Uncertainties ahead

Print edition : December 11, 1999

The fiasco at the WTO event was in some ways predictable, given the diverse agendas and the antagonisms that surfaced in the run-up to Seattle; but its ramifications could well prove incalculable.

WITH acrimony mounting and chances of a decisive outcome to the Seattle Ministerial Conference hitting a trough, WTO Director-General Michael Moore came up with a memorable formulation: "Condemned to succeed." In other words, the Ministers and officials cramming Seattle's convention centre could not continue arguing at cross-purposes. As the deadline for agreement neared, discord would simply have to give way, since the stakes involved were too high to condone failure.

By the time these words were uttered, the atmosphere in Seattle was already bristling with new antagonisms. U.S. President Bill Clinton had made his appearance with all the trappings of an imperial overlord come to visit his flock. As the chief host of t he conference, he was received with courtesy and heard with exceeding politeness. But the contents of what he said only deepened the sense of disquiet about the host's intentions, transforming the gathering into a quarrelsome multitude that could not pos sibly reach an adequate compromise.

Moore was altogether too complacent in assuming that there was an underlying harmony in the attitudes of the diverse nations assembled in Seattle. It was a presumption that flowed from a rather uncritical appreciation of the process of globalisation and the supposed benefits it conferred on all parts of the world.

The months leading up to Seattle had been marked by the kind of discord within the WTO that should have provided Moore with an adequate foretaste of the odds he faced. First, there was a months-long stalemate over choosing a person to head the organisati on, with the Asian bloc strongly pressing the claims of a Thai politician against the West's advocacy of Moore. An election would have ruptured the WTO convention of decisions through consensus, with incalculable consequences for its entire method of ope ration in the future. Finally, a tenuous compromise was worked out, under which the two candidates would split the six-year term evenly between themselves.

More ominously, an effort to hammer out an agreed agenda for Seattle broke down just a week prior to the meet. This was the culmination of a tortuous process at the WTO headquarters in Geneva, which saw the U.S., the European Union and Japan - the three powerhouses of the global economy - rapidly raising the pitch of mutual recriminations. An early draft reflected some of the concerns of the E.U. and Japan, in its emphasis upon investment rules, competition policy and anti-dumping regulations. A revised proposal submitted by the U.S. played down all these concerns, instead highlighting the liberalisation of trade in agriculture and services. The E.U. and Japan rejected the proposals on sight, accusing the U.S. of seeking to "rig the agenda" for a new r ound of global trade negotiations.

In the prelude to Seattle, the U.S. also sought to dilute the elements of a draft agenda that would provide the least developed countries a degree of flexibility in meeting WTO commitments. Going into the ministerial meet, the writing was already on the wall. With a shrewd appreciation of the odds, The Economist of London, as energetic a drumbeater for free trade as any, warned of the dangers ahead: "There is indeed a danger that Seattle will turn out to be a fiasco: no agreement on an agenda, or a half-hearted one that will obviously lead nowhere. If that happened, it would encourage anti-WTO groups to go on the offensive. America, the E.U. and Japan would increasingly be tempted by managed trade. The E.U. and America would redouble their effor ts to carve up markets through regional preferential trade agreements that can only undermine the multilateral approach to trade."

A protest outside the U.S. embassy in Manila to coincide with the start of the Seattle conference. Most of the issues that proved contentious in Seattle, such as agriculture and services, will be taken up in Geneva early next year as part of the conti nuing mandate of the Uruguay Round.-PAT ROUGE/AP

President Clinton had been the most assiduous in urging that Seattle should mark the beginning of a new round of global trade negotiations. Since the U.S. has always been the driving force behind its predecessor - the General Agreement on Tariffs and Tra de - there seemed little amiss about its effort to steer the WTO in a particular direction. But there were serious hazards inherent in the temporal coincidence between the WTO meet and the start of the U.S. presidential election process. For Clinton, Sea ttle was little more than an occasion to establish how he was intent on exerting the leverage offered by the U.S' uniquely influential global profile to secure the interests of American labour unions. The WTO ministerial was, in this sense, a barely disg uised overture to the trade union vote bloc on behalf of Clinton's designated successor, Vice-President Al Gore.

