American Enterprise Institute

The Collapse of the WTO Doha Round Trade Talks:

Implications and Future Options

Wednesday, August 6, 2008

[Edited transcript from audio tapes]

1:30p.m.	Registration
1:45	Keynote Speaker:	Warren Maruyama, Office of the United States Trade Representative
2:30	Panelists:	Paul Blustein, Brookings Institution
		Gary Horlick, WilmerHale
		Arvind Panagariya, Columbia University
		Franklin J. Vargo, National Association of Manufacturers
	Moderators:	Claude Barfield, AEI
		Philip I. Levy, AEI
4:00		Adjournment

Proceedings:

Claude Barfield:  We also were -- in the first week or two in August, we were thinking, “Well, this is a pretty important topic.  Should we do it now?  Has everybody left?  Is there anybody around to listen?  The Congresses is out.”  And I have even forgotten the topic now.  That is just something about trade talks, I guess.  But we arrived in the afternoon and there were -- today there are 183 signed up.  I probably got 140 or 150 here.  We had about 150 last year, so I took from that -- the Trade Mafia in Washington never sleeps and it never takes a vacation.  So you could -- at Christmas Eve we can have one and we would still have a lot of people if it is a good topic.

Also, we debated whether or not -- obviously this is only a week after the interruption, the collapse, the blip on the screen, whatever everyone calls it.  And so people are -- there are still a lot of discussion about what this all meant but we thought it would be worthwhile to get an initial snapshot from a group of trade experts of diverse backgrounds and interests.  And I do not know, we will see when they start talking as to whether they have and how different their opinions are.  And we also, even though it was short notice, notified the administration that we would be happy to have someone from USTR or the White House or wherever come over and give at least an initial reaction of the administration.  The administration has been briefing various groups, they have been talking to the press but we thought it would be good to get a coherent 28-minute or so, 25 minutes, however long Warren wants to take, overview, right at the start.

I would say that there are a lot of things that we could discuss today.  The economists said and talked about 18 of 20 different issues resolved at the end of the negotiations, so that is a lot you could discuss.  I am not going to go into anything at the preliminary.  It is just to note that one question that, and after reading all the press accounts and even talked to some people in the administration, is still unclear to me and that is was this or is this just a near miss? 

As I said, the economists talked about 18 of 20 issues either having been settled or having been tackled in some important way, and some of the statements of Mr. Lamy, Mr. Mandelson, Ms. Schwab lead one to believe that, well, maybe there will be a chance and maybe there will be -- they think that there is the opportunity to pick this up fairly quickly, that they were so close.  That was a refrain that kept coming back in Geneva, I think.  That is one end of the spectrum.

I think the other end of the spectrum is those commentators, and I will just take David Sanger’s piece in the Sunday New York Times that some of you may have seen.  It really had as a theme that this is the end of an era.  The old WTO is gone and, by implication, you really ought not to try to put it back together.  You ought to sit back and see what does it mean to have India and China and the others now at the table and wait a little bit to see how things settle out.  In effect, that would mean that we might go, given the political realities of an election in the United States, a new commission next year, election in India, until the end of 2009 and 2010.

And there are also implications beyond just the timing.  It is a question of whether or not those who argue that this is the end of an era and some, my colleague, Allan Meltzer, has argued for several years that what we are seeing is the end of all of the Bretton Woods, the Bretton Woods system, and all of the institutions associated with it, the World Bank, the IMF, and now the WTO.

So that is one of the questions I would be interested in from our speakers.  But as I said, there are all kinds of things and we are not trying to guide the discussion, Warren will give whatever the administration wants to do.  And then the four discussants will, when he leaves, have their own opinions. 

I should say it is a pleasure to welcome Warren Maruyama back to AEI.  He has been the general counsel as most of you know probably at USTR since early 2007.  Before that, he was 14 years at the law firm of Hogan & Hartson.  Before that, he had served in various capacities in the first Bush Administration and the Reagan Administration in the White House and USTR.  And the only piece of news, for me was, when I was reading the biography, I did not know that his first job in the government was as an attorney adviser to the United States International Trade Commission, which was new to me.

So let us get started.  Warren, you have the floor.  Thank you for coming.

Warren Maruyama:  Thanks, Claude, for that introduction.  I appreciate the opportunity to be here today.  And if that seemed sort of halfhearted, it is because I drew the short straw at USTR to have to come out here and talk about Doha.  And I know there are a lot of members of the press in the room.  My goal here is not to make news, so if I say anything that is newsworthy or remarkable, you can rest assured that it is a mistake.  But in all seriousness, thanks to Claude for organizing a session on last week’s Doha meeting so quickly.

The United States went to Geneva committed to doing everything within our power to bring about an ambitious Doha deal that would realize Doha’s full promise to expand our exports and alleviate third world poverty.  At the first meeting at the Green Room, Ambassador Schwab sought to jumpstart the talks and make clear the U.S. commitment to a successful outcome by offering to lower the U.S. OTDS to $15 billion.  This figure was significantly below our $48 billion AMS, well below our previous offers and would have resulted in cuts to U.S. domestic support spending in seven of the last ten years.

But our offers on agriculture, NAMA and services were always contingent on reciprocal market access from our major trading partners, particularly from the advanced developing countries, China, India, Brazil, and others.  But that ambition never materialized.  Instead, some key players appeared to play to their domestic constituencies by wrapping themselves in the mantle of subsistence farming and so they can then turn SSM into a tool to roll back their previous GATT and WTO commitments.  As a result, any new gains from agriculture market access could have been undercut by a proliferation of unwarranted safeguard measures and key parts of global agricultural trade could have ended up with more barriers and higher tariffs than before the round was launched. 

The President’s goal has always been a real Doha agreement, not just a piece of paper.  Doha still has enormous potential to open new markets for American exporters and to facilitate economic development for the world’s poor, but that potential cannot be realized without real leadership and ambition by all participants.

While we want a Doha deal, the United States is not going to make unilateral concessions to save their own, and we are not going to give China, India and other major exporters a free ride.  In the next few weeks, we are probably going to hear a lot of breathless talk about the future of Doha and the WTO.  We are likely to hear that the WTO has become dysfunctional.  The United States might be better off if we tore up the Doha Ministerial Declaration, the July 2004 Framework Agreement and the Hong Kong Declaration and start it all over with a clean sheet of paper.  And finally, we are going to hear that there has got to be a more rational way to liberalize global trade than the antiquated concept of global trade rounds.

And this is likely to be the launching pad for some grand theorizing.  We are likely to hear that Doha is finished and we are about to start a vicious downward spiral into Smooth-Hawley type protectionism.  Or that the concept of global trade rounds is dead, we need to move on, pick A, B, or C, regional free trade agreements, one-off agreements like the Information Technology Agreement or dispute settlement cases designed to achieve, through the appellate body, what could not be achieved at the negotiating table.  Or that the failure of the U.S. and Europe to make unilateral concessions in Doha means that everything bad in the world, global poverty, global warming, rising commodity prices, disappearance of various endangered plants and animals, is now our fault.

But even if the WTO has become extremely unwieldy and even if the Doha Round sometimes appears cursed, we would be crazy to walk away from Doha and the WTO unless there is something better.  And right now, there is no plausible alternative to the WTO, Doha, and multilateral trade rounds.  The WTO-GATT system has a track record of success that has produced exponential growth of world trade since 1947.  It lifted hundreds of millions of people out of poverty and helped bring countries like Germany, Japan, and Korea from wartime devastation to some of the highest living standards in the world and provided a road map for developing countries on how to achieve prosperity and better lives for their people through open trade.

It is easy to talk about a better format than multilateral rounds.  People have been saying this, at least since the Tokyo round, but no one has come up yet with a better approach for making countries talk about what they have to give as well as what they hope to get.  The WTO maybe becoming increasingly unwieldy but there is still no alternative international body with the ability or credibility to broker broad-based worldwide reductions in global trade barriers.  So I would urge you to tune this stuff out.  Instead, in times like this, it is often good to let the dust settle, take some time to chill out, and then, and only then, try and figure out a plausible path forward. 

So today, I would like to focus on three things: first, to briefly lay out the case for Doha and why it still remains relevant and important.  Second, to describe briefly what happened last week in Geneva, and this description will be from a Middle American point of view, so our European, Chinese, Brazilian, and Indian colleagues are free to have a different view.  And third, to provide a few opening thoughts, as the various participants start to pick up the pieces, along with the caution that it is still way too early to engage in grandiose conclusions and strategizing.  Everyone is still exhausted from two weeks of 16 to 18-hour days.  And right now, around the world, every sensible trade negotiator’s focus is on planning a nice family vacation to recover from last week’s ordeal and pay back our spouses and kids.

Why Doha?  Despite its fits and starts, missed deadlines, and ministerials that have started with high-sounding pronouncements but ended up producing very little, Doha has the potential to expand global trade and lift tens of millions of people around the world out of poverty.  The World Bank has estimated that the complete opening of global goods and services markets in Doha had the potential to raise developing country incomes by as much as $259 billion.  Much of this gain would have come from South-South trade.  The barriers the developing countries put up against each other are often the biggest impediments to trade and income growth.

Thus, the bank projected that 52 percent of the gains from a Doha agricultural agreement would come from market opening in developing countries, while a roughly equal share, 48 percent, would have come from liberalization by other developing countries.  At the same time, as the World Bank also pointed out, as soon as you start introducing exceptions, the projected gains start to dissipate rapidly.  If every WTO member were to be allowed to completely exclude just over a handful of tariff lines, the Bank calculated that 98 percent of the gains for developing countries could vanish.  The same thing happens on NAMA.  If you start introducing exceptions and carve outs, the income gains for developing countries could fall from $31.8 billion to $5.6 billion by a recent calculation. 

