The Future of the World Trade Organization: A Report by the Consultative Board to the WTO Director General Supachai Panitchpakdi

March 22, 2005

Unedited transcript prepared from a tape recording

3:45 p.m.	Registration
4:00	Presentations:	Jagdish Bhagwati, Columbia University and Council on Foreign Relations
		John Jackson, Georgetown University Law School
4:30	Panel Discussion:	Gary Horlick, Wilmer Cutler Pickering Hale and Dorr LLP
		Jay Smith, George Washington University
		Hugo Paemen, Hogan and Hartson
		Daniel Tarullo, Georgetown University Law School
5:45	Adjournment

Proceedings:
MR. BARFIELD:  [In progress] --here at the American Enterprise Institute.  I'd like to welcome you to another of our trade policy seminars, entitled "The Future of the World Trade Organization:  A Report by the Consultative Board to the WTO Director General Supachai.

We have two other panelists.  I know they're on their way--or at least they said as late as yesterday they'll be on their way.  I'll introduce them.  I think one of them is here now.

I think most of this audience knows about this report, but let me talk a little bit about the background.  In his foreword to the report, Director General Supachai made reference to an earlier report of the 1980s--that became quite well known, I think, certainly in trade circles--of a group of wisemen, which had been commissioned by Director General Arthur Dunkel.  And the point that Mr. Supachai makes is that that report had a much more specific assignment to get past what was considered a crisis in the GATT at that time.  And he says that that's not exactly the--or not the main goal or the assignment of the current group of wisemen, as it were.

He says the following:  "The task that I set the members of my consultative board shared a similar aim with the 1980s report insofar as it sought to reinforce the multilateral trading system.  But in another sense, it was fundamentally different in character.  The report is not about the Doha Development Round.  The essential purpose of this report is to examine the functioning of the institution--that is, World Trade Organization--and to consider how well equipped it is to carry the weight of future responsibilities and demands.  Certainly the conclusions of the current round will have implications for the future functioning of the organization.  But the reflection that this report is intended to launch should go beyond the Doha development agenda."

I think there might be a problem in that, actually, and we'll come back to that; that is, where and when these recommendations will be actually acted on.  But we'll come back to that.

Peter Sutherland, who was the chairman of the group, said the following about the report:  "Our report follows two tracks.  One is practical and focused on institutional improvements.  The other, not unrelated to the first, revisits some of the fundamental principles of the trading system that in our view have been misunderstood and misrepresented."

We had originally planned to schedule this meeting a couple of weeks after the report came out, but because of conflicting schedules of our busy panelists and the two members of the panel who will lead us off, I was determined, certainly, for personal reasons to have something on this, since I have the honor of--one of the recommendations that I made about changing the dispute settlement system was directly attacked in the report, so I wanted to get some action on that.

You also, on the other hand, have an op-ed that I did a couple of weeks ago in the Financial Times that really--it does not, I think, carry through exactly what the report recommends, but I am pushing for, as the report does, a stronger role for the WTO director general.

Well, as I say, we have two of the members of the Sutherland Panel here.  And I should say--and it's not because they're here, and without playing down the role of other members of the panel, of the board, and certainly not the forceful leadership of Peter Sutherland--I think, if you've read the reactions to the report, a good deal, a solid part of the intellectual content of this report stems from John Jackson, on the one hand, and Jagdish Bhagwati, on the other.  If you've read, as many of you have, the reactions relating to preferential trade agreements and the reaction to the discussion, to the recommendations on dispute settlement, on the governance of the WTO, without knowing any of the internal details, this has the tracks of Bhagwati and Jackson all through it.

So we will begin for the first--we can't cover all the report; I've asked them to hold their remarks, together, to about half an hour.  We'll begin with them, and then we will go to the panelists.  Let me just introduce everyone at the beginning, and then we'll just start with John Jackson.

John Jackson joined the Georgetown Law School, what is it, four years ago now, three years ago?, after a long career at the Michigan Law School.

MR. JACKSON:  Seven.

MR. BARFIELD:  Seven years ago?  My God.  How time flies, John.  Really, is it seven years?  He is also, I should say--some of you remember--the founding editor and the current editor of the Journal of International Economic Law.

Jagdish Bhagwati is a professor at Columbia University and the Andre Meyer Senior Fellow of International Economics at the Council on Foreign Relations, and an off-and-on visiting scholar here at the American Enterprise Institute.

For our panelists, we're all here with the exception of Hugo Paemen, so I'll start with him, actually.  Mr. Paemen is now a senior advisor to the law firm Hogan and Hartson.  Prior to joining Hogan and Hartson, he served from 1995 to 1999, as many of you know, as the head of the European Commission's Washington delegation.  Before that, he had had a variety of distinguished posts in the European Commission.

Next, there is Gary Horlick, who is not here yet, but at least as far as--he may have been pulled away by a client or something, but as late as yesterday was primed to come.  He's a partner in the law firm of Wilmer Cutler and Pickering.

Then there's Jay Smith, assistant professor of political science and international affairs at George Washington University.  I tried to get a variety of European, United States, a variety of disciplines.  Jay is representing international political theory and international relations.  He betrayed me by becoming a student, however, recently of John Jackson, so he is unfortunately moving in a direction of also being a lawyer.  But for our purposes, I will allow him to represent his profession.

And finally is Dan Tarullo, who is also on the faculty of Georgetown University Law Center.  Dan held, as many of you know, a number of senior positions in the Clinton Administration, on the National Economic Council, the National Security Council, and as an assistant secretary of state.

Let's get started.  John, could you get us going, please?

MR. JACKSON:  Okay, thank you very much.

Claude, you've said a number of things that I'm glad you opened with.  If you hadn't said them, I would have had to say them.

This is an interesting exercise.  The basic thrust is institutions, longer-term thinking.  The director general had this in mind.  I think he had spent a fair amount of time, before he took office but knew he was going to take office, preparing himself, and I think, among other things, he learned that there really were some reasonably serious institutional problems about this organization and he felt that that needed some attention.

What he said he wanted us to do was to launch a discussion of these issues with our report.  So this report is not really about substance, it's not about Doha, it's not about subsidies or market access and so on.  It's about the institutional structure of the organization.  And that, I feel--maybe this is a lawyer's bent--is very, very important and has often been reasonably overlooked.  At one point during the Uruguay Round there was some discussion about whether there should be a new organization or whether you could cobble along something with the GATT, and one of the answer, in the negative, by an American official was, No, no, we don't want to do anything about the court house until we know what's going to be put into the court house.

The only trouble with that, you don't know what you put into it unless you know the institutional structure.  You don't know what your obligations really mean unless you know what the institutional structure is.  So there's a circularity.  And in the end, of course, the U.S. was the last holdout against a new organization.  Some say it was just trying to be bought off.  Anyway, it was bought off, and it did go ahead with the new organization.

Now, that colored our discussions.  And I want to give a lot of credit to Peter Sutherland, incidentally, a very, very busy person, as everyone knows.  Eminent experience, including being a director general, and speaking really directly from his heart in that respect, in some regards.  And he's the one that really kept this whole thing together.  He really spent a lot of time on it and a lot of effort on it, and it was very, very important.

One of the things that was his guideline to the work was we don't want to be pie-in-the-sky, we want to indicate things we think are doable.  But he was willing--and this was what some of the others of us were pushing--willing for us at least to push the frontier a little bit, not to just come out with a status quo report, but to try and push forward on several of the issues that were important and very fundamental to the organization.

Now, I can't cover all the issues--neither can Jagdish, but he'll try harder than I will.  So I thought I would select just a couple issues that really relate more to the institutional side and leave for him this business about preferential agreements and the spaghetti bowl.  Then I get to rebut some of what he says in that regard, just as I am rebutting Claude in some of his views, and maybe we can touch off some discussion on this.

So let me start first with the dispute settlement system--

Now, I should add this, too, procedurally.  In January, the report, as you know, was brought forth, made public.  And about a week after it was made public, by prearrangement there was a scheduled meeting in Geneva for the consultative board.  Not all could attend.  I think there were about five out of the eight that attended that particular meeting, and this was before the entire invited heads of missions and ambassadors of the WTO in the large hall for that purpose, the large council chamber.  And there were, I'm guessing, probably about 100 ambassadors there with staff and so on.  Then it was a discussion all afternoon, and there were about 27 to 28 interventions that there was time for.  The time more or less ran out and it had to be hurried, but that was expected.  There was really quite a bit of favorable reception, but a lot of skepticism about a couple of the issues.  That gets us into a some of these issues that we'll be talking about this afternoon.

The first thing I want to take up is the dispute settlement system.  I would say all of the interventions that really mentioned the dispute settlement system, except maybe two, were extraordinarily favorable to the present system, the present dispute settlement system.  Now, that is consistent with what I have experienced elsewhere in the world, that there is a great deal of satisfaction with the way that system works.  Thus we deliberated on this and we felt it was very important to signal that and to indicate that whatever we suggested should do no harm.  So we use that phrase.  So that was part of what was motivating us.

