The General Disagreement on Tariffs and Trade

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The General Disagreement on Tariffs and Trade

The system that has underpinned global trade for the past 70 years is foundering. So why is no one paying attention?

The General Disagreement on Tariffs and Trade

Nearly 70 years ago, with fresh memories of the disastrous trade wars of the 1930s, leaders of the United States and 22 other countries launched the GATT, the General Agreement on Tariffs and Trade. The GATT was charged with slashing tariffs and dismantling other protectionist barriers to global economic growth. And the Geneva-based international organization delivered. By 1995, when the GATT morphed into the World Trade Organization, a series of successful multilateral trade-liberalizing negotiations had slashed average global tariffs, which had been in the 40 percent range in the 1940s, to about 5 percent. Even though many protectionist schemes remained, the WTO seemed poised to continue the good work. But in the last two decades, the WTO has descended into dysfunction, lurching from one bitter fight to another.

A deeply concerned WTO Director-General Roberto Azevedo has bluntlywarned the WTO’s 160 member countries that the GATT/WTO system has been “living on borrowed time.” He’s spot-on. I’ve been watching the GATT and its successor global trade rules-making institution for nearly four decades — witnessing the gradual destruction of the world’s most successful experiment in peaceful international economic cooperation. Although the most recent crisis that sparked Azevedo’s warnings was averted on Nov. 27, at least for now, the tensions that have weakened the WTO will remain for the foreseeable future.

The root of the problem is that too many countries either no longer believe that multilateral trade liberalization is beneficial for them, or that they lack, for varying reasons, the political will to lead.The root of the problem is that too many countries either no longer believe that multilateral trade liberalization is beneficial for them, or that they lack, for varying reasons, the political will to lead. Too many shortsighted political leaders, forgetting their history, are back in the business of creating trade blocs. They are more interested in defending their own protectionist trade schemes to fret much about what they have been doing to the WTO-supervised multilateral trading rules. And without a shared core belief that the non-discriminatory global rules work for all, the WTO cannot deliver.

In Washington, D.C., President Barack Obama has never given high priority to the WTO. Neither have Republican or Democratic leaders in Congress. While individual European WTO members like the United Kingdom, the Netherlands, and Sweden still believe in the organization’s rationale, the 28-member EU makes the notion of “European leadership” an oxymoron. Tokyo’s main goal in any trade negotiation is to preserve Japan’s stratospheric 500-plus percent rice tariffs. The Chinese now run the world’s second-largest economy, but they aren’t leading either. In parts of Africa and Latin America, leaders tend to see multilateral trade liberalization as a plot for economic domination perpetuated by their rich former colonial masters. AverageAfrican tariff barriers still hover in the 12 to 20 percent range. And when it turns to former colonies that enjoy playing the spoiler, India leads the pack.

In May, India’s new prime minister, Narendra Modi, cast a gimlet eye on the only successful multilateral trade-liberalization deal the WTO had concluded in nearly 20 years of trying. Last December, when WTO members convened in Bali, India’s government (then controlled by the leftish Congress Party that Modi’s right-wing Bharatiya Janata Party trounced in this spring’s elections) signed a deal that was widely cheered. For good reason: The so-called Bali Package was guesstimated to give the global economy a trillion-dollar boost. The WTO’s richer countries pledged to provide developing countries with billions of “trade facilitation” dollars to modernize clogged ports, fix terrible roads, and streamline corrupt customs procedures. But Modi balked.

On July 31, the strong-willed Indian leader took trade facilitation hostage,refusing to sign the necessary legal protocol to implement it.

India’s veto — unprecedented in GATT/WTO history — brought the WTO into what Director-General Azevedo called a state of “paralysis.”India’s veto — unprecedented in GATT/WTO history — brought the WTO into what Director-General Azevedo called a state of “paralysis.” The good news is that after months of bitter wrangling, Modi released his veto, declaring victory.

Some victory. Essentially, India “won” the right to continue to increase the amount of subsidies that New Delhi has been lavishing upon its farmers into an indefinite future, without fears of being held legally accountable in the WTO. India’s “food security” program — paying globally uncompetitive farmers above-market prices to stockpile grains that are later doled out to the urban poor — has been widely criticized. Perhaps half the grain rots, or is sold on the black market. Meanwhile, Indian exports of surplus rice have distorted global markets for years. Undeterred by criticisms that the purpose of WTO trade negotiations is to reduce protectionism, not enhance it, Modi nevertheless claimed the high moral ground: asserting that Mother India is only fighting for the rights of the world’s poor.

The hypocrisy extends beyond agriculture. Modi has hiked tariffs on imports of high-tech equipment from other developing countries like the Philippines, Vietnam, and China. Meanwhile, India’s main goal in the WTO’s long-stalled Doha Round of broader trade liberalizing negotiations — which the Bali deal was intended to revive — is the “flexibility” to raise all industrial tariffs even more, whenever New Delhi finds enhanced protectionism politically attractive.

