Institutional Investor
2/15/00

Deepak Gopinath

Seattle offers something for everyone in search of a symbol. Headquarters of Amazon.com, Microsoft Corp. and Starbucks Corp., whose coffee seems to fuel the New Economy, it's an iconic city of the future. But Seattle is also firmly linked to the past: a haven for aging hippies and home to decidedly Old Economy stalwarts like Boeing Co. And it's a union town.

Now, in the wake of December's spectacularly failed round of global trade talks, just about everyone is hustling to explain the meaning, the symbolism, of the Battle of Seattle – the four days of running confrontations between an unprepared police force and tens of thousands of protesters.

Triumphant demonstrators trumpet the message that nondemocratic, unaccountable organizations like the World Trade Organization will no longer be tolerated, calling for measures to protect workers' rights and the environment. And U.S. Treasury Secretary Lawrence Summers, echoing President Bill Clinton, last month drew this lesson from Seattle for a group of corporate executives in India: Future trade liberalization must incorporate labor standards and environmental regulations.

But there is another, more ominous, meaning. The Seattle debacle represents the latest, and most serious, threat to globalization, whose key tenets were enshrined in 1990 as the so-called Washington consensus, which set out an optimistic agenda of financial and trade liberalization. Disenchanted developing countries, however, see the process of liberalization as skewed to benefit rich countries at their expense. Over the past few years, the International Monetary Fund and the World Bank have been beaten up over their lending and policy advice in emerging and developed markets alike.

Now it's the WTO's turn. And developing countries' leaders say they want neither developed-world governments nor their well-intentioned citizen protesters dictating policies to them – about labor, the environment or trade.

"Seattle reflects the underlying politics of backlash over globalization," says Fred Bergsten, director of the Washington, D.C.-based Institute for International Economics. "There is a lack of any forward momentum on trade liberalization anywhere in the world. The bicycle has stopped going forward, and history suggests that it will go back. This is a very dangerous setting for world trade policy going into the new millennium."

The events in Seattle underscore a crisis of confidence not just in the institutions that create the rules and police the players but in the very idea of globalization itself. That's because governments and multilateral organizations haven't found a way to counter the anxiety engendered by burgeoning world trade or to spread its benefits more widely. Says Juan Somavía, director-general of the International Labor Organization: "What happened on the streets was not against trade but against the way the global economy produces insecurity and uncertainty. The benefits of globalization are not reaching enough people."

Complicating matters, the traditional divisions between developed- and developing-country governments are now paralleled by equally contentious divisions between powerful activist organizations in the North and in the South. So-called civil society groups from both sides want a voice in determining the policies of the global institutions to which their governments are ceding sovereignty. Seattle showed that the WTO, like the IMF, does not meet the needs of North and South equally, nor does it allow sufficient participation by nongovernmental organizations in its decision making.

Any loss of legitimacy for the WTO has potentially catastrophic consequences. Free markets require institutions like the WTO to ensure that members act in the collective interest. Without rules, countries will indulge in beggar-thy-neighbor policies, like raising tariffs, leading to volatile markets and potential political conflicts. In the short term the stage could be set for a return to regionalism, with dueling trade blocs.

WTO officials acknowledge that the Seattle demonstrations reflected anxieties that cannot be ignored and that the organization must become more responsive. Director-general Mike Moore declares that he is determined to reform the WTO's procedures to make it more transparent. "The problem is, people in both rich and poor countries feel alienated. There has to be a greater sense of ownership of international institutions," says Moore. "We need more transparency and we can do better. If I hear one more time that we need to combine transparency with efficiency, I'll scream, but it's true."

But structural changes alone may not convince developing countries that rich WTO members will be more flexible in meeting their needs. Indeed, following Seattle, trade is even more susceptible to being held hostage by domestic politics. Consider the U.S. American labor and environmental groups, emboldened by their success, are gearing up for a fierce congressional battle this year over granting China permanent normal-trading-relations status as part of its WTO accession.

That the failure of Seattle has created such a furor is ironic in no small part because the original goal of the conference was a simple one – to set the agenda for what some called the Millennium Round of trade liberalization talks, to begin this year. But the meeting was doomed before it started; negotiators failed to agree on an agenda for Seattle itself. And President Clinton's attempts to persuade other heads of state to attend fell on deaf ears.

"The stars were not aligned properly to launch another round," says Ira Shapiro, a former senior trade official in the Clinton administration. "The opposition to expanded trade is significant and well organized. It can be overcome only with a strong consensus that there was something to be gained from further liberalization. That consensus wasn't there. The agendas of the key players were simply incompatible."