Now, we think that one of the harms that could be done is a political intervention into a specific case.  And we mention that.  We think that's very, very dangerous, because it would lead the participants to begin to back off the advocacy based on reasoning and precedent and matters like that that lawyers know so well, and others too, and really begin to do lobbying of what the intervention might be, whether it was to overturn or veto or what happens in a particular case.  That doesn't prevent, however, criticism, constructive criticism, criticism which, however, could be taken account of in future cases.  Because a system like this, the international system, does not have a strong precedential effect.  It does not have what is called stare decisis in lawyers' terms.  There is an element of precedent, but there are different layers to it.  So that was one of the recommendations that we came to.

There was another matter that has come up that's kind of interesting, which is can governments buy out of their obligation to perform the result of a dispute settlement system.  There's been quite a bit of discussion on that, and we opined on that.  We felt that the opportunity to buy out, through the notion that if a government is able to either pay compensation or to withstand--and this is much more likely--withstand the retaliation of another government, that that should end the matter.  There are some opinions that have been expressed that way.  That ends the matter; in other words, that the government would have a free choice, to tolerate the retaliation or to perform.  And that is not, in our view, what the legal requirement is.  The legal requirement is that those interim measures of compensation and retaliation are temporary and that the obligation still remains to buy out.

And a very strong policy on that is the notion that if you have a buy-out option, as we call it, this works against the poorer countries of the world.  The big and rich, of course, then can get away with things.  And this undermines the most important policy grounds for the dispute settlement system expressed explicitly in Article 3, paragraph 2 of the DSU, Dispute Settlement Understanding, providing security and predictability in the system.  And that means security and predictability for the nongovernment players basically, that is, the entrepreneurs that have to base their opinions on that.

Now, a final point on dispute settlement has been this very troublesome issue of secrecy and nontransparency.  We felt, and I've felt for some years, that the organization was getting a very bad rap unnecessarily by the amount of lack of transparency.  Now, I have to say, the WTO is many times more transparent than the GATT was.  The Web site is really quite remarkable, reports are much more current and timely, and so on.  But there still is a lack of transparency that is troubling the institution.

And one of the issues of that--there are many issues, but one of the issues is whether you could have open hearings of the panel process.  And the U.S. has urged that--in fact, a U.S. statute requires the U.S. government to urge that in every case it participates in--and it has never gotten acceptance of that by another disputant.  It is possible for a particular group of disputants in a particular case, for that case only, to open up for hearings.

We're suggesting a very, very modest experiment in that regard, which is to have a presumption that the hearing should be open, but to allow closure on the basis of grounds and reasoning given forth by a government--for instance, business confidential information, and there may be some other similar problems like that--but that they have to in fact take the initiative to block the open hearing and they have to give reasons in writing.  And that would persist for something like a five-year experimental period.

Now let me turn to a couple of other quick items.  One is the decision-making process in the WTO.  This, for historical reasons--and worthwhile historical reasons, incidentally--has really very much focused on the so-called consensus rule.  Even where there is a vote provided for in the new charter, in the WTO charter, there has been a tendency by practice to gravitate to a consensus decision-making process--for instance, in connection with new members admission and in connection with waivers.

Now, the word "consensus" was never in the GATT.  But GATT developed consensus over decades of practice and ad hoc experimentation largely because everyone knew that voting wouldn't work.  And they still feel that way, and I feel that way, and we all felt that way:  Voting won't work, even a weighted voting.  Weighted voting, as you have in some of the financial institutions, could solve some of the problems, but there is no support for weighted voting anywhere; in fact, anywhere in the world, as far as I can find in international affairs at the broad multilateral level.

But on the other hand, the consensus rule, when it's used--or I should say "misused"--is troublesome to the point of providing almost for paralysis.  And there clearly are governments that have been willing to hold out--just like some senators in our senate--and get paid for by some other thing that is maybe totally irrelevant.

So we have again been very, very cautious in recommending a situation that is parallel to the experience in the European Community of what has been called the Luxembourg Compromise there, which is to say that, at least for certain kinds of issues, there should be a requirement for a government that is going to break a consensus to give its reasons in writing and show that it is something that is contrary to its essential national interest.  So there's a bit of a burden there, and it's our impression that that has worked somewhat in the European Community and in fact, as far as I know--Hugo might know--I don't think it's ever been used.

Now, finally, the way the system treats its officials, its secretariat and its director general, is nothing short of disgraceful.  There are a lot of instances of this that we've learned about in one way or another, some of them fairly directly, some of them historically over a period of time, situations where the director general just is not allowed to play any sort of leadership role, instances in previous director generalships where the ambassadors objected to the director general even calling a meeting to discuss an issue, et cetera, et cetera, et cetera.  It just goes on and on and on.  And it's also true of the secretariat members.  First of all, there are a number of ambassadors that want to micromanage, i.e., put their favorites on the secretariat, and that they want to prevent, for instance, the research unit of the organization from doing sound policy research and publishing it, et cetera.

So there was a pretty strong feeling--and I must say, Peter really manifested this, too--that there had to be a difference in attitude.  The mantra that is used in this organization is it's a member-driven organization.  Now, the mantra is something that's repeated.  I've written an article about seven mantras of the system, including the word "consensus" and the word "sovereign."  But this "member-driven" mantra, used over and over again without think about it at all, tends to denigrate what goes on in this regard in the institution.  It tends to be an excuse that the ambassadors use to sort of flex their power muscles and prevent, really, the adequate operation of the secretariat and the director general.  And that generally is not found in most international organizations, at least to this extent.

So I think I've probably taken my share of the time, and I'll leave it at that and hope we come back and take some of these issues up later.

MR. BARFIELD:  Thank you, John.

Jagdish?

MR. BHAGWATI:  I think John did a great job and I'll just be very brief so we can have the [inaudible] 47 going off soon after and for a longer period.

Let me start in a reverse fashion.  I agree with what John said for the most part.  On the secretariat, it seems to me that--I've been on the secretariat from '91 to '93 from a long distance, not actually being there from day to day, and it seems to me that the main problem is not what members do to it, but what has in fact been a totally emasculated secretariat which is not allowed to play any really decent role.  There are generally about eight to 10 economists in the Economics Division.  The total staff is about 500.  The total budget is about $100 million.  Just think of Oxfam, the NGO from England.  What you have, you have 4,000 people and $500 million worth of annual expenditure.  Now, this is not a little NGO, this is an empire.  And it's five times the size of WTO.  Even ActionAid has an annual budget of $140 million.  So if you put it into perspective, you're dealing with a totally starved secretariat.

So I think the main problem is not with this "member-driven."  It's not a car which is, you know, worth driving in many cases.  I mean, it's simply an emasculated little skeleton half the time.  And therefore, naturally, with the secretariat playing no effective role--it's not incapable of doing it.  Even Georgetown, from which many of our present members are, has a bigger budget than this one, right?  So what you have is a situation where it simply cannot play any kind of initiating role, most of the time it's behind the events, and so on.

So one of the first things which I think most of us would agree on was that it had to be given a budget, flesh, not just be a skeleton, if you really mean business.  Actually, when you think about it, why didn't it have any budget?  And that's because, compared to Breton Woods, you know, which was mainly donor-driven, this is, despite all its defects, the GATT and the WTO are more mindful of the developing-country problems, who are usually at the receiving end of many of these kinds of, you know, what you agree to.  And this is why I think, in my judgment, if you apply political analysis, it isn't starved because it's not a baby going to grow into a Frankenstein, which will then affect you in terms of what you want done, in terms of the way you think about--"you" meaning, you know, in the rich countries--what in fact would be the kind of conception we have of such a situation.

So I think that is one of the good things about the WTO, which is because it has more ability on the part of the poor countries to be able to assert a voice.  That's why I think it's important, compared to the Fund and the Bank and so on and so forth.  I'm not complaining about the Fund and the Bank, but I think this is the situation, and therefore the more voice these countries have, the better.  Therefore, I think this is something we need to remember when we say it should be driven by majorities and so on.  I think it's on the whole a good thing that we try and bring people on board, because it usually means poor countries being brought on board.  Because the rich ones can settle things in Paris, Brussels, Washington, and so on and so forth, I mean, if you apply a realistic model to it.

So I think the secretariat certainly needs to be beefed up.  I mean, I totally agree with John on that and I think we bring that out. We shouldn't get our job done by OECD or G-7.  You know, that's nonsense, actually, in my view.  I mean, this is an institution which must have its own resources.  It must be able to define its own need.  The director general, whoever it is, should be able to draw on effective manpower, womanpower, you know, to be able to manage those things.  Because otherwise, simply to have procedural rules like four-fifths majority and three-fifths majority--I mean, those are fine for managing meetings, but I think there are some very fundamental problems which we need to kind of look at in terms of, you know, really, the functioning of the secretariat.  And I think most people in many countries would be on board there.  There's nothing that I'm saying which is not shared by many members of the expert group we had.

