Sep 22, 1998

CRISIS STRICKEN SOUTH MAY GET NO RELIEF FROM WTO

Geneva 21 Sep (Chakravarthi Raghavan) -- Developing countries, battered and buffeted by the financial crisis, but hoping to export their way out and get some assistance and relief from the trading system, would have been disappointed by the discussions at the WTO Friday on the "World Financial Crisis and the Role of the WTO".  

The discussions were at an informal heads of delegations meeting to prepare for this week's Special General Council meeting to set in motion the preparatory process for the 1999 3rd Ministerial meeting.  

The meeting is now expected to be held in the first week of December 1999 in the United States, but the exact locale is still to be set. 

The informal meeting for 18 September had been set in July, to continue the informal consultations for the Special General Council this week, but the discussion on the financial crisis issue was added on after discussions between WTO Director-General Renato Ruggiero and Council chair, Amb. John Weekes of Canada.  

For several months -- after the crisis began in July 1997, when the Thai baht was floated and devalued, setting off a meltdown on financial markets in the region -- the crisis was portrayed as the "Asian Crisis", with the WTO head promoting further financial services liberalization as a solution to the Asian problems.  

But now, the WTO has made a concession to reality, by the agenda of the informal meeting being titled, "The World Financial Crisis and The Role of the WTO". 

In March this year, the WTO released some preliminary trade figures, showing world trade growth in 1997 of around 9.5%, and projecting a two three percentage drop in 1998.  

In putting a spin on the data, the trade officials at that time had said that the Asian countries affected did not have much weight in global trade, and the crisis would have only a small effect on world growth and trade.  

But in his speech at the informal meet, Ruggiero noted how in recent years strong growth in the developing world could radiate very substantial benefits in the advanced economies and "by the same token we are now seeing how the decline of growth in parts of the developing world can also have major repercussions for the whole of the world economy." 

There were no official, attributable, briefings from the WTO after the meeting, which like other formal and informal meets is held behind closed-doors. But copies of the texts of statements of Mr. Ruggiero, and an intervention from the Brazilian ambassador, Mr. Celso Lafer were made available to the media.  

The unofficial word out, after the meeting, was that everyone who spoke opposed "protectionism" or "protectionist actions", but that there was some disagreement on the issue of capital flows and regulating them.  

There were some exhortations from Ruggiero, and a few trade diplomats, that the crisis should not be an excuse for holding back, but for pressing ahead with the WTO's liberalisation agenda, including, as Ruggiero put it, that in the preparations for the 3rd Ministerial the work programme suggested at this May's 2nd Ministerial would be kept on track.

But lest there be any doubt, the United States made clear that eschewing protectionism did not mean eschewing trade measures according to rules (presumably having in mind such instruments as anti-dumping investigations and actions) or that the crisis could justify any of its trading partners deviating from or not observing the trade rules and commitments -- under each and every agreement.  

And comments and demands on trading partners by high US trade officials, including what the Wall Street Journal editorially has called the Barshefsky (Trade Representative Charlene Bershevsky) offensive  

Lafer underlined that the origins of the crisis lay in the "rapid flow of volatile capital and its consequences... a financial phenomenon, and trade was not at the root of the crisis", that trade flows nevertheless have been and continue to be negatively affected, but that answers lie basically outside the trade domain."  

"The gravity of the present international crises," Lafer concluded, "requires that we do not drift into even more troubled waters. It calls for statesmanship and bold initiatives."  

Some trade diplomats were privately intrigued by the Ruggiero-mooted discussion at an informal level, noting that even if the idea is to show the WTO is seized of the crisis and is opposed to "protectionist trade actions", it would have made more sense to have a formal meeting, devoted to a formal discussion on record.  

Some thought Ruggiero wanted go armed with the views at the forthcoming G-7 meetings before the annual Fund/Bank meetings, and to "lock-in" the United States into the WTO agenda and new round of negotiations.  

Some others wondered whether it was an attempt to undercut the views on capital markets and capital flows, the pace of financial and other liberalizations by developing countries, put forward in a comprehensive way in this year's UNCTAD Trade and Development Report, 1998 which has dealt with the financial crisis that began in Asia, its origins, impact on the world economy and more on developing and transition economies, and ways to deal with such crises and prevent their occurrence. 

