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The world trading system: Challenges ahead
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BOOK REVIEW
The World Trading System: Challenges Ahead, by Schott, Jeffrey J. (ed.) Washington: Institute for International Economics, 1996.
Reviewed by James H. Cassing
The Asian economies stand to gain or lose as much as any region in the world depending upon the fate of the new World Trade Organization (WTO) and how it evolves. So most readers of this Journal will find something of interest in this volume, which is a collection of commissioned papers and commentary presented at a conference convened by the Institute for International Economics (BE) in June 1996. The purpose of the conference, we are told, was to analyze the complex array of issues confronting the WTO. I found the book relevant and timely, even though the papers were written before the Singapore Ministerial, because the focus is on how the WTO could or should evolve over the long haul in order to lubricate the wheels of world commerce. The contributors are a uniformly distinguished group, all expert on their Assigned topic areas, and there is a fair bit of insight and informed prescription. The papers are deep, with the exception of one or two, well written and accessible. I have used the volume as supplementary reading for my upper level undergraduates in International Trade. The papers are grouped into six broad categories along with a useful Introduction by the editor, some Conclusions meant to advise the Singapore Ministerial and beyond, and an Appendix of reflective addresses by Singapore’s minister of trade, the secretary-general of the UNCTAD, and Sweden’s former minister for foreign trade. Except for the binding tie of the WTO, the papers are thematically all over the place. But the Introduction provides a road map, and in the end the reader comes away with a quite broad appreciation of the economic, legal, and political issues surrounding a complex institution. The first group of two papers addresses residual protection and rules on regionalism. Gary Hufbauer reports the results of ongoing worldwide IIE related
James H. Cassing f Professor, Department of Economics, University of Pittsburgh, Pittsburgh, PA 15260. Journal of Asian Economics, Vol. 8, No. 4.1997 pp. 619-621 ISSN: 1049-0078
Copyright 0 1997 by JAI Press Inc. All rights of reproduction in any form reserved.
619
620
JOUBNALUFASlANECONOMICS8~44),1997
projects aimed to quantify the cost ofprotec~o~st policies that continue to remain in place. The me~odology is the standard “computable partial ~uilib~um” imperfect substitutes framework used in earlier BE studies. While there are no surprises, we are reminded that trade barriers are still substantial for some important sectors in most cauntries. So the WTO still needs to be in the original GATT business of coordinating reductions in conventional trade protection. An interesting aside is the allusion to attempts in Japan to suppress dissemination of the Japanese numbers, which suggest substantial trade barriers and document high additional consumer costs. In the second paper, Robert Lawrence wonders thoughtfully whether regional and multilateral trade agreements can usefully iivc together. In his view, regionalism is here to stay and so the WTO should minimize the costs of trade diversion by reforming certain rulesespecially rules of origin and ~tidu~~g-Ed move aggressively toward multilateral liberalization. I would have included at this point the later paper by C. Fred Bergsten on “Globalizing Free trade” as a kind of complement since it assesses reasons and prospects for moving from regionalism to global free trade. The next group of two papers turns to environmental and social issues. Daniel Esty avoids the dichotomy, i.n my opinion all to common, which poses trade and the environment as non-intersecting issues to be addressed independently. Beyond a discussion of the WTO role regarding spillovers, transparency, national treatment, and so forth, he usefully points out that while “free traders” and “environmentalists” may clash on issues, there is also s~bs~tial co~ona~ty of interest, For example, policies such as subsidies to agriculture and energy both distort international trade and degrade the enviro~ent in a number of ways. Richard Freeman then assesses the equally slippery slope of labor standards and world trade. Again, I found the approach here a refreshing alternative to the camp that wants to box trade and labor standards issues separately. In a nutshell, the paper argues that most of us do agree on a set of core values concerning the treatment of our fellow human beings; adherence to those standards is not going to wildly affect trade and investment patterns. Product labeling might help, but is likely to be only partially successful. Furthermare, Freeman wonders out loud, why not use trade pressure as a policy tool, certainly not the only and maybe not the most effective tool, to attain adherence to those core standards? This was a good read. The volume then addresses the vagaries of the political world as IM. Destler, Martin Wolf, and Soogil Young in turn address political support for trade fiberalization in America, Europe, and East Asia. While politics can change, each paper seemed relevant to date and, in the case of the Destler piece written before the November 1996 U.S. elections, somewhat prescient. It is interesting that all three authors focused at first on regionalism versus multilateralism and the strong role for the WTO to play in keeping liberalization multilateral. There are apparent hints of support for a liberal trade regime in regionally preoccupied America and self-preoccupied Europe. And from here must come the leadership, writes Young, as the Asian economies have no single trade policy, are reluctant participants on deals about labor or env~o~en~ issues, and have proven to be good followers of a liberal trade regime, but not leaders.