I think on the DS thesis--the dispute settlement system, I think generally I'm in agreement with John on this.  But I think where I do disagree is in the sort of notion that one should not allow people to buy out.  It is true that if we were thinking of the dispute settlement as simply a legal decision that comes down and then has to be enforced, right, I don't think we are there.  And even the national systems, I mean, I know a little bit of law, not one fraction as much as Dan and John, but, you know, you usually get options to either go to jail, maybe, or to pay a fine.  It's not as if everybody gets the same--I mean, a poor man also get the time to give you million bucks or something for the fine.  But that's a Hobson's choice, okay?  In reality you do get a fine or you do some physical incarceration and so on.  So the existing system responds to reality and says, look, you have choices.  And those choices favor the rich, unfortunately, because they will be able to exercise more options.  The poor guy has no choice in the system.

In my opinion, therefore, you have to think in terms of, you know, what a buy-out does.  Now, my own view is that a buy-out is essential, because otherwise we'll freeze up the system.  Even though it has this basic asymmetry, I think we have to live with that.  But I think if you do allow for a buy-out, it will unsettle the sort of rigor mortis that might set in, because who in fact is able to say, look, we won't do anything?  Take the [inaudible] amendment.  To my knowledge, it is not being complied with.  The big guys still get away with saying, look, we won't pay attention to this.  So we might as well collect some money from them, as long as they're not doing something.

But I think this is a deeper issue than I think we go into in the report, and I think it needs to be looked at a little more.  But I think John is absolutely right that we have raised some of these issues on the DS -- system and to what extent do we need vacation--not holidays--vacation of a--you know, of your particular offending action and so on.

But let me now come to the more direct economic issues and then I'll terminate that.  I mean, there are two issues which the economists in the group--it was a small group--were interested in and looking at.  One was the whole issue of nondiscrimination.  Now, this is at the heart of the original GATT, that you--MFN, for instance, the Most Favored Nation clause, that whatever I give to you should be available to everybody else.  So that nondiscrimination is at the heart.  It's like the right to unionize and ILO.  There's one usually identifiable, you know, the queen-of-the-harem sort of principle, which absolutely defines our institution.  And nondiscrimination, we would say, is in fact that principle.  And of course there are exceptions with every rule.  That is the main thing.

Now, if you look at what's happening in the world today--and that's what some of us, at least on the economic side, started from, which is if you look at the extent of discrimination of the system, no matter what the reasons--I'll come to that in a moment--this is actually shot through, it's like Gorgonzola cheese.  You know, I mean, there's more holes than cheese.  Now, you look at the European Union, for example.  Maybe--you know, the last I knew it was about five countries were enjoying MFN.  I think Peter Sutherland later corrected me and said maybe there are eight.  But I'm not sure.  When I checked, it was five.  These are the countries that enjoy the Most Favored Nation clause, which is supposedly the least [inaudible] tariff, all right?, which is supposed to be available to every member of the GATT, in principle, and every member of the EU, presumably.  If you look at five countries out of the entire lot who enjoy this, everybody else has some special treatment--a lower tariff, not a higher one; a lower tariff based on special and differential treatment, on membership of Free Trade Agreement, all kinds of reasons, you know, which I won't go into.

Now, so, one of the things we say is that instead of calling therefore this MFN tariff the MFN, we'll just call it the LFN tariff--the Least Favored Nation tariff.  All right?  Of course, it's a bit of an exaggeration because this includes Japan and the United States as well.  So import weighted, it's not that dramatic. What has happened therefore is that there's a huge--I mean, this is just symptomatic of what's going on today, where there's a huge proliferation of discrimination within Article 24 enabling clause, which doesn't even have the so-called disciplines of Article 24, and so on.  So we have to come to terms with this reality.

And too, you take special and differential treatment, which is [inaudible] the developing countries.  Now, that is even more explicitly open-ended.  I'm not taking a position on it, I'm just describing it.  This is where you can do anything you like.  If you're Brazil and I'm India, we can do--as long as we are called developing countries, we can do anything we want virtually, without any discipline.  I can take off 5 percent tariff preferentially for you, and the other way around, and none of the others enjoying MFN can have any excess to that one.  I can do 3 percent, I can do 2.5, I can do 50 percent, whatever, under the enabling clause--meaning there's no discipline, okay?

So SND, in a variety of ways, has gone to the point where, if you think there must be some discipline in the way you run your trade policies for your own benefit, then the developing countries are given a license to shoot themselves in the foot, on the ground that they need policy space.  It's like policy space to shoot yourself all over the place.  I mean, that's a question that needs to be asked.

The question which we ask in the--we describe what has happened, okay?  And we looked at many studies which show how this can be a problem for the countries themselves, not just for the trading system.  But then we take a view which is actually very benign, which is to say this is going to go on, there's nothing we can do about it, more or less.  All right?  But therefore, when in fact they take preferences, they are relative to the MFN tariff.  So you can't do anything about the MFN tariff, because that will take us on the right course.  But you can shift the--you can say, look, the MFN should go to zero, because preferences will not go to zero.  Politicians, for a variety of reasons, want preferences.  Therefore, since it's a ratio, right--preferences rise [?] with MFN--let's get cracking on MFN, try and bring it down as fast as possible.  So the conclusion is we can't do anything about these things other than know where it's going on in the system, which is screwing up the whole trading system with all these preferences on one ground or another.  But if we can somehow push MFN to zero, a preference relative to MFN would be zero.

So the conclusion is much more modest compared to the analysis, which is rather stark, pointing out that, you know, all these problems are arising.  And remember, the ratio is quite important, because you can bring a ratio down by operating on the numerator or the denominator.  And not everybody understands this.  Actually, there's a famous remark of [inaudible] Sprinkle, who was Reagan's advisor.  He's supposed to have said that, you know, let the Europeans look after their exchange rates and we'll look after ours.  I mean, that's a favorite exam question in macroeconomics of finance.  So this is the way we approach that issue.

The second problem, which I think--and I'll just stop there--which we do deal with is this whole question of what are called non-trade issues, which are of course a continuous problem.  I remember walking in Seattle withdraw Hugo Paemen and we were discussing labor issues, if you remember, because everything was about to hit the fan in Seattle--and it did, in the end.  So you have labor issues, environmental issues.  You have capital control issues, on which I've testified with Dan Tarullo in Congress.  Was it the Congress?  Yes.

MR. TARULLO:  They claimed they were the Congress.

MR. BHAGWATI:  They claimed to be, yes.  That's right.  And with Australia we were trying to affect the health care and so on.  So there is a variety of issues which are tangential to trade itself, you know, but which therefore are increasingly, through bilaterals and so on, beginning to get into the trading system issue.  And there, the question, of course--this is what--what do we call it, variable geometry, John?  Is that a European term?

Right.  So variable geometry, meaning, what, you can do what you want?  My daughter was doing variable geometry when she was five.  And so the argument here is we go in for more flexibility, more--you know, allowing people to do what they want.  But this is really something which I think does raise questions, particularly vis-a-vis some of the developing countries, for sure.  Like on labor standards, countries which are not necessarily abusing their labor standards any more than we are in this country, you know, where we've got about 10 percent of our labor force in unions.  And don't tell me we don't intimidate people from not joining unions.  We do it merrily, including on my campus. So it is just a mess that we, you know--[inaudible] level, which American independent-mindedness requires, I mean, that's just mythology.

So anyway, the point is every country has its own way of dealing with unions, okay, one way or the other, and it's not a free system.  The unions have to still keep fighting for their rights.  And you know, we don't enforce the publication of the roll call.  But the point is, they're right [inaudible] respect.  So the issue is not about that.  The issue is, really, should we be able to impose on them the standard which we want.  And frequently, it's not just altruism, but it's also self-interest, because the labor rights are to be raised because, after all, there are many unions in this country, because, you know, I interact with them.  And they start by saying it's altruism.  We really want people in Brazil and India and everywhere to have better rights.  And immediately within five minutes they're talking about how unfair it is to have to compete with people who don't provide these rights.  Which means, again, self-interest rather than altruism at the other end.

So I think the problem here is a very simple one but a very direct one, because right now I think certainly Dan Tarullo's and my party, the Democratic Party, is increasingly under pressure from the unions to be able to have some labor standards in [inaudible]--I mean, you know, for reasons which I don't have time to go into.  And once you have that, and then you have Lula, who is the world's best trade unionist, you have India which is not really going around smashing unions at all by any means, and countries which are large and substantial, hated also by China which does treat its unions badly.  But still, it's a major power, right, in the game.  You have large countries which are big players saying, no, you're not going to have this, and then the WTO.  Then we have, you know, people here, because the unions are working through the Democratic Party and trying to get this into the system.  I mean, there's trouble down the road.

Now, let me finish up variable geometry, meaning let different people do different things and have plurilateral agreements rather than universal agreements within the WTO--that's what it means, to have plurilateral agreements.  If a bunch of countries--Norway, EU, and us, for instance--want labor standards in WTO, then we should be allowed to do that with a certain amount of majority.  I suppose that's all that variable geometry can mean.  Then the question really is, is this something which should be allowed, because that [inaudible] violates the principle that there must be a reasonable agreement.  Because in any number of countries, particularly the strong ones, could just get together and say, look, that's what we want in the WTO.  We'll start by having a plurilateral agreement and then to hell with Brazil, India, and so on and so forth, and we'll just get our foot in the door.