As it turns out, that’s basically what many African leaders also want from the WTO: the right to raise tariffs and advance their own industrial policies — while the rich countries dismantle theirs. It’s called necessary “policy space.” South Africa’s president, Jacob Zuma, has hardly bothered to disguise hissuspicions that the WTO’s Bali deal was tilted in favor of the rich “North.” And some officials in Uganda, Tanzania, and Kenya also complained that trade facilitation meant opening their borders to import competition from giant multinational corporations.

On April 27, after meeting behind closed doors, a handful of African diplomats — nobody has publicly claimed credit — persuaded the African Union to “instruct” African WTO ambassadors in Geneva to try to delay the Bali deal’s implementation. As the AU, based in Addis Ababa, hadn’t even participated in the Bali negotiations, the power play ran into intense criticism from furious Americans, Europeans, and a long list of others. The Africans subsequently backed down, but the poisonous distrust that has paralyzed the WTO’s negotiations was back.

That distrust memorably first surfaced in late November 1999, when WTO ministers convened in Seattle, hoping to launch a new round of multilateral trade-liberalizing talks. The Battle of Seattle is best remembered for the vociferous band of anti-globalist protestors (colorfully dressed as sea turtles or ninjas) who trashed that city’s streets. Less noticed were the secret smiles from key African trade officials inside the barricaded convention center who were happy that the talks failed.

In 2001, it seemed trade liberalization was on the move again when the WTO’s Doha Round was launched. But then in September 2003, there was open cheering from African officials when WTO meetings in Cancun again collapsed in acrimony. The meetings in the Mexican resort had been intended to breathe life into the Doha Round, but instead threw those negotiations into intensive care, where they still remain. (The trade-facilitation deal that was reached in Bali last December was split off from the broader Doha negotiations, the idea being to harvest the easier parts to generate momentum to complete the Doha Round.)

Just a few hours after the Cancun debacle, I ran into a Kenyan diplomat named Mukhisa Kituyi in an Argentine-style steakhouse. It was a memorable September evening in the famous Mexican resort. Kituyi and his colleagues were celebrating that afternoon’s failure of the WTO meetings, washing down copious quantities of red meat with red wine.

“We killed it,” one of the Kenyan officials boasted, referring to that afternoon’s negotiating failure.“We killed it,” one of the Kenyan officials boasted, referring to that afternoon’s negotiating failure.

Kituyi is now secretary-general of UNCTAD, the United Nations Conference on Trade and Development. While he declines to comment, it appears the Kenyan official remains a trade skeptic. Kituyi invited President Rafael Correa of Ecuador to deliver on Oct. 4 a rousing Special 50th Anniversary speech at UNCTAD’s Geneva headquarters, just a few blocks from the WTO’s offices along the Rue de Lausanne. Correa railed against “an immoral and unjust” world economic order. In a world “dominated by transnational capital and the hegemonic countries,” the Ecuadorian leader declared, the poor countries should protect themselves by forming regional trade accords. “The world of the future is a world of blocs,” he declared. Led by an approving Kituyi, the UNCTAD audience applauded.

This is not a trivial matter. In recent years, WTO members have cut more than 300 trade-distorting preferential trade deals with various favored trading partners. They all violate the fundamental GATT/WTO principle that member countries should not discriminate against each other. Perhaps half of global trade is diverted through these discriminatory “free trade” routes.

The top U.S. trade priorities are forming two regional trading blocs, one with Europe and the second with some Asian countries. China is excluded. Meanwhile, the Chinese are advancing their own regional trade bloc that would exclude the Americans. Many Africans are looking to their own side deals with each other.

Preventing the re-emergence of discriminatory trade blocs is exactly why the GATT was created in 1947. It’s a history lesson that present world leaders would be well advised to reflect upon.

BAY ISMOYO/AFP/Getty Images

How Hanoi Buys Influence in Washington, D.C.

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 U.S. Secretary of State John Kerry arrives in Hanoi this Thursday for a two-day visit. Expect much talk of how the United States and Vietnam have been developing closer security and economic ties — and how Vietnam’s praiseworthy “progress” in improving its human-rights record is making this possible. Hopefully, Vietnam’s feared Ministry of Public Security will be on better behavior this week than back in May. Then, Kerry’s top human-rights advisor, Tom Malinowski, held what he characterized as “productive” meetings in Hanoi with senior Vietnamese officials. On May 11, two days after Malinowski’s visit, thugs wielding metal pipes bloodied a courageous Vietnamese political dissident named Anh Chi. Malinowski deplored the incident, while still insisting that Vietnam has been making commendable “progress” on human rights.

