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WTO and U.S. leadership role

By R. Gopalakrishnan

CHENNAI, MARCH 2. The Secretary-General of the World Trade Organisation (WTO), Supachai Panitchpakdi, delivered a speech in Washington on Thursday last which is of interest to both India and the U.S. in the context of both the furore in the U.S. over job losses in the information technology (IT) sector and various bilateral and regional free trade agreements that the two countries are preparing for or have entered into in recent times.

In a speech to the National Press Club in Washington, Dr. Panitchpakdi criticised bilateral and regional trade agreements (RTAs) in vehement terms that run counter to the somewhat positive and conditional approval of such agreements that has marked the WTO's official stance. Both India and the U.S. are active in initiating new RTAs, the proposed Free Trade Agreement of the Americas (FTAA) being the most important new initiative undertaken by the U.S.

While emphasising the need for continuation of multilateralism represented by the WTO and the U.S. `leadership role' in bringing it about, Dr. Panitchpakdi said any belief that the U.S., facing job losses in the service sector, could withdraw from both would be a `fiction' that would prove `naive and dangerous'. "Naive because it fails to recognise that multilateralism has become more, and not less, important to advancing U.S. interests. Dangerous because it risks undermining the very objectives the U.S. seeks, namely, freer trade, stronger rules (and) a more open and secure world economy".

The Director-General said the U.S. had high stakes in the success of the Doha Round of the WTO because among issues on the agenda were services and agriculture, in which the U.S. had a high level of competitiveness. In services, the scope for liberalisation at the global level was the greatest, while in agriculture "sky high global barriers and subsidies distort trade".

A quarter of the U.S. gross domestic product (GDP) was tied to international trade, compared to 10 per cent in 1970, and a third of the U.S. growth since 1990 had been generated by trade. Exports supported 12 million U.S. workers, against seven million a decade ago. "We especially need to inject some clarity, and facts, into the current debate over the outsourcing of services jobs. Over the next decade, the U.S. is projected to create an average of more than two million new services jobs a year, compared to about two lakh services jobs that will be outsourced," he said.

While India can take comfort from Dr. Panitchpakdi's observations on the outsourcing controversy, this is unlikely to be the case in respect of his remarks on RTAs. The official stance of the WTO on bilateral and regional trade agreements is that, though violative of the basic principle of non-discrimination represented by GATT/WTO, "often RTAs can actually support the WTO's multilateral trading system," provided they encompassed the whole trade between members and did not raise new barriers against non-members. The RTAs should "complement the multilateral trading system and not threaten it," according to traditional WTO approach to RTAs.

However, in his speech, Dr. Panichpakdi, while reiterating that `sometimes' bilateral and regional deals could be a complement to the multilateral system but could never be a substitute to the latter, added: "...there is a bigger danger. By treating some countries preferentially, bilateral and regional deals exclude others — fragmenting global trade, distorting the world economy. Instead of liberalising trade — and widening growth — they carve it up. Worse, they have a domino effect: bilateral deals inevitably beget more bilateral deals, as countries left outside are forced to seek their own preferential arrangements, or risk further marginalisation".

Dr. Panitchpakdi said there was a `basic contradiction' in the assumption that bilateral approaches served to strengthen the multilateral, rule-based system. "Even when intended to spur free trade, they can simultaneously risk undermining it. This is in no one's interest, least of all the U.S," he added.

sIt could be said with some justification that India's many initiatives on FTAs with Sri Lanka and Thailand, which are already a reality, besides Singapore, ASEAN (Association of South East Asian Nations) and some South American countries, is itself a result of the `domino effect' mentioned by the WTO Director-General. However, India's need for such special ties with faraway countries was accentuated by its failure — until the very recent past — in making progress on its area of priority focus, a South Asia FTA.

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