Copyright 2000 Federal News Service, Inc.
Federal News Service
March 30, 2000, Thursday
SECTION: PREPARED TESTIMONY
LENGTH: 4362 words
HEADLINE:
PREPARED STATEMENT OF THE HONORABLE CLAYTON YEUTTER OF COUNSEL, HOGAN &
HARTSON L.L.P. FORMER UNITED STATES TRADE REPRESENTATIVE, AND FORMER SECRETARY,
U.S. DEPARTMENT OF AGRICULTURE
BEFORE THE HOUSE
COMMITTEE ON WAYS AND MEANS
SUBJECT - THE FUTURE OF THE WORLD
TRADE ORGANIZATION
BODY:
Mr. Chairman and
Members of the Committee, it is a special pleasure for me to testify before you
today. The topic at hand -- the role and merits of what is now the World Trade
Organization (WTO) -- is one that has garnered my personal attention for much of
the past quarter century. A few of you will recall that my first appearances
before this Committee took place when I was Deputy Special Trade Representative
(1975-1977) during the Tokyo Round and continued when I served as U.S. Trade
Representative (1985-1989) (1) during the Uruguay Round. This Committee gave me
splendid bipartisan support during all those years, and for that I will be
eternally grateful. The Big Picture
To me it is astonishing that anyone
in America would seriously advocate U.S. withdrawal from the WTO. We've now had
five years of experience with this organization in its present form, preceded by
nearly 50 years of experience with its predecessor, the General Agreement on
Tariffs & Trade (the GATT). By any standard, the track record of this
international organization has been outstanding. It fostered an unprecedented
expansion of trade in the aftermath of World War II and, in my judgment, may
have done more to contribute to world peace than any international institution
in the economic arena. Without question a vast majority of the world's
population has a higher level of living today than would have been the case had
the GATT not been created, and had its impact not been extended via the WTO.
This may not be a utopian organization. Show me one that is -- in
governments anywhere or even in the private sector! But some entities are far
more admirable than others, and this is one of those. Because of its name (2)
some believe this to be either (1) a new "one world" organization, or (2)
another bureaucratic United Nations entity. In either case the assumption is
that the WTO is accountable to no one, and is a costly burden to everyone.
Those interpretations are totally off base. Member nations, big and
small, have been actively involved with the GATT from the very beginning. The
reason: because it has never made a major decision except by consensus, and such
a modus operandi demands active participation. Would U.S. involvement be so
categorized? Absolutely. In fact, most member nations would suggest that we've
thrown our weight around a bit too much, but I would answer them by saying
"That's the price we pay for world leadership, and we do not apologize for it."
The WTO is also one of the leanest of all international bodies. If
anything, its staffing is inadequate and its budget too small. For what the
GATT/WTO has meant to the world since l947, the cost has been de minimus for
every member nation. It has certainly been the bargain of the 20th century for
the United States, the biggest beneficiary (by far) of an improved global
trading environment.
The Specific Case for the WTO
But let's
look more specifically at some of the reasons why it would be utterly foolish
for the U.S. to withdraw from the WTO. (3)
First, it is still the most
efficient, effective mechanism for opening up market opportunities throughout
the world. With only 4 percent of the world's population within our borders, it
is patently obvious that much of our economic growth long term must come through
international commerce. We're not paying much attention to that challenge today
because of the phenomenal performance of our domestic economy over most of the
past 20 years. But let's not be complacent; nothing lasts forever. Over the long
pull we must be internationally competitive, and we must compete. Therefore, our
omnipresent need is the chance to compete, in what I would define as a free and
open marketplace.
We'll reach that objective only by negotiations, and
we'll get there more quickly by multilateral negotiations (in the WTO) than in
any other way. We can open up foreign markets bilaterally (country by country)
or plurilaterally (through regional free trade agreements) but that's a much
slower process. The pace of change is crucial these days, and if we can
simultaneously bind 150 nations to market opening measures that's a huge
advancement over binding only one, or a half dozen. Some will suggest that the
GATT/WTO model has not been known for speed in the past, since recent rounds of
negotiations have had multi-year timetables. But that's a question of
leadership, of commitment on the part of the participating nations, and of where
those nations use their most experienced, talented negotiators.