Kerry’s Aug. 6-8 trip comes on the heels of a successful visit to Washington last month by Nguyen Phu Trong, the general secretary of the Communist Party. Trong had a “productive” meeting with President Barack Obama in the Oval Office on July 7, after which the two leaders issued a joint “vision” statement that said each country recognized the importance of protecting human rights. The next day, Trong made a major speech at an influential U.S. think tank, the Center for Strategic and International Studies (better known by its acronym, CSIS). “Protecting and promoting human rights is the main objective of our development,” Trong declared. “We want to ensure, promote and protect the rights of all people in Vietnam.”

Well, maybe not all. Once again, a familiar pattern emerged: Shortly before Trong’s speech before a CSIS audience of mainly well-connected Washington insiders, there was another ugly incident behind the scenes. The incident illustrates what’s really going on when American and Vietnamese officials praise Vietnam’s “demonstrable” human-rights progress. Moreover, the CSIS embarrassment offers a glimpse into how the Communist Party has been quietly buying influence to advance its foreign policy agenda in Washington — a sophisticated lobby campaign that appears to be working. Hanoi, it appears, has learned that in Washington, money talks.

But that’s getting ahead of this story, which begins with Trong’s July 8 historic speech — the first-ever such appearance for a senior Communist Party leader — at CSIS’ gleaming modern headquarters a few blocks from the White House. As the secretary general was preparing to speak about his deep interest in protecting human rights, Vietnamese security officials were quietly demonstrating otherwise, even on American soil. It seems that Hanoi’s intelligence operatives had a file on one of the invited CSIS guests — like Anh Chi, another enemy of the state.

Persona Non Grata

When Dr. Binh T. Nguyen, a prominent Vietnamese-born physician (and an American citizen) showed up to hear the secretary general’s speech, she was informed that she was persona non grata.

Binh, an invited guest, cleared CSIS security at the entrance, as she had on several previous occasions. But when she went upstairs to join the audience, a CSIS senior fellow was waiting. Murray Hiebert, accompanied by a CSIS security guard, insisted that Binh leave the premises. An obviously uncomfortable Hiebert explained that he was so sorry, but the communist security operatives simply would not permit Binh to hear Trong’s speech. The apologetic Hiebert told Dr. Binh that he had tried his best to reason with the Vietnamese security officials, but to no avail. They were not interested in negotiating, and were adamant that Binh would not be allowed to hear Trong’s speech, Hiebert related.

Hiebert apologized sincerely to Binh, admitting that it was wrong for CSIS to have given into the pressure. Ejecting her had ruined the event for him, Hiebert told the doctor. I spoke with Binh twice, for nearly an hour, going over the facts carefully, in great detail. Subsequently I was able to substantiate that the doctor’s account was the same as how Hiebert explained the incident to one of his colleagues at CSIS, Benjamin Contreras, the program director for CSIS’ Southeast Studies section.

Dr. Binh told me that Hiebert was characteristically polite. Still, it was intimidating that he had a guard with him to make sure she left the premises, the doctor added. Binh said she does not seek publicity, and looked forward to being invited to future CSIS events. She asked not to be quoted directly in this article.

The Canadian-born Hiebert, 66, is a soft-spoken former journalist with the Far Eastern Economic Review and the Wall Street Journal. He is perhaps the last person one would expect would get caught up in a dubious human-rights episode. In 1999, Hiebert, then the Review’s Kuala Lumpur bureau chief, was jailed for writing an article that raised disturbing questions about the integrity of Malaysian courts. Even though his report was accurate, Hiebert was convicted of “scandalizing” the judiciary, and spent a month in a Malaysian jail.

At CSIS, Hiebert has spoken out against human rights practices in Thailand and Malaysia. Hiebert notes that he approved several recent blogs written for CSIS by respected Vietnam watchers that have been critical of Vietnamese human-rights practices, including curbs on the media. But at the same time, Hiebert seems to have become careful not to cause too much offense to authorities in Hanoi. He co-authored a 2014 study, for example, that treated Vietnam’s human-rights practices rather gently, while not being entirely forthcoming about the fact that the Vietnamese government had paid for it (more on that later in this article).

CSIS Gives Its Side of the Story

Hiebert declined to be interviewed, but he did answer some (but far from all) questions that were submitted in writing — until a CSIS public-relations spokesman sent me an e-mail saying that he had advised Hiebert to cut off the communications.

Hiebert’s written responses did not directly dispute Dr. Binh’s account about what happened. But he attempted to minimize the incident, not mentioning the main human-rights point: how he had been pressured by the Vietnamese security officials to escort Binh from the building, and that did so, knowing that it was wrong for CSIS to give into such pressure.

The CSIS spokesman, H. Andrew Schwartz, first claimed that “Murray’s side of the story is quite different from what you have recounted.” But Schwartz had no further response after being informed that Dr. Binh’s account was, word-for-word, the same as Hiebert had related to his CSIS colleague, Benjamin Contreras. (Schwartz was formerly a spokesman for the American Israel Public Affairs Committee, known for its hard-nosed dealings with inquiring reporters. Before that, Schwartz was a producer for Fox News.)