Aside from the developing countries, Doha is also important to the United States.  Over the past year, exports have driven U.S. economic growth and propped up our economy in the midst of an escalating subprime crisis.  Without exports, we would be in deep trouble.

We are the world’s richest and most innovative country, but 92 percent of the world’s consumers still live outside our borders.  And as we found out recently, there are only so many houses, cars and insurance policies that can be sold to American households.  While Doha makes broad economic sense, that does not make it easy to negotiate.  Last week, one member of our U.S. delegation compared the DDA to 14-dimensional chess.  While trade negotiations have always been a challenge, this complexity has only increased.  There are even more players, the easy tariff cuts are long gone and we are beyond negotiating a framework for future agricultural liberalization.  Now we are cutting into actual subsidies and protection and some farmers do not like it.

Then there is the geopolitics.  In previous GATT rounds, the formula was for the U.S. and EU to reach a deal.  Once that happened, the round was basically over.  But that idea blew up in Cancun when the G20 brought down a proposed U.S.-EU agricultural framework that was supposed to close the round.  While Brazil, India, China, and other developing countries now have, and clearly deserve, a seat at the table, they need to show that they can do something with it, that they have the ability to lead and look beyond their narrow interests of the moment in order to shape a stronger world trading system that can serve the broader global community for the long haul.

This means that Doha has been a rollercoaster ride, and this ministerial was no exception.  For the first four days, the talks went nowhere.  Director General Lamy’s Green Room format with 30-odd ministers proved completely unworkable.  While Lamy tried to limit interventions to no more than three and one-half minutes, just going around the table once took a couple of hours.  The talks were further handicapped by the absence of the Indian Trade Minister, Kamal Nath, who was in Delhi for a confidence vote and only returned to Geneva on Wednesday.

Lamy’s next step was to break the talks out into a smaller group of key players, the so-called G7 consisting of the EU, U.S., Japan, China, Brazil, India and Australia.  While this format allowed for more frank and detailed exchanges, the talks remained gridlocked, leaving everyone on the point of exhaustion and several delegations making plane reservations in order to beat the expected rush out of Geneva when the talks would collapse.  On Friday evening, after another series of fruitless discussions, Lamy put forward a one-page paper outlining his view of a potential middle-ground outcome.  The United States viewed the Lamy paper as seriously flawed and it pushed us right up against several of our key red lines.  But we indicated we were prepared to work with it as a basis for negotiations.  Six of the seven participants in the group also indicated that they could live with it, the exception being India. 

Nevertheless, there was a sense of genuine exhilaration that the talks could be on the verge of a major breakthrough.  This sense was maintained when the Lamy text was discussed by the Green Room and the broader Trade Negotiating Committee.  Despite the usual complaining and posturing, virtually all WTO members who spoke up appeared to work with the Lamy draft.  But this momentum died over the weekend when China backtracked and began lining up with India on key issues, opposing NAMA sectorals and supporting lower thresholds for this Special Safeguard Mechanism or SSM.  By Monday and Tuesday, the talks were in a downward spiral and ultimately deadlocked and crashed over SSM.  If they had not tangled up over SSM, other issues were still lurking in the background, geographical indications, the convention on biodiversity, rules, fish, cotton, et cetera. 

While this was a bleak ending, there were some positive notes.  The United States continued to play a leadership role.  Ambassador Schwab made the first real move in the negotiations by proposing to cap the U.S. OTDS at $15 Billion.  We were pleased by the bipartisan support we got from the Congress, from Ways and Means and Finance and the House and Senate ad hoc committees and the presence of key U.S. Trade Associations and Commodity groups, particularly the Chamber, the NAM, and the American Farm Bureau.

Last week, in the sense of many of our people, was the first truly honest discussion, by trade ministers, of many Doha issues.  It laid bare the core problems and it solved a bunch of secondary ones.  There was some progress on services and NAMA sectorals.  And on agriculture, the solid front of developing countries finally splintered, as countries took positions based on their economic interest instead of Third World rhetoric. 

Brazil and other farm exporters stepped out to support the compromises and the Lamy text.  We have been frustrated for many months that Brazil appeared to put more emphasis on the G20 than on brokering a commercially viable compromise.  But Brazil stood to be and was one of the big winners from the Uruguay Round and it stood to gain from Lamy’s agricultural draft.  We were pleased that it stepped up to support Doha modalities.

The so-called “middle ground countries,” Mexico, Chile, Costa Rica, Kenya, and others, consistently pushed for a strong deal and played a constructive role.  And in the final fight over SSM, Uruguay and Paraguay spoke out against the abusive agricultural safeguards.  This is important to them since the small agricultural exporters were heavily dependent on a few commodities, they stood to get screwed by SSM.  These splits made clear that agriculture is not a North-South issue.  It is also a South-South issue and it pits exporting countries against those that rely on protectionism, import substitution, and tariff walls.

Geneva was the first time that China participated in the WTO’s inner circle.  They were awkward and clumsy at times and it was disappointing that they sided with India on SSM, but hopefully, this was a learning experience and not a sign of the future.  At the end, for the most part, ministers and delegations behaved like adults.  There was a minimum of finger pointing.  While some delegations were clearly hoping that nothing would happen, they had, at least, had the good grace to save their celebrations for after their return home.  And it means that there is at least some hope of resuming negotiations without a lot of accumulated bad blood and ill will.

But at the same time, I am not going to gloss over the difficulties.  While the talks broke down over SSM, for us, this involved an important point of principle.  The Falconer text had provided that the agriculture agreement would incorporate a safeguard mechanism for developing countries in order to deal with import surges.  Such safeguards have been a traditional feature of GATT and WTO agreements.  We did not support this provision but we accepted that there would be an SSM and sought to work constructively with the Indian negotiators and others to address their concerns about the impact of Doha on subsistence farmers.  We thought we were making progress.

The conflict arose after India and China sought to transform SSM by setting triggers at extremely low levels so safeguards could be imposed when trade rose by only ten or 15 percent above a previous three-year average.  In addition, India insisted that developing countries should be permitted to raise tariffs above rates that have been bound in previous GATT and WTO agreements, effectively breaking existing tariff bindings and reneging on previous Tokyo and Uruguay Round commitments, and to impose safeguards on products even though they and other developing countries were not undertaking any new tariff cuts on those items in Doha.  It was joined by China, which apparently saw the SSM as an opportunity to change the terms that they had agreed to as part of their WTO accession.

These differences are not going to be solved by splitting the difference between 140 and 115 or through some vague legal gibberish that gives developing countries a right to impose safeguards whenever there is “demonstrable harm” to subsistence farmers.  This sort of mush could render any market access gains from the round completely ephemerable and at risk and it is a dangerous path to go down.  It is also the wrong thing to do in the midst of a global food crisis when our goal should be expanding global food trade, not putting up new barriers.

The discussion of these issues smoked out where countries really stand.  We would hope that some of the developing countries will think long and hard about whether the SSM is in their interest.  The issues that led to the breakdown of the talks are not going to get sorted out immediately.  There is a question about how much some of the key participants really want a deal.  In addition, everyone left Geneva in a state of exhaustion.  Most of the key ministers had gone for two weeks of 14 and 18-hour days followed by late night consultations with capitals and in some cases, briefings for the press.  The senior officials are in even worse shapes and some of them have been doing this for months as part of the Falconer and Stephenson exercises.  People need a vacation.

Some preliminary conversations are underway.  Ministers are reaching out to each other.  No one really wants to see Doha die.  Director General Lamy will travel to India and to the United States in August but it is important to let the dust settle before drawing any grand conclusions or deciding on a path forward.  The United States remains committed to achieving an ambitious result that brings about new trade flows for businesses and in turn generates benefits for workers and consumers.  It is unfortunate that despite our best efforts in Geneva, we were unable to reach final agreement on a modalities package.  Nevertheless, we are able to make important progress.  We gained insights into what members are prepared to offer on services.  We got greater clarity on what a modalities package might look like and saw a constructive attitude in attempting to solve many other issues that have been preventing progress in these negotiations.

The United States showed our commitment to making meaningful contributions and we will continue to demonstrate the leadership necessary to achieve ambitious results in agriculture, industrial goods and services.  But so far, that ambition is not being reciprocated, particularly by the key emerging markets that are also the world’s fastest growing economies and major beneficiaries of the current global trading system.  But we will continue our efforts to work with other WTO members to achieve a successful result.  Thank you very much.

Claude Barfield:  Thank you very much, Warren.  Warren has to get back to USTR fairly quickly, but he has agreed to take a few questions.  So please raise your hands and identify yourself.  But here, we have a mic so wait until the mic --

Female Voice:  Hi, I am [inaudible] from Inside Uruguay.  Brazil’s widely reported split with India, what in your view will that mean for the future of the G20?  And perhaps Minister [inaudible] who is in the audience might be able to contribute something to that.

Warren Maruyama:  I think he is in a better position to answer that than me.

Female Voice:  But from your own perspective, the Ambassador has spoken very favorably about Brazil as you just did and all these stuff happened to finish the goal.  But what does that mean for the future of the G20 in your view?  Oh, come on, Warren!

Warren Maruyama:  You know I am praying not to make news!  [Cross-talking] between Brazil and India.  That is for them.

Female Voice:  Okay, so I will try another question.

