What should have been done and what to do now?

Patrick Messerlin:

Thank you very much for, first, to Richard [Baldwin] for having invited me to write one of these notes in the VoxEU e-book, and thank you very much for having invited me to talk about these issues. Just before this session, I discussed with one of the participants, and we were measuring our age in terms of number of Rounds. So, I am two a half Rounds old, and she was only one Round old. But, I think as Richard was mentioning, time is accelerating a lot, so I feel that the last weeks could count as one Round almost by themselves.

What I would like to do is in some sense redo the paper I did for you, because things have changed so much that it has to be done. And what I would like to just present to you is the way I'm doing this presentation. First I would always like to look at two things: what world leaders should have done, and I will add - I did not write it because I don't want to look too outrageous - but I will add what they will do or they will die, because the tiger will eat them, as you say.

And the second perspective, what to do now. That's the Plan B perspective that Simon and Richard put themselves and I put my own ideas. And I'm looking at five points and trying to catch the issue for each point: on NAMA to be more realistic - that's very important; on agriculture to be more transparent; on contingent protection to be more consistent; on services to be more creative; and then a few words of conclusion.

NAMA: Now, I think that I will just echo what has been done during the first session, a lot of action today is on NAMA, and in fact it reveals the value of the GATT and the WTO structure, and in particular the value of binding ties.

A few months ago I discovered myself how weak, in fact, and how fragile the WTO regime was and is. I was not aware about that. I discovered that by dividing the largest countries - both the industrial countries and the emerging economies – in two subsets, how many economies have bound tariffs equal to applied tariffs, and how many countries have bound tariffs much higher than applied tariffs?

Of the 26 tariffs - and when I made this presentation in London, in fact, a few months ago, I was focusing on the 26 guys. And in fact on this, I don't know whether you can see - I think you can think about the colours; you have the brown colour and you have the red colour. I will come back to these two colours later on.

They already represent one third of the trade. So, it's not a small group of people. It's really a very important package of people who are really under trade account stress these days.

And in fact, now there is additional information that ? and ? from IFPRI have measured the cost of a number of issues, and they have estimated that between $130 billion to $350 billion. To which you should add the $50 billion of lost opportunities because of the DOHA Round not being done.

What we did in my Institute: how plausible is the danger? That's of course something that you cannot do with a general equilibrium model. And in fact, what we do is very simple. We just looked at which are the tariff lines on which you have much higher bound tariffs than applied tariffs. Is this very concentrated on a few products?

If it is very concentrated on a few products, then the risks are high that some tariff war could arise. And in fact to our big surprise, it was concentrated only on 30 products at S6 items. So, very, very concentrated. And then, the two winners are car auto parts - that's including auto parts - and electronics. And I will come back to that.

Just let me make one other point. We mentioned that these 30 products are represented in value, if I may, in terms of going back to the older tariff, of US$33 billion. In other words, it means that it's really an attractive instrument to raise this tariff.

Now, if I go back to this table, and we look at all these figures based on the brown countries, and then beside the brown, we have the red countries. And the red countries are where measures have been taken already in the last few weeks. And then we can see that cars are already very frequent - tariffs happens often. But, as Sheila mentioned, you have other things like licensing, public procurement, all this dirty stuff which get us back the failed 1970s, basically, and the stories we have in mind.

The bad surprise was that I felt that the eight countries for which applied tariffs and bound tariffs are the same were safe. And indeed, two of them have already taken very strong instruments in subsidies, including my preferred EC member state. I'm sorry to say this in London, but in terms of trade it’s always Sweden, and I have been extremely disappointed by the fact that Sweden has already offered subsidies in order to support Volvo (which, if I remember well, is owned by General Motors, or is it Ford?). So, even the member states most to free trade are going in the wrong direction.

So, today’s situation, as Richard mentioned, it's really very worrisome. Now, what should have been done? I think, in Geneva, we should have really focused on consolidation. The industrial countries should have asked for fewer tariff cuts, real tariff cuts, just more binding. And developing and emerging countries should have asked for fewer exceptions. And I hope that we will go in this direction.

Now, what to do? For the solution, the solution that Richard and Simon put forward: standstill, monitoring and notification. To be honest, I think this is necessary, but I don't trust that very much. When you look at the notifications and the safeguards in agriculture, you have such a lag in terms of notification, that the war will be over before we finally get information going to Geneva.

