The American Prospect | January 17, 2000
Five Simple Principles for World Trade
By DANI RODRIK
With the Asian financial crisis barely over, the world economy stands at the brink of another major eruption -- one with potentially much greater significance to the long-term health of the global economic system. The cause this time is not panicked bankers rushing for the exists out of developing countries, but a deep crisis of legitimacy that threatens to overwhelm the world's trading regime.
As the showdown in Seattle has demonstrated, a coalition of labor, environmental, and human rights advocates is intent on derailing the World Trade Organization (WTO), the institutional embodiment of the world's trading order. The WTO is in trouble as well with developing countries, which feel increasingly estranged from rules they believe do not benefit them. The chasm that separates these groups from the agenda pursued by United States and European Union policy makers is growing, destabilizing the world economy in the process.
All sides in this acrimonious debate agree that the stability of the international economic system is predicated on a system of global rules. What is contested is the nature of these rules. The opponents of trade liberalization decry the secretiveness and "nondemocratic" nature of the WTO, and the disproportionate influence of corporate interests in rule making. They see a trading system that privileges business over labor rights, the environment, and consumer safety. Developing countries complain about the restrictive rules that apply to exports of interest to them (garments, agricultural products, labor services). They also fear that the demands they face in the area of labor and environment are designed to undermine their competitiveness even further.
Rational debate on these matters is hampered by the arcane language and detail of trade law. Making our way out of the crisis requires that we articulate clear guiding principles for trade rules. Here are five simple principles that could allow us to move forward.
Trade is a means to an end, not an end in itself. Advocates of globalization lecture the rest of the world incessantly about the adjustments countries have to undertake in their policies and institutions in order to expand their international trade and become more attractive to foreign investors. This way of thinking about trade confuses means with ends. Trade serves at best as an instrument for achieving the goals that societies seek: prosperity, stability, freedom, and quality of life. Nothing enrages WTO bashers more than the suspicion that, when push comes to shove, the WTO allows trade to trump the environment or human rights. And developing countries are right to resist a system that evaluates their needs from the perspective of expanding world trade instead of poverty alleviation.
Reversing our priorities would have a simple but powerful implication. Instead of asking what kind of multilateral trading system maximizes foreign trade and investment opportunities, we would ask what kind of multilateral system best enables nations around the world to pursue their own values and developmental objectives.
Trade rules have to allow for diversity in national institutions and standards. There is no single recipe for economic advancement. Citizens of different countries have varying preferences as to the regulations that should govern new technologies (such as genetically modified organisms), restrictiveness of environmental regulations, intrusiveness of government policies, extensiveness of social safety nets, or, more broadly, the relationship between efficiency and equity. Rich and poor nations have very different needs in the areas of labor standards or patent protection. Moreover, poor countries need the space to follow developmental policies that richer countries no longer require. When countries use the trade system to impose their institutional preferences on others, the result is erosion of trade's legitimacy. Trade rules should seek peaceful co-existence among national practices, not harmonization.
Nondemocratic countries cannot count on the same trade privileges as democratic ones. National standards that deviate from those in trade partnerships and thereby provide trade advantages are legitimate only to the extent that they are grounded in free choices made by citizens. Take the case of labor and environmental standards. Poor countries argue that they cannot afford to have the same stringent standards in these areas as advanced countries. Indeed, tough emission standards or regulations against the use of child labor can backfire if they lead to fewer jobs and greater poverty. A democratic country such as India can argue, legitimately, that its practices are consistent with the wishes of its population.
But nondemocratic countries, such as China, do not pass the same prima facie test. The assertion that labor rights and the environment are trampled for the benefit of the few cannot be as easily dismissed in those countries. Consequently, exports of nondemocratic countries deserve greater international scrutiny, particularly when they entail costly dislocations in other countries.
Countries have the right to protect their own social arrangements and institutions. Opponents of globalization argue that trade sets off a "race to the bottom," with nations converging toward the lowest levels of environmental, labor, and consumer protections. Advocates counter that there is little evidence that trade leads to the erosion of national standards. One way to cut through this morass is to accept that countries can uphold national standards in these areas, by withholding market access if necessary, when trade demonstrably undermines domestic practices enjoying broad popular support. For example, countries might seek temporary protection against imports originating from countries with weak enforcement of labor rights when such imports serve to worsen working conditions at home. The WTO already has a "safeguard" system in place to protect firms from import surges. An extension of this principle to protect environmental, labor, or consumer safety standards at home -- with appropriate procedural restraints against abuse -- might make the world trading system more resilient and less resistant to ad hoc protectionism.
But they do not have the right to impose their institutional preferences on others. Using trade restrictions to uphold our values has to be sharply distinguished from using them to impose these values on other countries. Trade rules should not force Americans to consume shrimp that are caught in ways that most Americans find unacceptable, but neither should they allow the United States to use trade sanctions to alter the way that foreign nations go about their fishing business. Citizens of rich countries who are genuinely concerned about the state of the environment or of workers in the developing world can be more effective through channels other than trade -- via diplomacy or foreign aid, for example. Even when they work, trade sanctions should be used only against nondemocratic countries.
