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Seattle and Beyond: A WTO Agenda for the New Millennium, Cato Trade Policy Analysis No. 8

Seattle and Beyond: A WTO Agenda for the New Millennium, Cato Trade Policy Analysis No. 8

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Published by Cato Institute
Representatives of the 134 member nations of the World Trade
Organization will meet in Seattle in November 1999 to launch the
newest round of multilateral trade negotiations. The new round
should be seen as a "bottom-up" process in which countries
liberalize, not merely to gain "concessions" from other countries,
but primarily to reap the economic rewards of their own
liberalization.
The emphasis of the new round should be on reducing trade
barriers; the greatest potential for economic gains is in services
and agriculture. The United States should seek the global
elimination of agricultural export subsidies, a drastic decline in
domestic price supports, and a steep cut in trade barriers,
especially the tariff spikes that protect certain favored farm
sectors. In services, which now account for almost a quarter of
global trade, barriers to foreign competition should be lowered
across sectors, with exceptions kept to a minimum.
Trade barriers against manufactured goods should be lowered
aggressively, with tariffs now below a 5 percent tariff rate
reduced to zero and higher tariff spikes reduced to 5 percent and
eventually phased out. All duties on information technology should
be eliminated and international commerce on the Internet kept
duty-free. Advanced economies must keep their commitments to phase
out all textile and apparel quotas by 2005. WTO rules on
antidumping should be tightened to prevent such laws from being
abused for protectionist purposes. The WTO's dispute settlement
mechanism, although on the whole a tremendous success, is in need
of reform with respect to the enforcement of WTO rulings.
Specifically, countries that refuse to implement adverse rulings
should be required to offer offsetting liberalization rather than
be subject to trade-restricting sanctions.
No compelling need exists for adding foreign investment and
intellectual property rights to the WTO agenda, given existing WTO
rules and ongoing unilateral reforms. The new round of talks should
avoid entirely competition policy and the enforcement of
environmental and labor standards, which could threaten to
overwhelm the WTO administratively while broadening the scope for
sanctions.
Representatives of the 134 member nations of the World Trade
Organization will meet in Seattle in November 1999 to launch the
newest round of multilateral trade negotiations. The new round
should be seen as a "bottom-up" process in which countries
liberalize, not merely to gain "concessions" from other countries,
but primarily to reap the economic rewards of their own
liberalization.
The emphasis of the new round should be on reducing trade
barriers; the greatest potential for economic gains is in services
and agriculture. The United States should seek the global
elimination of agricultural export subsidies, a drastic decline in
domestic price supports, and a steep cut in trade barriers,
especially the tariff spikes that protect certain favored farm
sectors. In services, which now account for almost a quarter of
global trade, barriers to foreign competition should be lowered
across sectors, with exceptions kept to a minimum.
Trade barriers against manufactured goods should be lowered
aggressively, with tariffs now below a 5 percent tariff rate
reduced to zero and higher tariff spikes reduced to 5 percent and
eventually phased out. All duties on information technology should
be eliminated and international commerce on the Internet kept
duty-free. Advanced economies must keep their commitments to phase
out all textile and apparel quotas by 2005. WTO rules on
antidumping should be tightened to prevent such laws from being
abused for protectionist purposes. The WTO's dispute settlement
mechanism, although on the whole a tremendous success, is in need
of reform with respect to the enforcement of WTO rulings.
Specifically, countries that refuse to implement adverse rulings
should be required to offer offsetting liberalization rather than
be subject to trade-restricting sanctions.
No compelling need exists for adding foreign investment and
intellectual property rights to the WTO agenda, given existing WTO
rules and ongoing unilateral reforms. The new round of talks should
avoid entirely competition policy and the enforcement of
environmental and labor standards, which could threaten to
overwhelm the WTO administratively while broadening the scope for
sanctions.