Second,
the world cannot afford to conduct international commerce through "the Law of
the Jungle." We in the U.S. take for granted our excellent legal infrastructure,
but many trading nations barely comprehend what this is all about. Examples of
the latter abound in Russia today, and universal acceptance of the "rule of law"
is far from assured in a good many other countries. Hence, it is imperative that
we have an oversight mechanism somewhere, and the WTO is the logical place for
this. That is why we, the U.S., worked hard in the Uruguay Round to secure
approval of a vastly improved dispute settlement format. And it is vastly
improved, even though we're not winning all of our cases.
Rarely, in the
entire history of the GATT and the WTO, has the U.S. lost a case that it did not
deserve to lose. What is more important is that in the past we would win a case,
but then nothing would happen. Under the WTO we're now getting a more definitive
resolution of the cases that we're winning, though not in all instances. We need
to further tweak the WTO's dispute settlement mechanism, but it is performing
much better than most people realize. In the absence of this mechanism we'd have
infinitely more difficulty fighting "rule of law" battles throughout the world.
Third, we need the WTO for surveillance purposes. International commerce
has grown so much in recent decades, and has become so complex, that a vast
increase in the number of contentious disputes is almost inevitable. But
governments cannot take every disagreement through a formal dispute settlement
process. Were they to do so, the entire process would bog down fatally. The WTO
couldn't handle it, and neither could traditional diplomacy. There has to be
another way. Alternative dispute resolution methods -- at the WTO and elsewhere
-- may help, but they are a partial answer at best. The better way is for member
nations to follow the basic precepts of the GATT and WTO in their trade policies
(and for their participating business firms to do likewise).
In that
regard a little surveillance, i.e., moral suasion, can go a long way. The WTO
should periodically comment formally on how well a given member nation is living
up to its obligations as a signatory. That may sometimes be embarrassing -- even
for the U.S. -- but so be it. If such surveillance deters a WTO member from
taking actions contrary to its obligations, it most likely will also preclude
the need for a costly, time consuming dispute settlement proceeding.
Without the WTO it would be far more difficult to apply multilateral
moral suasion to the conduct of international commerce.
All WTO member
nations should be held accountable for their policies. It is not unreasonable to
expect them to honor the spirit, as well as the letter, of their obligations.
Fourth, we need the WTO for the evaluation, oversight and, if necessary,
discipline of regional free trade agreements. We've had a veritable explosion of
free trade agreements in the world over the past dozen years or so. As you know,
I led the negotiation of the U.S.-Canada FTA, which later became NAFTA, and lots
of others have followed since. They are now too numerous to list.
Without doubt these agreements foster and facilitate trade. For the
U.S., Canada, and Mexico, NAFTA has been a huge success -- far greater than most
Americans realize. Nations which are not represented in NAFTA recognize that,
for they are excluded from many of those benefits. Hence, they feel compelled to
counter the regional FTA trend in some manner. One way is to "join the club," by
creating another FTA, as did several South American nations through the creation
of Mercosur. A second way is to "hook on" to an existing FTA. The European Union
did that recently, at least to a degree, through its FTA with Mexico, one of the
NAFTA partners.
We'll undoubtedly see many other iterations of the FTA
model as the future unfolds. Hopefully regional FTAs will always advance the
cause of free and open trade, but that is not necessarily a given. Some of the
recent agreements are far less comprehensive than they should be. They've simply
neglected some of the tough issues, and those are the areas where progress is
most needed. Furthermore, no one is evaluating the level of discrimination
against non-participating nations that is inherent in such agreements. Someone
needs to do so, to make sure that the overall advantages of each regional FTA
outweigh the disadvantages. Otherwise such an agreement should be declared as
violative of those nations' WTO obligations. Aside from the WTO, there is no
international institution which can provide sorely needed discipline over these
FTAs.
Fifth, there's a lot of multilateral trade work to do, and that
task must be assigned to some institution. The logical place is the WTO.
For years, the GATT focused almost exclusively on tariff reductions. It
was not until the Tokyo Round in the mid-70s that it began to focus on
non-tariff barriers as well. And it was not until the Uruguay Round, a decade
later, that it began to broaden its negotiating agenda (at the behest of the
United States) to encompass new areas such as services, intellectual property,
and investment. (Agriculture might well be added to that list, for earlier
attempts to confront the severe trade distortions in that area of commerce had
been futile.) The WTO has more recently produced specific agreements in
financial services, basic telecommunications services, and information
technology.
