News and Analysis • Volume 10 • Number 7 • November 2006
A Sustainable Development Roadmap for the WTO?
The current impasse in the Doha negotiations offers those who seek to improve the functioning of the multilateral trading system both grounds for concern about the present model, and the breathing space in which to thoughtfully consider how it might better serve today’s needs.
In considering the directions in which the WTO might evolve, we should first consider its origins. It is widely accepted that the GATT was created as an instrument of embedded liberalism. The drafters shared an understanding of the legitimacy, the necessity of domestic government intervention to achieve social protection and stability, but they also understood the lessons of the pre-war bout of mutually destructive protectionism. So they embedded the goals of liberalism – non-discrimination and progressive liberalisation – within a broader framework designed to allow for domestic interventionism, achieving a careful balance between the two. John Ruggie argues that the deal was based on a shared understanding of the social purposes for which government power may be legitimately exercised at the domestic level.1
As the WTO agenda has progressively moved beyond tariff reduction toward a behind-theborder focus, we have moved away from the balance envisioned at Bretton Woods, toward a regime that focuses primarily on liberalisation. This is in line with a new shared understanding in most OECD countries that the role of government should be less interventionist.
This history is instructive in several ways. For one thing, it highlights the importance of an internationally agreed social purpose to underlie the trade regime (or any successful international regime). The underlying social agreement, struck in the shadow of two world wars, arguably also included a desire for peace and stability of international relations through trade and investment. The specifics of the agreement are not as important as the fact of its very existence; the desire to achieve broader social objectives encompassed a regime pursuing liberalism as a means. This is an important lesson for those who believe that the trade regime is, and must be, founded only on the objective of orthodox liberalism. Other types of open trading regimes are possible.
The obvious question to which this analysis leads is: what sort of international agreement on social purpose do we have today, half a century hence? Do we need to reinvent embedded liberalism to reflect modern imperatives?
I argue that we already have an international agreement, a shared understanding on which to build a trade regime for the 21st century. The broader social objective to which the multilateral trading system should work, and should allow domestic governments to work, is sustainable development. That objective is premised on the shared understanding that is the essential truth of the global age: we are all connected.
We can see affirmation of this agreed social purpose in a number of places. The first preambular paragraph of the Marrakesh Agreement Establishing the WTO aims for: “raising standards of living, ensuring full employment and a large and steadily growing volume of real income and effective demand, and expanding the production of and trade in goods and services, while allowing for the optimal use of the world’s resources in accordance with the objective of sustainable development.”
The Doha Ministerial Declaration strongly reaffirms the commitment to ‘the objective of sustainable development’, and pledges to “continue to make positive efforts designed to ensure that developing countries, and especially the least-developed among them, secure a share in the growth of world trade commensurate with the needs of their economic development.”
The means of trade liberalisation and non-discrimination are thus set up, as at the founding of the GATT, in the service of broader social purpose: the goal of international development, qualified by the need to respect environmental realities.
It was argued above that the shared understanding that underlies this agreement is the fact that we are all connected. Indeed, we have always been so, but globalisation is making the world ever smaller. From an economic perspective, dense and complex connections of trade and investment mean that, for rich countries, the vitality of developing countries is no longer an altruistic concern, but is in their own self interest. Witness the massive surge in global demand for goods and services created by the rising middle classes of the emerging developing giants. Witness the powerful anti-inflationary impact in the developed world of imports from those same countries.
Environmentally, we have always been connected, but we are only now finding out to what extent, with advances in science, and the pressures of growing global GDP. Coal-fired electricity generation in China is stymieing efforts to reduce mercury loading in North America. Desertification in Africa is killing coral reefs in the Caribbean. And problems such as climate change, ozone depletion and loss of biodiversity affect us all, no matter what their provenance. We need to be concerned about the capacity of all countries to address environmental challenges.
On a broader social level, the same interconnectedness plays out. Failed states are bad news for the whole global village, spawning problems that other states must deal with: contagious political instability, refugees, infectious diseases, war-mongering and international crime. Healthy states, on the other hand, are able to tackle issues of shared concern, and to contribute positively to international efforts toward the greater global good.
This reality – that we are all connected – is why we have the Doha Development Agenda, and not the Doha Round. It is why special and differential treatment is a fundamental principle of the regime, and why the Doha talks have included discussions on implementation, capacitybuilding and aid for trade. The importance for all countries of domestic and international policy space to pursue sustainable development provides the social purpose within which to embed the goals of trade openness and non-discrimination.