Book Review: The World Trading System
621
The two papers in the next section on “Institutional Issues” tackle the two questions on everyone’s mind regarding WTO operations: Will the dispute settlement procedure work? Who gets into the WTO and on what terms? Regarding the first question, John Jackson skillfully outlines the underpinnings of WTO jurisprudence and the rule oriented Dispute Settlement Mechanism (DSM). Most observers, I think, consider this one of the real pressure points of the new WTO and wonder if countries will accept a breach of commercial sovereignty. Jackson had only 18 months of observations to write about but found reason for optimism. Now there have been more observations-100 disputes as a August 19, 1997-and the DSM seems alive and well. As for the question of membership, Murray Smith’s paper is a thoughtful essay on accession to the WTO. This is no trivial issue as among the prominent non-members are China-both of them actually-and almost all of the republics of the former Soviet Union. While MFN status is unlikely to be denied, and so there is continued “free riding” in a sense, there are dangers. Smith warns of “negotiating fatigue” where both sides get tired of asking and answering, or not answering, questions about conditions of accession. He calls for a stronger WTO Secretariat role to supplant mercantilist bargaining with policy dialogue. The final set of papers addresses new initiatives and unresolved issues. Richard Snape and Malcolm Bosworth critically review of the new General Agreement on Trade in Services (GATS) and blame the poor performance on a design flaw which encourages a preoccupation with negotiating sectoral agreements at the expense of more general GATT principles. The authors suggest that language in the NAFTA and the Australia-New Zealand CER agreement provides a better model. Edward Graham next turns to foreign direct investment and argues that the WTO needs an agreement proscribing multilateral rules. While the OECD nations eventually may have such an agreement, Graham laments leaving out the developing world, albeit largely at that world’s behest. Finally, Patrick Messerling reviews competition policy and antidumping. Roughly, he bemoans the slow progress in implementing the former and the excessive appeal to the latter. One of the best lines in the book: “. . .antidumping is out of control, competition policy is out of immediate sight, and safeguard policy is out of use.” Any volume must stop somewhere, and this is where this volume stops, except for the Conclusion and Appendix. So there are a few missing parts. For example, there is not really any explicit treatment of some developments in implementing the SPS/TBT agreement, TRIPS, and the phase-out of the MFA. Nonetheless, the important issues are addressed in a scholarly and thought provoking way. This is a fine collection of papers in the IIE tradition of serious analysis of timely topics. The importance of the WTO to the success of the outward-looking economies of Asia, and the paper and sections which explicitly focus on Asia, makes this a book well worth a look even for those with only narrower interests or a regional focus.
BOOK REVIEW
The World Trading System: Challenges Ahead, by Schott, Jeffrey J. (ed.) Washington: Institute for International Economics, 1996.
Reviewed by James H. Cassing
The Asian economies stand to gain or lose as much as any region in the world depending upon the fate of the new World Trade Organization (WTO) and how it evolves. So most readers of this Journal will find something of interest in this volume, which is a collection of commissioned papers and commentary presented at a conference convened by the Institute for International Economics (BE) in June 1996. The purpose of the conference, we are told, was to analyze the complex array of issues confronting the WTO. I found the book relevant and timely, even though the papers were written before the Singapore Ministerial, because the focus is on how the WTO could or should evolve over the long haul in order to lubricate the wheels of world commerce. The contributors are a uniformly distinguished group, all expert on their Assigned topic areas, and there is a fair bit of insight and informed prescription. The papers are deep, with the exception of one or two, well written and accessible. I have used the volume as supplementary reading for my upper level undergraduates in International Trade. The papers are grouped into six broad categories along with a useful Introduction by the editor, some Conclusions meant to advise the Singapore Ministerial and beyond, and an Appendix of reflective addresses by Singapore’s minister of trade, the secretary-general of the UNCTAD, and Sweden’s former minister for foreign trade. Except for the binding tie of the WTO, the papers are thematically all over the place. But the Introduction provides a road map, and in the end the reader comes away with a quite broad appreciation of the economic, legal, and political issues surrounding a complex institution. The first group of two papers addresses residual protection and rules on regionalism. Gary Hufbauer reports the results of ongoing worldwide IIE related
James H. Cassing f Professor, Department of Economics, University of Pittsburgh, Pittsburgh, PA 15260. Journal of Asian Economics, Vol. 8, No. 4.1997 pp. 619-621 ISSN: 1049-0078
Copyright 0 1997 by JAI Press Inc. All rights of reproduction in any form reserved.