While acknowledging that Dr. Binh had indeed been an invited guest, Hiebert seemed to brush off the incident as a sort-of bureaucratic snafu. “No one makes decisions about who attends events at CSIS but CSIS,” Hiebert wrote. “Dr. Binh was not on the initial RSVP list…CSIS made a mistake by allowing her to RSVP late to the event when the registration process had already been closed.” But Binh should have been allowed to attend, Hiebert agreed.

Enemies of the State

A public-record search shows why the Communist Party would have a file on Binh. She is chief of the thoracic radiology section at the Walter Reed Army Medical Center, and has received awards for her professional accomplishments. Being affiliated with one of the most respected medical institutions in the world, of course, wouldn’t send up any red flags in Hanoi. But what Binh does away from the office definitely would.

On her private time, Binh has worked on human rights issues in Asia with high-profile organizations including Human Rights Watch and Amnesty International. She has testified before the United States Commission on International Religious Freedom, among other respected panels. She serves on the Virginia Asian Advisory Board, which advises the governor “on ways to improve economic and cultural links between the Commonwealth and Asian nations, with a focus on the areas of commerce and trade.”

And on July 1, Binh joined several other respected human-rights champions who were invited to the White House. There, Binh and her colleagues gave advice to the National Security Council on how President Obama might want to handle human rights when Secretary General Trong came to the Oval Office on July 7.

Also, during the Obama-Trong White House meeting, Binh may well have been photographed by communist officials across Pennsylvania Avenue in Lafayette Park, where she joined several hundred Vietnamese-Americans who peaceably protested Vietnam’s lack of democracy.

Vietnam’s ambassador to the United States, Pham Quang Vinh, did not respond to an e-mail asking if he would care to join Hiebert by apologizing to Dr. Binh. It didn’t take much digging to understand why.

On May 24, Amb. Vinh had appeared on a CSIS panel moderated by Hiebert. Vinh was visibly upset when he was questioned by a former political prisoner, Cu Huy Ha Vu. Ha Vu made a short statement criticizing Vietnam’s human rights record, asking when Vietnam would stop its practice of incarcerating citizens whose only crimes were to criticize the Communist Party. The angry diplomat retorted that Vietnam has no political prisoners — avoiding eye contact with Vu. (Asserting that Vietnam has no political prisoners is like claiming that there is no cheese in Paris.)

Vu told me that he was not invited to the July 8 CSIS event with General Secretary Trong. Hiebert declined to explain, but it’s easy to surmise that the Communist Party chief had made it clear he would brook no awkward questions.

Vu is no ordinary political prisoner. He is one of Vietnam’s most prominent pro-democracy advocates today — especially because of his family’s elite revolutionary background. Vu’s father, the poet Cu Huy Can, was close to Ho Chi Minh during the Vietnam War, and served in Vietnam’s first national assembly. The well-educated Vu also earned his doctorate in law from the University of Paris.

Vu became an enemy of the state when he started challenging senior Communist Party officials for their lack of accountability. He even filed lawsuits against Prime Minister Nguyen Tan Dung on several occasions in 2009 and 2010, charging Dung with complicity in abuses of the environment, and for banning Vietnamese citizens from pressing complaints against the national government. Vu was imprisoned after being convicted in a 2011 show trial. His “crimes” included criticizing the Communist Party in interviews with the Voice of America and Radio Free Asia.

Vu was released from prison last year, and exiled to the United States, where he continues to advocate peaceably for the Communist Party to enact democratic reforms. While he was not on the invitation list to hear Secretary General Trong proclaim his deep interest in protecting human rights at CSIS’s July 8 event, Vu has been welcomed at the White House.

On July 1, Vu joined Dr. Binh and several other pro-democracy advocates who were invited to brief the National Security Council ahead of Trong’s visit. Imagine what Vietnamese intelligence officers thought, if they spotted press accounts of that White House meeting.

Also present in the White House that day were two U.S.-based leaders of the Viet Tan, Angelina Huynh and Hoang Tu Duy. Viet Tan — shorthand for the Vietnam Reform Party — is particularly feared in Hanoi because of its skills in using social media to reach its followers inside Vietnam. The organization is also known for its peaceable advocacy of democracy for Vietnam. The Communist Party considers the Viet Tan to be a “terrorist” organization. The Vietnamese government has admitted that it has imprisoned citizen journalist/bloggers for the “crime” of being associated with the group.

A Lobby Plan Comes Together

While the U.S. government respects the Viet Tan’s legitimacy, Hiebert ducked the issue. Asked repeatedly whether he agreed with Hanoi that the Viet Tan is a terrorist group, Hiebert did not respond. That’s about when CSIS spokesman Andrew Schwartz cut off the communications, asserting that “Hiebert has answered all of your questions.”