Claude Barfield:  Quickly.

Female Voice:  A quick question, what about these preliminary conversations among the ministers and what are you hoping to achieve in that?

Warren Maruyama:  I think people are just, right now, trying to figure out where other people are at and whether anyone has any bright new ideas on what to do next.  But it is all very preliminary and vague.

Claude Barfield:  I will call on the Minister in our next session, so let me go to Rob [phonetic] now.  We will take Warren’s time so he can answer the questions.

Rob:  Warren, would you discuss the European Union position?  The press seemed to put the blame on the U.S., primarily, for the breakdown with the other members of G20.  What was the EU position?  Were they flexible too or [inaudible]?

Warren Maruyama:  I think, out of Hong Kong, U.S.-EU relations on Doha were in a pretty bad state.  I think that has been fixed up over the past year and a half, so actually, Ambassador Schwab and Commissioner Mandelson worked closely together on a number of these issues, particularly on NAMA.  On SSM, the --

Rob:  Can you describe what that is, the acronym?

Warren Maruyama:  Special Safeguard Mechanism.

Rob:  What is NAMA?

Warren Maruyama:  It is WTO-speak for Non-Agricultural Market Access, which is another word, basically, for industrial tariffs.  On the SSM, the EU is not really a big agricultural exporter, so it is less concerned and probably more flexible on what the shape of an SSM might be.

Claude Barfield:  Okay, [inaudible] --

Male Voice:  What I am saying is that the Doha failure means no more Indian mangoes to the U.S., and also my question is that as far as the failure of this trade talks are concerned, what is the future of oil and food prices and the poverty around the globe?  And also, who are the losers and winners, as you said, that China and India are the major problems or were the major problems of these trade talks?

Warren Maruyama:  Well, I do not think anyone wins through a Doha failure.  Doha is designed to expand trade.  To the extent it does not happen, that trade expansion does not occur.  As far as oil and food prices, those are driven by short term commodity movements.  We do not pay much attention to that at USTR, except from reading the newspapers and sitting in on counter-briefings [sounds like] that, in a lot of cases, fly over heads, at least for me, I am not an economist.  And if there was going to be any Doha impact on food prices, it would play out over the long term.  You are talking about something that would reform levels of subsidization, probably trying to address export restrictions but that is not something that is going to have a short term impact on food prices next week or next month or probably in the next year.

Jim Berger:  Jim Berger from Washington Trade Daily.  This administration has a little bit over six months I guess to maybe not wind down but it will be over.  Do you see any possibility of a resolution [sounds like] ministerial this year to sort of pick up the pieces?

Claude Barfield:  The question for those who could not hear maybe over here was whether or not Warren sees any possibility for advance in the time that the administration are picking up negotiations in the time that the administration has remain--

Warren Maruyama:  There has been some speculation on that.  Some people have -- I think the Director General has talked about that possibility in the press.  But it would all depend on whether you can get over the SSM hump and other problems that showed up last week.  There is really no point in calling people back together and still be at loggerheads.

Donald Osmond [phonetic]:  Donald Osmond, National Defense University.  You said that we were not prepared to make unilateral concessions and I just wondered what either the economical or the political rationale was behind that?

Warren Maruyama:  Any trade agreement has to have a balance of what you are going to give and what you are going to get.  Any trade agreement also in the United States has to pass our Congress.  So if this was just a unilateral giveaway, I do not think we would get much support from our industry or our agricultural sector, and I have serious doubts about whether it would pass the Congress.  And basically it is bad policy for us just to open up our market and not get anything for it.  Part of the gains from Doha would be from developing countries opening up to each other and that would benefit us but it would also benefit everyone.

Claude Barfield:  Okay, one more question.

Male Voice:  Yes, I thought I heard you say that the U.S. agreed in the principle of the idea of SSM.  If that is correct, then the question is does not that sort of defeat this issue of -- that you are going back on [inaudible] and so forth?

Warren Maruyama:  I do not think so.  A safeguard clause in various forms has been a consistent feature of GATT agreements going back to 1947.  There are safeguard clauses in the GATT.  There are some special safeguard clauses including one in the Uruguay Round Agricultural Agreement.  So the notion was that they would put in a safeguard, for developing countries, to deal with sudden import surges.  That is a legitimate concern.  If you lower tariffs and a sudden and unexpected surge takes place, you might want to temporarily put in a remedial tariff in order to smooth things out.

But the real question is what the threshold and what the conditions are going to be.  Because otherwise, if you set it too loose or too easy, then everyone is going to be popping out safeguard clauses and the whole goal of expanding trade basically goes down the drain.  So that was the debate.  We could live with a safeguard clause or a legitimate safeguard clause that is genuinely trying to deal with import surges.  But setting it so that it had basically a normal bump up in trade after the round and you get popped with a safeguard clause that takes you above the tariff that you had going into the round, for us, that is not what Doha is all about.

Claude Barfield:  My understanding was that even the 140, which really that is the top, would have allowed India and China and important commodities to really not to -- be able to avoid any additional imports and maybe even cut the ones that are going there now.  Is that correct?

Warren Maruyama:  That is correct.  It would have affected major U.S. exports.  India and, in particularly, China are going through substantial bump ups in demand for certain commodities and, particularly, for things like meat, so you could have the normal growth and trade seriously constrained even by a 40 percent trigger.  And we were not the only ones that had that concern.  A bunch of the Latin American agricultural exporters stepped out too, which took some courage.

Claude Barfield:  Well, thank you very much, Warren, for coming over and giving us your benefit of a cohesive [inaudible].

Warren Maruyama:  Thank you.

Claude Barfield:  I do not think you got yourself in too much trouble actually.  We are going to move right to the panel, and so we will take maybe one or two minutes to stretch and then we are going to start right again.  [Break in audio 36:33-39:02]

Philip I. Levy:  Okay, we have got a great deal to cover and we have some outstanding experts to help us consider all these issues that were just raised.  So let me introduce the panel.  I am Phil Levy, by the way, of the American Enterprise Institute, and we are very privileged to have with us experts from a bunch of different perspectives who will be able to shed some light on all these.  We will be proceeding in alphabetical order.  To my right, we will begin -- I will introduce everyone now and then and we will let them all speak.  We will begin with Paul Blustein from the Brookings Institution, a very distinguished journalist and author and an expert on the international economy. 

We have Gary Horlick, a partner at WilmerHale and a renowned expert in international law.  We have an old friend and colleague of mine, Arvind Panagariya, a distinguished international economist, a professor of Indian Political Economy, Jagdish Bhagwati Professor of Indian Political Economy at Columbia University, expert in both international trade and in the Indian economy.  And last but most certainly not least, we are pleased to have Frank Vargo, Vice President for International Economic Affairs at the National Association of Manufacturers, a leading private sector voice on international trade issues.

So without taking any more time, everyone will make a short statement and we will hope to have ample time for discussion and questions.  Now with that --

Claude Barfield:  I should say that Paul Blustein loves all this turmoil because he is writing a book on the Doha Round and it could not be better for him, except that the damn thing will not end so he cannot end his book.

Paul Blustein:  Thanks, Phil and Claude.  Claude mentioned the déjà vu sensation that we all had after the events of last week.  It reminds me that a few months ago, Susan Schwab gave Pascal Lamy a video of the movie “Groundhog Day” to drive home the point that here we are again just as we were last year.  I think it was at the OECD ministerial, and one of my -- that the greatest wit of the trade press room, Allen Beattie of the Financial Times was moved to comment that covering the Doha Round is like being forced to watch “Groundhog Day” over and over again. 

So anyway, as Phil mentioned, I am a journalist.  I am not a PhD scholar, and we journalists, as you know, we like anecdotes, so in true journalistic fashion, I am going to begin with an anecdote before going on to one or two cosmic thoughts and one really wild, far out proposal.  The anecdote concerns what happened late in the afternoon last Tuesday, July 29th, when the Doha talks finally collapsed.  In the press room, we were hearing all day long rumors swirling around that a breakdown was truly imminent.  And at about half past five, those of us who were working in the press room got word that an announcement would soon be forthcoming, so the crowd began to swell at the foot of the main stairs in the lobby at the Centre William Rappard. 

And a few minutes later, Sue Schwab appeared and this, sort of, sweaty pack of reporters was jostling for position, and she descended the staircase to the microphone, and then something really remarkable happened.  She choked up right there in public.  I have always thought of Susan as a pretty steely person.  You have to be to be a trade negotiator, and she certainly qualifies on that score, but her voice was quite tremulous.  She said, “We were so close.” 

And then she sort of stopped speaking because she really needed to regain her composure and she confirmed that a deal under consideration, this was the Lamy text that Warren referred to, was “not going to carry the day,” and she sort of blurted a few sentences about the United States’ commitment to the Doha Round and then she seemed to be unable to continue and she just turned around and walked back up the stairs without answering questions.

So a little while later, after all my colleagues who were working for the wire services and the newsroom had sent out their bulletins, flash bulletins saying, “Yes, yes, the talks have collapsed,” I thought “Hmm, I wonder what the stock market is doing?”  Because after all, there were all these warnings as we were arriving in Geneva from all these policymakers and various experts saying, “The world economy is desperately in need of good news and the global trade front, this is the time of financial turbulence, food crisis, looming recession,” and so forth.  So I checked on my laptop and to the amusement of my colleagues nearby, I noted that the Dow Jones was up 210 points and it was rising, and it rose another couple of hundred points the next day.

