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Monday, Sept. 1, 2008

JAPANESE PERSPECTIVES

WTO should remember global equals multilateral, not bilateral refereeing


When the Doha Round of trade negotiations broke down some weeks ago, no one was particularly surprised. Nor did anyone seem to care all that much.

Indeed, people appeared to take the collapse of the talks as the seal of approval to go ahead and plunge ever more deeply into bilateral trade deals and preferential economic arrangements. This is a mistake. It isn't even logical. We are supposed to live in a globalized world. You either have a global and open economy or a fragmented and "seclusionist" economy. You can't have it both ways.

Multilateralism is said to be out of date. It is supposed to be unworkable with so many people involved, each with their own agenda and conflicting interests. This is silly. It is precisely because there are so many people involved in the trading network, that there are so many diverse interests to be considered and there is so much disparity in the situations people face, that multilateralism is required.

Far from out of date, it could be argued that multilateralism has never really been practiced in its authentic form until now. In the days before globalization and the WTO, the basic if unspoken premise of the trade order was that the United States was the towering giant that both set the rules and made the ultimate compromise. It could afford to give way because it was the strongest. And as the strongest, it was in the U.S. interest to give way so that others could become stronger and more able to provide the U.S. with markets to absorb its massive production capacity.

The further back we go into the history of the trading system, the more manifest this imbalance of power among its members becomes. Those were the days of multilateralism in nothing but name. It was a case of bilateralism between the U.S. and the rest, with the U.S. sometimes making unilateral concessions when such a deal suited its purpose.

Of course all that has changed now. It has been quite different for quite some time, really. Yet practice has not matched reality. Nobody is influential enough to set the rules. Nobody is strong enough to make unilateral concessions. Nobody can go their own way without shooting themselves in the foot. That is what globalization is all about. Everybody needs to be in on the deal. That is what the WTO is for.

Unfortunately, the WTO has instead increasingly turned itself into a center for dispute settlement. Disputes are by nature bilateral. They of necessity demand reciprocity. The WTO's predecessor, the General Agreement on Tariffs and Trade, as it came into being was supposed to have discarded bilateral reciprocity in favor of mutually beneficial multilateralism. That was the whole point of the new trade order as it was then. That is the spirit that the WTO was supposed to have inherited and supposedly claims to promote further as an institution with supposedly stronger foundations than the halfway house of the GATT years.

Sitting on a Ministry of Economy, Trade and Industry committee on trade measures, I heard the ministry's officials proudly state that Japan is finally on the way to becoming a normal country in the trade arena. It is starting to initiate more bilateral trade litigation and stating its case more forthrightly against alleged unfair trade practices. We are apparently going to stand up for ourselves more robustly over trade issues. This is fine. But it misses the point. The Doha Round was not about scoring points. The WTO is not there only to settle bilateral quarrels. It is about making the global trading system a better one for all concerned. We should know that by now.

Noriko Hama is an economist and a professor at Doshisha University Graduate School of Business.


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