Why would a respected CSIS political analyst avoid direct questions concerning Vietnam’s human rights record? The suspicion arises that it has something to do with money.

Hanoi has been paying $30,000-a-month to the Podesta Group, a high-powered lobby firm with close ties to major U.S. political figures. David Adams, who has been working on Vietnam’s behalf for the Podesta Group, was Hillary Clinton’s chief of legislative affairs when she served as President Obama’s first secretary of state.

Adams would be valuable to Hanoi because he has an insider’s knowledge to sell: he knows firsthand how U.S. officials at the State Department and the Pentagon tend to think about Vietnamese issues.

For instance, when Adams was with Clinton on Foggy Bottom, David Shear was the U.S. ambassador to Hanoi. Shear is now an assistant secretary of Defense, where he is helping shape U.S. military policies regarding Asia — including the issue of how to respond to Vietnam’s request for U.S. sales of lethal weapons that Hanoi wants to help fend off Chinese intimidation in the South China Sea. (Shear, when he was the U.S. ambassador, routinely assured Vietnamese-American audiences that before Vietnam would be allowed to join the Trans-Pacific Partnership trade deal, Hanoi must make “demonstrable progress” on human rights. He never explained what that might mean.

The Podesta Group and Amb. Vinh declined comment on the Vietnamese foreign policy agenda they have been advancing. But it doesn’t take much digging to discover the three top priorities: Hanoi wants the U.S. arms embargo lifted. The Vietnamese also want to convince Obama and Congress that they have indeed been making enough “demonstrable progress” on human rights to join the Trans-Pacific Partnership trade deal. And they have been lobbying for Obama to visit Vietnam, hopefully by the end of 2015.

Is it a coincidence that Hanoi’s agenda is generally shared by CSIS? The Podesta Group’s website boasts of its ability to help controversial clients boost their credibility. “We recruit allies from left-and right-leaning think tanks…to validate our clients’ messages and build an echo chamber of support,” Podesta boasts. It’s far from an unusual practice in today’s Washington lobbying scene.

Hiebert insists that he is unaware that the Podesta Group has been lobbying for the Vietnamese government. But Hiebert knew enough to invite someone from the Podesta Group to hear Trong speak on July 8; he says that CSIS does not disclose its invitation list.

(Hidden) Money Talks

Nor is CSIS completely transparent about where it gets its financing. CSIS is one of 150-plus think tanks around the world that are rated by an impressive non-profit named Transpacific on their willingness to disclose — or not — where they get their money. The well-regarded Transparify, based in Tibilisi, Georgia, is part of the Open Society Foundations that were founded by George Soros. In 2014, Transparify gave CSIS poor marks, awarding it One Star, near the opaque bottom of a Five-Star transparency scale. This year, CSIS earned Three Stars from Transparify — neither fully opaque nor transparent, but at least moving in the right direction.

The CSIS website now lists donors on a general range. It discloses that the Vietnamese government gave CSIS somewhere between $50,000 and $500,000 in 2014. But the site does not disclose what the money was intended for.

Hiebert co-authored a major 2014 CSIS study of U.S.-Vietnamese relations: “A New Era in U.S.-Vietnam Relations. So who might have paid for that?

Readers couldn’t tell from the study’s acknowledgments. “We would like to acknowledge the thoughtful and generous support and counsel received from the Embassy of the Socialist Republic of Vietnam in Washington, D.C., the U.S. Embassy in Hanoi, and the U.S. Consulate in Ho Chi Minh City.” But who, exactly, paid for it?

Hiebert — after being asked twice — confessed that the Vietnamese government paid for the study. He said that there was no U.S. government funding for that study.

CSIS spokesman Andrew Schwartz insisted that it is “mean-spirited” to suggest that anyone who read the acknowledgment would not have known that it was “clearly” the Vietnamese who paid for A New Era. “[I]f you decide to write that CSIS didn’t acknowledge the support of the government of Vietnam, you will be in error,” Schwartz declared. CSIS always discloses the sources of funding for its studies, the CSIS media analyst declared.

Mostly always, might be more apt. A recent CSIS study focusing on human rights in countries like Russia, Venezuela and Ethiopia was forthright about where the money came from: “This report is made possible by the generous support of the Oak Foundation” it discloses. And still another CSIS study on U.S.-Japan relations discloses that the money came from Japan’s Sasakawa Peace Foundation. The contrast with the misleading acknowledgment to Hiebert’s New Era study is about as clear as it gets.

In that study Hiebert criticizes U.S. congressional human-rights champions for being an ineffectual name-and-shame crowd. He further criticized many Vietnamese-American pro-democracy advocates for being out of touch with realities in today’s Vietnam.