TRADE union insecurities had been compounded by the mid-November deal between the U.S. and China, which effectively cleared the most serious obstacles to the admission of China into the WTO (Frontline, December 10). On November 19, John Sweeney, p resident of the American Federation of Labor and Congress of Industrial Organisation (AFL-CIO), the most influential trade union confederation in the U.S., spelt out his concerns at the National Press Club in Washington, D.C. Repeatedly invoking the thre at of a "confrontation" in Seattle, Sweeney warned: "The attempt to bring China into the WTO intensifies our determination, because we believe it is less likely to reform China, as its advocates claim, than it is to further deform the WTO. And it is more likely to detract from the WTO's already questionable legitimacy than to add to it."

Sweeney's worries were transparent. China's human resources would constitute a grave threat to the global dominance of U.S. industry and thereby endanger union interests. He was openly contemptuous of the arguments advanced on behalf of free trade: "Edit orials pose a choice between free trade and protectionism, between engaging China and isolating it. This is nonsense. The debate is not about free trade or protection, engagement or isolation. We all know we are part of a global economy. And we are so en gaged that we are already running a $60 billion deficit with China."

In other words, the trade deficit - virtually a chronic feature of U.S. economic performance over the last decade and more - is synonymous with an export of American jobs overseas. And if the WTO fails to inscribe into its charter uniform rules for labou r all over the world, it would represent an unfair disadvantage for American labour. "So every day," said Sweeney in moral outrage, "some 250 million children across the world go to work rather than to school, making goods that flow freely across nationa l borders. Every day, tens of thousands of workers are chained into forced labour and prison camps, slaving to make products that enrich global corporations and dictatorial governments."

It is an irony that these acute insecurities have cropped up at a time when the U.S. economy is celebrating its longest-ever phase of uninterrupted growth. There is perhaps an implicit comment in Sweeney's sentiments, as also in President Clinton's anxie ty to accommodate them, on the stability and sustainability of the current economic boom in the U.S.

The inside story remains to be told, but there is an effort to spin out an interpretation that the U.S. President's strong message, invoking the possibility of trade sanctions against countries that failed to meet agreed labour standards, was his own ini tiative. In this narration, in his effort to secure the trade union vote for his designated successor, Clinton went well beyond the more subtle bargaining position that his negotiating team had adopted.

FUTURE historians may find it enlightening to excavate the truth behind these stories. For immediate purposes, it is sufficient that the President's remarks provided an insight of startling clarity into his country's ultimate intentions with the proposed new round of negotiations. The remarks made by his top negotiator, U.S. Trade Representative Charlene Barshefsky, just two days earlier, suggested an effort to work the labour standards issue into the WTO negotiating agenda without immediately pre-empti ng its outcome. The occasion was her address to the International Confederation of Free Trade Unions, a body that has rendered immense service to the U.S. cause during the Cold War and today stands in the vanguard of the struggle for universal labour sta ndards.

Farmers carry sheaves of wheat in Paris on November 25 in protest against U.S. demands to European Union member-countries to cut back on agricultural subsidies. The banner reads: "No countryside without farmers."-REMY DE LA MAUVINIERE/AP

Interestingly, Moore had on November 28 firmly ruled the issue of labour standards out of court in his appearance at the same forum: "What is true for the advanced economies is true for developing economies as well. Imposing trade sanctions - making deve loping countries even poorer - will not stop children being put to work. Or lift the living standards of their families. Just the opposite. Poverty, not trade, is the main cause of unacceptable working conditions and environmental degradation. And the an swer to poverty is more trade and business, not less."

Moore suggested that rather than appropriate the mandate of the International Labour Organisation, the WTO should work in cooperation with it: "Most of the 135 members of the WTO are also members of the ILO. We represent the same taxpayers, the same gove rnments, the same constituents. All these governments have an interest in improving their social and labour standards... All WTO's membership signed up to the Singapore Declaration in 1996 committing them to core labour standards, opposing the use of lab our standards for protectionist purposes and agreeing that the comparative advantage of countries - particularly low-wage developing countries - must in no way be put into question."

On behalf of the U.S., Barshefsky stated her opposition to this posture very clearly the next day: "Today, in a formal sense, the WTO does not recognise that links between trade and labour exist. This is not a position which can endure: it is intellectua lly indefensible, and it will over time weaken public support for the trading system. Thus we are not only seeking closer collaboration between the WTO and the Inter-national Labour Organ-isation, but also creation of a Working Group on Trade and Labou r to examine seriously, in cooperations with institutions like the World Bank and the ILO, questions such as safety nets, the relationship between trade and internationally recognised core labour standards, and the best means of adjustment to heightened competition."