What kinds of institutional forms are appropriate to a regime founded on this agreement? Is there a need to conceive of new principles and norms, new rules and procedures, that are more suitable to the task? Only a dedicated and inclusive process can produce authoritative answers, but three initial possibilities are proposed below, argued as necessary changes to the status quo.
Beware of Mercantilist Ends
We may have an agreed social purpose, and we may even have many of the modalities for achieving it built into aspects of the Doha talks. But we are still negotiating as if mercantilism were valid, as if international trade and investment policy were a zerosum game. There is a fundamental disconnect between the niceties of political declarations and the dirty hardball of actual negotiations. We need new modes of negotiation that are in tune with the reality of interconnectedness and the goal of sustainable development.
For example, many of the contentious negotiating issues are empirical questions. Are performance requirements good or bad for the implementing state? Do stronger IPRs foster innovation, and where is the balance point between public good and private incentives? How should liberalisation be sequenced to derive the best development outcomes? If the negotiations were really aimed at sustainable development, they would be demanding independent authoritative advice on these questions.
As Konrad von Moltke argued repeatedly, the trade regime has much to learn from its environmental counterparts. The climate change negotiations are underpinned by a non-partisan assembly of hundreds of the world’s best climate scientists and economists: the Intergovernmental Panel on Climate Change. This body, under the guidance and direction of the Parties, serves the climate change negotiations by producing a solid basis for international public policy. Perhaps we need an intergovernmental panel on trade and investment. In a similar vein, Sylvia Ostry has called for a coalition of middle powers to launch an analysis and discussion, in an exercise completely separated from the negotiations, to get answers to these sorts of basic questions (Bridges Year 10 No.5, page 3).
There Are Winners and Losers from Liberalisation
Trade liberalisation has produced enormous economic benefits, but they have tended to be poorly distributed. The current regime, however, takes little or no notice of the domestic level impacts, where profits often rise while real wages stagnate (particularly but not exclusively in low-skill jobs). Ignoring this reality courts disaster, as it risks alienating the electors of the regime’s constituent members. Sandra Polaski argues that this is the major force behind the current negotiating stalemate. We need to find ways to allow liberalising states to effectively help liberalisation’s losers.2
That said, and while it would be nice to multilaterally bring some civility to the savagery that is creative destruction, we need to be frank about our own shortcomings. We don’t really know how to retrain workers and prepare for adjustment to different modes of employment. It is not done well even in the world’s richest countries. Until we are better equipped, the rush to liberalisation needs to be tempered by concerns for adjustment costs.
Opportunity Does Not Equal Benefit
It is increasingly recognised that the opportunities provided by trade liberalisation do not translate into benefits for many countries. Countries hamstrung by inadequate infrastructure, inefficient bureaucracy, immature legal regimes and macroeconomic instability will not increase their exports as their market access increases. This understanding is the basis for the Aid for Trade discussions, and for the widespread application of the principle of special and differential treatment. But special and differential treatment as currently applied does not do the trick. Half a century of development efforts have shown us clearly that individual circumstances matter. A one-sizefits- all policy of longer lead time for implementation, for example, is a pitifully blunt instrument.
What is needed is an assessment along the lines of the best of the Integrated Framework’s diagnostic studies, seeking to identify the obstacles each country faces in benefiting from the opportunities afforded by trade liberalisation. And then we need implementation, something on which the IF is not so helpful a model. Finally, there needs to be a clear linkage between the ability of a country to benefit from liberalisation, and actual implementation of liberalisation commitments – a principle that is helpfully established in the Annex on trade facilitation in the July 2004 Framework Agreement.
Aid for Trade, though, should not become a bargaining chip – something offered in return for developing country commitments in the Doha context. It has a purpose that remains valid outside of the context of the Doha talks and thus should, as per the recommendations of the WTO Task Force on the matter, continue to unfold despite the stalled negotiations.
The over-riding message is that, if we look to the origins of the multilateral trading system, we can see a regime that embeds liberalism within the broader pursuit of social objectives. Such a system is possible. The current break in the Doha talks gives us the opportunity to pause and reflect on what such a system might look like, given the evolving imperatives of the 21st century. It is an opportunity that we would be foolish to squander.
Aaron Cosbey is Associate and Senior Advisor, Trade and Investment, at the International Institute for Sustainable Development in Winnipeg.
Endnotes
1 John Gerard Ruggie. International Regimes, Transactions and Change: Embedded Liberalism in the Postwar Economic Order. International Organisation, 36(2): 379-415, 1982.
2 Sandra Polaski. The Future of the WTO. Carnegie Endowment for International Peace, 2006.