But when it came to Vietnam’s human-rights record, Hiebert seemed to pull his punches. There is no mention of Hanoi’s non-compliance with the International Covenant on Civil and Political Rights, which Vietnam is a signatory to. There is no mention of the provisions of Vietnam’s penal code that criminalize free speech and assembly — and criticizing the Communist Party. Instead, the study basically acknowledges the obvious: that human rights is the most difficult issue between the U.S. and Vietnamese governments. Instead of suggesting that Vietnam could help improve its credibility by modernizing its offensive penal code, Hiebert merely recommended more meetings between the U.S. government and Vietnam’s Ministry of Public Security.

Hiebert vehemently denied that he softened his tone because of who paid for that study.

Meanwhile, Hanoi’s lobby agenda seems to be working. The U.S. government and Congress are leaning toward allowing Vietnam to purchase the lethal arms it seeks. There is little talk in the Trans-Pacific Partnership trade deal about Vietnam’s first making “demonstrable progress” on the core human-rights issues involving the freedoms of speech, assembly, religion — and the offending provisions of the penal code that mock the international rights covenants that Hanoi has signed. (The precise details of the TPP deal, which has not been finalized, remain classified.)

President Obama has said he would like to accept Secretary General Trong’s invitation to visit Vietnam, although the president has not yet set a date. Hiebert pointed out in our exchange of e-mails that he has recommended that when Obama does fly to Vietnam, he speak forcefully on human rights.

A skeptic might observe that this is what Assistant Secretary of State Tom Malinowski, Secretary John Kerry, and so many other U.S. officials have done — so many times, over so many years, to such little avail.

Hot (Headed) Yoga

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(The conclusion of a two-part series)

Note to readers: Yesterday, in an article headlined “Fed Up,” I reported that many members of the World Trade Organization have reached the end of their patience with a handful of members — India, and a few African and Latin Americans who love to nurture their grudges against the “rich” countries. Frustrations that such countries have poisoned the WTO’s negotiation atmosphere have been gradually building since the WTO was launched in 1995. The tipping point came in July, when India’s new prime minister, Narendra Modi, vetoed the only successful multilateral trade negotiation the WTO has ever conducted.

 As the future viability of this vital international trade rule-making institution is now on the line, it’s important to take a closer look at how the present fight started, and why. Today’s report offers more details on: where Modi is coming from, exactly what he wants, and who his sympathizers are. While India claims to speak for the world’s poor, that certainly is not the view of an increasing number of developing countries around the world. India’s trade distorting agriculture subsidies have caused food riots in parts of Asia, Africa, and Latin America. These days, complaints of the harm that India is inflicting upon other poor countries are surfacing again, particularly in Rwanda and other African countries. Concluding, the report highlights how leading WTO member countries plan to move on, with or without the cooperation of India and the other laggard countries.

So where is Modi coming from?

Modi, proudly, is a hardline Hindu right-winger, an economic nationalist who boasts of a 56-inch chest. He is a tough guy, a man who loves a brawl. His top political aide is dodging a prosecution for various murders. Modi himself has denied (unconvincingly) his role in the killings of some 2,000 Muslims in organized riots in his home state of Gujarat, back in 2002.

And in the past week, Modi has rather exuberantly been raining mortars and machine-gun fire across a populated India-Pakistan border area of Kashmir. The fighting, which has broken a tenuous truce reached in 2003, has so far killed nearly 20 civilians and displaced nearly 20,000 civilians, according to news reports. “The prime minister’s office has instructed us to ensure that Pakistan suffers deep and heavy losses,” a senior Indian Home Ministry official has told Reuters reporters Rupam Jain Nair and Mehreen Zara-Malik. Modi himself has boasted that “it is the enemy that is screaming.” Kashmir, with the possible exception of the Korean DMZ, is perhaps the world’s most dangerous border. A border where Hot Heads on both sides brandish their nuclear weapons.

Some of the other opinions that Modi brandishes are less scary, but well, unusual. Speaking to the United Nations General Assembly in New York on Sept. 27, Modi called for an “International Yoga Day.” He asserted that “yoga,” “spiritualism” and clean living could contribute to a better global environment. “By changing our lifestyle and creating consciousness, it can help us deal with climate change,” he explained to the diplomatic dignitaries. Meanwhile, back in New Delhi, the clean-living prime minister has authorized “hundreds of projects” to clear pristine forests, making way for mega power plants and other industrial projects that previous Indian governments had rejected on environmental grounds, Tommy Wilkes has reported for Reuters.

Modi held the WTO’s trade-facilitation package hostage to India’s demands to be allowed — permanently — to violate existing WTO restrictions on the subsidies it is allowed to dole out to uncompetitive Indian subsistence farmers. Adding to the indignity: previous Indian governments had agreed to those WTO rules in the 1980s. And the Indian government that Modi replaced in May had duly signed onto the Bali Package last December. As U.S. Trade Representative Michael Froman said last week, India has now “reneged” on its signed obligations.