So there are some very real questions which come up here.  We just have one or two paragraphs on variable geometry.  And in that lurks a very difficult issue, which is can a group of countries, really, building a quorum by itself, which we allow--should it be able to shove its own issues to make its own comfort level greater at the expense of other countries, designing interventions in tangentially trade-related issues in this way?  And I think it's a very big issue, in my opinion, and I'm sure we'll hear something about it.

Thank you.

MR. BARFIELD:  Thank you very much, Jagdish.  I would have to say, to be fair--as Fox News, "fair and balanced" here at AEI, you talked about you and Dan and the Democrats.  The Republicans have proved equally adept at this.  And you mentioned--identified directly--the push of the Bush administration for capital controls as a part of all trade agreements and, God help us, price controls in health care.  I think price controls in health care are an abomination, but I don't think we ought to be in trade treaties.

Anyway, we have a number of commentators here, and let's get started.  I asked them to talk for 8 to 10 minutes.  We'll start with Hugo Paemen.

MR. PAEMEN:  Thank you.

I would like to welcome the Sutherland report, and it's an honor to be here with two of the main authors of this report.  I know it was expected a bit earlier than it finally came out.  But it's still very, very timely.  And I think it should be known more widely than it has been promoted.  Something has to be done there.

Now, on each of the chapters of this report we could organize a seminar.  So I will try to be very selective.  For instance, I don't think I will say anything about dispute settlement because the great experts are here and, for instance, two weeks ago there was a seminar of two days in Stresa, and they only talked about dispute settlement.  There are other conferences only on the dispute settlement, so it would even not be very fair to try to say something sensible about dispute settlement in the short period of time.

But I will try to follow the logic of the report.  I think I agree with most of the remarks which have been made.  First of all, on the preferential trade agreements, PTAs--I'm very happy that they are now called PTAs.  There was a time when they were called RTAs, but they have now lost all regional fig leaves and are not regional at all anymore.  We'd better call them what they are, which are preferential trade agreements.  And there is, as we know, a tendency for the increase the number of these preferential trade agreements.  I have to tell you that I would be more [inaudible] with the people who are, what I think to a large extent are the origin of the proliferation of the PTAs, which are the people in Geneva who don't know the job, which is the negotiation of the multilateral agreements.  If there was somewhat more progress in the multilateral trade negotiations, probably there would be less preferential bilateral arrangements, for the simple reason that if there is one sector where there is the bicycle theory, it's international trade.  And this is as well at the political level as at the professional level.  If nothing happens, if the multilateral sector doesn't deliver, you can be sure there will be pressure on the politicians and the governments to go bilateral.  So we'd better do something there at the multilateral level.

The best remedy, as far as I'm concerned, to neutralize the negative impact, because I'm absolutely--I agree with, and I think Jagdish was the author of the chapter on the regional agreements or the preferential agreements--the best thing to neutralize them is to reduce the tariff as much as possible so there cannot be any preference anymore, at least as far as tariffs are concerned.  It becomes a little bit more difficult when you have non-tariffs.  You will see that more and more bilateral agreements become non-tariff agreements.  They go into the so-called--even the non-trade issues, which complicates the situation even more.

Sovereignty, with all respect for John, I'm sure that he is to a large extent at the origin of the chapter on sovereignty.  I totally agree with him.  But I couldn't add anything sensible to that.  It's about what multilateralism is all about, and multilateralism is not the concept that destroys sovereignty.  It enhances capacity.  It enhances competence.  But a certain number of people still have to learn that.

The chapter on global governance through coordination and coherence, I think I wouldn't say very much.  I have some problems with what is suggested on the presence of the national parliaments.  I think I would not be very much--certainly not in favor of an independent parliamentary committee for the WTO.  National parliaments have national constituencies and they have to try to convince their national constituency that international trade is good for them.  I'm not sure that it is good that you have experts in--of course, they have to follow, but they have to know it.  But very often, and I see that in a certain number of national parliaments, even in the European Parliament, they very easily tend to marginalize in the totality of the preoccupation and the political weight, the relative weight, in the parliament.  So if they go to Geneva and do the things, they will not be taken very seriously by their colleagues in the national parliament.  So I'm not very much in favor of this.

As I said, dispute settlement, I agree with John Jackson all over the place.  I know he is at the origin of the system, and I'm with those who think that it works rather well.  Of course, it can be improved here and there, the transparency and all other aspects, but I agree with this.

The plurilateral agreements.  I tend to be not that much opposed to them on certain conditions, of course.  Everything is the variable geometry, which Jagdish talked about.  Of course, it's not the right way to do it.  If there is a way to explore on the one hand, and on the other hand to demonstrate that a certain number of things are good for you and are good for those who do it so that they try to incite other countries to follow, I would rather be in favor.  And by the way, we already have it in the WTO.  The Government Procurement Code is variable geometry.  It's a very, very limited example of it, but it is.  And we in the European Union, we have the experience that we have some member states that are in the euro, others are not in the euro; we think they all would like to be in the euro but they can't afford to do it yet, so it has a demonstrative effect.  If it can be managed in that sense, I think it--

[Flip tape.]

MR. PAEMEN:  As a trade negotiator, I would rather concentrate a little bit on the organizational aspects, the organizational changes.  And I think it's very hard to deny that, for the moment, the WTO is in a triple kind of a crisis.  I don't want to overdramatize it, but there is a kind of triple crisis in the WTO, I think.  There's an institutional crisis, there is a crisis in terms of process, and there is a crisis in terms of the perception outside, from the public opinion.

First of all, institutionally, it has already been mentioned the position of the director general, of course, has been so degraded that the engine, the motor of what was--at least in the GATT and also at the Uruguay Round, when the WTO was made, is no longer functioning as it functioned before.  And I think it's one of the reasons why it doesn't work as well.  So we should really revaluate the position of the director general.  I very much hope that the designation process that has to lead at the end of May to the appointment of the new director general will normally follow its course--the four candidates, I think, could do a good job--but that we don't go into a repetition of this split of a mandate and all these stupid things which happened in the previous designations.

Staff, I absolutely agree with Jagdish.  It's nearly a caricature of an international organization.  They are very good people, they are dedicated people--that is not a problem.  But simply the task and the number of people who are there to do the task is totally out of proportion.

Now, I think that the conclusion is that the WTO is in fact--I wouldn't say without leadership, but suffers from weak leadership and suffers from weak constituency.  The leadership I talked about, one mention still, the director general traditionally was the chairman of the TNC.  Today it's somewhat ambiguous, the role of the director general.  I think there will be no serious process of negotiation if the director general will not become the president of the TNC.

There's also a crisis in constituency terms.  Governments are not 100 percent enthusiastic or behind the process, and the business community is not 100 percent behind.  They don't believe it anymore.  They think that WTO has become too complicated, too unpredictable.  When they have a problem, they are strong enough, at least the big ones, they think they are strong enough to go and settle their problem.  They don't count on the multilateral system anymore.  And that's not a very good thing.

I would also be very much in favor of a much greater decentralization of the negotiating process.  There was a time when we needed this, and that, I must say, was a kind of European obsession, which was the singular undertaking, which we needed because we wanted to sell the agricultural concessions against what we [inaudible] in the industry side.  I think that's now over.  It should be over, in any case.  I think with all the complicated subjects which are there, singular undertaking has to be forgotten.  We have to deal with services according to the [inaudible] and the possibilities for services; we have to do intellectual property as we can and make progress as is possible in intellectual property, and so on.

One thing in the--and I'm sorry, I'll go very fast--ministerial meetings.  The report promotes very much ministerial meetings.  I think ministerial meetings in the negotiation process are a nuisance, I can tell you.  Ministerial meetings are very good when they are not in the negotiating process.  They are very good when they are informal, when they allow ministers to exchange ideas, encourage each other to do this and do that.  When they are a part of the negotiating process, they are rather a nuisance and have a blocking effect more than they promote the process, for the simple reason when ministers speak, they commit their country and they commit themselves, their reputation vis-a-vis their constituency, vis-a-vis the national party, and so on.  So it's very difficult to negotiate when you are a minister.  When you are an official and you explore an agreement with your colleague's officials, your minister can't come the day after and say thank you very much, you did a very good job, but I'm just not going to do it because I think there's a better solution.  That is the flexibility which you need in a negotiation, that you explore things, that you tentatively agree, and then you don't do it because your boss says it's not what is best for the process of the negotiation.

So I'm very, very skeptical about--and I think one of the reasons why the Doha Round is not making progress is that ministers are too early in the process.  Not that they are not competent doing it; they are very intelligent guys.  But it's a question of process.  It's a question of ministerial involvement at the stage of the negotiation where you need much more flexibility than the ministerial level can give you.