Though the report itself has called for continuing to maintain the open trade system, and ensure that export opportunities for developing countries are not hit, but supported, WTO officials appear to be worried that the entire "globalization and liberalization" thesis, so vigorously embraced and advocated by the WTO, is now under threat. 

While the initial opposition to these from NGOs, could be dismissed, the reasoned economic arguments and data from many mainstream economists and international institutions like UNCTAD could no longer e ignored.

The crisis and its outcome, these trade diplomats noted, has already made many mainstream economists do loud "re-thinking" in favour of capital controls, caution on financial sector liberalization (which covers the WTO drive for liberalisation of trade in financial services) and national and international measures to moderate various aspects of "neo-liberalism" by state interventions. 

In press conferences to release the report in various capitals, several mainstream economists, including personalities like Harvard Academic Jeffrey Sachs have come out strongly in support of the document, while Paul Krugman (speaking last week in India) seemed to lend support to the cautious way India has been liberalizing its international trade and financial transactions. 

They noted that though the Report was only "published" on 16 September, copies had been available to the media and governments by mid-August, and the WTO secretariat had in fact expressed some concern privately.  

Unable to challenge head-on the TDR view on the financial turmoil and need to tame the financial markets, trade officials are known to be complaining about the TDR view that dismantling commodity marketing boards, and hasty liberalization in Africa may have been harmful, and sub-Saharan Africa should use varying tariffs (little or none on capital goods and heavy tariffs on luxury consumer imports) to promote industrialization, diversification and exports.  

In his remarks Friday to the informal meeting, Ruggiero said it "would be wrong to under-estimate the present difficulties in the world economy brought on by the financial turmoil experienced over the past year - and which is still continuing". 

In this situation, he argued, it was their shared responsibility to see how the trading system could make a positive contribution to returning the world economy to the path of sustainable growth. While the multilateral system could not provide all the answers, the significant contribution the system could make through mutually agreed rules - with multilateral procedures and flexibilities to cope with specific economic difficulties - should not be underestimated or ignored.  

Giving way to protectionism would be a tragic mistake. It was a self-defeating strategy, and a contagious and divisive instrument that won't solve anyone's problems, but only make them worse.  

Secondly, only by keeping markets open could chances of early recovery be improved. Every economy in the world had a role to play, and this also meant that the accession negotiations of 32 countries pending at the WTO should be concluded, with the applicants showing necessary degree of flexibility and creativity for this.  

Thirdly, the WTO, in preparing for the 3rd Ministerial Conference in the US, should demonstrate its determination to move ahead, with the work programme, in terms of implementation and future negotiations.  

Indonesia, for the Asean, said the affected countries desperately needed for export earnings and closing markets to them would be an act of bad faith.  

Brazilian ambassador Lafer in his intervention stressed that the current crisis stemmed from rapid and volatile flows of capital and its consequences - "a marked feature of the globalization process in the financial sphere." 

It was basically a financial phenomenon in origin. Trade was not at its root - either as a cause for eruption or as a reason for deepening. While trade flows nevertheless have been and continue to be negatively affected by the crises, the answer to it basically lay outside the trade domain. 

Referring to the Brazilian president's call to the G-7 for strengthening and development of international consulting and coordination mechanisms on macro-economic policies,and specifically on speculative volatile capital as part of international financial architecture, Lafer welcomed the recent initiative of President Clinton (in his New York speech to foreign affairs council). 

As countries try to grapple with the consequences of the crisis and search for ways and means to avoid its worsening, different and contradictory responses were brought forward.  

In the countries affected recourse to protective trade measures tend to be seen as the only alternative available to reduce imbalances. The perverse combination of increased unemployment, recession, growing trade deficit and dwindling currency reserves may lead to calls for protectionist measures.  

And in developed countries, where import capacity is stronger, the perception that their markets might be flooded with imports from countries that have had to significantly devalue currencies may also lead to internal protectionist pressures. 

If these paths are taken and a generalized recourse to protective trade measures occurs, the result can be an exacerbation of the crisis, reminiscent of the 1930s, Lafer cautioned.  

In the current financial crisis, there was need to give concrete expression to the concept evolved at the RIO UNCED Summit of the "common, but differentiated responsibilities" of all countries.  

