Iran, Iraq, Algeria, Libya to take a few – there is still a relative limited constituency within the WTO at this stage. For the moment it is true that the WTO common denominator is slower in terms of commitments, precision and disciplines than the energy charter except perhaps in areas like transit which also have to be looked at in accession commitments of, for instance, Ukraine. However, my feeling is that a time will probably come after the round where these issues will resurface in WTO and where trade rules about energy and energy related trade will have to become slightly more sophisticated than they are at present.
Alison Smale
Thank you Pascal Lamy for sharing those thoughts with us, I think that has given us an accurate and interesting window into the state of the Doha Round that goes round and round. However, maybe this finally can come to an end in six months.