I'm not, on the other hand, very much in favor of this consultative body of senior officials.  I think it should be a priority of the director general to consult with whom and when he wants to do it.  Once you formalize consultations, they become part of the process and, again, you're lost.  When you have 140 countries and you organization something in a formal way, it's part of the system.  The great advantage of the GATT was that it was not an organization.  There was no organization.  So the flexibility was maximum.  Now, there were good reasons to make an organization in the WTO.  All this was fine.  But if we want to have the minimum flexibility which you need to negotiate--it's as simple as that, it's nearly a physical law--you have to do things which are not part of the system.

Thank you very much.

MR. BARFIELD:  Gary?

MR. HORLICK:  Thank you very much.

It's interesting what you said about ministerial meetings.  I've had two of the chief negotiators in the current round tell me the same thing independently.  And they blame all the mini-ministerials for slowing down the negotiation.

I wanted to focus just on two points in the Sutherland report, although all of it's worth reading.  First, on preferential trade agreements.  It's worth looking at how governments look at them.  Governments are going to do something that's the fastest and easiest alternative.  And PTAs are easier, most governments think, than a WTO negotiation--you're only dealing with one or two other countries or [inaudible] to do, they attract less attention usually, and so on.  The key here, though, is they're easier to do because you ignore the WTO rules.  This brings in a second phenomenon of government.  International law, it was once explained to me, are elites in one government agreeing to let elites in another government do something because they may want to do it someday.  So it's the hand-washing operation.  WTO is a prime example of this.  So no one's ever challenged any of these PTAs under the WTO rules.  All governments live in glass houses, they want to do these things, so they don't challenge anyone else's.

I note there's an Australian proposal from March 1st that proposes to define what "substantially all trade" means.  And this would, if you took the Australian proposal--I know how the numbers work out--probably it would end all PTAs, because you'd have to conform to the WTO rules.  And it would be too embarrassing, even though no one would challenge you, it would be too embarrassing to overtly break the rules.

So one aspect of it is they're easier.  Much more important, if you're looking at it, is PTAs are faster.  If you're a trade minister--take a USTR.  So far we've had gaps between the completion of rounds of 12 years, 14 years, we're looking at another 14 years.  The average USTR will not be in office for the completion of a round.  The same with any other trade ministers.  Very few trade ministers, interestingly, last as long as U.S. trade reps.  So you want to do something on your watch.  You can go off and do a PTA in two years with your neighbor, and cut some ribbons and have a party, or you can set things up for your successor twice removed to complete an agreement.  Don't laugh.  I mean, when people take office, they want to do something.

So what do you do about it?  One, you speed up the WTO process, as has been pointed out.  Give the trade minister something to do more quickly.  Secondly, you legislate in the WTO.  It's forgotten now, too quickly, the Clinton administration managed--and the world; I don't want to take great credit for the Clinton administration, which was leading it, but everyone participated--after the Uruguay Round ended, promptly did a financial services agreement, a telecoms agreement, an elimination of tariffs on some of chronic components--scalps, if you will, you could hang up as having done something.  So, suddenly that stopped, and that's a bad idea.  So again, give trade ministers something to do between rounds is another possibility.  Don't let the dispute settlement body become the WTO.

Then the third thing, as I mentioned, something along the Australian proposal--make it harder to do PTAs.  And this is not altruism or, you know, hopefulness, every so often in a round, big countries get together and agree to do things like that.  Believe me, going to a no-blocking dispute settlement system is a lot more radical than anything I've just discussed.

So in short, the PTA problem is solvable with a modicum, not huge amounts, of political will.

The second thing I want to focus on is dispute settlement looked at from two ways.  Start with how governments look at it.  The first thing the WTO dispute settlement system does, and does very well, is get a lot of mid-level disputes or little ones off the table.  Take sardines, all right?  This is something that's going to be on the agenda every time the Peruvian president runs into the German chancellor.  It's not important enough to ever get to number one and be taken care of, it's not so small it will disappear.  Here you have an organization that gets rid of a lot of those disputes.  So, that's good.

The second thing, though, is it gives your rulings you don't have to live up to if you're a government.  And I'll go back to what I said, all governments have some tendency in that direction.  They don't actually want an absolute ironclad rule of law because it would apply to them also.  You see a lot of this mutual hand-washing in the WTO.  The problem with that is that rules, when everyone can violate whichever rule they want a la carte, even if you have to pay for it, it starts eroding those rules rather quickly.

Stop there--that's governments looking at it.

Now look at it as private sector.  And I've been through this with a couple of clients who have won WTO cases and probably would never go back--some of the early cases, obviously.  One, it takes too long.  The Mexicans--this is a year old now--actually went out and counted the days.  Panel establishment is supposed to take 10 days; the average is 41 days.  And that doesn't include the 58 days to actually name the panel members.  So instead of 10 days, we're at 90 days--no, 100 days.  The panels themselves take 12 months instead of 9 months.  That's probably okay.  Reasonable period of time is 292 days.  You start adding up all these time limits, it's not the 15 to 18 months in the DSU.  And indeed, private sector clients when I tell them the DSU says 15 to 18 months--Oh, it's okay; it's faster than a court.  When you tell them it's three to four years, we're outta here.  Life's too short, and we'll go about our business.

Secondly, somehow businesses, shockingly enough, don't understand that if it was ruled that the duty was being collected illegally, they don't get the money back.  It's really hard to explain that illegally collected duties aren't refunded.  I'm not even getting into the more complex things, where you have a regulatory barrier and there was no damage.  It's just a simple--Argentina puts on a statistical tax knowing perfectly well it was illegal, collects it, never gives it back even though they lose the case.  So at that point, a few more companies say this system isn't for me.

And then finally you have, because of the a la carte approach to rules, effectively what you're saying is the market access commitments are not reliable, that you can look at the WTO, you can study it, say I've a right to sell this product in this country at this tariff with this regulation, knowing that maybe not.  And that really undermines the whole point of the system.  The point of these rules, in the end, is so investors can build plants based on these rules.  This was well explained, far better than I just have, by a Canadian diplomat named Rod Gregg 20-plus years ago.  As he pointed out, you're much better off with 40 percent bound tariffs knowing they can't go up than a hodge-podge of things--he was focused on U.S. anti-dumping law, but his complaint covered all of it--than a hodge-podge of rules where you've 10 or 12 different ways you can raise the bound duty even though it's now 1 percent.  So reducing the duties to 1 and having what he called contingent protection--but it goes well beyond the trade remedies--to him was a less stable arrangement than having bound 40 percent tariffs and you can't do anything else.  Both are obviously extremes, but the point remains.

The current dispute settlement system isn't credible enough to make businesses think the rules will be consistently followed.  What do you do about it?  That gets you into some of the proposals kicking around, mainly from the Mexicans, about doing things that light a fire under losing countries.  I'm not wedded to any one of them.  Simply put, what you have right now--and the Mexicans have been explicit about it in the negotiations, and I think Australia also--every country has figured out it has a four-year pass on any rule.  I mean, even if they comply.  Forget the paying for not complying.  Even if they finally comply, they have a four-year pass where they can do anything they want.  When you tell an exporter or producer that, that's not the market access they were thinking of.  So how do you reduce this--and I go back to this, all governments are quite happy to let other governments have a four-year pass if they have a four-year pass.

So the question is how do you resolve that.  There's been a lot of work done both internationally and domestically in fields of dispute resolution of how do you build in incentives to compliance.  It's remarkable to me that the WTO, the more traditionalists, of which there are a lot of them in Geneva, seem to think that retaliation is the best way to do this.  One would think that retaliation is the worst way to do it.  There are plenty of other alternatives out there.  They all have their pros and cons.  That's why you have a negotiation.

Thank you.

MR. BARFIELD:  Thank you, Gary.

Jay Smith.

MR. SMITH:  I'm happy to be here as the token political scientist.  Let me first absolve Professor Jackson of any responsibility for any link to any of my remarks.  My reeducation as an attorney is just under way, as may become clear.

I'm going to stick mostly to the board's institutional reform proposals on dispute settlement and a bit on decision-making.  Let me start by applauding the guiding principle on dispute settlement that the board adopted, which was "do no harm."  And I think that deserves applause, as does their conclusion that by and large the dispute settlement system has worked reasonably well in this first decade.  I think that's something that, despite some creative proposals in the DSU review, the member states themselves believe as well.  Very few, if any, are promoting really radical reorientations.

Before commenting on some of the specific recommendations of the report, I want to highlight a kind of broader frame or context.  The report suggests that the DSU, the dispute settlement system generally, may be at a crucial and perhaps somewhat delicate point today.  You might point to a number of contemporaneous factors that suggest this is the case.  I agree, but I disagree in the sense that I don't think its position is any more delicate today than it has been for the last decade.  I think it's been at a delicate position for some time.  And the report, I think, points to the reason.  It does so only in passing in a paragraph in its discussion of dispute settlement, but it does refer to this basic imbalance between the rulemaking side and the dispute settlement side.  I think it's a fundamental imbalance that poses certain risks, especially for the panels and appellate body members who have this unenviable position of having to resolve issues presented to them by member states with very little prospect of any political feedback, guidance, et cetera, in the form of decision-making or rulemaking from the member states.  This poses really twin risks of rulemaking through litigation, kind of creative cases, you know, filed to exploit very deliberate ambiguities, inviting jurisdictional activism that could undermine the legitimacy of the system.