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Representatives of the 134 membernations of the World Trade Organizationwill meet in Seattle in November 1999 tolaunch the newest round of multilateraltrade negotiations. The new round shouldbe seen as a “bottom-up” process in whichcountries liberalize, not merely to gain“concessions” from other countries, butprimarily to reap the economic rewards of their own liberalization.The emphasis of the new round shouldbe on reducing trade barriers; the greatestpotential for economic gains is in servicesand agriculture. The United States shouldseek the global elimination of agriculturalexport subsidies, a drastic decline indomestic price supports, and a steep cut intrade barriers, especially the tariff spikesthat protect certain favored farm sectors.In services, which now account for almosta quarter of global trade, barriers to for-eign competition should be lowered acrosssectors, with exceptions kept to a mini-mum.Trade barriers against manufacturedgoods should be lowered aggressively, withtariffs now below a 5 percent tariff ratereduced to zero and higher tariff spikesreduced to 5 percent and eventually phasedout. All duties on information technologyshould be eliminated and internationalcommerce on the Internet kept duty-free.Advanced economies must keep theircommitments to phase out all textile andapparel quotas by 2005. WTO rules onantidumping should be tightened to pre-vent such laws from being abused for pro-tectionist purposes. The WTO’s disputesettlement mechanism, although on thewhole a tremendous success, is in need of reform with respect to the enforcement of WTO rulings. Specifically, countries thatrefuse to implement adverse rulings shouldbe required to offer offsetting liberalizationrather than be subject to trade-restrictingsanctions.No compelling need exists for addingforeign investment and intellectual proper-ty rights to the WTO agenda, given exist-ing WTO rules and ongoing unilateralreforms. The new round of talks shouldavoid entirely competition policy and theenforcement of environmental and laborstandards, which could threaten to over-whelm the WTO administratively whilebroadening the scope for sanctions.
Seattle and Beyon
 AWTO Agenda for the New Millennium
by Brink Lindsey, Daniel T. Griswold,Mark A. Groombridge, and Aaron Lukas
November 4, 1999 No. 8
 Brink Lindsey is director, Daniel T. Griswold is associate director, Mark A. Groombridgeis a research fellow, and Aaron Lukas is a policy analyst at the Cato Institute’s Center for Trade Policy Studies.
Executive Summary
 
Introduction
On November 30, 1999, representativesfrom the 134 member nations of the WorldTrade Organization will meet in Seattle tobegin the newest round of multilateral tradenegotiations. The agenda will center on tradein services and agriculture, as agreed upon atthe end of the Uruguay Round of negotiationsin 1994, but the scope of the talks could expandto include tariffs on nonagricultural goods,electronic commerce, intellectual property,antidumping rules, investment, competitionpolicy, labor and environmental issues, and theWTO’s own dispute settlement mechanism.The potential gains for the United Statesand the rest of the world from the continuedliberalization of global commerce are enor-mous. Removing trade barriers in agricultureand services alone could deliver hundreds of billions of dollars in annual net economic wel-fare gains to the world economy, raising livingstandards for workers and their families andstimulating efficiency and innovation amongproducers.Since its inception half a century ago, theGeneral Agreement on Tariffs and Trade (nowthe WTO) has facilitated a spectacular drop inglobal trade barriers from their destructivepeaks of the interwar years. The result has beenan explosion in the global volume of trade andforeign investment. Today, thanks in part totrade liberalization through GATT/WTO, theU.S. economy is flourishing at a time whenAmericans have never traded more with therest of the world. Another successful round of multilateral trade negotiations could enhanceAmerican prosperity and spread the benefits of trade to a wider circle of countries.What follows is an analysis of the role of multilateral trade agreements in fostering freetrade and a review of the major subject areasthat may be included on the new round’s nego-tiating agenda. Those include some areas inwhich new agreements would clearly push inthe direction of open markets, others in whichthey would just as clearly push in the oppositedirection, and yet others in which the ultimateeffect of new agreements is unclear. In areasthat present opportunities for liberalization, wemake proposals for negotiating goals; in dangerareas, we make the case for keeping illiberalinitiatives off the table.Our proposals for negotiating goals arebased on our own assessment of how best touse the opportunity of the upcoming round topush forward liberalization and strengthen theWTO system. As the discussion makes clear,our assessment frequently differs from the ten-tative negotiating proposals advanced by theU.S. government and the governments of othermajor trading nations. Accordingly, our analy-sis should be understood, not as a prognosis forthe likely outcome of the round, but as ananalysis of how the round
should 
proceed.That said, we are mindful of political reali-ties. Indeed, according to the “bottom-up” per-spective on international economic order thatshapes our thinking (as explained in the nextsection), the modest role of the WTO is sim-ply to facilitate decisions at the national level toliberalize in the national interest. Con-sequently, the WTO process can operate effec-tively only when the constraints imposed bynational-level political realities are understoodand respected. The record of “top-down” inter-nationalism is replete with grand, windy decla-rations that are ultimately ignored by the sig-natories. For WTO negotiations to avoid thatfate, their goals must match the temper of thetimes.That is not to say that free traders should bepassive in the face of opposition. Far from it.Reform is accomplished only with unremittingeffort—organizing and energizing the con-stituencies with the clearest stake in liberaliza-tion and hammering away at interests thatstrive to block it. Free traders must wage theircampaign domestically, building support athome for opening markets, and internationally,pressing foreign countries to join in eliminatingtrade barriers. It is the extent to which freetraders have done this work at the nationallevel at home and abroad that determines thehorizons to which negotiations can profitablybe extended. If the proper groundwork has notbeen laid, negotiations will fail; worse, they willundermine the free-trade cause by rousing
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Free traders mustwage their cam-paign domestically,building support athome for openingmarkets, and inter-nationally, pressingforeign countries to join in eliminatingtrade barriers.
 