Well, I would say this is a pretty good disconnect.  Was this event worthy of tears or of a shrug?  Was it momentous?  Was it so momentous that a veteran trade policymaker might feel emotionally overwhelmed upon coming to grips with the potentially dire consequences?  Or was it just a lost opportunity to make the world a bit better so international investors could feel justified in dismissing it?  And if one of those interpretations is more correct than the other, then what should be done about it?

Well, I think, actually, at the risk of sounding like a caricature of a two-handed economist, I think both reactions are apt.  Let me begin with the markets, the financial markets.  I mean they are famously short-term oriented and they are understandably obsessed with what is happening right now in housing markets and in central banks and financial institutions.  They quite rightly see little chance that this setback in the Doha Round is going to have much impact on global commerce and kind of a time horizon that they ordinarily worry about. 

Trade is up nearly six percent a year over the past decade.  There is every reason to believe it will continue to grow at a respectable clip in the next few years.  Even if a deal had been agreed in the Doha Round this year, it would not have reduced current trade barriers by much.  The deal on the table would have mainly required countries to lower their bound tariffs to levels that were still above the applied rates.

In one area where the deal would have forced some major reductions in applied rates, the current rate is the actual rates that countries are applying now in their law, the tariffs that the -- and I am talking here about the tariffs that the U.S. and the European Union impose on certain manufactured goods like clothing and shoes, the deal under negotiation would have phased those cuts in over a pretty substantial number of years.  So you were not talking about something that was going to have a big impact on trade flows in the immediate feature.

Now, this is not to say that the deal was devoid of substance.  Quite the contrary, a reduction in bound tariffs would have been highly desirable because it would have put some legal constraints on the ability of governments to raise barriers in the future.  But you cannot blame the traders on Wall Street for being kind of unimpressed with that.

The serious ramifications of the events of July 29th are long term, and this is why I think that if ever there was an appropriate moment for a top trade official to choke up in public, Susan Schwab chose it very well.  Remember, the breakdown in Geneva was the third that the talks have undergone in the past three years and it was especially ignominious given that the negotiators could not cut a deal even after the longest trade ministerial in recent memory.  Even though nearly seven years have passed since the Doha Round was launched. 

This has raised a lot of uncomfortable questions about the WTO’s ability to continue as a central rule writer of global trade.  Warren was ridiculing the idea that people were raising the notion that the WTO is dysfunctional, but obviously, it is a legitimate question to ask at this point.  And this in turn raises the risk that the WTO’s authority will undergo a significant erosion in years to come.

For all its flaws, the WTO is a crucial lynchpin of stability in the global economy.  I realize that for a lot of people in this room, maybe all the people in this room, that observation is going to be so obvious as to verge on the hackneyed.  But in recent days, I have been really struck by the comments, the number of comments suggesting that the breakdown of the talks is a problem mainly for bureaucrats in places like Geneva and Brussels and Washington.  Frankly, I think that is a terribly shortsighted view.  And so at the risk of belaboring the obvious, I think it is worth dwelling, for just a moment, on a few of the reasons that the WTO is so important and the reason that I am doing a book which I can assure you is not because I expect to get a large contract from Hollywood about it.

The WTO’s rules keep a lid on member countries’ import barriers.  They prevent diplomatic quarrels from spilling over into the trading realm.  By adjudicating trade disputes among member nations, the WTO helps prevent those disputes from flaring into tit-for-tat trade wars.  When a country’s politicians and citizens are up in arms over another country’s trade practices, bringing a case to the WTO can help lower the political temperature.  Aggrieved parties can take comfort in knowing that their case has been turned over to a relatively impartial body. 

In addition to the dispute settlement function, of course, the WTO is also the guardian of the most favored nation principle and that principle has been breached a lot in recent years but it is still a valuable bulwark against the formation of trade blocks of the sort that we had in the 1930s.

Now, last month’s debacle in Geneva might be of less concern were it not for the fact that the WTO’s centrality to the global trading system is already in some doubt.  I am speaking here of the proliferation in recent years of bilateral and regional free trade agreements or preferential trade agreements as I think they are more appropriately described.  I recently took a look at the list of the more than 200 PTAs that are currently enforced, and just to underscore how insane this fad has become, let me tell you about a few that I found. 

Do you know that Singapore has a PTA with Jordan?  Taiwan with Guatemala?  Thailand and Bahrain?  Then there is the Transpacific Strategic Economic Partnership.  Anyone here know that one?  Boy, you get a real prize if you know that one.  That is New Zealand, Chile, Brunei, and Singapore.  Then there is the EFTA SACU Free Trade Agreement.  Anyone know what EFTA is?  That is Iceland, Norway, Switzerland and Lichtenstein.  They have an agreement with SACU, which some of you, I think, probably know as South Africa, Lesotho, Botswana, Namibia, and Swaziland.

Well, this trend, of course, got a huge boost from the Bush administration’s policy of pursuing PTAs with a number of partners and all you have to do is click on the USTR’s website and you will see them all there: Australia, Morocco, Bahrain, Oman, Peru, the CAFTA countries, Columbia, Panama, and South Korea.  The upshot of all these, I think, is a real double whammy for the WTO, this disillusionment with its ability to set the rules of global trade that is on the rise because of all the repeated fiascos in the Doha talks.  And at the same time, this profusion of PTAs tempts politicians to think of those deals as reasonable substitutes for multilateralism.  I am not so much of a Cassandra now as to suggest that the WTO is in danger of disintegrating overnight.  I certainly do not -- I think Warren was quite rightly ridiculing anyone suggesting that we are about to have an outbreak of Smooth-Hawley protectionism.

But I do think that now is the time to take very seriously the risk that the WTO’s authority will eventually atrophy to the point that member nations will start to flout their commitments and ignore the rulings of WTO tribunals.  That would greatly increase the threat of trade wars and a breakdown in the system that has helped keep trade blocks and protectionism at bay.  The great irony of course is the poorest and weakest countries would lose the most in such a scenario because they would become even more susceptible to bullying and marginalization in the trade arena than they are now.

Now if that prospect is not worth shedding a few tears over, I do not know what is.  It demands a policy response aimed at minimizing the peril to the multilateral system’s health.  Regrettably, the response from some quarters has been precisely the opposite of what is needed.  People are saying, “Let us pursue bilateral deals with even more vigor.”  You are hearing this especially from the Canadians these days.  It is astonishing how the Canadians -- I mean, all the editorials, all the policymakers are saying, “Oh, well, we had no choice but to go out and do a lot of bilaterals.” 

The theory here is that since liberalization does not appear to have much choice of advancing on the multilateral front, there is no choice but to seek it in other venues.  And this is really what I would call, “knee jerk free trade philosophy.”  I like to think of myself as, basically, a believer in the principles of free trade, but this philosophy is sort of -- as long as barriers are coming down somewhere, that has got to be good, no matter what.  Never mind the heightened danger to multilateralism.  This sort of thinking would be a lot more understandable if we were in 1948 when trade barriers were still quite high as opposed to 2008 when we are 60 years into the liberalization process.

Now having given so much impetus to bilateralism and regionalism, the United States, I would argue -- and here is my somewhat far out idea, I think the United States should now exercise leadership in the hope of bringing this trend to a halt by renouncing our intention to pursue further bilateral and regional pacts and declare that henceforth, we are going to pursue trade deals only under WTO auspices, whether these are big conventional trade rounds or more limited agreements involving individual sectors such as services.  This is a policy that will obviously have to wait a change, a regime change at the White House because the Bush administration lacks fast track authority anyway, so any pledge that the Bush administration might make, along the lines I am suggesting, would be derided as hollow.

But a new president could make an enormous contribution to the resilience of the trading system by saying, “All right, the United States is the prodigal son returned.  We were properly chastened and we are returning to the house of multilateralism.”  The other big question, of course, is what the new president should do about the Doha Round, and I confess I am somewhat torn about this.  One had the sense sitting in Geneva that at times, the problems really were technical.  I can tell you one other little anecdote that I am planning to include in my book.  Jean-Luc Demarty, the Chief European Agriculture Negotiator, bought a box of cigars that he was planning to hand out when the ministerial succeeded, which gives you some idea that there were some people who were really involved in the process, who honestly believed that there was a good chance.

On the other hand, Peter Mandelson, who I am not exactly his direct boss but said that, “The irresistible force met the immovable object.”  And I think that is probably -- I mean he was talking there about the differences between the U.S. and India on agriculture market access in developing countries.  And I think -- my sense is that is closer to the truth.

Many commentators have concluded that as a result, big rounds of this sort are a thing of the past, as Warren was mentioning, and their reasoning is certainly compelling and it may be best to try preserving some of the spirit of Doha by just advancing piecemeal some of the parts such as the proposal to give poorest countries duty free, quota free treatment.  But I think Warren was right on when he said that the idea, it is crazy to write off the idea of big rounds completely.  The intrinsic logic still holds.  Sometimes the only way to move the system forward is to present countries with a broad mix of issues that enable them to trade off gains in one area against concessions in others. 

Major new challenges for the trading system are springing up, the food crisis, climate change, so maybe the next president can propose expanding the Doha agenda to incorporate those issues as well.  That would have the virtue of breathing new life into multilateralism and one way or another, I would argue that policy ought to be focused almost exclusively toward that aim.  And if not, I think we are going to be taking an unacceptably high risk that we will really have something to cry about.

Philip I. Levy:  Thank you very much.  That is very thought provoking, and we will provoke after we have had the whole panel, but let me now turn to Gary and let him speak.