But there is lots more to do in each of these new areas. The
U.S. has a huge interest in preserving the global scope of the Internet,
unhampered by barriers of any kind. WTO rules in services are embryonic at best,
and we're still 30 years behind the curve in agriculture. (4) The OECD developed
a proposed set of investment rules, but that effort then aborted. Barriers to
investment can be just as damaging and distortive as can barriers to trade, so
the WTO needs to take on that challenge and put a sound set of rules in place.
In addition, the WTO needs to determine whether to add competition
policy to its agenda and, if so, in what manner. Concomitantly it needs to
determine how to deal with antidumping issues in the complex, interrelated world
in which business must operate today. At the Seattle ministerial the U.S. sought
to take antidumping rules off the table, which was a mistake. We should be
prepared to negotiate all legitimate trade policy issues of consequence, and
antidumping assuredly fits that definition.
Much of the controversy in
Seattle -- at least on the streets! -- centered around environmental and worker
rights issues. Such issues are indeed important, but it was not evident that the
demonstrators (or their supportive organizations) knew how the WTO was dealing
with them today, let alone how it might deal with them in the future.
Criticizing the WTO for its alleged failure to take environmental and worker
rights issues into consideration in the development of trade rules is
nonsensical when one realizes that the WTO still operates on a basis of
consensus. That is equivalent to "shooting the messenger" when one dislikes the
message. Labor and environmental groups need to determine how best to work
within the system of international organizations in confronting such questions,
rather than trying to torpedo the organizations themselves.
Sixth, the
rules of international commerce need to be applicable to all major trading
nations, and that can happen in the immediate future only if the WTO remains in
existence. In particular this applies to China and Taiwan, which should be
granted WTO membership almost simultaneously, and soon. That
alone will subject the trading patterns of almost a fourth of the world's people
to international rules, scrutiny and discipline for the first time ever -- with
the United States being the principal beneficiary. In time, Russia and other
nations of the former Soviet Union might well join this list.
The WTO
has a long tradition of negotiating conditions of entry for new member nations.
When the Uruguay Round began, fewer than 100 nations participated. Now, 14 years
later, we can expect the involvement of more than 150 nations in the next
negotiating round. There is just no practical way for any other international
organization to handle in a timely, orderly fashion the entry and "rules of the
road" indoctrination of so many new member nations. If those nations are to play
a meaningful role in the world economy, and reap the benefits thereof, the WTO
has to be there for them.
Seventh, nations (and particularly the U.S.)
need a trustworthy international forum where critical trade issues can be
massaged, nurtured, abandoned, embellished, etc. Few such institutions exist,
for any purpose. Most international organizations are either too politicized,
too bureaucratic, too lacking in economic understanding, or too narrowly focused
to handle the complex issues of international commerce. The GATT was
specifically designed for that function and it (and its successor, the WTO) has
filled such a need in exceptional fashion. For more than half a century this
organization has been a role model of practical, pragmatic decisionmaking.
Whereas many international organizations might be described as "lots of talk,
little action," the GATT and WTO have been just the opposite. They've provided a
superb forum for talking through the tough issues of the day, but they've also
provided solutions. The WTO is an active, vigorous problem solver, and that's
one of the main reasons international trade has grown so much during the last
half of the 20th century.
The Case for Walking Away
There are
many other persuasive reasons for continued U.S. involvement with the World
Trade Organization, but let's now examine the other side of this question: "What
would we gain by walking away from the WTO?"
The big gain, some would
contend, is that we'd get our sovereignty back. This Committee had considerable
discussion of the sovereignty question when the Uruguay Round agreement was
submitted for Congressional approval. The alleged loss of national sovereignty
is a bizarre argument, with respect to this or any other international
agreement. We do give up a corner of our sovereignty each time we sign such
agreements. Why then do we do it? Because we ask other nations (in this case,
about l50 other nations) to give up a corner of their sovereignty in return. Why
do they do it? Because of the mutual benefits offered by a particular agreement.
I have already delineated many of the benefits of the GATT/WTO to the
U.S. Obviously the other WTO member nations concluded there were benefits to be
had by them as well -- or they wouldn't have signed up. We willingly gave up a
bit of our sovereignty, and so did all the other signatory nations. None of this
is unique to the WTO; similar tradeoffs have been involved with every
international agreement this country has ever signed during its 200+ year
history. So "getting our sovereignty back" is a baseless argument.