"There is a need to give concrete expression to the concept that we all share the common responsibility of seeking global solutions to the crisis and simultaneously maintaining and sustaining an open rule-based multilateral trading system or the WTO acquis. Nevertheless we have differentiated responsibilities in contribution to its solution."  

In the field of trade, the major developed countries, due to their larger share of world market, are better equipped to provide trade-related answers to the crisis - "including through additional efforts to increase their imports".  

"It is imperative in the developed countries to explain to internal constituencies that it is in their interest to avoid measures that would aggravate the crisis and restrain market access for products originating from affected developing countries. The gravity of the present international crisis requires that we do not drift into even more troubled waters. This calls for statesmanship and bold initiatives."  

The United States representative, Mrs. Rita Hayes, made a distinction between protectionism and trade measures justified by the rules (presumably a reference to its free use of anti-dumping investigations and measures), and also to the growing US trade deficits.  

Referring to the various commitments and obligations of members under the WTO (such as on customs valuation, technical barriers to trade, the TRIPS etc), the US is reported to have added: "don't think that because there is a crisis, you can get relief from your obligations." 

The US said: "We should exclude from consideration any delay in implementation of existing WTO obligations... avoid committing to 'standstill' agreements, that will be honored only in the breach; .. not tolerate any backsliding in collective commitments to further liberalization; and ... reject any lowering of mutually agreed standards in providing for future and expanded membership of WTO." 

On Friday, in commenting on the recent visits to Japan and East Asia by US trade representative Charlene Bershefsky and her remarks to media in Tokyo "that she was there to make sure US companies get their fair share of the (Japanese) stimulus pie", the Wall Street Journal said editorially "the Barshefsky offensive is more akin to an American version of the mercantilism that we have always complained of with regard to Japan."  

The US remarks at the closed-door informal WTO meet would add strength to this criticism.  

In response to the US reference to its trade deficits, Japan is reported to have told the informal that its exports had gone up, and imports were down, as a result of the fall in value of the yen.  

Korea noted that it was having a trade surplus, but this was because with the devaluation of the currency, even though some exports had risen in volume, the export earnings were down and "we are not able to import". In other comments, Australia argued that developing countries should not seek short-term redress to their problems by raising tariffs (which they could do now if their applied tariffs are lower than their bound ones) and wanted WTO members to press ahead with liberalization.  

Several developing countries including Egypt and Pakistan however spoke injecting a note of caution and said that not everyone could liberalize, and there was a need to be careful and not simplify by saying that the solution to the crisis lay in more liberalization. 

Pakistan made the additional point that it was perhaps and timely wise to consider the effects of financial and capital liberalization.  

The EC said it was sensitive to the global environment and had a lot of sympathy for the views of Mr. Lafer. 

Earlier, the informal meeting discussed a secretariat paper for a work programme on electronic commerce.  

Acting on an American initiative, the 2nd Ministerial meeting called for a standstill on tariffs on internet/electronic commerce, and asked the General Council to set up a work programme and make recommendations to the 3rd Ministerial. The tariff standstill was to be in place until this report, and can be continued thereafter by a consensus decision. 

The secretariat has produced a work programme for various WTO bodies to undertake work within their spheres on electronic commerce. And one of the points in the work to be done by the Councils on Trade in Goods and that on Trade in Services is the issue of customs duties, and other duties and charges on electronic transmissions.  

In the discussions, Brazil underlined that the declaration adopted by the 2nd Ministerial at Geneva in May, was only a "political commitment" for not levying any tariffs during the work programme and recommendations, and "there is no legal commitment". 

Other participants, took issue with the programme covering not merely customs duties, but other duties and charges on "electronic transmissions". These included a number of developing countries, as also the EC and Japan, who raised some questions on this. 

One trade diplomat said that while the GATT envisaged in Art II that other duties and charges (apart from tariffs that are scheduled and bound) should not be levied on imports, unless there were similar duties and charges on domestic products -- and this was aimed at preventing discrimination -- the work programme seemed to go much further. 

Brazil also did not agree that the work programme should involve the bodies supervising plurilateral agreements on government procurement, information technology. And the development issue (on this question) should be addressed in all the bodies of the WTO dealing with the work programme, and not merely in the Trade and Development Committee. And any role of the private sector should be strictly informal, through seminars etc. The WTO was an inter-governmental body, and there could be no formal role for the private sector in its work.