These are simple guidelines, easy to communicate to electorates often confused by the intricacies of trade regulations. Sticking to them would enhance the legitimacy of trade and put the world economy on a sounder footing.
Who Speaks for the Third World?
By ROBERT L. BOROSAGE
After Seattle, the free trade establishment has launched a furious counteroffensive to regain the moral high ground. "The Real Losers from Seattle," reads The Economist's cover, which displays a picture of an impoverished child. Developing countries, we're told, bitterly opposed the president's attempt to force worker rights and environmental protections into the trading system, knowing that, as Fareed Zakaria declared in Newsweek, these protectionist ploys would "crush the hopes of much poorer Third World workers." The true motives of the protesters are revealed, writes Jagdish Bhagwati, a leading free trade academic, by their insidious focus on labor abuses like child labor that affect the South and not the North.
Class politics, pace Dr. Johnson, is becoming the last refuge of scoundrels. Not surprisingly, the conservative globalists get it wrong, precisely because they ignore the reality of the debate in most of the developing world.
In fact, the only representatives of workers across the developing world -- independent, free trade unions -- are virtually unanimous in their support for enforcing core worker rights and environmental protections in WTO trade accords. More than 200 national trade union centers from 143 countries representing over 124 million workers across the world endorsed the call for a WTO working group on labor rights, the first step toward enforcing worker rights. This includes the most democratic and dynamic unions of the developing world from South Africa, Brazil, Malaysia, and the Czech Republic. Over 50 union leaders from developing countries joined the protests in Seattle. As Leroy Trotman, the Barbados trade union leader who is president of the International Confederation of Free Trade Unions, said at the union rally on November 30, "This isn't North against South, or privileged workers against the poor. It is the workers of the world standing together to call on the WTO for justice."
Contrary to Bhagwati, core worker rights are not Western impositions -- unlike U.S. patent and copyright laws that were forced down the throats of the developing nations in the last round of trade negotiations. At the International Labour Organization two years ago, over 100 countries reaffirmed their commitment to core labor rights -- the prohibitions on child labor, forced labor and discrimination, and the protection of the right to organize and bargain collectively. "We are not asking for the moon," noted G. Rajasekaran, general secretary of the Malaysian Trades Union Congress, "but very basic things. Worker rights that are already universally endorsed, but simply not enforced."
Workers and elites divide on these questions in the developing world, just as they do in the North. Where you stand depends on where you sit. WTO trade delegates from the developing world tend to be comfortable members of the global elite that make out well under the current global rules. Dressed to please the foreign investors they must woo, they have neither the clout nor the desire to challenge the corporate and financial interests that cut the deals and set the rules at the WTO.
Developing countries' workers, on the other hand, find themselves caught in the proverbial race to the bottom. The United Nations reports that globalization has increased inequality between and within nations. Thus as Zwelinzima Vavi, general secretary of the respected South African trade union confederation COSATU, argues, we want to "link worker rights to trade rules to change the balance of forces for workers in the developing countries."
You don't need a program to get the sides right. The argument about worker rights isn't North against South, rich workers against poor workers, but North and South elites lined up against workers across the world. It isn't about charity for the poor; it is about justice and power.
A New Grand Bargain
By JEFF FAUX
The failure of the WTO to come up with an agenda for a new round of trade negotiations at its Seattle meeting in early December was a stunning defeat for the Washington Consensus -- the U.S.-led, worldwide coalition of corporate and political elites that have so far made unregulated trade and finance the single goal of global economic policy.
The Clinton administration's original script for Seattle called for trade ministers to sign on ceremoniously to an agenda negotiated by lower-level staffs a month earlier in Geneva. But the Geneva meeting fell apart. Neither European nor Japanese governments were ready to take the domestic political risks attendant on dismantling farm export subsidies, as sought by multinational agribusiness. And in the wake of the Asia financial crisis, the developing countries were not eager to further deregulate their banking sector to accommodate Citibank or to give up the right to tax the Internet in order to improve AOL's bottom line -- at least not without getting something in return. Specifically, they wanted the United States to abolish its antidumping laws and to accelerate elimination of its quotas on apparel. These would have been two more nails in the coffin of American manufacturing, which has lost almost 300,000 jobs in the past two years.
Still, coming into Seattle, the administration hoped to broker just such a deal with the trade ministers themselves. "Failure," said U.S. Trade Representative Charlene Barshefsky, "is not an option." But Barshefsky and Clinton became trapped by a rising tide of anti-WTO sentiment among labor and environmental activists that eventually rose to flood out their plans. In late October 1999, the White House had persuaded AFL-CIO President John Sweeney to support a new WTO round if it included a "working group" to study the link between labor standards and trade, which the world's free trade unions see as a first step toward getting trade rules to protect workers' rights as they now protect the rights of investors. But three weeks later, President Clinton announced an agreement to bring China into the WTO. Given its current government's dismal record on labor and human rights, China's huge presence in the WTO would doom the labor effort. An angry Sweeney denounced the China deal as "disgusting" and vowed to fight it.
