Washington Report

Keeping Members Informed About Regulatory Issues

Contents
Jan. 2000

INTERNATIONAL ISSUES

The WTO Ministerial meeting in Seattle from November 29th to December 3rd was probably destined to be inconclusive, with or without the street demonstrations. The organization was suffering from a prolonged and contentious dispute over a choice of a new Director General, and thus was leaderless until Michael Moore's appointment six months before this important meeting. Moreover, despite some 18 months of negotiations, trade ministers had been unable to agree on an agenda. As life has taught us all, if you don't have a goal and a map, you certainly won't get anywhere worth going, unless by chance.

Representatives from 135 countries came to Seattle facing lack of agreement on a myriad of issues, but six issues were most critical in preventing forward progress:

• The launch of a new round of tariff reductions, notably in textiles, which the U.S. favors in principle, but not to the extent required by less developed countries (LDC's), and without European and Japanese co-operation.
• Agricultural subsidy reduction and tariff reconstruction. Opposed by Europe and Japan.
• At the insistence of Europe and the U.S., the inclusion of labor and environmental issues in the trade talks. Heartily opposed by the rest of the world.
• At the insistence of the LDC's, the further dismantling of textile and other tariff barriers of the industrialized world, and modification of anti-dumping laws, especially in the U.S. Opposed adamantly by the U.S..
• Greater progress in instituting "special and differential treatment" for the LDC's. Viewed with suspicion by the U.S. for its vagueness of articulation. Viewed as remaining unfulfilled promises of the industrialized nations (read Japan, U.S. and Europe) by the rest of the world.
• The insistence of the LDC's on reopening the negotiations on intellectual property rights and their enforcement. Opposed adamantly by the U.S., Europe, and Japan.

There was general consensus on two important issues: reducing subsidies to fishing fleets in order to maintain sustainable fisheries, and extending the moratorium on taxes and tariffs on the Internet.

Street protests over lack of democracy notwithstanding, if anything, the WTO now suffers from too much democracy. Each of the 135 member nations has a vote and a right to be heard. You can't negotiate anything with 135 people at the table. An experiment was started in Seattle, in which the issues were allocated out to five working groups, each chaired by a Minister of a country which was deemed neutral on those issues, and meetings of these groups were open to all countries. While progress was made, no conclusions were reached and no final Ministerial language issued from any group.

In certain respects the demonstrations failed. The WTO negotiations to continue to liberalize trade around the world will continue. In fact, two of the most important areas of negotiations: agriculture and services, are scheduled by the previous Uruguay Round of 1995 to begin next year in any event. They will, and governments are already scheduling meetings. Whether significant progress will be made is considered by most observes to be in doubt, at least until the U.S. Presidential election is over.

The agricultural negotiations will be difficult, because they will necessarily focus on some of the most trade-distorting mechanisms ever invented by man: agricultural subsidies. The two largest trading blocs using these mechanisms are the United States and Europe. It will take great political skill and courage for leaders in these two blocs, and in Japan, to significantly alter these systems. In fact, somewhat to my astonishment, I am hearing a more conciliatory tone in Washington to the European concept of something called "multifunctionality".

Now trade negotiators are generally suspicious when the Europeans come up with new concepts, as they usually indicate the invention of yet another trade barrier. And, of course, this one is a trade barrier concept, but one which Washington may think it likes. The concept is that agricultural trade barriers such as quotas and subsidies may be justifiable when they perform some other relevant and important function, such as protecting the environment, or the culture. If anyone doubts the power of subsidies to do that, he has but to travel through the countryside almost anywhere in Europe, but notably in France and Germany and Italy, and enjoy the beauty of the landscape and the prosperity and facilities of small towns and villages. All that is possible because this way of life is subsidized by the taxpayer and the consumer. Bad? No, of course not. Trade distorting? Probably, and most likely the U.S. will oppose the introduction of the concept.

The GATT negotiations and the WTO negotiations were and will continue to be about which barriers to the markets of the developed world will be brought down, and how much and what kind of pain and adjustment the industrialized economies will have to suffer. For the lesser developed countries, this means new markets. In exchange, the developed world wants continued access to markets and enforceability and recognition of what we are now best at exporting: intellectual property and technology.

