Three important books on China , WTO reform, 

and the debate about globalization

March, 2002: Publius

By Greg Rushford

Published in the Rushford Report

            China and the WTO: Changing China , Changing World Trade, Supachai Panitchpakdi and Mark L. Clifford, John Wiley & Sons ( Asia )

             Free Trade Today, Jagdish Bhagwati, Princeton University Press ( Princeton and Oxford )

             Free Trade, Sovereignty, Democracy: The Future of the World Trade Organization, Claude E. Barfield, The AEI Press

Three important new books:

            One nice thing about Supachai Panitchpakdi’s and Mark Clifford’s book on China and the WTO is that reading it would ruin the day of anti-capitalists like Lori Wallach and U.S. textile protectionists. That’s also the nice thing about Columbia University economist Jagdish Bhagwati’s new book that explains the benefits of free trade so clearly that even someone with the IQ of a journalist — if not the average member of the congressional textile- or steel caucuses — can understand.

            But reading Claude Barfield’s forceful polemic arguing that the WTO and the rule of law are on a collision course ruined my day — which is why I liked it. Barfield forced me to realize that I had better think more deeply about a subject that I had mistakenly thought I already understood. You can’t pay higher tribute to an author than that.

            Consider Bhagwati’s book first.

            Bhagwati is a brilliant economic theorist who can cut through the absurdities of protectionist political rhetoric better than anyone. His new book demolishes the vanities of anti-globalist crusaders like Wallach and her mentor, Ralph Nader, whose main contribution to the debate has been to spread disinformation and trash cities from Seattle to Genoa .

             “They do not see that capitalism can destroy privilege and open up economic opportunity to the many,” Bhagwati notes. “I wonder how many of them are aware that Mrs. Thatcher was a grocer’s daughter and that, with all her failings, her leadership of the Conservative Party saw the rise to high levels of many who had, not a BBC accent or an inherited title, but simply merit.” How many understand that socialist planning in countries like India , has “often accentuated, instead of reducing, unequal access?”

            Lawmakers who support the more foolish demands of the U.S. farm lobby —particularly subsidies, should read Bhagwati’s dissection of a term that farmers (and trade negotiators) love too much: reciprocity. American farmers justify their own subsidies and calls for retaliation against Europe on grounds that the Europeans are hooked on even more virulent forms of agriculture protectionism. Problem is, adopting the same dumb economic schemes that afflict the foreigners doesn’t work. Why should I shoot myself in the foot, just because you shoot yourself? Bhagwati asks.

            In his book, Barfield argues essentially that the WTO’s dispute-resolution process is shooting the rule of law in the foot. He casts a gimlet eye on the principal reform of the Uruguay Round of trade negotiations that established the WTO in 1995. That key deal specified that henceforth, the rulings of dispute panels would be binding on WTO member countries. No longer could WTO members refuse to bring their trade laws into compliance with their obligations to treat their trading partners equitably.

            For example, the Europeans would no longer be able to ignore findings by panels saying that the EU’s refusal to accept U.S. beef treated with hormones violates Europe ’s WTO obligations. Advocates of free trade and the rule of law, including this writer, applauded.

            But Barfield‘s book forces us to admit that the reform hasn’t worked out so neatly. The Europeans are still refusing to comply with adverse WTO panel findings on beef hormones. The Americans are refusing to honor their obligations to bring their WTO-illegal Foreign Sales Tax subsidy into compliance with the WTO’s rules. Barfield makes a strong argument that such cases cry out for political, not strictly legal, settlements.

            Barfield argues that “the WTO is overextended and in danger of losing authority and legitimacy as the arbiter of trade dispute among the world’s major trading nations.” He adds that “the new ‘judicialized WTO dispute settlement system is substantively and politically unsustainable. It is not sustainable substantively because there is no real consensus among WTO members on many of the complex regulatory issues that the panels and the Appellate Body will be asked to rule upon.”

            The solution is in more “diplomatic flexibility,” with the aim of promoting “conciliation, mediation, and voluntary arbitration,” Barfield reasons.

             “If a substantial minority of WTO members clearly oppose a decision, a blocking mechanism should be used to set aside that decision until further negotiations produce a consensus,” Barfield concludes. Toward this end, Barfield would like to see the WTO’s director general, or perhaps a special standing committee of the Dispute Settlement Body, have the authority “to step in and direct the contending WTO member states to settle their differences through bilateral negotiations, mediation, or arbitration by an outside party.”

            Not everyone will agree with Barfield on every point, but he is clearly raising important questions that author Supachai, who will replace Mike Moore as the WTO’s director general in September, will find himself considering.

            Supachai’s book on China — co-authored by veteran Business Week correspondent Mark Clifford, who covers Asia from his base in Hong Kong — is important for several reasons.

            Clifford has a keen journalist’s eye for details of the history of the protracted U.S. China negotiations to bring Beijing into the WTO; the book is useful to keep handy just on that account. And the authors, while optimistic about what China ’s WTO membership foretells for both that country and the global trading system, don’t pull punches. They lay out a roadmap of the difficult road ahead for a country that will struggle with difficult bureaucratic, financial, and legal reforms. “ China needs to accelerate its legal reform to bring the country into compliance with the WTO,” they rightly point out. For anyone thinking of investing in China , this is essential reading.

            Like many readers, I read this book looking for clues as to what kind of a WTO director-general Supachai will be. There has been concern in Washington that the Thai diplomat will be too much a Third Worlder, and perhaps too tolerant of developing countries’ protectionist impulses.

            Happily, Supachai comes across as an advocate for developing nations — but for the right reasons. “The problem is that freer trade hasn’t delivered on its promise for the poor world, in large part because of continuing protectionism in the rich world, especially its farmers and its textile and clothing industries,” Supachai writes. While textile lobbyists in Washington might not like it, these are exactly the issues that the Doha Round should address. Supachai is also on to some of the dirty tricks that U.S. antidumping laws play on “non-market” economies like China , the idea being to make sure the foreigners are hit with high tariffs, no matter what the economics.

            Supachai sounds like a man who has his economic principles right. “The 200 million people in China who have been lifted out of poverty since reforms began are one of the most powerful arguments that economic reform and opening pays real dividends in people‘s lives,” he writes.

            It looks like when Supachai replaces Mike Moore at the WTO’s helm, that important body will be exchanging one man of principle for another.    

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