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Removing Obstacles to Competition and Growth

Geza Feketekuty[1]

Representatives to the World Trade Organization are currently discussing the possible agenda for a new round of multilateral negotiations which might be launched at the next meeting of the WTO Ministerial Council in Seattle this coming November.  Part of the agenda, the so-called built in agenda, has already been agreed in general terms as a result of provisions included in the Uruguay Round agreements.  Other items on the agenda could emerge from the work program initiated by Ministers at subsequent Ministerial meetings in Singapore and Geneva. The question that ought to be addressed is how the this list of topics, and others which might be added in the course of the discussions leading to the meeting of Ministers, could be pulled together into a coherent agenda with a broader purpose that can capture public support.

There is always a problem associated with negotiations involving a collection of technical issues that they will be seen as too abstract and removed from current economic reality as seen by large portions of the population.  In order to succeed, negotiations that make a significant impact on world trade have to generate sufficient political momentum to overcome the inevitable political backlash created by any effort to tackle politically sensitive issue

In order to generate public support and enthusiasm, the new round should be seen both as a means for helping individual countries to tackle the very real economic problems and challenges facing them at this time, and as a catalyst for global growth.  An apt metaphor is the rising tide that will help all ships navigate the difficult channels ahead.

The place to start in crafting a vision is with an analysis of the current world economic environment and the policy challenges confronting the majority of countries, both in the short term and over the coming years.  Much more than in the, this has to cover the internal domestic policy challenges as well as the external policy issues.  While the process of globalization has been uneven among industries and countries, it is quite clear that countries can no longer insulate their domestic policies from the demands of global markets, unless they are prepared to pay a very high price for autarchic policies.

Overall, the world economy is in a fairly precarious situation in the wake of the recent financial crisis in Asia, Latin America and the CIS countries. Beyond the financial crisis, many countries have faced a significant slow down of economic growth in recent years, as compared to before.  On top of these domestic problems, the process of globalization has reduced the scope for policy mistakes. As a result of the increased competitive pressures generated by the globalization of markets, globally mobile enterprises have much less room to go along with the higher costs of inefficient national economic policies. Countries that failed to adapt to these new realities have thus faced an abrupt decline in foreign investment and trade, on top of their domestic difficulties.

There are those in virtually every country who have blamed globalization for their current difficulties, and have thus failed to recognize that the response of global capital markets and foreign investors was merely a reflection of the domestic policy failures.  While there are some obvious differences with respect to the nature of these policy failures in different countries and regions, in one way or another most governments today are struggling to come to terms with three fundamental problems:

  • overly intrusive national regulatory measures that fail to achieve social objectives efficiently,

  • structural policies that have encouraged excessive concentration and rigidities in key industries, and

  • the exploding cost of current social welfare programs. 

The challenge facing governments is to devise more effective policies for accomplishing important social goals, not to dismantle the means for pursuing a social agenda.  Not all of these issues have a global dimension or can usefully be tackled at this time at the global level, but it helps set a theme and a context for informing the broader purposes and vision of the Millenium Round.

Following this line of thought, one might therefore construct a vision and a theme for the Millenium Round that focuses on the reform of internal and external policy measures that hamper domestic economic efficiency and growth.  Economic efficiency in a market economy quite clearly is a function of competition, and the principal purpose of negotiations therefore has to be seen as removing obstacles to market competition, wherever such competition can contribute to economic efficiency and growth.

Given the realities of globalization, the process of dismantling obstacles to competition can no longer be seen purely in terms of external trade barriers per se, but has to be seen in the broader context of all the policies that impact the openness of a national economy to domestic and global competition.  >While the primary objective of global negotiations, of course, is to focus on obstacles to global competition, you canít have competition from foreign products and enterprises if enterprises are not free to compete in the domestic market in the first place.  Work in the OECD Trade Committee has thus focused on the concept of the global contestability of national markets.  In an article published in the World Economy, the author of this paper and a colleague, Robert Rogowsky, have spelled out how a competition-oriented paradigm should replace the traditional trade liberalization paradigm.[2]

The articulation of the vision and theme for the Round has to be as clear on what it is not intended to do, as it has to project a clear image of what it is intended to accomplish.  The present financial crisis and the structural adjustments associated with both the technological revolution in production and the process of globalization, has created a major domestic backlash from displaced workers and groups in society that the social achievements of the past will be eroded or abandoned. This domestic backlash has stalled forward movement in trade and investment liberalization in many countries, and could prevent a successful conclusion of the new Millenium Round if care is not taken to address the concerns involved.It therefore has to be made clear that the objective of the negotiations is not to dismantle regulations designed to accomplish social objective, but to reform them so that these objectives can be achieved more efficiently.The case has to be made that such reforms should both reduce the economic cost to society for pursuing the existing social objectives, and to contribute to the more effective achievement of these objectives.

Beyond clearly articulating the relationship of global negotiations on trade and domestic policy reforms to the achievement of social objectives, the WTO needs to find an approach on environmental and labor issues that avoids the impression that the WTO and its trade liberalization agenda is anti-environment and anti-labor.  This is not an argument for the WTO to become the venue for the negotiation of substantive standards on environment and labor, since other organizations with the in-depth experience in these areas are in a better position to address these issues.  However, the WTO needs to be seen as supporting the work of these other organizations, and sensitive to need for possible changes in its own rules and procedures where they are seen as hampering the achievement of legitimate social objectives in these areas.