I attended the Seattle WTO meeting as a representative of the Direct Marketing Association, now a WTO-registered non-governmental organization. The DMA's primary goals were to extend the internet tax moratorium and support the general U.S. business call for freer trade. While there was no Ministerial Declaration at the time on any of the Seattle issues, there will be in time, and in any event, there is consensus among the 135 participants on the moratorium, and on the need for further negotiations.

I was also at the WTO as a member of an Industry Sector Advisory Committee to the Department of Commerce, representing direct marketers. I concluded that the U.S. government, indeed all governments, were doing their best to establish meaningful dialogue on the many issues. But the process is awkward, as noted above, and on many issues there will be very slow progress, as the stakes are quite high.

But what I came away with was a deep sense of depression about the lack of comprehension by Americans, and most importantly labor and students, of the critical importance of these negotiations to countries less fortunate than ours.

I was staying in a modest hotel, which I discovered was one of the headquarters for the U.S. movement opposed to the WTO. It also housed delegates from many LDC's, the lesser developed countries. And what astounded me was how little the U.S. environmental and labor movement listened to, or cared about, what the LDC's had to say. The street and labor were united in their separate agendas and in their condescension toward, and refusal to listen to, the sobbing of the third world. ("Take your medicine now, Dear. It'll be good for you.")

It all came together in separate incidents, spread over three days.

Recall that 135 countries, resisting the aggressive leadership attempts put forth by the U.S. and the European Union, could not agree on an agenda for the talks, which should have been carefully staged. There was a large disconnect. The President and his USTR have pushed too hard for blatantly domestic political reasons. The U.S., they say, must include the issue of labor and environmental standards in trade talks, and then modified the proposal to at least form a study group with the International Labor Organization of the interrelationship of labor and environment and trade.

But the LDC's quite clearly perceived (rightly or wrongly) that these were simply new means of keeping their products out of U.S. and European markets, new trade barriers in disguise. "Look here, if you don't stop cutting down the rain forest, or quit killing turtles, or giving jobs to women in conditions we deem unsuitable, we'll have to keep the few pitiful products you can manufacture out of the U.S. and Europe. Furthermore, unless you stop putting your starving children to work at pennies a day, we'll have to keep your carpets out of our country. And I don't care if the pennies will feed a family of six, the working conditions are abominable. Also, maybe you are putting some of our people out of work, although we don't really know for sure." The issues are pretty nearly that simple.

The LDC's have pushed back, but not hard enough. The issue is not trade, or free trade. In fact, everyone (except the anti-globalization crowd in the streets) basically agrees on that, as long as the pain of adjustment can be spread thin over the years, and as long as one gets enough, early enough, to justify the pain to the electorate. (Chile and Mexico have. They have increased wealth, investment, jobs, and balance of payments at an extraordinary rate under free trade regimes. Send me an e-mail and I'll send you the statistics.)

To a certain extent, I felt the real issue is that the developed world has forgotten its heritage and struggle, and the third world is not working articulately to remind them of that. The children of the first world are in the streets asking for a return to a simpler, more limited and Utopian world (which never existed), but to ends that will beggar the LDC's. By shutting down the WTO talks, organizations like Greenpeace have delayed (but thankfully not prevented) the negotiation of an end to fishing fleet subsidies that will stop the float net fleets of Taiwan, Japan, China and Korea from strip-mining the Pacific Ocean. (The only good thing I heard about the U.S. in my hotel was that its fishing fleet obeyed the laws of the Solomon Islands.)

By disrupting the WTO talks, the protesters delayed (but again, did not prevent) the creation of tariff-free imports into the industrialized world from the very poorest 40 some-odd nations of the world, and a further refinement of the concept of "special and differential treatment" for the poorest countries, an issue on which there is, again, something like a solid consensus in the developed world.