Gary Horlick:  Paul’s description of the scene in Geneva is very vivid and accurate.  You always were a good writer, I am jealous.  I was actually in Geneva in the WTO Building working on a panel and I descended the staircase.  For some of you who had been in the building, there was this mob, it was a scene out of the front page, I think, of all these newshounds eager for a story, so maybe the reason Susan choked up was fear.  It was really quite a sight.  I literally stumbled out of this panel hearing and walked down the stairs and there was this -- really a sea of people which you do not usually see there.

I share what Warren and Paul said on most points.  This is not the end of the WTO.  It is not the end of Bretton Woods.  It is not the sudden arrival -- some of the news reporting -- I should not criticize reporters, sorry -- some of the reporting was quite strange.  This is not the sudden arrival of India and Brazil on the scene.  Brazil has been a member since 1947, India since 1948 and quite active since then.  It is not the sudden arrival of China.  China has been a very constructive member of the WTO since acceding.  It is not even the end of the Doha Round.  This is nothing compared to some of the blowups in the Uruguay Round.  The one in Brussels in 1990 was far worse than anything like this.

A key point -- and I am not saying this out of altruism or anything else, this is just being really practical which is what trade negotiations are, almost every country and certainly all the major ones, including specifically the U.S. and India, would be better off with a deal along the lines that was proposed than without one.  It is that simple.  And I will come to the details of special safeguards later, but remember, the safeguards are not the actual tariff negotiations or their safeguard, if you will.  It is certainly not -- you do not have to wait for the presidential elections.  As Warren correctly pointed out, this has been a bipartisan effort.  You have not seen the rhetoric about multilateral negotiations that you have seen about FTAs in the U.S. and Democrats on both sides of the Hill have been very explicit about that.  So this is all going forward.

Now what actually happened?  India decided it wanted more of a special safeguard mechanism; the U.S. said no.  I think the U.S. was right to refuse.  That does not mean India was right.  I find the explanations much more prosaic than the highly charged news accounts.  India has historically been reluctant to bind major agricultural tariffs in the WTO and GATT.  This is not news.  I am just saying this is content neutral.  Some people will say that is a good thing, some say it is bad but it is a fact. 

So here, India actually for the first time had just agreed to bind these tariffs.  India had actually taken full advantage of the “flexibilities for developing countries,” so the calculations I saw suggest that Indian tariffs would not go down much at all but they would be bound.  This is on agriculture.  And that is quite a step forward and so India says we want a safeguard.  The U.S. says the numbers are wrong.  I happen to think the U.S. was right.  I happen to think, as Warren implied although he could not say, even the 140 percent that the U.S. was willing to live with was way too low a trigger.  If India has been growing at nine percent I think the last year of GDP?

Arvind Panagariya:  Five years.

Gary Horlick:  Last five years.  China, nine percent, eight percent the last ten years.  If you just take nine percent for three years, the time period measured and compounded, you are over 30 right there from just normal growth.  I will defer to the economists, but as per capita incomes rise, consumption of food goes up. 

This is a good thing, by the way.  Increasing consumption of food for poor people is a good thing.  Lower prices for food is generally also considered a good thing.  There are complications for subsistence farmers but what we are talking about is not people driving a sports car.  This is food.  Eating sufficient food is generally considered a good goal.  So finding in trade negotiations that people are fighting to keep food prices high already gets you one step down the rabbit hole.

So China, I think, was being opportunistic.  It saw a chance to get out of some of the accession deals it made, decided to take advantage of it.  You could perfectly well look at this and say, “Hey, India” -- forget India.  Ruritania decides -- sees that the U.S. is willing to accept 140, by definition, Ruritania is going to say 110.  If the U.S. had only accepted 160, Ruritania would have said 130.  I mean, this is part of negotiating.  It has nothing to do with the identity of the country.  If Ruritania had agreed to 140, the U.S. might have said 160.  This is what negotiators do in these rooms, so I just cannot get too amazed by what was going on. 

China is sitting there saying, “Hey, what India is proposing fits us pretty well.  Let’s join them.”  So I will say I think the explanations are as much prosaic as dramatic.  The most notable thing, in fact, is Brazil visibly breaking with India, although not very publicly, because of a difference in interests.  This is not some ideological fight.  They are on different sides of the issue.

So how do you get out of this?  You sit down.  You look into this whole thing about a safeguard.  Well, you cannot -- as Warren correctly said, it is not a matter of taking the average of 110 and 140.  That is not how safeguards work.  These are not tariff levels.  What you do is you sit down with negotiators and you work out some other way, some other metric.  You take away the 110 and the 140.  You do not use some vague language about livelihood security.  You find some other way to measure it, percentages, TRQs, quantities.  You come up with some other way to do it. 

The goal is to find something so the Indian trade minister can go back home after whatever is done and say, “I won again.  Having won in July, I went back in September and won again for Indian farmers.  And this time, I won for Indian exporters also because now we have a deal that fully protects Indian subsistence farmers and has gains for Indian services, producers, and manufacturers.”  At the same time, by changing the metric, you have to find something where the U.S. can come back and say, “Hey, we did not agree with India’s 110.  We found a different way to do it.”  This is what senior negotiators do.

Now built into this probably -- and you can understand Mr. Lamy’s dilemma, there was a big drive to finish this in substance.  I do not mean legally.  There was no way this was going to finish legally.  Doing the schedule is going to take much longer than anyone thinks but to finish this in substance by the end of the year.  Why?  Because the Bush administration wanted to sign something.  That is a perfectly legitimate reason.  It gives the U.S. and USTR a motive to actually agree to something.  It says it gets other countries thinking, and this was made very explicit, “Hey, this is the best chance we have to get the U.S. to agree to something.  They are under pressure from the White House to sign something, so maybe we will push a little harder but also, we are going to get a better deal now than we would next year with a new administration,” so it puts everyone in a mood to make a deal.  That is good.  Anything that puts everyone in the same mood to make a deal is a step ahead.

So Director General Lamy, looking at that, does the numbers and says the last pot -- we just have to get going if we want to get schedules done so we will have ministers meet in July in Geneva.  This was doomed to failure, pardon me saying so, 90 percent, and I should not say or put numbers on it, almost all the progress which has been made in these negotiations on agriculture has been made since ministers stopped meeting last year.  And there is a reason, I will not go into denigrating trade ministers, but most of these issues you want senior negotiators to flesh out.  Something like the design of a special safeguard, you do not have people -- and believe me, I was upstairs, and people have been wandering around like zombies for a couple of days. 

That is not what you have ministers decide.  They were saying that 18 out of 20 issues were resolved.  You do not have trade ministers meet to resolve 20 issues, they resolved five issues, and indeed -- So you needed another three months of senior negotiators pounding away at this and you wind up with maybe one issue on special safeguards.  This is not news to anyone.  This is what senior negotiators in Geneva have been doing since September of last year and quite productively.  So bad timing, it does not mean it is all over.

I will say I actually see a way out of this.  I do not guarantee it will happen but it could.  There is a way to do this that everyone can claim victory.  Just one warning on what will immediately be labeled by some of you an optimistic scenario, I am not guaranteeing it so please do not label me an optimist.  Being called an optimist in trade negotiations is a slur.  The Washington game is to go around saying, “Oh, it will never happen.  It will never happen.”  That way, you are usually right, and if you are wrong, everyone forgets it. 

There are other issues, and Warren noted this.  Now I think, and what I heard in Geneva by talking to senior people and the major delegations and secretariat, there is possibly a solution on cotton.  Not guaranteed, they never finished it, possibly a solution on GI’s, geographic indications, even a solution on sectorals that would leave everyone better off.  Just to give you an example, if this agreement had gone through, it would have solved bananas.  That is amazing.

So that illustrates one, the value of a large multilateral round.  Solving bananas on its own, even through litigation, has not worked yet.  A solution was possible here, but it also reminds you there is a long list of issues.  It is not a matter of two or three presidents and prime ministers calling each other and saying we will take the average of 110 and 140.  Thanks.

Claude Barfield:  Thank you.  Your last points -- I have a question about just a fact.  From the news reports, one would have thought that -- and the way we have covered this until you just started talking about other issues, is that if you could -- and with what Sue said by the way or as quoted as saying, “If you could have gotten over the SSM, then everything else would have somehow flowed fairly easily?”  That is, the other issues had either been settled or were on their way to being settled.  I take it from what you said is that even if they had settled that that night, you still would have had months of negotiations on the other things.  You just do not solve cotton right away.  You do not solve GI right away.  You do not solve the other thing.  Am I correct in that?

Gary Horlick:  No.  I think what Sue was saying, and this was accurate.  It was reflected.  I ran into senior people in other delegations of those seven countries that day.  Some of them were too shell shocked and tired not to be frank.  And the reaction that Paul described with Ambassador Schwab was also the reaction of most other delegates and including leading negotiators.  They were actually amazed that it had fallen apart over this issue and they did say that the other issues were on their way to being solved.  It would not have taken months.  It would have taken months to do the final drafting and schedules and there would have been flare-ups but politically, viable solutions, I am told, were on the way in cotton sectorals and GI’s.

Now would they have been reached?  No one knows.  I do not want to be too optimistic.  That slur again.  But people said we could have solved cotton sectorals and GIs and we had solved bananas.

Claude Barfield:  Okay, I do not want to keep -- go ahead, sorry.  Arvind.

