Trading places

Jan 7th 2005
From The Economist Global Agenda

This is a big year for world trade. But first, the World Trade Organisation must find a new boss, and America must pick a new trade chief

PASCAL LAMY, the European Union’s outgoing trade commissioner, has an ascetic, almost monkish appearance and an impressive command of the byzantine complexities of trade policy. Perhaps that is why he wants to become the next director-general of the World Trade Organisation (WTO), a body he once described as “medieval”. The Frenchman was formally named this week as a candidate for trade wonk-in-chief, along with three other hopefuls: Jaya Krishna Cuttaree of Mauritius, Carlos Pérez del Castillo of Uruguay and Luiz Felipe de Seixas Corrêa of Brazil. As befits a medieval guild or clerical order, the successor to Supachai Panitchpakdi, whose term expires at the end of August, will emerge only slowly, after several months of courting members and building coalitions. Previous such races have been rancorous affairs, paralysing and poisoning the atmosphere.

The director-general has few formal powers. His job is to grease the wheels of trade negotiations, broker honestly between warring parties, and generally exhort WTO members to do better and try harder. The real power in negotiations remains with the big trading nations themselves: access to their lucrative domestic markets is the prize that brings everyone else to the table. No country’s market, of course, is more lucrative than that of the United States, which imported $1.3 trillion of merchandise in 2003. And so the race to succeed Mr Supachai has been overshadowed this week by the question of who is to succeed Robert Zoellick, the United States trade representative.

On Friday January 7th, Mr Zoellick was appointed as Condoleezza Rice’s deputy at America's State Department. High on the list to replace him is Gary Edson, who was a top economic official in the White House before working on George Bush's re-election campaign. He was also chief of staff to Carla Hills, trade representative under Mr Bush's father. Other possibilities include Josh Bolten, currently head of the Office of Management and Budget, who also worked for Mrs Hills.

Grant Aldonas, an undersecretary at the Department of Commerce, is also being mentioned.
Whoever gets the nod, Mr Zoellick will be a hard act to follow. He has shown a tenacious commitment to the round of global trade talks he himself helped to launch in Doha, the Qatari capital, in 2001. After the collapse of the talks at a summit in Cancún, Mexico in 2003, many expected America to walk away. In fact, Mr Zoellick did much to get things going again.

Of course, America’s top trade negotiator can only play the hand his boss gives him. And it is not yet clear what policy America’s new trade representative will have to represent. Mr Bush has barely mentioned trade since his re-election. His greatest ambitions—to overhaul the pension system and reform the tax code—are largely domestic. Paying too much attention to trade liberalisation could make progress in these difficult areas harder to achieve. The president may decide this is no time to upset reliable Republican senators from farm states, for instance, by agreeing to big cuts in agricultural subsidies.

The administration also faces a tough battle over the Central America Free Trade Agreement (CAFTA), which has not yet been ratified by Congress. Opponents of the agreement, from trade unions to sugar farmers, have mobilised against it. Given the broad scepticism in Congress towards trade, the vote will doubtless be a cliff-hanger. Should CAFTA fail, it would send a grim signal to the Doha negotiators. As Dan Ikenson of the Cato Institute puts it, if America cannot pass a smallish regional trade agreement, it is clearly “ill equipped and unprepared” to negotiate seriously in the Doha round.

Nor is CAFTA the only chance for Congress to flex its muscles. In the coming months America's lawmakers may also have a noisy debate about the virtues of the WTO itself, because every five years Congress has a chance of voting to quit the trade body. Though no one expects that vote to succeed, it will offer plenty of opportunities for trade's enemies to hold forth on the evils of the WTO.

Needed: someone to knock heads together

The WTO is not evil, but neither is it doing as much good as it should. The Doha trade talks were supposed to be finished by now, culminating in an ambitious agreement to free trade in farm goods and services. Delayed, the round may also be diluted. There is a shocking disconnect between the high hopes that launched the round and the grubby reality of the talks so far. The WTO thus needs to decide on a strong leader from the four candidates on offer, someone who can prod the world's trade ministers to live up to the ambitions they promised at Doha.

Who will they pick? Mr Cuttaree is the foreign and trade minister of Mauritius, a small island off the coast of southern Africa. Mauritius is many economists’ favourite example of how a poor country, with few natural advantages, can make globalisation work to its advantage. Since 1970, when it established an export-processing zone, its foreign sales of textiles and sugar have boomed and its per capita income is now the second highest in Africa.

But the island’s success is based, in part, on the preferential treatment its exports receive in EU and American markets. If the Doha round ever succeeds, it might erode those privileges by extending them more widely. Mr Cuttaree is thus the favoured candidate of the 56 African, Caribbean and Pacific Island members of the WTO who fear what he has called “the onslaught of unbridled liberalisation”.

Brazil’s candidate, Mr de Seixas Corrêa, represents one of the new key players in global trade talks. As one of the leading lights of the G20 group of developing nations, Brazil has muscled in on the cosy tête-à-tête the EU and the United States used to enjoy. As a major agricultural exporter, Brazil is also one of the nations with most to gain from an ambitious round that really opens up farm trade. But Latin American support in the WTO will be split between Mr de Seixas Corrêa and his respected Uruguayan rival, Mr Pérez del Castillo, who has already made a name for himself as the author of one of many draft frameworks for the agriculture negotiations.
That leaves Mr Lamy as the front-runner. As the EU’s chief negotiator, he has often defended the indefensible. The Union’s common agricultural policy remains one of the main obstacles to a successful Doha round. But Mr Lamy will at least have inside knowledge of how far the EU can be pushed. And having devoted so many long nights of negotiation to the round, he must want to see it brought to a successful conclusion.

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