A
second argument for abandoning the WTO is that we'd be able then to "leverage"
the rest of the world at will. In other words, we'd be able to set the rules of
trade, unobstructed by past precedents or GATT/WTO agreements. By threatening
economic sanctions against nations with which we disagree, and by denying access
to the American market, presumably we'd get our way in international commerce.
If all went well, we could "have our cake and eat it too." We could be
protectionist if we wished, and we could discriminate among trading partners
whenever we saw it in our interest to do so. We could hold down imports, expand
exports, and get rid of our troublesome trade deficit. American hegemony at its
best!
If only economic life were that simple, and that accommodating.
But it isn't. What I've outlined is a U.S. dream world.
If such a world
ever existed, it was only for a few years in the immediate aftermath of World
War II. Today it is just a dream, and one that would turn into a nightmare if we
ever sought to make it come to pass!
In economic terms our planet is
shrinking every year. Consequently, policies such as those just described, with
an inherently selfish dimension, are doomed to fail. As Americans, we cannot
lift ourselves up by pushing others down. We are now far too dependent on the
global economy for that. The correct prescription is to pull others up,
enriching them and us in the process. We've done that with considerable success
over most of the past 50 years, and we ought to think long and hard before
abandoning that model.
A third argument is more subtle. The contention
would be that we should not abandon the concept of global trade rules, but what
we need is an improved institution for developing and implementing such rules.
In other words, let's get rid of the WTO and replace it with a new organization
that would be more acceptable to the United States.
Can that be done? Of
course (at least on paper). No organization is sacrosanct, in this country or in
the world. The WTO can be replaced. The relevant question is: "At what cost?" In
my view that price tag -- in economic, diplomatic, national security, and
foreign policy terms would be unacceptably high!
Were the U.S. to walk
away from the WTO, the other member nations would then have to decide whether to
(1) proceed without us, or (2) negotiate provisions applicable to a successor
organization. If the rest of the world chose to proceed without the U.S., we'd
have a situation of the kind described in the second argument above, and one
that would severely disadvantage the U.S. in the short run. If, as is more
likely, the WTO would soon collapse and a successor entity would have to be put
in place, the question becomes: "Is it realistic to expect that a 'new WTO'
would be more favorably disposed toward the U.S. than is the present
organization?"
Having worked with the GATT/WTO for much of the past 25
years I would respectfully suggest that the odds of creating a more favorable
environment (5) from our standpoint are between slim and none! The U.S. has had
enormous influence in the evolution of these organizations over the past half
century. During that time other nations have grown in stature, economic
strength, and sophistication. Not surprisingly, they are now less inclined to
defer to the U.S. on major policy questions. They want to do their own thinking,
evaluate their own self-interest. And they do it very well. I am confident that
we could negotiate parameters for a new multilateral trade organization that
would be satisfactory to the U.S., but I'd be willing to wager they'll be no
more satisfactory than those applicable to us today. So why go through at least
two or three years of negotiating turmoil, coupled with equivalent turmoil in
the international marketplace, to accomplish little or nothing?
A fourth
argument might be: "But aren't there some political benefits to walking away?
We'd be sending a strong message to the rest of the world about American
toughness, and our willingness to go it alone if we don't like what others are
doing." Yes, trade policy is ready-made for demagoguery, in any country. We can
stir people up with "America first" statements, which will then stimulate an
equivalent response by political figures in other nations. When the dust
settles, what will we have accomplished? Essentially nothing where substance is
concerned. We will have created unrealistic expectations within the U.S. as to
what kind of institution will replace the WTO, and we will have generated lots
of animosity throughout the world. That's not a great way to make friends, and
we still do need friends in the world.
All the arguments for walking
away from the WTO have a ring of plausibility -- but nothing more. When one
examines the tradeoffs, the arguments all fail. In each case, the cost to the
U.S. in the image we present to the world, and the cost to America's citizens
emanating from the trade turmoil that would be created, is just too great for
this to be seriously considered. Proponents of walking away choose not to
recognize the costs, but that is naive. These decisions are made in the real
world, and American families would quickly suffer those costs and hold their
political representatives accountable for them. That is, of course, one of the
great advantages of a democratic society.