Moreover, Modi’s demands have left WTO diplomats scratching their heads, wondering what he might have been smoking.

***

Food Insecurity

Since obtaining independence from Great Britain in 1947, India’s leaders have never figured out how to feed their people. In the name of “food security,” Indian governments have been buying food from the country’s farmers, paying above-market prices. The grains are then stockpiled. Perhaps half of the mountains of grain rot away, or are eaten by rats. Much of the rest is siphoned off by corrupt (politically connected) operators for sale on the black market.

What doesn’t rot or is not stolen is then doled out to feed India’s infamously malnourished urban population — especially when elections loom, which in India is often.

Perhaps because politics trumps economics, Indian politicians — no matter which party is in power —  have been increasing the subsidies, making bigger stockpiles.  And they have been demanding permission from the WTO to keep jacking up the subsidies as much as they want, even higher than the allowable limits that Indian governments have pledged to honor.

In Bali last December, the Indian negotiators won a generous four-year “peace clause.” That gave New Delhi four years to go ahead and violate existing WTO limitations by increasing agriculture subsidies, without fear of being held legally accountable. As the purpose of the WTO’s trade negotiations is to reduce trade barriers, not allow additional protectionism, this was arguably overly generous.

Yet the four-year grace period still wasn’t enough for Modi, when he came into office in May. He demanded that India be given the “permanent” right to break the existing rules — and right away, by the end of this year, thank you. Many diplomats, in many ways, have told the new Indian leader that this would never happen. Undeterred, Modi, somewhat joyously, brought down the Bali Package, thus shaking the foundations of trust that the WTO must have to remain viable.

At least, the ploy has generally played well at home. Indian officials have launched a whispering campaign, some of which has made its way into various Indian news accounts, falsely accusing the WTO’s top leadership of favoring the rich countries.

Claiming the Moral High Ground

Modi, like all of his predecessors dating to Jawaharlal Nehru (who ran India from 1947 to 1964, useful information for readers who are crossword puzzle addicts), has claimed that he holds the high moral ground. We are simply demanding the rights to feed our own poor, and we are the champion the world’s poor, so goes the refrain.

Some champion.

India is the world’s largest exporter of (subsidized) rice. The subsidies distort food markets in other countries by driving down prices. That’s bad enough in normal years for farmers in African and other nations who have to compete with the cheap Indian rice. Of course, the Europeans and Americans aren’t exactly innocents in such matters. But at least they have long ago moved away from stockpiling surpluses that cause real damage in world markets, preferring to pay their farmers cash subsidies that are considered less trade-distorting.

But India seems stuck on stockpiling and other protectionist schemes that cause real harm to trading partners. Remember the 2008 food riots in Haiti, Cameroon, Senegal and other countries? Global rice prices had skyrocketed after India put a damper on supplies by slapping on export controls during the previous year’s election season. Not only has no Indian politician ever apologized for the damage those export controls inflicted — after coming to power this May, Modi quickly imposed new price controls on onions and potatoes.

More recently, Rwanda’s trade minister, Francois Kanimba, explained to Shawn Donnan, the world trade editor of the Financial Times, how India’s present agriculture subsidies are hurting his country’s farmers. Rice and sugar from India had been reaching Rwanda “at such low prices [that] you are left wondering if these are really global market prices, simply explained by the competitiveness of the Indian economy,” Kanimba said. Donnan noted that the same concerns are being expressed in Nigeria, Benin, and other African food importers. This is “why the solution India is seeking at the WTO, which celebrates its 20th birthday in January, is unlikely to be palatable to many of its members,” Donnan concluded.

India’s claims to speak for the world’s poor used to be accepted automatically in the Third World. Signs that that’s been changing surfaced at the WTO’s Bali meetings last December. At a press conference, India’s then top trade official, Anand Sharma, asserted that India was only seeking “food security” for poor people everywhere. Sharma was humiliated by a furious journalist from Benin, one of the world’s poorest countries. “You don’t speak for us,” the Benin journalist angrily shouted. Those of us who were in the room will never forget the emotions on display at that press conference. (For further details, see “India’s Bali Debacle,” which I authored for the Wall Street Journal Asia. The piece, along with two other investigative reports into India’s WTO stance in recent years, is posted on the Wall Street Journal section of www.rushfordreport.com.)

India’s Admirers

These days, Modi’s been enjoying his success in having placed himself on the WTO’s center stage, even though he is playing the role of a pariah. Modi knows he enjoys the tacit backing of envious fellow economic nationalists in places like Venezuela, Bolivia, Zimbabwe, Ecuador and Cuba. Such leaders love to nurture their grudges against the rich countries, seeing the WTO as a tool of the rich. President Jacob Zuma of South Africa runs with this crowd. These days, Zuma must be especially envious of Narendra Modi’s nerve.