Arvind Panagariya:  Thank you, Claude.  Thank you, Phil.  Well, for the economists being optimists is actually rewarded, so I am going to be the optimist of this panel and I will also be the bad boy or the good boy of the panel depending on your viewpoint.  But let me, before I get there, say a couple of things on it.  The Berlin Wall fell only once or collapsed only once and the Soviet Union collapsed only once but the Doha Round can collapse again and again and again.  Until, of course, it does not collapse.  So this time actually, it had looked to me, at one moment, just reading from the news reports that were coming through.  That finally, I will have my say to the Cassandras of multilateralism.  That all of you are saying multilateralism does not work, does not work, but finally, I will get to say that, “Hey, you guys are wrong.”  I guess I will have to wait a little longer for that.

I personally think that a lot of progress has been made, no matter how people, kind of, begin to look pessimistic about these things.  But when you look at what has happened, all the various ministerials and other negotiating rounds towards the conclusion of the Doha Round in the last seven years, a huge amount of progress has actually been made.  If you go back, in Cancun, we were still fighting about the Singapore issues.  Well, nobody does even remember that actually.  I, in fact, this weekend, thinking about it, I thought “Gee, maybe the European Union made a big strategic mistake taking those off the table, at that time.”  If it had been now, perhaps countries like India could have gone back and said, “This is one of the big achievements we got.  We got these issues, contentious issues off the table,” and they could have been more flexible on some of the other issues.  But that is water under the bridge.

I think, still, quite a bit has happened.  I will just read out a little bit from what Keith Rockwell, the WTO’s lead spokesperson said on July 27th.  This was a day before the collapse happened.  So he said, “In the last 24 hours, we have resolved, or very nearly resolved, issues that have been on the table for a very long time,” and he went on, “That the three key issues left to be resolved are the SSM, this is the Special Safeguard Mechanism, special treatment for cotton and sector-specific liberalization initiatives for manufactured goods.”  So that is huge progress.  I mean, if those are the three major issues left to be resolved, they still remain unresolved but certainly, it is not something that cannot be done.  So on that account, I think we have made huge progress.

I think we have also made huge progress in terms of, finally, coalitions, the way they have shaped up.  And in a way, you could have argued that Brazil, to some degree, was sitting on the wrong side, meaning it is a developing country so it was sitting with the other developing countries but at the same time, its interests, to a very large degree, were aligned with those of the U.S.  And if I could say more broadly The Cannes Group of Countries [sounds like], but certainly, one could also say that they were aligned to a very large degree with the U.S. and has finally come out in the open.  I mean, there had been episodes actually about a year ago where it looked like Brazil was going to break away from the G20, but at the time, it sort of stayed, but this time it has come out in the open on the other side.

Likewise, I think China was a bit, kind of, unknown.  Where does China stand?  I mean, in a way, you never heard anything about what China’s positions were on.  At least maybe in some of its submissions with the WTO, there was something but certainly in the newspaper reports, one did not hear anything.  It has not come out in the open.  It is currently, in any case, aligned with the Indian position and that of many of the other developing countries.  So I think big progress has happened.

Now, in terms of looking at what happened, it seems to me that in the end, this at least, at this time, this was not likely to happen.  And this is because -- not because I do not believe in liberalization.  I mean, I write in the Indian press.  I have been writing for the last ten years or more advocating liberalization, not just in manufacturing but also in agriculture and services.  So that is not really an issue.  But the issue really is a political one.  In the same way that there is a political problem on the U.S. side.  Now I have heard a lot, said here, in the news reports, everywhere that, “Oh, this was all in the interest of India to do and having safeguard is probably not in the interest of India to have.”

However, one would also like to hear, well, capping subsidies for the U.S. at $15 billion is probably not in its own interest.  It should really go to zero.  And I am quite happy to simultaneously also say it is in India’s interest ultimately to go in agricultural areas that is to zero, as in manufacturers and services of course as well.  But the politics in the U.S. is working against all these.  Bipartisan consensus could be brought forward only to $15 billion and maybe $14.5 billion which ultimately is where things stood when things broke down.  I think there is a similar political problem that Kamal Nath faced in India.

Now just for your information, Kamal Nath is probably the only politician, at least on the ruling side who, since 1980, has won every single election that he has contested.  India has this habit of anti-incumbency, so effectively, it is very difficult for the incumbents to win.  But here is Kamal Nath who has won every one of the last seven elections that he has fought.  He also represents the constituency in a poor state of Madhya Pradesh and the constituency also consists of a large number of farmers. 

I really do not think that he could have gone back and said to his constituents that, “Well, I really could not get the United States to actually bring the commerce [sounds like] subsidy reductions even to the level at which its current subsidies are, but I am afraid I will have to open my markets for you and there is no safeguard for you against it.”  I think this is a very difficult thing to do.  In fact, when he went back and there was a meeting at the Federation of Indian Chamber of Commerce and Industry, the union leader of the farmers, apparently, there is this, and I will translate it, Indian farmers’ union. 

Its leader came in and said that if he had actually come back without a safeguard and signed the agreement, there were 100 million farmers ready to descend on Delhi.  I mean this is obviously an overstatement and maybe he could not have mustered even a million.  But it certainly is an issue which was very much on the minds of the farmers, and there is a history of this, actually.  When the tariffs [sounds like] was negotiated also and when the Uruguay Round negotiations were happening as well, there was a large number of farmer demonstrations that took place.  And so certainly, there are activist farmers out there.

So, I think, unless ultimately it seems to me that the some sort of compromise that happens will require some more commitments on the part of the U.S. on subsidy as well as the European Union.  You cannot say on the one hand to India that, “Look, you are not coming down below your applied tariffs.  You are tariff bindings or other bindings are still going to be left over your applied ones,” and we can, on the other hand, defend the U.S. action which is also not bringing the subsidy.  You say that on ten years average, that is really going too far back where subsidies used to be extremely large actually in the United States.  But the current level, I have seen two numbers, seven billion or nine billion which is well below the $14.5 billion offer that was actually made.

So I think some compromise ultimately, when it happens, will require the U.S. having to come further down on this dimension, it seems to me.  Only then you can have the Indian side to be -- politically, it becomes sellable for India, as well.  Now there is one more related point which is that India gets singled out on this, as usual, only that this time, I think everybody recognizes that people are talking like adults and therefore some of the pejorative terms that “India is obstructionist” or “India is the sore loser” and so forth which in the past got used were not used this time. 

But India in this case also is not really alone.  The U.S. press or generally, the Western press has not reported it, but actually, if you dig out the information.  And I will give you one here, from the ICTSD, this is NGO based in Geneva, which reported, and apparently, there was on July 27th a representation made by the G33.  This is a group of larger developing countries, African group, the ACP Group, and the group of small vulnerable economies, so about half of the WTO membership actually made -- tabled this representation in which it proposed an alternative set of SSM parameters, saying it reflected the limits of the flexibility they could show on these issues.  For seven percent of tariff lines, they would allow larger developing countries to raise tariffs as high as 30 percent above current bound levels under the Special Safeguard Mechanism, triggered by volume increase starting at ten percent.  So this is half of the WTO membership has made this representation.

Also by the way, do not forget that the existing special safeguard that exists in the agreement on agriculture, out of the Uruguay Round.  That in fact has, for some set of products, a provision which allows you to invoke or allowed you too -- because that safeguard has expired now, that allowed you to actually invoke safeguard restrictions just at five percent expansion of imports, not even ten.  And then there is another set of products for which you do it at ten percent and then there is another one where I think it goes for 30 or something.  But it is not so unprecedented.  Again, this is just to impart some balance to the two sides, that there are two sides to it.

Finally, let me -- politically, can this happen before or after?  In the politics, you can read both ways.  It seems to me that on the one hand, you could say that well, U.S. is having elections, India is going to have elections, so it is probably not going to happen.  The leadership is not going to take a risk.  On the other hand, it seems to me that perhaps the outgoing administrations, on both sides, would like to leave a legacy and that would actually be a reason for them to proceed faster.  So that is something you can argue actually on both sides.

Again, I do want to emphasize here, I think the problem to solve is easier in China.  China is an authoritarian country and therefore, if China ultimately has to make a commitment, I think it can do it.  India is a democracy.  It is a very diffused sort of democracy but a very vibrant one where everybody does actually -- and very much, it is as it is in the U.S., has its views, very strong ones and so forth, so for India, it is a much harder thing to do.  And this is a case in which -- if you think in the U.S. there are one million farmers, there are 200 million farmers out there.  You got to deal with them and they vote, so it is a bit of a harder problem.  I mean, I do not want to sound like the Indian administration.  I mean, ultimately, I really want to root for liberalization and anything that will promote that is a plus for me.  But I think politically, this is, as it exists on the table currently, it is a hard sell.  Thank you very much.

Philip I. Levy:  Thank you.  Frank.

Franklin J. Vargo:  First, let me see if I can figure out the technology here.  Okay, well, thank you very much.  I want to differ with the title of this conference.  I do not see this as the “Collapse of the Doha Round” at all.  It certainly is the collapse of the “Geneva Mini-ministerial.”  It was a gamble on the part of Pascal Lamy.  It could have worked but it did not.  From my 11 days in Geneva though, let me just start with praise for Ambassador Schwab, the entire U.S. delegation, other delegations too.  But I worked very closely with the U.S. delegation and Ambassador Schwab just did everything she could to get a balanced deal.  And we should all be very proud of her.

I was with the Commerce Department for quite a while before coming to the National Association of Manufacturers and I recall an instance back in 1987 with Secretary of Commerce Mac Baldrige, just after the Uruguay Round was getting started.  And he said, “You know, Frank, would it not be ironic that the GATT which was good at negotiating and terrible at settling disputes is going to be replaced by an entity that will be good at settling disputes and terrible at negotiating?”  Well, events have proved him right.  This is very, very difficult, these negotiations.