Anxious not to further alienate labor in the coming election year, the administration raised its rhetorical support for the working group. At one point, the president even said that he favored the use of trade sanctions to enforce minimum labor standards. Because the U.S. delegation had been assuring the others that they had no such intention, trade ministers from Egypt, India, and Mexico cried foul, and the already slim chance of getting a working group was gone.
Meanwhile, some 40,000 well-organized trade unionists, environmentalists, religious leaders, civil society activists, students against sweatshops, and other protesting corporate dominance of the WTO clogged the Seattle streets, delaying the meetings and diverting the attention of the delegates, who had only four short days to get 135 nations to agree on the specific topics for the new round. The delegates -- many coming from nations where the exercise of free speech lands you in prison -- were outraged. Under pressure from embarrassed city leaders, the ill-prepared Seattle police overreacted to the fringe violence, creating television news images that looked like Chicago in the summer of 1968.
Ironically, the chanting against the undemocratic WTO in the streets began to resonate with developing countries' trade ministers in the suites. Although contemptuous of the demonstrators' causes, they had long resented the authoritarian dominance of trade policy by the United States and its first world allies, and in Seattle were galled by American lectures on the importance of transparency and inclusiveness in trade talks. When, racing against the clock, Barshefsky called a small, closed-door meeting of its usual partners to cut a deal, the excluded majority was livid. With third world delegates angrily denouncing the proceedings to the press, the Europeans unrelenting on agriculture, and the conference center anxious to prepare for an incoming convention of optometrists, Barshefsky finally threw in the towel. The AFL-CIO, Public Citizen, the Sierra Club, and the hundreds of other organizations, here and abroad, that form the loose global party in opposition to the Washington Consensus, claimed sweet victory.
In theory, negotiators can resume their talks at a January meeting in Geneva -- a bastion of gray bureaucrats, less hospitable to political expression than Seattle, the most unionized city in America, and a major center of ecotopic thought. But after the last protester boarded the last bus home, the last broken window at McDonald's was replaced, and the tear gas had dissipated into Puget Sound, it became clear that globalization politics would never be the same -- either at home or at the WTO.
At home, the Washington Consensus is being challenged in both political parties -- by a Democratic left concerned with social justice and environmental protection and a Republican right uneasy about ceding sovereignty. The immediate problem is for the Democrats, who face a newly energized internal opposition to the admission of China into the WTO. The deal with China requires that Congress make permanent trade concessions that are now voted on annually. A drawn-out legislative fight next year will divide the party and drain resources needed to compete with the well-heeled Republicans. Thus, it is in the Republicans' interest to drag it out as long into next year as possible -- and they control the legislative calendar.
The labor/green/student solidarity forged in Seattle is still fragile. Beyond their critique of the WTO, much remains for Teamsters and turtle protectors to sort out. But at the very least, the experience transcended the old divisions between labor and liberals that still lingered from the 1960s. After years of being dismissed by political pundits as relics, the various legions of opposition have created in Seattle's wet streets a new populist politics around the unlikely, but very twenty-first -- century, issue of social rules for the global economy.
Remarkably, this issue is now respectable, even at the WTO. Free trade champion Barshefsky acknowledged several times that the notion that labor conditions are not linked to trade is "intellectually indefensible." The president's comment on the use of trade sanctions, which he did not recant, was simply following the common-sense logic that if labor standards should be in the rules, they should be enforced. From here on, it will be much harder for free trade Democrats to ignore this obvious point. The European Union, which has also accepted the principle of a social clause in trade deals, will feel increased pressures from its own labor/green coalitions to give it some teeth. During the WTO meetings, protesters demonstrated in London, Paris, and Berlin -- also, perhaps a sign of things to come, in New Delhi and Manila.
Yet the 135-nation WTO remains a consensus organization, and the introduction of enforceable social standards is sternly opposed by the developing countries' elites. In the post -- Cold War era, foreign aid has been drastically cut; the IMF and World Bank, which epitomize the Washington Consensus, lend money to poor countries on the condition that they give priority to increasing their exports. As a result, these nations are under brutal global pressure to make their cheap labor even cheaper. Within the rather narrow framework of WTO negotiations, it is virtually impossible to imagine a serious compromise.
Within a larger framework, however, one can imagine a "grand bargain" in which the developing nations agree to enforceable social standards in exchange for guaranteed commitments of long-term development aid and debt relief. There is no institution of global economic governance broad enough to encompass this kind of negotiation. Jacques Delors, former head of the European Commission, has suggested the formation of a global economic security council. But without a new policy agenda, the world hardly needs another supranational bureaucracy.
Only the United States has the capacity to organize such a discussion. But does it have leaders with the requisite imagination? Bill Clinton, to his credit, has now correctly defined the problem: how to build a social dimension into the rules of a global economy that does not have a political constitution. Unfortunately, it is too late for his lame-duck presidency to move us toward some solution. If the crisis of global economic governance that was exposed in Seattle is to be resolved, the world will have to be very lucky in who it is we select to be the next president of the United States.
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