nationalist resentment against an overreachinginternational authority. The debacle of the still-born Multilateral Agreement on Investment isa case in point.With those thoughts in mind, it must beadmitted that the political realities that definethe horizons of the upcoming round are notespecially auspicious. The WTO is drifting intoa new round rather than moving purposivelytoward it; if it had not been for the built-in agen-da of agriculture and services talks carried for-ward from the Uruguay Round, it is highlydoubtful that a new round would be occurring atall. None of the major trading powers has takenthe initiative and offered anything in the way of a bold vision for the new round.The U.S. government, which historicallyhas been the leading force in GATT andWTO negotiations, is thinking small as itheads to Seattle. Since the conclusion of theUruguay Round, U.S. trade policy has been indisarray, as evidenced by the repeated failures torenew “fast-track” negotiating authority.Despite the almost unbelievably strong perfor-mance of the American economy in recentyears, political support for continued liberaliza-tion has deteriorated in the face of misbegottenfears of globalization.
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Instead of addressingthose fears head-on and unapologetically mak-ing the case for the benefits of open markets,the Clinton administration is dancing aroundthem—supporting a new round but failing topropose any significant reforms of existing U.S.protectionist policies. A negotiating agenda of “do as I say, not as I do” might dampen protec-tionist opposition from the U.S. steel and tex-tile lobbies, but it is not a prescription for effec-tive international leadership.
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The agenda for the new round of WTOnegotiations should focus exclusively onreducing barriers and distortions to inter-national trade in order to raise livingstan-dards and spread the fruits of economicprogress to a wider circle of humanity.Specifically, we recommend in thisstudy that the United States and the other133 WTO members take the followingsteps:
Limit the new round to three years andseek an “early harvest” of realizableagreements if progress stalls in morecontentious areas.
Abandon the traditional “exports good,imports bad” rhetoricof trade negotia-tions and instead emphasize the eco-nomic reality that trade liberalization isits own reward.
Cut global agricultural tariffs in half,and the highest tariffs more sharply,with the goal of eventuallyeliminatingall agricultural protection; eliminateexport subsidies and production-distort-ing domestic subsidies; allow the“Peace Clause” to expire in 2002 so thatagricultural subsidies are exposed tofull WTO discipline.
Liberalize trade in services through“negative lists” that assume all servicesectors will beliberalized unless specif-ically excluded and through cross-sec-tor rules that emphasize basic rights toestablishment and national treatment;strengthen WTO rules to encouragetransparency of domestic regulations.
Eliminate all nonagricultural tariffsbelow 5 percent and reduce all highertariffs to that level, with the ultimategoal of eliminating all tariffs; reconfirmthe commitment of the advancedeconomies to fully implement theAgreement on Textiles and Clothing by2005; eliminate all barriers to trade ininformation technology productsthrough an “ITA II,” and guaranteecyberspace as a duty-free zone.
Reform the Dispute SettlementUnder-standing to make additional liberalization,not trade sanctions, the chief enforcementmechanism for WTO rulings.
Tighten the WTO’s antidumping codeso that domestic “fair tradelaws can-not be used as a tool for protectionism.
Seek full compliance with the existingAgreement on Trade-Related Aspects of Intellectual Property Rights withoutopening the agreement tofurther nego-tiations that could undermine itsposi-tive aspects.
Encourage further liberalization towardforeign investment through unilateraland bilateral means ratherthan compre-hensive multilateral negotiations.
Reject enforcement of labor andenviron-mental standards through trade sanctions,relying instead on trade liberalization andeconomic development to encourage high-er standards; eliminate barriers to trade inenvironmental goods and services; rely onmultilateral environmental agreements andthe International Labor Organization tomonitor international standards.
Resist inclusion of competition (i.e.,antitrust) policy in the agenda, given theWTO’s unsuitability to monitor andpolice the domesticactivities of private-sector companies; pursue legitimateinternational antitrust issues through abilateral, country-by-country approach.
An Action Agenda for the New Round

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