Going into Seattle, delegates were to discuss further liberalization in agriculture and services. The U.S. was also keen to form a working group on labor standards and to reach an agreement on e-commerce. But the Europeans weren't ready to discuss agriculture, and developing countries saw little to gain in a new trade round.

Poor countries have long seen the terms of trade as biased against them; a new round of talks, they felt, would do little to make up for existing problems. Developing countries contend that they are unfairly targeted by antidumping laws, such as those often used by the U.S., and burdened with restrictive quotas on clothing and textiles. They also have difficulty complying with intellectual property laws pushed through the 1994 Uruguay Round of trade negotiations. Given all this, many developing countries wanted to focus on implementation issues related to previous trade rounds and had little appetite for new issues like e-commerce or labor-trade and environment-trade linkages – the so-called social clauses.

"We didn't need the help of protesters and tear gas to foil the ministerial; we did it on our own," says the WTO's Moore. "We were too far apart on a number of substantive issues."

Not surprisingly, many developing countries felt that President Clinton's vocal support for agendas of the labor and environment groups was meant to force their hand. They were also angry at the way the conference was managed. The WTO operates by consensus, and small groups of ministers often made decisions secretly in so-called Green Room meetings. Developing countries threatened to walk out of the negotiations on several occasions.

Still, even though rich-country NGOs like the AFL-CIO, the United Steelworkers of America and the environmentalist Sierra Club won new attention for action on union and environmental standards, they gained little ground in the WTO. Developing countries, for example, soundly rejected the U.S. government proposal to establish a WTO working group on labor.

But Clinton's backing helped the U.S. NGOs' causes. And those activists believe the failure of the trade talks is a positive outcome to the extent that it forces a new look at the WTO's agenda. "The trade system is now dominated by corporate interests," says AFL-CIO assistant director of public policy Thea Lee. "The WTO needs a rethink. For the meeting to end without a conclusion was, for us, the right thing."

Developing nations view social clauses as a cover for protectionism. But many rich-country NGOs don't buy their logic. "[Developing-country resistance] is the fear of the unknown and is not well founded," says Lee. "[Rejecting] the working group was an overreaction on the part of developing countries. Any trade law is potentially protectionist and open to abuse."

United Steelworkers president George Becker is happy to be a protectionist. "What is protection?" he asks. "We want to protect our families, our jobs and our standards. We will fight vigorously to protect what we value in this country."

In the end, U.S. trade unions and environmentalists were the only ones to come out of Seattle happy. "It was a victory in many ways. Before Seattle no one knew what WTO was; now everybody does," says Becker. Now the WTO must adapt or face extinction, says Lori Wallach, director of Public Citizens' Global Trade Watch. "For boosters of the WTO and the trade status quo, Seattle was a warning call," notes Wallach. "Either it must bend, or it will blow up. The WTO must make transformational changes."

In fact, some U.S. NGOs emerged from Seattle much stronger. Labor and environmentalists forged an especially powerful bond, the so-called Sweeney-Greenie alliance. (John Sweeney is the president of the AFL-CIO.) Says Daniel Seligman, the Sierra Club's trade guru, "We have had a well-established collaboration with labor since Nafta in 1993. What was different in Seattle was that the bonds forged a loose alliance into a popular movement, not an alliance of convenience."

Poor-country NGOs spent much of their time in Seattle not only lobbying WTO delegates but also trying to get their views across to the developed-country unions and environmental groups. An Indian group called Consumer Unity & Trust Society, which organized a meeting in Seattle with trade unions and other NGOs to discuss trade-related labor and environment standards, had a difficult time convincing the others that sanctions wouldn't solve the problem. On the emotional subject of child labor, for example, CUTS estimates that it would cost India up to $18 billion a year to send child workers to school. "South and North NGOs were at loggerheads," says Raghav Narsalay, a CUTS analyst. "[But] this was a major breakthrough and the beginning of a shift in understanding of the issue."

Narsalay was too optimistic. When Clinton echoed protesters' concerns and mentioned sanctions in the context of labor standards, it made a bad situation worse. "When [Clinton] explicitly talked of sanctions, it could have been the death blow for the conference," says the IIE's Bergsten. Critics saw it as an attempt by Clinton to woo powerful union and environmental lobbies' support to Vice President Albert Gore in the November presidential elections – and to put pressure on developing countries to buckle under at the same time.