Now, despite this I think somewhat serious risk, the system has worked very well. The reason--I don't think it's because of any institutional constraints, any real institutional constraints on jurisdictional activism.  I think it's worked well by and large because the panels and the appellate body have handed down reasonably well-reasoned and very fully documented reports, at times being somewhat sensitive to political considerations, giving explicit deference to member states, by promoting collegiality among, in this case, the appellate body members by being open, newly open in some ways, to outside sources of information through amicus briefs, through broader participation for third parties at the appellate stage.  And it's also due in part to some restraint--again, occasionally restraint--on the part of member states in not filing terribly sensitive disputes.  All these things, I think, have worked, again with some notable exceptions, to lead to this reasonably good record of performance in the first decade.  But because few of them are institutionalized, the situation remains delicate.

I think the board's report, its basic view, this do-no-harm principle I think reflects a sense, and I think this is correct, that certain institutionalized reforms that have been proposed might end up doing more harm than good--moving away from consensus decision-making in some radical sense, allowing for an explicit political veto, as under GATT, of adopted reports.  I think of two examples that I think are rightly avoided.

But the board is obviously not averse to some institutional tinkering, and I want to highlight some of the reforms they propose that I think speak to this imbalance, might help ameliorate the situation, promote stability, durability for the DSU.

The first is their proposal to promote transparency by opening hearings, both panel and appellate hearings, to the public.  The report suggests this might be done incrementally, with an opt-out for countries in the early stages.  I think that's the right move.  I think a number of countries would take advantage of it.  Only a handful perhaps--maybe larger--would actively oppose it.  And it, although some window dressing of sorts, is a move in the right direction.

I think the proposal to release some procedures to govern amicus submissions, which the report endorses, is also the right move.  Very few, I think, would object to it.  Some do vehemently, of course.

The proposal to allow occasional review of certain aspects of certain reports by a panel of experts drawn from the DSB I think is a creative response.  I don't know exactly what it would lead to, but without formally institutionalizing some type of political veto, it would allow for some feedback to occur, and I think in a very helpful way.  Attached to that recommendation is the notion that there might be even, from that board or panel, recommendations to use the Article 9 Definitive Interpretation procedure.  This is not something that's been resorted to.  It's a dead letter in many respects.  But it's available already in the agreement as a way to have some kind of feedback without going all the way back to GATT.

On decision-making, I think there are a couple of links between the decision-making proposals and this problem, this imbalance.  The acceptance, endorsement of plurilateral agreements of variable geometry I think is useful in this respect, as is this notion that you might waive the consensus requirement on limited issues.  The report suggests you might do so on purely procedural issues at first.  I think that would be a welcome move.  I don't think many issues are purely procedural.  Even matters of procedure have substantive or distributional implications and are likely to be contested.

I note just that we already have moved away from that consensus requirement insofar as the appellate body has already been delegated the authority t issue and amend its own working procedures.  And the appellate body has used that authority to enact procedural reforms over the objections of member states in specific cases and ways that I think are useful.  This is true of amicus, this is true for private counsel representation, a variety of other things.

So all of that I would endorse and consider very important contributions.  And I think they're not that far from the chairman's text in the DSU review, what's likely to come out of that process, if anything.

Tensions I'd note in the report--if I have just a moment more?  The first would be the view of kind of settlement.  This gets back to what Professor Bhagwati said at the beginning.  The report does note with, I think, an explicit endorsement the fact that settlements have been numerous, that these things have been moved off the agenda, mid-range disputes perhaps, sometimes early in the process--often early in the process, and that that is something to be welcomed.  That's one of the functions of a move in the direction of this more quasi-judicial system.

But I think there might be some tension between that endorsement and the report's opposition to buy-outs.  Now, that may just be a semantic distinction, how you define buy-out.  The report defines buy-outs to include both open defiance and acceptance of retaliation, as well as compensation agreements by which the parties would, by agreement, remove the dispute from the DSB.  I can imagine why it's important to condemn the former.  I don't see why you would want to condemn the latter.  I think settlements reached before or after a ruling are useful and are to be welcomed.  And they're not unusual in any legal system, domestic or international.

The other, on deference, the report notes that the appellate body has explicitly acknowledged the need for some deference to member states.  And noting that, I think, the report implicitly endorses it.  But it is openly opposed to any form of diplomatic veto, overturning a specific holding, a specific report, a specific panel outcome.  I don't think this is necessarily a source of tension.  You might not want to go to some type of formal political veto, overturning fully an adopted report.  But there are some creative proposals out there for intermediate feedback, whether it's just comments on an interim appellate body report, which the U.S. and Chile have advocated, or the much more drastic proposal to allow only partial adoption by agreement of the disputants of a report.  You may not want to go that far, but some mechanism of that sort might be welcome and might be a--it might make the deference that is sometimes welcome more likely.

And with that, I'll conclude.

MR. BARFIELD:  Dan?

MR. TARULLO:  Okay.  I have the luxury of going last on this panel, which has allowed me the entire time to figure out whether I'm going to speak as a former senior government official or as an academic.  And I've been moving progressively towards the former government official perspective during the course of the discussion, so that's where I am.

One way to approach the report is to think about where it's situated politically.  And I know that the authors of the report don't want to think of it as a political document, but whether they like it or not, it is, because it's in the middle of a political issue, which is to say what happens to the WTO and the world trading system.  And as I read the document, it seems to me that it is animated by an undercurrent of deep concern about the institutional and therefore attributes or aspects of the world trading system--a deep concern which I think is well justified.

The recommendations, though, I think are by and large at the margin.  And maybe they're at the margin because the authors of the report are the, sort of the elite of the traditional loyal GATT WTO culture which has produced the positive developments of the first half-century of the world trading system.  The problem from my perspective is that too much has changed.  And at this point, my suspicion is that changes at the margin, whether I agree or disagree with the individual changes--and I'm not unsympathetic to a number of them--changes at the margin are probably not going to respond ultimately to the challenges which the world trading system faces.  Let me try to enumerate a few of those.

First, and this was alluded to earlier--I'm going to be parochial for a moment--support for the world trading system in the United States has fundamentally changed in just the last decade.  The end of the cold war, although this isn't widely recognized, the end of the cold war pulled away one of the factors that always used to push the United States in the direction of support of whatever was coming out of the GATT--for the same reason that we supported, you know, whatever came out of any international organization, because it was part of a larger geopolitical struggle.  Now, with the end of the cold war, the growth and strength not only of the EU but of some other of the emerging market countries, there is a much greater tendency to look at this WTO as a forum within which a rivalry is being played out.  That was always the case, but it's no longer balanced by some sense of overall commitment, as a political matter, to what's going on.

Second, within the United States, the old bipartisan trade coalition is gone, dead, and buried.  All right?  And that has happened in just the last decade.  When I first got into trade policy after I got out of law school, you'd go up to the Hill and you didn't know if you were talking to a Democrat or a Republican.  You knew if the guy was from a sugar state, okay, but you didn't know if he was a Democrat or Republican based solely on what he or she was saying.  That has now all changed.  As with almost everything else in Washington, partisanship is at one of those moments in U.S. history where it is very high.  It's not unprecedented.  Everybody's, Oh, God, partisanship.  I mean, if you read a little bit of U.S. history, you'll know we've been here before, and if we're lucky, it will ebb, just as it has before.  But right now, it is extremely high, and that makes it very difficult to forge a consistent sustainable trade policy.

Third, the big companies, the big U.S. companies have ceased to develop and articulate with a collective responsible voice the interests of Business with a capital B.  For a variety of reasons that we can't go into here, that structure, which existed when I came to Washington in the late '70s, whereby there was a process by which big-business executives kind of got together and were able to work out positions that didn't reflect everything that their own companies wanted and a number of CEOs spent a lot of time on public policy issues.  Well, you get killed by your board of directors if you spend a lot of time on the collective interests of Business with a capital B in 2005.  You better be promoting the interests of your company right now.

And that--you know, I was just a little special assistant at the end of the Carter administration, but the difference in the approach that the business people in my boss's office in those days and in my office during the Clinton administration was just remarkable.  In the latter, everything was focused on their company, what they wanted, and they wanted it right now.  And I think it is absolutely the case that the overall support, the kind of reflexive, strong support for any sensible liberal movement forward is--it's not as though it's gone.  Everybody will tell you, yeah, I agree with it, but there's no muscle behind it.  The resources are not behind it.  The priority isn't there.

So those things have changed within the United States, and maybe Hugo when I'm done can comment on the degree to which any of these things has also changed in Europe.

We have 142 members of the WTO.  The report alludes to this, of course, and tries to address it, but man, has that changed things.  Just trying to get anything through or done is a fundamentally different undertaking from--the Tokyo Round seems like pre-history in the way in which is moved forward both internationally and in the United States.  Remember, the opposition votes in the House and the Senate together were in the single digits for the Tokyo Round.  Do you think we're going to see that again?  No.  Of course not.