THESE subtleties of interpretation were, of course, decisively brushed aside when Clinton invoked trade sanctions as the appropriate antidote to member-countries' default on core labour standards. Far from being an occasion that elevated the meet to a hi gher level of purpose, the presidential appearance in Seattle only hastened its unravelling.

In the two remaining days, the U.S. tried every option to win an agreement. On agriculture, it remained insistent on a final elimination of farm subsidies, but seemingly conceded some ground on "multi-functionality" - recognising European and Japanese cl aims that agriculture represented a special category of activity, intimately connected to the environment, national cultures and ways of life, that could not be equated with industry and manufacturing. To win Japan's assent on the labour standards issue, it even offered to bring on board its specific grievances on the frequent American recourse to anti-dumping regulations. But against the background of dissent from the more important developing countries, none of these stratagems could quite salvage the Seattle talks.

In retrospect, to anybody who followed the tumultuous build-up to Seattle, it must seem rather outlandish that forecasts of a decisive outcome did for a while enjoy a certain credibility. The fiasco of the WTO ministerial does not in itself represent a f atal blow to the global trading system. It is not inappropriate to recall that the Uruguay Round of trade negotiations, which gave rise to the WTO, went into a seemingly irresolvable deadlock in 1990. It snapped out of the stupor only when Arthur Dunkel, Director-General of GATT (as it was then known), produced the fait accompli of an agreement that was known as the "Dunkel Draft" - providing the U.S. with the basis for individually working on all the recalcitrant elements and wearing down their resistance.

A similar effort may be unnecessary right now, since most of the issues that proved contentious in Seattle, such as agriculture and services, will be taken up in Geneva early next year, as part of the continuing mandate of the Uruguay Round. In this cont ext, it is worthwhile to probe into the recent conduct of the U.S. Government to uncover its true motivations in seeking to launch a new round of global negotiations. It is unlikely that the answer ultimately will need to go far beyond one factor. The cu rrent conjuncture is a rare moment of global hegemony for the U.S. - an ascendancy as seemingly absolute as it is multi-dimensional. Since ministerial meetings every two years have become standard procedure for the WTO, the U.S. obviously decided that th e moment was appropriate to exert the leverage afforded by its economic, military and cultural power, to force an outcome of its choice in global trade rules.

John Sweeney, president of AFL-CIO.-BARRY SWEET/AP

The effort came a cropper for the simple reason that the moment of absolute U.S. power is also one of maximum global disharmony. Indeed, not in several decades has the global economy been as out of joint as it is now. Cycles of growth and stagnation, whi ch once were closely synchronised between the main global economies, are today completely desynchronised. The growth that the U.S. economy is today witnessing - with its attendant phenomenon of a massively bloated stock market and rampant speculative act ivity - strains credulity for the simple reason that it is seemingly isolated from the rest of the global economy.

Digging slightly under the surface, the infirmities in the American economic miracle begin to emerge. First, economic growth today is being underwritten as never before by massive consumer spending. The growth in consumer spending today is the highest si nce the mid-1980s. This, in turn, is premised upon the appreciation of share values. Household incomes alone can hardly sustain the kind of consumer spending that is seen today. What is evident, instead, is the "wealth effect" - of households incurring m assive debts in the belief that the appreciation of share market values will more than balance their books in the long term.

Optimistic projections of continuing economic growth assume that household expenditure will be in excess of income for the next five years, pointing to a faster accumulation of debt. Crucially again, much of this debt is incurred to overseas creditors, t hrough a burgeoning American trade deficit. Over the last few months, the U.S. trade deficit has been just over 3.2 per cent of GDP. This represents a substantial change over a decade ago, when it was just 1.5 per cent of GDP. A part of this is explained by higher investments by American industry, which could conceivably bring in returns in future. But a large part of the explanation lies in debt-financed expenditure by American households. This is indeed the true face of the "export of jobs through tra de" phenomenon that American trade unions have made much of.

To be able to sustain this situation, the dollar value must continue to remain high so that overseas creditors continue to put money into U.S. government guaranteed bonds. But the longer the dollar remains high, the greater will be the difficulty of brid ging the U.S. trade deficit. Further, Japanese financiers have of late been giving indications that they will be shifting their investments, as the Japanese Government gets ready with a massive revival package for the ailing economy. The U.S. economy tod ay is confronting what has appropriately enough been described as "an impossible balancing act". The Seattle meeting was perhaps an effort to impart a sense of stability to the U.S' precarious perch. And while the fiasco of the WTO ministerial was perhap s predictable, its many ramifications could well be incalculable.

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