Zuma is another economic nationalist who is skeptical that the WTO’s multilateral trade liberalizing negotiations will benefit South Africa. But he might be better advised to seek some sound economic advice as to why South Africa’s economy has been losing its dynamism.

Two very savvy Pretoria-based authorities on what used to be called “political economy” — Mzukisi Qobo of the University of Pretoria and Peter Draper, of Tutwa Consulting — recently succinctly explained Zuma’s attitude on economics in a May 27 article in South Africa’s Business Day. Under Zama’s economic guidance, South Africa’s economic growth has been on a steady decline, Qobo and Draper noted. Nor does Zuma seem to grasp the “gravity” of the economic challenges that are holding his country back, they added. “He also seems to have given up on leaving a great economic legacy, and instead prefers to manage a balancing act of contending factions within the African National Congress (ANC).”

Zuma’s trade minister, Rob Davies, is a member of the Politburo of South Africa’s Communist Party. That fact speaks well of Davies’ personal courage in having opposed apartheid in the days when to do so was to risk one’s life. But it doesn’t necessarily suggest that Davies’ economic credentials are sterling. Many African observers worry that South Africa, traditionally the most solid African economy that still regards itself as the “gateway” to the rest of Africa, will inevitably be left behind. Watch the East Africans — especially the emerging ties and improved infrastructure linking Rwanda, Tanzania, Uganda and Kenya — many African watchers say. Yes, these countries also have their own economic weaknesses. And in the WTO, the East Africans seem to be split on whether to speak out in favor of India, or against. Still, one has a growing sense that their future could be brighter than South Africa’s, depending upon how well they manage to integrate themselves into the global economy. At some point, the South Africans will likely kick themselves for their lack of economic foresight.

Zuma first worked earlier this year behind the scenes with the Addis Ababa-based African Union (an opaque organization which wasn’t even a participant in the Bali negotiations) to reopen the Bali deal. Conveniently, Zuma’s former wife now heads the AU. But Zuma and the AU came under intense pressure, mainly from Europeans and Americans, but also by dozens of other WTO member countries. They backed down during African Union meetings held in Malabo, Equatorial Guinea, in August. Since then the African Group of WTO members has basically been holding their tongues, trying to pretend that what India has done, hasn’t really happened. (For the background, see “Power Plays in the WTO,” www.rushfordreport.com, June 3, 2014). South African and African Union officials declined repeated requests for comment, as did a spokesman for the WTO’s Africa Group.

In sum, what the Africans started and India’s Modi finished was the tipping point. Leading circles in the WTO — the “North” definitely, and many in the “South” — believe that this time, the chronic naysayers have simply gone too far.

An Uncertain Plurilateral Future

While the WTO’s future is presently clouded, one thing appears clear: no longer will a handful of malcontents be allowed to poison the chances of dismantling as many of the world’s remaining trade barriers as possible. That means the WTO will turn away from its tradition of conducting trade-liberalizing negotiations on a multilateral basis. Instead, there will be smaller groups of like-minded countries that will work together to facilitate trade flows. This is the so-called plurilateral option.

The future likely model has precedents. The WTO’s Government Procurement Agreement has 43 member countries (counting the European Union’s 28). The GPA’s rules, which are only extended to participating countries, are aimed at improving transparency and competitive bidding when governments agree to award contracts to all bidders (as opposed to just doling out lucrative contracts to well-connected domestic cronies). China, New Zealand, and eight other countries have been negotiating to join in that plurilateral. No African country has shown interest in joining in such an experiment in open government. Nor has India.

India is, however, a member of the WTO’s Information Technology Agreement, a plurilateral WTO success story that dates to 1997. ITA signatories, including India, have slashed tariffs on imports of high-tech gadgets like computers and telecommunications equipment. But India has refused to participate in ongoing negotiations to expand the ITA’s product coverage to include new inventions — iPhones, iPods and so forth — that weren’t invented in the 1990s. In fact, Modi has already moved in the opposite direction: jacking up tariffs on imports of iPhones.

Late last week, the WTO’s director-general, Roberto Azevedo, described the uncertain future for further WTO multilateral trade negotiations, especially if “no solution” is found for the “Bali impasse.” In such a case, the director-general noted to a business audience in Toronto on Oct. 9,  “then members must ask themselves some tough questions — about how they see the future of the Bali package and the post-Bali agenda. And what this means for the WTO’s negotiating function.”

Translated from the nuanced diplomatic language, Azevedo was pointing to a plurilateral future for the WTO, at least until the benefits of multilateral trade liberalization become apparent to the laggards. It might even turn out that the Bali deal will proceed as a plurilateral arrangement. India and the backward-looking African and Latin countries will be offered the choice to be left behind, if they prefer.  Such, it appears, is their future — at least until the day comes when they will be willing to take off their economic dunce caps.