In the midst of the Seattle riots, Clinton met privately with Sierra Club head Carl Pope as well as U.S. labor leaders. "Clinton was positioning himself as a prescient leader who was setting the tone on globalization," says Seligman. "He sees Seattle as a watershed and is trying to get ahead of the political curve."

Certainly, Seattle has made more Americans aware of globalization than ever before, and by some measures they don't like it. A Business Week/Harris poll of Americans' attitudes post-Seattle reveals a strong shift in opinion against globalization. After the conference 22 percent were less favorable to globalization and 7 percent more favorable. A majority, 52 percent, were sympathetic to the protesters, while 39 percent were not.

Seligman sees such poll results as an endorsement of his concern that globalization ignores community bonds at the expense of corporate dominance. The ILO's Somavía sees it as a matter of personal economics. "The source of insecurity is not just the traditional question of the excluded of society but also the insecurity of middle classes worldwide," he says. "The two great achievements of the century have been the creation of open economies and open societies. We shouldn't lose them. We have to make markets work for everybody."

Whatever the public may think, there's no denying that NGOs are a force to be reckoned with and will influence more economic policy decisions in the future. For example, they have already pressured the World Bank to move away from financing the large infrastructure projects that used to be its bread and butter, and in 1998 they scuttled an OECD-led attempt to forge the Multilateral Agreement on Investment, which would have prevented governments from discriminating explicitly or implicitly against foreign investors.

Worried about jobs at home, developed-nation NGOs, especially from the U.S., have been lobbying for years to undermine trade and economic agreements. Now U.S. international economic policy, not just trade, is bogged down in a swamp of domestic politics. In 1998 Congress held up legislation to increase IMF funding quotas for almost a year and has repeatedly blocked Clinton's attempts to get "fast track" authority to negotiate trade deals. The hostility prompted Clinton to renege on his promise in his 1998 State of the Union address to seek fast track again. And as protectionist sentiment has risen – even in a time of global economic prosperity – Congress came close last year to passing a bill to protect the U.S. steel industry from low-cost foreign imports.

The situation is complicated by the rise in Congress of the idea that international treaties and rules are good for everyone else but don't apply to the U.S. This was underscored by the Senate's rejection of the Comprehensive Test Ban Treaty, which further dimmed prospects of Clinton's getting fast-track negotiating authority last year. The next big battle for U.S. NGOs is to prevent China from getting permanent normal trading relations with the U.S. as part of its WTO accession. Permanent NTR would oblige the U.S. to permanently grant China the same trade terms it gives other countries. Despite the boost Clinton gave them in Seattle, they are furious about his China policy. Last month Clinton appointed Commerce Secretary William Daley as his point man, charged with making sure Congress grants China permanent NTR. A defeat would not keep China out of the WTO (it will have joined when it concludes bilateral agreements with all WTO members) but could allow China to deny the U.S. the favorable trade terms it offers other countries.

Unions and environmental groups are already gearing up for the fight. "What Clinton has done on NTR is a complete betrayal of American families and worker interests," says the United Steelworkers' Becker, who is also chairman of the AFL-CIO economic committee. Becker has commissioned polls on the China issue and is reviewing every congressman's voting record in preparation for the NTR fight. He's also threatening to lobby for U.S. withdrawal from the WTO. "If we are going to have a world institution that will supersede our laws, it must have provisions on labor or environment," says Becker. "Otherwise we will work very hard to get the government out of WTO." Indeed, there is already a 1994 statute on the books under which, every five years, any member of Congress can offer a binding resolution for U.S. withdrawal from the WTO that must be voted up or down.

The first five-year period ends this spring. The Clinton administration is pushing for an early vote on permanent NTR to avoid exposing divisions among Democrats on trade, labor and environmental issues just before the fall elections. Republicans want the debate as close to the elections as possible. "We are optimistic for permanent NTR," says George Sigalos, an aide to Democratic Congressman Philip Crane of Illinois. "It brings enormous benefits to American exporters and consumers."

The Seattle fiasco and China debates don't necessarily mean that there is no longer a political consensus around the world for free trade. South America's Mercosur has yet to collapse despite last year's recession in Latin America. The European Union has completed talks with South Africa and Mexico on establishing free-trade agreements, and India recently opened up its insurance sector to foreign companies. But what the Battle of Seattle does mean is that there will be continued resistance to expansion of trade and/or economic liberalization through multilateral organizations.

"We must find a way to convince people that open trade is in their interests and that the system works for everyone," says Shapiro. Either that, or risk reversing the process of globalization itself. But given the key players' conflicting interests, it will be a monumental task to get them all to agree that what is good for one is good for all.