Then there's what are the issues.  Jagdish referred to non-trade issues.  Everything is a trade issue these days, which means that all non-trade issues have been imported into the WTO.  Health is a trade issue.  Environment is a trade issue.  Telecoms regulation is a trade issue.  All of these things are "trade issues," and thus it is inevitable that, however anybody wants to say otherwise, the WTO is going to be a body charged with political decisions.  The way in which one evaluates whether a country's environmental or health regulations are or are not defensible is just not susceptible to a purely technical decision.  There is judgment there.  Or, as Pascal Lemy would say, there's the expression of collective preference there.  And if we pretend that that's not the case, I think that the darker side of what Jay has said is going to loom larger over the horizon.

So we've got to confront the fact that politics in what countries agree to, what the kinds of issues that are being pushed in front of the WTO are, and how those are decided in dispute settlement context, is very much a piece of the institution.  The notions of legitimacy and politics are very hard to get your arms around and you can justify almost  anything  But I think people disregard those notions at their peril.  John Jackson has, in other contexts, talked about the constitutional structure of the WTO.  Well, one element of any constitutional structure is an implicit sense of legitimation, why that structure is legitimate for those who are governed by it.  And just as the EU has--well, not "just as"--in ways that are very, very, very roughly parallel to what has happened in the EU with a struggle to make institutions at the European level more responsive, more accountable, more democratic, that struggle has barely begun in the WTO, and it's going to be extremely difficult to do it.

So, where does that lead me?  It leads me to--not to anything specific, either in the way of critique or of positive statement, but only to a questioning as to whether, if one indeed is a supporter of liberal trade, one can be comfortable with a set of recommendations which, again, even if one is inclined to think that on their merits they're all pretty good, whether that's going to be nearly enough.  Because the institutional issues that Jagdish and John and Peter and others faced are fundamentally--John is absolutely right.  Behind institutional issues lies the basic structure of the organization and the basic political choices that are being made and the basis governance choices that are being made.  And I don't think--I think in a lot of ways these issues are being ducked--not so much by these guys, they're being ducked by people generally because those who support trade are afraid to bring them up, thinking that they will just muddy the waters; those who are opposed to trade, you know, they bring them up, but they bring them up in a way that's not always particularly productive.

So I end, again from a political perspective rather than a scholarly perspective, in suggesting that the trading system, when we've dragged on past 2005, past 2006, past 2007, is going to need bolder thinking and bolder leadership from the United States, from the director general, from the European Commission, from developing countries who are now stepping out on their own--all of these sources--if it is to adjust rather substantially and thereby prosper for another half-century.

MR. BARFIELD:  Thank you very much, Dan.

I want to start by asking a question to Jagdish and then turn it to you all.  But I do think, I hope they will tease you out in terms of you said that they were at the margins but then ended up by having nothing.  You wanted them more bold, but what kind of boldness?  Everything you talked about in terms of the changes leads in the direction of kind of stasis, which doesn't allow you to be bold.

But I'll come back to that.  I want to get away from things that I--I mean, obviously as we talked about it, I have some disagreements on dispute settlement.  But I'd like to go to something that I'm sort of neutral about, but I'd like to start with Jagdish, who has the first question, and then we'll go to the audience.

And that is this whole question of the preferential agreements.  I mean, when the news reports talk about this board, I think they talk about, as we've said, governance and dispute settlement, but they really fixed on the point about discrimination.  And yet--and I want to say this in, I hope, not a harsh way, but my reaction, at least one of my reactions was you guys, you raised the issue but you kind of threw up your hands.  There's not very much you can do.  Gary said you could negotiate maybe Article 24, but if you negotiate on Article 24, you're going to grandfather those earlier--no nation is going to allow--we're not going to allow NAFTA to be in violation of the WTO; no other nation is.

So it seems to me that I agree with everything you said, but I don't see that there's anything to do about it.  We're not going to deal with it in the Doha Round.  And you've got several hundred of the bilaterals and the trilaterals and regionals going on, so that the world, by the time the WTO deals with this, will be a world that's already in place.  And I think you kind of copped out when you say, okay, we have to get preferences lower.  I agree with that.  But it's not just tariffs that we're dealing with, it's all kinds of other parts of bilateral agreements, particularly those that the United States and the EU are pushing, which gets into services and investment.

So I'd like to sort of push you a little on that before we go to other things, and then I'll go to the audience.

MR. BHAGWATI:  I mean, these are very fundamental political forces which are driving -- decision-making, you do it or I do it, monkey-see, monkey-do, you know, everything.  There are lots of explanations for why this has gotten out of hand.  And there are genuinely people who believe that it's really the right way to go.  I don't think it is--I mean, it's gone way beyond, I mean, what might be called the tipping point.

And so therefore the only thing one can do is to point to the problem and say, look, it's all the more important to get the multilateral system really in place. I mean, that's the only practical thing one can do.  But if you just say, look, the multilateral system is important and so on, that doesn't carry enough weight, for many of the reasons which Dan was identifying.  But, I mean, this is one of the reasons why you could say, look, it is important to stick to the multilateral system and to try and see that the MFN system really expands, which is the original purpose--you know, the original driving point for this.

So I think that's the view I take.  I mean, John can speak to it also, you know, as another member of the committee.

MR. JACKSON:  Just a quick reaction, because I like the direction of this discussion.  And I think I agree very much with what Dan is saying, that it is a time to call for much more.  It's just that in the context of what we were doing, we couldn't.

And let me give you an example of that:  How to respond--and I think Jagdish will probably agree that Claude is right, that we weren't really offering much in the way of response to this very difficult problem of PTAs.  It's very, very linked to the failure generally of the ability to do something in other terms in the organization.  I've had lunch with a different ambassador both today and yesterday from Latin America.  And they're just into the bits and the bilaterals [inaudible] enormously.  And why?  Because they can't wait.  They have to see something going forward.

Now, an indication of the difficulty of getting any really dramatic move in this area is the very modest recommendation we had in this area about at least subjecting these agreements to the TPRM, the trade policy review mechanism, have the trade policy review mechanism operate just like it does for nation states, only for each PTA.  And there are governments that are just adamantly opposed to that.  They think they have the right, and particularly some of the developing countries under SND and the enabling clause, think they have the right to enter into these with no supervision whatsoever.  And so they seem to be opposed to even something, you would say, that is simply designed to get us more information about what's going on.  So it's a real uphill.

MR. BARFIELD:  All right, I may have more -- but let me turn to the audience.  We have a microphone.  Please identify yourself and ask your question or even make a comment, if you want, as long as it doesn't go longer than 35 minutes.

QUESTIONER:  Eliza Patterson, itinerant adjunct professor of law.

A question to Gary.  You said that you thought one way of slowing the proliferation of PTAs was to speed up the multilateral process.  Are you suggesting that we go away from the unified package and have sort of Tokyo Round approach to codes along the way?  Or how would you speed it up?

MR. HORLICK:  Do rounds more quickly, in theory, though empirically that seems untrue.  We seem to be hovering around a 13-year average.  That seems a long time.  And if you actually look at how much time is spent negotiating in that period, you're down to two and a half, three years max.  So that's one way.

Secondly, as I said, you can legislate--not in the sense of a la carte codes in the Tokyo Round, but you can legislate, as for example--well, they were sort of a la carte--as the Clinton administration did with financial services, telecom, and electronic tariffs.  And the U.S. was the one pushing and, you know, got something done.  It actually was disastrous for the business coalition, because the people got what they wanted and then dropped out--which is a danger of progress.

So you could do things--you don't have to wait--you don't have to do a round of 400 pages every 13 years.  Maybe you could--

QUESTIONER:  [Inaudible] a la carte--

MR. HORLICK:  That doesn't mean it's a la--that doesn't mean it has to--you could do it on everyone joining.  You don't have to do it a la carte.  But just do one agreement a year.  I'm not saying that's--

QUESTIONER:  Without having a unified package.

MR. HORLICK:  No.  But again, in some [inaudible] you have to do a unified package, probably, to get enough tradeoffs.  But I think Hugo's point might be right.  You could probably, possibly--I don't want to say this--if you actually were limited to doing agriculture by itself, you could probably do it, because there are so many tradeoffs.  The fact that you're not limited to it means everyone's going to want to add something else.  But you know, everyone has something to give and something to lose in agriculture, for example.

All I'm saying is there are things you can do, we've done them, in less than 13 years.

But just to finish, I also urge you to, you know, make Article 24 operative by putting some firm benchmarks on it that will make it harder to do PTAs.

MR.       :  I would go further and say forget the single package.  I think the single package was good in Uruguay Round, but because we got into something of a mess with the a la carte in Tokyo Round, that was due to the rigidity of a non-amendment under the GATT, actually.  But I think we can very well tolerate a shifting towards what Hugo was saying, towards plurilateral agreements.  And we've done it.  I mean, telecoms, financial services were essentially plurilateral agreements.

MR.       :  Can I ask you a question about that?