China
Finally, since
this hearing also encompasses the issue of Chinese membership in the WTO, along
with permanent normal trade relations for China here in the U.S., I would like
to offer a few comments on that subject.
First, Chinese behavior -- on
trade, human rights, and a host of other issues -- has not yet reached the norms
that we in the U.S. consider acceptable. That is changing for the better, but
not at a pace that we would prefer. Some Americans are even concerned that China
may become a global adversary, perhaps even comparable to the Soviet Union of
this past century. Let us hope and pray that such will not be the case.
All of the above merits intense contemplation on our part, and careful,
skillful creation of a strategy for nurturing the U.S.-China relationship. In my
judgment, we've not done that well in recent years. Our China policy has often
been passive, inconsistent and, at times, even incoherent. We must do better in
the future.
But none of that has much relevance to the issues now before
this Committee and the Congress. From a U.S. standpoint the simple question is:
"Will we be better off with China inside (the WTO) or outside?" They are outside
today, and we've discovered that we have limited influence on Chinese policy. We
want them in only under acceptable terms, of course. But Ambassador Barshefsky
has done a fine job of negotiating those terms, so that issue is fundamentally
behind us. Since our marketplace is relatively open, we've not had to offer much
to the Chinese. Most of the economic benefits of the agreement flow to the U.S.
Therefore, we should now ask ourselves whether we're likely to have more
influence within China after they become WTO members, and my response would be
in the affirmative. Why? Because we can then bring to bear not only whatever
leverage we as a nation have, but also the leverage of about 150 other nations,
the full membership of the WTO. With China seeking to expand its position in
world trade, it cannot afford to ignore the views of its customers, particularly
when those customers are bound together by common rules, as occurs in the WTO.
That joint leverage does not exist today, with China being outside the WTO and
thereby able to play off one customer nation against another.
China
today has some semblance of rules of law, at least on paper. But so long as it
is outside the WTO, Chinese officials can follow or ignore those rules solely on
the basis of their own self-interest. As a sovereign nation they can still do
that once they are in the WTO, but then there is a price to be paid. That is
quite a difference, and a vast improvement over the present situation.
Some people will, however, suggest that we should continue to deny
permanent normal trade relations to China even if that nation is accepted as a
WTO member. That would simply not be rational. Our objective should be to
cultivate and nurture the U.S.-China relationship in the coming years. If we do
this well, not only should China become a fine export market for American
business, but hopefully we'll also persuade the Chinese to alter their conduct
in human rights and others areas of concern to us. That is the potential win/win
element of this debate, but it will never materialize if we have a contentious,
divisive normal trade relations debate every year. It is time to move beyond
that, to a more confident, mature relationship based on earned respect.
Conclusion
In summary, we should now do what we can to
facilitate China's entry in the World Trade Organization, followed immediately
by the entry of Taiwan, accompanied by the grant of permanent normal trade
relations to China. The rationale for this is compelling, and nothing is to be
gained by delay.
Then we should exercise American leadership to make the
WTO a more effective, functional institution than it is today. Expanded trade
offers a better way of life to billions of people in our world. For some of them
it is the only way. To cast aside that potential in a moment of American pique
would border on the criminal. And it would clearly not be in our own
self-interest, for we're the biggest winner of all when trade expands.
Walking away is not an option. Slugging it out in Geneva is hard work,
but nothing good comes easy! If we stay and slug it out, rather than cut and
run, later generations of Americans will thank us -- and so will lots of other
folks elsewhere in the world.
Mr. Chairman, I'll be pleased to respond
to any questions you may have.
1. Mr. Yeutter also served as U.S.
Secretary of Agriculture from 1989- 1991. He is currently Of Counsel to Hogan
& Hartson, L.L.P., a Washington, D.C. law firm.
2. Were it still the
GATT, I wonder if we would even be having this hearing today.
3. A far
more comprehensive summary of what the WTO has meant to the U.S. may be found in
Section II of the President's 1999 Annual Report of the Trade Agreements
Program. It is a superb reference piece.
4. Negotiations in both those
areas are already underway at the WTO, by virtue of commitments made at the
conclusion of the Uruguay Round.
5. Particularly in light of the enmity
that would be generated by our withdrawal.
END
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