619
620
JOUBNALUFASlANECONOMICS8~44),1997
projects aimed to quantify the cost ofprotec~o~st policies that continue to remain in place. The me~odology is the standard “computable partial ~uilib~um” imperfect substitutes framework used in earlier BE studies. While there are no surprises, we are reminded that trade barriers are still substantial for some important sectors in most cauntries. So the WTO still needs to be in the original GATT business of coordinating reductions in conventional trade protection. An interesting aside is the allusion to attempts in Japan to suppress dissemination of the Japanese numbers, which suggest substantial trade barriers and document high additional consumer costs. In the second paper, Robert Lawrence wonders thoughtfully whether regional and multilateral trade agreements can usefully iivc together. In his view, regionalism is here to stay and so the WTO should minimize the costs of trade diversion by reforming certain rulesespecially rules of origin and ~tidu~~g-Ed move aggressively toward multilateral liberalization. I would have included at this point the later paper by C. Fred Bergsten on “Globalizing Free trade” as a kind of complement since it assesses reasons and prospects for moving from regionalism to global free trade. The next group of two papers turns to environmental and social issues. Daniel Esty avoids the dichotomy, i.n my opinion all to common, which poses trade and the environment as non-intersecting issues to be addressed independently. Beyond a discussion of the WTO role regarding spillovers, transparency, national treatment, and so forth, he usefully points out that while “free traders” and “environmentalists” may clash on issues, there is also s~bs~tial co~ona~ty of interest, For example, policies such as subsidies to agriculture and energy both distort international trade and degrade the enviro~ent in a number of ways. Richard Freeman then assesses the equally slippery slope of labor standards and world trade. Again, I found the approach here a refreshing alternative to the camp that wants to box trade and labor standards issues separately. In a nutshell, the paper argues that most of us do agree on a set of core values concerning the treatment of our fellow human beings; adherence to those standards is not going to wildly affect trade and investment patterns. Product labeling might help, but is likely to be only partially successful. Furthermare, Freeman wonders out loud, why not use trade pressure as a policy tool, certainly not the only and maybe not the most effective tool, to attain adherence to those core standards? This was a good read. The volume then addresses the vagaries of the political world as IM. Destler, Martin Wolf, and Soogil Young in turn address political support for trade fiberalization in America, Europe, and East Asia. While politics can change, each paper seemed relevant to date and, in the case of the Destler piece written before the November 1996 U.S. elections, somewhat prescient. It is interesting that all three authors focused at first on regionalism versus multilateralism and the strong role for the WTO to play in keeping liberalization multilateral. There are apparent hints of support for a liberal trade regime in regionally preoccupied America and self-preoccupied Europe. And from here must come the leadership, writes Young, as the Asian economies have no single trade policy, are reluctant participants on deals about labor or env~o~en~ issues, and have proven to be good followers of a liberal trade regime, but not leaders.
Book Review: The World Trading System
621
The two papers in the next section on “Institutional Issues” tackle the two questions on everyone’s mind regarding WTO operations: Will the dispute settlement procedure work? Who gets into the WTO and on what terms? Regarding the first question, John Jackson skillfully outlines the underpinnings of WTO jurisprudence and the rule oriented Dispute Settlement Mechanism (DSM). Most observers, I think, consider this one of the real pressure points of the new WTO and wonder if countries will accept a breach of commercial sovereignty. Jackson had only 18 months of observations to write about but found reason for optimism. Now there have been more observations-100 disputes as a August 19, 1997-and the DSM seems alive and well. As for the question of membership, Murray Smith’s paper is a thoughtful essay on accession to the WTO. This is no trivial issue as among the prominent non-members are China-both of them actually-and almost all of the republics of the former Soviet Union. While MFN status is unlikely to be denied, and so there is continued “free riding” in a sense, there are dangers. Smith warns of “negotiating fatigue” where both sides get tired of asking and answering, or not answering, questions about conditions of accession. He calls for a stronger WTO Secretariat role to supplant mercantilist bargaining with policy dialogue. The final set of papers addresses new initiatives and unresolved issues. Richard Snape and Malcolm Bosworth critically review of the new General Agreement on Trade in Services (GATS) and blame the poor performance on a design flaw which encourages a preoccupation with negotiating sectoral agreements at the expense of more general GATT principles. The authors suggest that language in the NAFTA and the Australia-New Zealand CER agreement provides a better model. Edward Graham next turns to foreign direct investment and argues that the WTO needs an agreement proscribing multilateral rules. While the OECD nations eventually may have such an agreement, Graham laments leaving out the developing world, albeit largely at that world’s behest. Finally, Patrick Messerling reviews competition policy and antidumping. Roughly, he bemoans the slow progress in implementing the former and the excessive appeal to the latter. One of the best lines in the book: “. . .antidumping is out of control, competition policy is out of immediate sight, and safeguard policy is out of use.” Any volume must stop somewhere, and this is where this volume stops, except for the Conclusion and Appendix. So there are a few missing parts. For example, there is not really any explicit treatment of some developments in implementing the SPS/TBT agreement, TRIPS, and the phase-out of the MFA. Nonetheless, the important issues are addressed in a scholarly and thought provoking way. This is a fine collection of papers in the IIE tradition of serious analysis of timely topics. The importance of the WTO to the success of the outward-looking economies of Asia, and the paper and sections which explicitly focus on Asia, makes this a book well worth a look even for those with only narrower interests or a regional focus.