MR.       :  --just say, they used this very interesting device, which is kind of awkward and I'm not sure we can generalize, of scheduling.  Each government put in the schedule.  So you talk about variable geometry, the whole tariff schedule is a variable geometry.  You know, so it's been there all along.

MR.       :  Would that not complicate dispute settlement when nations have different rights and obligations?

MR.       :  Not any more than you complicated the legal system in the United States, I mean, or any other country.  I mean, there's lots of complication.

MR.       :  It's probably manageable, I would think.

MR. BHAGWATI:  Basically we're dealing with areas, I mean, as John is describing, where there's a basic agreement these issues should be in the GATT or the WTO.  You've taken issues like labor standards and so on.  You don't have that basic agreement.  This raises much more difficult questions, what exactly should be the scope of the thing.

So I think you're going to get in more trouble than with--

MR.          :  You're not going to have--agreement as part of a tradeoff for a tariff cut.

MR. BHAGWATI:  No.

MR.          :  It would be a different negotiation anyhow.

MR.          :  I think there's a whole panoply of different things, and it's not easy, but I could very well see something in the constitution area and in the investment area which are being built into these bilaterals, incidentally, a lot.  So I could see something there that would be less than full membership but viable.  And incidentally, there's still an MFN restraint.  That has lots of implications.

MS. SAFRA:  My name is Sima Safra (ph).  I'm a student.  To put it in very blank political terms, it seems to me that the problem with the WTO is that the U.S. and the E.U. jointly have lost control of the organization and the decision-making process and for that reason it's a problem.  Ultimately it's the problem with the WTO.

MR.          :  I guess we have a problem.  Here we are, a group of white males from the U.E. and the United States.

MR.          :  But that's good.  But the dominance of the U.S. and the E.U. of the world economy is less also.  So this is just reality.  I don't think the WTO will be killed by having to deal with more than two powers.

To get you into interesting--

[End of tape 1B, begin tape 2A.]

--much more valuable resource for small developing countries who don't have missions of any size in Geneva than it is for the U.S. or E.U. who want a subservient secretariat that doesn't help small developing countries fight them, but for small developing countries it's all they have.  They go in and talk to them all the time.  So the U.S. and the E.U. don't like secretariat initiatives because it might not be theirs.  Well, that's tough.  When you add it up, the rest of the world has a bigger economic clout than it used to, so they'll be able to get their way some of the time.

MR.          :  Conceptually Gary is clearly right.  You don't have to have a system this way.  But I think that what you observe, the phenomenon you observed, and I'd add to that that the U.S. and E.U. have lost control of themselves as well as the WTO, I think it's pretty true.  And as a result, there is a big transition problem here.  How are we going to get from the older system whereby when the U.S. and the E.U. more or less agreed on how to move forward, it more or less happened.  It might take some pushing, pulling and cajoling, but it happened.

As we all know, that is not necessarily the case anymore both because in my judgment at least the U.S. and the U.E. are less cohesive and less coherent internally, because they're more likely to be scraping one another than they used to be, and because even if they get to the point of agreement, they are just a whole lot of other constituencies.  So I would add that to something that has changed, which makes the challenges greater.

MR.          :  I think this may be played out, and we'll see, in the next months with the choice of a new director general.

MR. DIXIT:  My name is Govan Dixit (ph).  I'm a law student.  I wanted to ask our two august members of the Wisemen Group (ph) who wrote the report for the director general of the WTO.  What I wanted to know is that if we want to expand the role of the WTO, what would be the areas that the group considered?  Because I think there is a conflict of interest here between what would I say a step-brotherly syndrome between the World Bank and the IMF on the one hand and the WTO on the other.

All the technical assistance work and other things are being handled by the bank or the fund and they have the money, and why would anybody want to pledge money for the WTO?  For what area?  For what purpose?  If we take technical assistance, trips, GATTs, adjustment to globalization as a whole, customs procedures and even rules of origin, these are areas which are being dealt with outside the WTO in terms of the policy is being decided in the WTO, but so far as the technical assistance of participation is concerned, it's all outside.  Customs is being done by the World Customs Organization, globalization, the World Bank, GATTs trips, of course most of the literature is coming out from the World Bank.  So where would the money come from, and what area would the WTO take up to expand its role of the secretariat?

MR.          :  I mean we do address this issue towards the end of the report in a rather forthright fashion and say that these are within the province of the WTO, most of the things you mention, and the WTO is being starved of resources.

So we need to beef it up and subcontract it out to OECD, the World Bank, et cetera.  And why should the World Bank be doing WTO type issues?  It can be doing the trade policy like export promotion, import substitution of specific client countries, but why the WTO issues?  They do that and because they have the money.

MR.          :  But you do say, John, just to follow-up on his question, I just re-read the report this afternoon, that as a contractual obligation, I read that there's a contractual obligation of the developed countries to give money to the developing countries when you negotiate in n new areas.  Am I correct about that?

MR.          :  Capacity building.

MR.          :  You do say contractual.

MR.          :  Yes, that's right.

MR.          :  That's a new way.

MR.          :  You could say it's an legal obligation.

MR.          :  I'm a student at the French embassy.  Two remarks for the panel.  The first one I think there is a very simple solution that you are not required to work at the margin.  What the system needs is stronger rules.  And Gary's remark is perfect.  When you get a free pass for 4 years, look at the steel safeguards for example, the system cannot work.  You need stronger rules.  You are not going to have stronger rules in 2005 when there is in this country the deep mistrust for all sorts of international treaties and commitments under international rules.  Forget it.  Because you cannot separate the area of trade from the rest of international rules and obligations.

As a second remark, I think something is happening now in the WTO that is very interesting, and it's the fact that the WTO is a huge misnomer.  It's not an organization.  I'll be there are fewer people in the secretariat of the WTO than there are people here working for the American Enterprise Institute.  It is not a word organization because there is obviously political screening applied to candidacies.  And it is not about trade anymore, has not been for the past 4 years in negotiations.  It's about not even trade and agriculture, it's about agricultural policies and that's a big challenge in the objective of the organization, and that's a big challenge for the organization as well.

MR.          :  Any comments?

ANASTASIA:  Anastasia with the Australian embassy.  I thought I might say a couple remarks about preferential trade agreement and in particular the proposal that's been put forward by Australia that PTAs be reviewed so that they meet particular disciplines because at the moment the variable geometry that we're talking about is to the point of variability where the system will fall in on itself.

What the Australians have proposed is to have 95 percent of all tariff lines at the--harmonized code as having to be liberalized under PTA.  In addition to that, it would be that highly traded goods between countries within the PTA would also require liberalization where those goods are at 2 percent of the trade between countries.

The reason we have done that is precisely because of the reasons that have been identified in the report.  There is an enormous tendency to go towards PTA.  Many of them just simply do not meet that standard and the importance of finding a way of making movement is obviously critical.

What all that underlines though is the importance that moving ahead on the Doha Round underscores.  If we seriously want to pick up some of the liberalization that's in PTAs, the way to do it is through the round.  If we want to push further in terms of multilateralizing and having MFN apply, it's through the round.  And it seems to me that if we have the energies of the business community and the leadership of the United States and the Europeans and the other key players, the G-20s, the Cannes Group, et cetera, focusing on getting to that point, we might actually make some critical progress that will allow the system to look at the broader issues that are underlined in the report.

MR.          :  Thank you.

MR.          :  Just to comment, the Australian proposal underline actually how well thought out the original Article 24 rules where and where they applied because what you have now is the least competitive sectors being excluded so you're getting very large distortions.

An individual enterprise looking at this will game it as best it can, so U.S. companies are quite happy with PTAs if they can design them to their own desires.  But the net result is only very companies can do that in terms of information management, and we're now up to God knows how many rules or origin for the U.S. alone and for a multinational company it's a mess; as Jagdish correctly calls it, a spaghetti ball.

So I'm not sure how much of the PTAs being negotiated are actually being applied in any meaningful sense.  There are some startling numbers I think from UNTAD (ph) that if you took out oil, most of the preferential deals that included GSP as well aren't actually applied.  They're too hard to comply with.  Only big companies have the paperwork pushing capabilities.

I would say though Dan I think was quite accurate on what's happened with U.S. business in terms of the end of the Cold War.  But I would add one more thought in the other direction, which is instead of having these business groups pushing good policy because it was good for the company overall, it is very much product line, we want this one down to this level, et cetera.  But it does mean you have the crudest Marxist analysis possible for why they support the WTO now, and I promise you Microsoft, Walt Disney and a few others are never going to let the WTO go under.

To give you an example, the drug companies had no real interest in the GATT.  It didn't do much for them.  They love it now.  I would never have believed even when we signed the Uruguay Round that textile quotas would die, and magically and not by coincidence India adopts a patent law for pharmaceuticals.  There's lots of money at stake in U.S. business.  As Dan said, they don't do much about it, but if anyone tried to get rid of the WTO, you'd see the barricades go up.

MR.          :  With the barricades up, it's been 2 hours.  So this has been a heavy-duty session.  Please join me in thanking the panel for a really meaty discussion.

[Whereupon, the conference was adjourned.]