Now Doha has been going on for seven years, as has been noted.  I think the Geneva mini-ministerial though was a watershed.  I think it was a very important and a very necessary event.  And I think one of the most important things to note is that the failure of Geneva is not a failure of the WTO, it is not a failure of the multilateral negotiating process, but I think it was a failure of a flawed philosophy under which these particular negotiations started. 

Too many countries thought this was going to be a one-way deal and it never could be.  It always had to be a balanced deal and I think, from my perspective, one of the important things that came out of Geneva was a pretty firm indication from the United States and other industrial countries that if this is going to move forward, there has got to be more balance, whether it is in SSM’s or NAMA or other areas.  And I would differ with the view that we can just get a technical solution now to the SSM’s and then we can move forward.  There are other very difficult agricultural issues which had not yet been addressed, especially including the desire of the U.S. to have, in effect, a new peace clause against new WTO cases on agricultural subsidies.  There were a lot of difficulties in NAMA. 

But I think the recognition now has to sink in, particularly for India and China, that if these negotiations are to be restarted and moved forward, that they are going to have to really consider the extent to which they are willing to have these be a give and take.  So that is why the NAM believes a cooling off period is necessary.  And we have a new administration coming in.  There is no way these negotiations are going to be wrapped up as there is not conceivably enough time to do it within this administration.

Now seven years sounds long.  People say, “Seven years?”  But you have to put this in perspective.  The Kennedy Round with what, 50 or 60 countries, took four years and the Tokyo Round with around 100 countries took six years and the Uruguay Round with what, 120 or so, took eight years.  So what is the next number in the progression of four, six, eight?  Everybody, it is ten.  You add ten to 2001 and you get 2011, so if the round were settled in 2011, we would actually say, that is really, kind of, in track with the others.

I was speaking with Ambassador John Veroneau at a quiet moment in Geneva, and John said, “You know, Frank?  It is hard because it is hard.  These are really tough issues.  These are the issues that could not be solved in other negotiations, and they really take time.”  I think one of the very significant things that came out of Geneva however was Brazil.  And very clearly, Brazil decided it wants to be part of the solution, not part of the problem; that Brazil clearly indicated it was there to negotiate.  That is not to say that they suddenly adopted the same views as the United States, but nevertheless, they had a very positive approach and wanted to move things forward.  And that the same, I am sorry, just could not be said for India and for China.

Let me talk a little bit about NAMA, the Non-Agricultural Market Access.  It is called NAMA rather than Manufactured Goods because it also has fish and a few other things in it.  Now, to begin with, and some of you may be surprised, that right now, as we are speaking, 70 percent of American manufactured goods exports to the world go out duty free.  This is because of the success of previous agreements, our free trade agreements, the Information Technology Agreement, so 30 percent are dutiable and two-thirds of the duties are paid to a small number, 12, 15 or so advanced developing countries, which is why we have had such a focus on them. 

And as the round has gone over the years, the formula for cutting tariffs got weaker and weaker.  And I wanted to illustrate for Brazil, for example, Brazil’s average tariff right now, applied rate is 11 percent under a formula of 26 here.  We need not get into what the formulas are, but that would go down to about 9.7 percent.  With other formulas, it could go down to 9.2, something like that, which is not insignificant.  But since you are cutting from bound rates, which, for most developing countries, tend to be much higher, it would be nine years or so before the 11 percent got down to 9.7.  So for eight, nine years, you would get essentially nothing, and even then, only about 40 percent of Brazil’s imports would be cut.

For India, the bound rate would never get down to the applied rate and I think actually only about one percent of India’s tariffs will be cut.  Now India, with justification, can say, “We have been cutting unilaterally.”  And that is true but we had no voice in that or which way they would go and India, for example, has kept very high tariffs on products of interest to the United States, like automobiles.  Believe it or not, the United States exported 2.5 million automobiles around the world last year.  Exactly 417 went to India because of India’s tariffs and trade barriers.  It was very significant that Minister Nath mentioned, “A car should not be made in Düsseldorf and Detroit anymore.  They are going to be made, at natural progression, they are going to be made in Asia.”  Well, they have 100 percent plus barrier and that may happen.

Then China, very important, because China would account for about half of the benefit of all the advanced developing countries and would make significant cuts from nine percent down to about six.  However, China says, “We are a recently acceded member, a RAM, and we need lots of extra time and somewhere between 14 and 18 years to make these cuts.”  Well, I am sorry, the discounted present value of something 18 years out is just not all that high.  So we kept insisting to Ambassador Schwab that this is the Year of the Rat, not the Year of the Ram, and China has to recognize that it is one of the most countries that have achieved the most from the WTO.

So that is why we had such an emphasis on sectoral agreements.  What are these?  These are agreements where you get a critical mass of countries that account for say, 90 percent of world trade in that particular sector and you go down to zero or very close to zero.  And we redlined it saying that the NAM just cannot support what is on the table with these very weak formulas, and the United States redlined it and so did Lamy, and it got into the Lamy text that we had to have Brazil, India, and China sign on to what became known as “Annex Z” that notwithstanding these sectorals are voluntary, that they would agree to begin negotiating sectoral agreements without a promise that they would follow through and at the end they would be there.  That is fine.  But if they would have said, “No, we will not even begin negotiating,” there was no way for balance and frankly, we would have had to walk away from the negotiations and Ambassador Schwab was prepared to do so.

So where do we go from here?  We cannot finish in this administration.  There is absolutely no question.  And I do not think we should just pick up where we left off.  We do need a contemplation period but, also, we have to recognize that a lot has changed in the last seven years.  Are these negotiations still relevant to the world we face today with a different food price situation, different energy situation, the emergence of China, Brazil and India and some other countries as being the real growth areas for the future?  From the announced perspective, we want to move ahead with trade liberalization.  We do not know if this round can be resumed in its present form or maybe it will need a new set of guidelines.  But the one essential point is, if it is going to go, there has to be balance, balance for all.

I think it is very important that we keep the motor running.  There are a lot of technical discussions.  There is still a lot of misunderstanding, I think, on some agricultural issues, certainly on sectorals, other issues.  There is a lot of technical work that needs to be done.  And I certainly agree with the point that Gary made and I think that you cannot just get ministers in to do all these technical points.  And a lot of the technical work just has not been done.  It just was not ready.

But while we contemplate resuming a comprehensive round, we also have to ask ourselves if there are some areas in which there can be enough internal balance and enough internal interest?  Why should those have to wait?  One such area that the NAMA is very interested in and we have just announced we are forming a new coalition to try to build support for this is the Environmental Goods and Services Sectoral Agreement, which is not technically in NAMA.  It is in the environmental part and it is the only sectoral that is really mandated in the Doha Development Agenda.  If we can find enough interest on perhaps a unilateral basis, why not move ahead?  And why not move ahead with non-tariff barriers which were very uncontroversial in Geneva?  Very important because non-tariff barriers in many cases can be more significant than tariffs.

Trade facilitation is another area where countries agree they want to move ahead.  So we have to ask ourselves, “Should we hold all these things for the sake of one big package or should we move ahead, or should not we at least begin moving them and perhaps they then can serve as a trigger for something more comprehensive?”  Free trade agreements, I disagree with the United States saying no, we will never do them.  When you look at something that will give us a 1/10 reduction in tariffs after nine years, compare it with a free trade agreement which will immediately, overnight, eliminate 80 percent of the duties that we face.  I like FTA’s, I would like to see more and we certainly intent to press the new administration for trade promotion authority, to move ahead.

So our message is we want trade liberalization in a more level playing field however we can get it.  We do not think the multilateral process is threatened.  We do think a lot of thought has to go into where we go from here with the Doha Round, but we do see things moving forward.  Thank you.

Philip I. Levy:  Thank you very much.  Claude, you were --

Claude Barfield:  Well, I would just like to -- I cannot believe that there were no pessimists on this and I am not necessarily one, but I am going to make the case that we are in much worse shape.  And quoting my colleagues here to try to make that case, let me start with the fact that with what Arvind said and with what Frank said, there is basically a direct contradiction, at least in key areas.  Arvind basically, and we will let them react here, was saying look, the balance, you got to realize, India has balance already.  We have got 100 million agricultural workers.  We cannot really go down much farther than we have.  And the other thing he did not go back to, in terms of the politics, and I defer to him because he’s got a great new book out on India, is that Nath went back to India to great acclaim for having defied the United States and the EU. 

And so, I do not see that the politics in India are going to change.  Now whether you are starting with the position that you gave and then the position that Frank said well, we got to have a two-way street here and basically, he was saying that we, being the developed countries, have done as much as we can and it is up to you guys to realize that, you being not just India but China and others.  And I realize that the countries are different and developing countries have different interests.  That is one thing. 

The second is the timing.  People keep dancing around and I can understand Warren, the administration really does not want to let go.  It still has this, probably in the deepest, sort of, rungs in its heart that they can do something while they are here.  And I think Frank put the [indiscernible] on that.  It is not going to happen.

So we are really talking about all these kind of vague areas that you were talking about.  We are really talking about the next administration before you really get anything serious going and that means that we are in until 2009-2010.  It does not make a difference whether it is Obama or whether it is McCain, it seems to me.  So that all of this is really going to be put off.  We are not going to get anything soon.  And I am not suggesting that that is the end.  I am not jumping from there to the end of the WTO or the multilateral system, but it is certainly going to drift, it seems.  At least there is a good chance that it is going to drift over the next year and a half to two years.