So, I think the focus should go back to the capital cities, as always, in terms of trade difficulties. And I call that “domestic observers” – in a neutral way, think tanks, everything that you need in every capital city. Because that was also echoing the discussion on the name and shame. It has to be done domestically. A Frenchman has to say what the French government is doing wrong. A British fellow has to say what the British government is doing wrong – not in Geneva. That is really the way to create shame. That’s for NAMA

And for agriculture, I would like just to stress the first point, that of course as a free trade economist, I am not very happy about the agricultural results, but they are not so bad, after all. More export subsidies, average tariffs are more acceptable, on average, for the EU, it's 15 percent. Average production subsidies rate are relatively acceptable. In the EU, it would be less - almost 15 percent. And with the US, it would be the same. So the deal is not too bad. We should buy it, and declare victory. That we should have done exactly this stuff.

Of course, one thing that should be done, in addition, is to say that agriculture is a misnomer. Because, in fact, in agriculture, we negotiate on farms and food. Food is industry, and in fact, food is hiding behind the farmers, and we have to catch this coalition. You may know there is a group of lobbies very powerful in France and also in Brussels, NOMAGRI, which just tries to say we should shift away from Geneva the negotiations on farm and food, and of course, they will be safe. But, we have to get by this transparency. What to do now, well, everything is about transparency and so, in terms of time, I will go faster.

One thing that I would like to mention is that I am not as pessimistic on the US side, for two reasons. First, the president and the Congress have been very well elected. So, every failure will be on their back: they are really responsible. They have some possibility to say, at least the President, I am in favour of the public interest, not of my electorate because they have such a majority that it is a really strong point.

We talk about the political will. The political will is very low when you do not have a strong majority, and, in fact, in the US, the nice, good news - there is bad news from the election - but the nice news is that we have a relatively strong majority.

My second point is that we have good competition for subsidies! Bankers, farmers, and car-makers means that somebody has to loose, and the farmers have very strong competitors today. We should also focus on the number of losers. And in France for example, I will use a model that Francois just did for us. In fact, the losers are much more numerous in agriculture from a number of negotiations than from any one negotiation. So, the game for the next year is to talk to this loser and to say - look at what you have lost. Contingent protection: be more consistent. This is, you know, the safeguard issue on agriculture, that was really a joke. How the US could have really requested that the safeguard measure could not be larger than the bound tariff, when in fact, with in fact in antidumping measures we are doing that on a routine basis.

So, we have really to be more consistent. And, in fact, they should use a kind of symmetry which may become stronger in the future. India, today, likes the anti-dumping and likes agriculture safeguards, both. The US likes antidumping, but they dislike the agriculture safeguards. Now that India may become a little bit stronger exporter, it may come to dislike anti-dumping in the future. There you have a nice symmetry in terms of interests in the disciplining of this issue.

Services: more creativity. I think services are the only degree of freedom left in this negotiation. I think, we cannot come back to NAMA and agriculture during the next year without something giving some new air. That should come, of course, from services.

Two things, two suggestions for today, for the sake of time... First don’t hesitate to use fora outside the Doha Round. For example, in airlines, there is an “Istanbul process”. This came to the attention of my Institute. This Istanbul process is trying to emulate the EU/US agreement – the air agreement – and to spread it over a larger number of countries. OK, that’s the beginning of a WTO negotiation, you know. Held elsewhere, but that is the beginning of a WTO negotiation in airlines. We should try to stimulate negotiations on services in other fora than the WTO, and then to “repatriate” them to the WTO.

Of course, Simon and Richard emphasized trade facilitation. For me, trade facilitation has always been a huge subset of services basically, for everybody. And of course, everybody is really close to, I think, an agreement if we put that properly.

In conclusion, these strategies are not technical in generality. But, it is technical. I call that the mundane - you know, I am the good or you are the bad. We should really talk about this kind of stuff and turn it into something else. I would like to end up on the two papers in the VoxEU e-book, which I think has been extremely interesting when you connect them together. In fact, they have a lot of history in their papers.

I would put that, today, what is worrisome is that you have the fur and the matches, and they are very close to each other. The fur is that the protection sentiment is in the air. That is the old paper. There is really a feeling about protections. We know that, and now we have to take that into account. The matches is something that is mentioned in this book. It is very short. It is the instrument that stands out. It could be lead, for us, in toys, or it could be food safety and stuff like that. So, those who are really in favor of freer trade, we should be there with our basket of cold water and be ready to rush everywhere. For example, for this stand-out, which I think would be probably a very active protection in the future, we have to, for example, ask our own government to say...

Let's take the example of the lead in the Chinese dolls. Oh, there is some lead in the Chinese dolls. They appease my government to also check the dolls produced at home - not only the dolls produced in China, but the dolls produced at home.

If you commit your government to do the tests, non-discriminatorily, then you defeat this kind of action. Remember, the lead doll stuff was just one year ago, just before Christmas. And, of course, it is very efficient. We have to do things like that in the future.

Thank you very much for your attention.