Consumers International and big labor both demand a place at the negotiating table to protect consumers and labor. Consumer groups and labor are in the streets. But a careful review of their proposals shows the real agenda: suspicion of transnational companies, who "dominate international capital transfers". "Globalization and the death of local culture and control." "To halt multi-national investors, merchandisers and retailers are blackmailing individual governments to hold down wages and lower working conditions."(Neil Kearney, International Textile, Garment and Leather Workers' Federation, quoted in the Financial Times)

"Please", says an official from the Department of Trade of Estonia, "come dominate Estonia's capital market so we can give people jobs. We know how to pass laws to prevent abuses in capital and labor markets, and we are comfortable with our culture."

Sitting in a conference room in the NGO headquarters, I listened to a Japanese scholar present the results of his research into the needs of Japanese companies in making foreign investments. The issues he describes are the same ones that created barriers for American and European businesses trying to operate in Japan in the '70's: foreign shareholding limits, citizenship/residency requirements, foreign exchange remittance restrictions, forced technology transfers, domestic procurement requirements, legal system opaqueness, lack of transparency in government regulations, no ability to buy land. Now that those barriers have been eliminated, Japan is rich.

The LDC's think they should be able to use some of these same rules to get rich, and the U.S., Japan, and Europe say, "That's unfair." I think there may be a moral deficit here. So do many others: "What does it mean to have a market-driven, multilateral trading system if it is not to allow those countries that have a comparative advantage in certain sectors to exploit those strengths to the hilt? Over half a century after the birth of the GATT, a few industrialized countries continue to drag their feet on liberalizing their textiles and clothing industries, claiming they need still more time for their economies to adjust. Meanwhile, they insist that weak developing countries swallow the bitter medicine of adjustment to agreements on issues such TRIPS (trade-related intellectual property) as quickly as possible." (Rubens Ricupero, Secretary-General, United Nations Conference on Trade and Development, quoted in the Financial Times.)

In short, the U.S., Japan and Europe still have quota limits on textile imports from abroad and are unwilling to reduce them. But the U.S., Japan and Europe insist that the rest of the world provide effective legal protection for their patents, copyrights and trademarks, and that they be compensated handsomely for their use.

There is no question that trade liberalization is fostering globalization and wealth creation among the elite countries of the world, which includes all the industrialized economies of Asia, North America and Europe. It is doing the same among the political and economic elite of even the poorest nations. But the number still without benefit from liberalized trade is enormous. Not because freer trade hurts them, not because freer trade imposes poor working conditions or destroys the environment, but because the political tools are not in place to assure that the weakest are protected, that government functions for all, and that the common good is pursued. In those sovereign realms, it will be hard for the WTO to intrude. Unfortunately, it may be that true progress in much of the developing world will only be made when those political tools are developed. That is to say, when open, transparent, and effective citizen representation and participation in government is obtained. No, the WTO is not the problem, and it is only a partial solution.

If you have questions about the WTO meeting or any other international issue, contact Charles Prescott at 212-790-1552 or cprescott@the-dma.org.

Direct marketers concerned about data protection in Europe or who are considering establishing business in or mailing into Europe have can meet with two experts in New York during the week of February 14^th.

Chris Pounder is a recognized expert on data protection and member of the firm of Masons Solicitors, London. Dr. Pounder joined Masons last year as part of its growing Data Protection and Privacy Team and designs and delivers courses on data protection, human rights and freedom of information. Michael Siegert is a German attorney with a pan-European practice specializing in direct marketing-related issues. Michael is past general counsel of the German Direct Marketing Association and founder and German representative of the Legal Council of the Federation of Direct Marketing Associations (FEDMA).

Both Chris and Michael are available to meet privately with companies to explore how they may be able to assist them in their businesses. Interested companies wishing to set up appointments can contact Charles Prescott, Vice President, International Business Development and Government Affairs at the DMA, telephone 212-790-1552, fax 212-790-1499, e-mail cprescott@the-dma.org.

Both Dr. Pounder and Mr. Siegert will, in addition, be speaking on data protection at the DMA's International Council Day on February 14^th at the Marriott East Side in New York. The day-long conference of speakers and roundtables focuses this year on "Integrating E-Commerce Into International Strategies." The keynote speaker is Robert A. Stagno, vice president, worldwide direct marketing, IBM Corporate Marketing Communications.

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