And just I could go on and on.  The other thing that I asked Gary certainly when he was talking, and this came back again with Frank, that there is all this technical stuff that you got to do.  You just cannot do this with ministers and that is correct.  But it has been seven f-ing years since 2001, and all this technical stuff still has not been -- you knew this from the beginning.  So I do not see that there is going to be any particular -- yes, I know you have moved on -- any particular new thing.  You still got a lot of work that is meant to be done so you got years out, it seems to me.  And it also seems to me that this whole business of whether or not something you could go from the SSM’s to the other issues, it’s just a dream world.  It is not just work to do, it is the people within that work still have differing opinions.  It is very much the same thing as you got with the SSM’s. 

And then finally, in the Cloud-cuckoo-land area, I love Paul Blustein, he is going to write a great book, but the idea that you would stand still, again, we have had a whole decade where we have not moved forward if you back to the end of the Uruguay Round and not have people move toward bilateral or recent agreements, is crazy for the economic reasons that Frank put out that you are going to have pressure to do something. 

And secondly, what has not been mentioned here, and this is going to be increasingly important for the United States, in Asia, or Africa or wherever, is that foreign policy is really going to be the key driving force and that is particularly going to be true in Asia.  Asia is not going to stop having bilaterals among themselves, and I understand, I would have written the same things that some of these piss-assed little bilaterals, they do not mean anything economically, but they mean a lot in terms of diplomacy.  They mean a lot ultimately in terms of security.

And so the thought that you should just stop, immediately, it seems to me that you are just sticking your head in the sand and so it is just not going to happen.  I mean I could go on with other things but I wanted to inject a note on the other side here.  It is not the end of the world, it is not the end of the WTO, not the end of the multilateral system but I think it actually will change and that reminds me of one final point. 

Frank talked about well, let us get ahead maybe with trade facilitation or sectorals or NTBs.  Well, you just do not do that on the WTO without -- you have to go back and change -- the ministerial in 2001 had a set of goals.  You cannot just willy-nilly start saying, “Well, we will just negotiate this.”  We are still locked into a unified agreement at the end.  You would have to go back to the WTO to change that and that would in fact be a new round or at least that is my view.  If others have different, okay.

So let me first let others -- and people wanted -- I am sorry, you go ahead.

Philip I Levy:  I wanted to cheer Claude up a little or tell him why the world is [Cross-talking]

Franklin J. Vargo:  I think to put your finger on it and my Indian colleague here and I had certainly have diametrically opposed views, and that is why we need this cooling off period or whatever you want to call it.  The countries really need to contemplate and see just what they want to do and whether this is worth moving ahead.  I will say that I think one of the most successful things the WTO ever did was the standalone Information Technology Agreement.  And I would like to see more things like that.  I just do not believe that we need to be trapped for the next few years and not be able to do anything.  Maybe it is something that is not included in the text of the ministerial, but I want to see us continue to move ahead, and I will stick with my fearless forecast of 2011.

Arvind Panagariya:  Still, to persist with my optimism, Pascal Lamy is a marathon runner, literally.  And maybe he is still running his last mile.  He is going to India and he is coming to the U.S. and --

Claude Barfield:  But a lot of stadiums are circles.  They just go around.  A lot of stadiums are circles.

Arvind Panagariya:  No, no, no, but a marathon has a number of miles or kilometers limit on it, so Claude, do not try to fool me that a circle can prevent us from figuring out that.  On bilateral, sort of, I was one of the very first ones writing skeptically about this and you traditionally [sounds like] did the book actually ten years ago.  I think we won the intellectual debate but the politics of it is very different and so I also do not believe that the success of multilateralism will stop the bilaterals.  I think bilaterals will still continue.  These are going separately on their own.  And to say that a failure of multilateralism is now going to accelerate bilateralism, I think it is already in a very accelerated mode and unfortunately, that is my pessimistic view.  This is not coming on the pessimistic side.

On the sectorals, at least one thing I want to put out actually, this is very important, politically.  I think politically, sectorals create a problem, which is that those interested in liberalization get co-opted, meaning the ones that they get their sectoral beds, they do not care what the Doha Round is going to do next and it is a double-edged sword.  On the one hand, you are getting zero tariffs within those sectors, but you are also getting the liberalizing interest out of the system.  So, one needs to recognize that fact.

Gary Horlick:  As to the timing, there is a lot of really hard core technical work to be done which is called scheduling and people underestimate that there is a series of appellate body rulings.  U.S. Gambling [sounds like] is only one of them saying, “We know what you meant but you did not put it in the schedule perfectly.  Too bad.”  So no minister is going to actually agree to sign anything in the end without everything being vetted.  That is going to take months.

But the kind of deal to be made before then is doable fairly quickly.  I am not saying it will be. I am rejecting the optimist label again, but it is doable and it could have been done in Geneva.  A lot of people would have been unhappy, just to take GI’s.  It would have been agreement to do something short of extending it beyond wines and spirits.  But something would have been done.  In the context of a big round, that would have been enough.  On its own, it would not be.  As to the politics of it, yes, the Indian minister and not just the Indian minister, every trade minister had to be able to go home a hero and say, “I defended my industry.”  No one in Ruritania -- if the starting point had been 160 and the minister had come home with 140, he or she would have been a hero.  If it starts at 140 and he or she comes home with 110, he is a hero.  I do not think it was the content and that is why I am saying if you cobble together something that does not look like anything that was proposed, this is doable in terms of special safeguards.

The reason why I fear delaying this much more is climate change.  Climate change, starting next January 21st in the U.S., is going to have domestic legislation and push for international negotiations which will run over the WTO.  And just to give you a simple example, so let us say you have not really wrapped up the Doha Round at all, at least to the extent that the last Bush administration wrapped it up for Clinton.  So someone comes in, the climate change czar, who will have a lot more clout than the trade czar by the way, and says, “Hmm, should we not raise the tariff on corn-based ethanol and lower it for sugar-based ethanol?”  And someone will say, “Well, they are the same like product.” and he or she will say, “That does not matter anymore.  It is a new ballgame.  It is what the carbon footprint is that defines the like-product.”  And think about that for 8000 tariff lines and 153 WTO members and you have got a problem.

Finally, on FTA’s, there will be FTA’s, whatever the merits of Paul’s proposal, we are now, and Claude and I have discussed this personally, and Phil, we are now in the Game Series [sounds like] so if the EU and India completes its FTA, the U.S. has to do one with someone.  We are no longer in a series where the U.S. or any other country is independent actors.  So unless you had a multilateral agreement by everyone not to do FTAs, which is unlikely because people like signing things and it takes two -- if you are USTR, the odds of you signing a round are one in four, so you want to do an FTA so you can sign something.  That sounds trivial but it is not non-existent.  To defend Frank’s point on FTAs, when you try to explain to business clients or for that matter countries that in the WTO, after ten years, if he is right, at least seven years, we know it is at least seven, we have cut tariffs from 4.3 to 2.7 in seven uneven stages and you are trying to explain why that is a good idea -- It is really hard to convey, whereas we are going to cut tariffs to zero, business executives can see a game plan in that and do something with it.  The WTO, which I love, has failed to eliminate tariffs that make no sense anymore, failed to agree on rules of origin.  There are a lot of things it has not done that FTA’s do so there are going to be more of them, for better or worse.

Paul Blustein:  Well, first of all, I certainly accept the skepticism that the other panelists have mentioned.  By the way, as long as we are on isms and ists, I thought I was a pessimist, Claude, but I was pretty far down that end of the spectrum.  Look, if I thought that there was almost a certainty that there is going to be a Doha Round deal signed in 2011, then I would not be as concerned as I am.  I do not mean to suggest that that is an implausible scenario.  I think the cigars that Jean-Luc Demarty brought to Geneva suggest that we ought to give some credence to the idea that it is quite plausible.  But I think that there is a huge risk that it will not happen because the world changes, because stuff happens and all kinds of things could come along that would derail progress toward just hammering out these annoying technical problems, trying to figure out ways of resolving the SSM problem so that both India and the U.S. can save face.

So I do think that there is a lot of reason to be concerned.  I think that the political differences between the U.S. and India, as Claude was suggesting, are pretty fundamental about agricultural market access.  And because, as Arvind was saying, there are, sort of, similar political problems on both sides about having to confront very powerful agricultural interest and I do not think that it will be quite as easy, as Gary is suggesting, to resolve, and one can hope, but I think there is a big risk that it will not.

So to come back to my point about FTA’s, I accept the point that I should not be starry eyed in thinking that if the U.S. were to unilaterally advance the sort of proposal that I am making, that I am suggesting we ought to do, that the rest of the world would drop their own inclination to do this.  If we just did it on our own, that would probably be just a sort of a meaningless gesture. 

But I think something like the [inaudible] would be worth a try.  If the U.S. were to say, “Look, we know that these things are really bad, especially for the poorest and weakest countries.  No one wants to do FTAs with them because they have no markets.  They get bullied.  When they do get involved in these deals, they get pushed around, so let’s get a coalition of them together and offer a proposal in the WTO, yes, to ban them for some period of time and impose some sort of moratorium and the proposal would be any FTA struck after January 21st of 2009 or whenever it is, is illegal under WTO rules.”

Look, the U.S. has a lot of culpability for having led the world down this road.  These things are like street gangs.  This is the joke that appears in a lot of literature about them.  Everyone knows that street gangs are bad, but if your neighborhood is infested with them, you figure you better join one.  Well, if the biggest bully on the block says, “You know what?&