Collapse of WTO talks

Terry:

I think I was alone among the energy services group in staying through the
bitter and surprising end of WTO. I was together with Rachel Thompson of the
OECD and services trade specialist Julian Arkell, who have been advising our
group from a European perspective. So I thought I would give you my account
of the final hours of the "Seattle Round." By the time you read this it will
have been covered in great detail by the world press, but as of Saturday
morning only the west coast papers seem to have gotten the full story, which
broke around 9:30 pm Seattle time, Friday night.

I went back to the convention center about 11 pm, and as I walked up the
block -- still cordoned off by riot police -- delegates were already
streaming out of the building. Emotions ranged from tired to disgusted to
dispirited. Inside, a final plenary session was underway led by WTO director
general Michael Moore and US host Charlene Barshefsky. I watched the final
moments of the plenary session on TV in the media center, where journalists
laughed as Moore made lame jokes about Seattle hospitality and vowed to
resist pressure to step down as DG. "I intend to fulfill my contract," Moore
said. "I have a background of fulfilling contracts in the labor movement."
This was a poor choice of language since it was probably the US-influenced
attempt to launch discussions on labor standards that killed the round more
than anything else. Following the plenary, Moore and Barshefsky held a press
conference followed by another by representatives from the European Union. I
sat in as an observer to the two press conferences, which lasted until just
after 1 am Saturday.

The collapse of the launch of the "Seattle round" is extremely significant.
For one thing, it means that there will be no Seattle round. Although Moore
has been charged to come up with suggestions about re-starting the process
beginning early next year, it is unlikely that either the political will or
interest to do so will be sufficient before the US election campaign blows
everything else off the calendar. Re-launching the round will depend very
much on the complexion of the next US Administration, how committed it is to
trade, how much it owes to labor, whether it can stand up to the
environmental and labor groups that helped to derail the launch. Past
experience suggests that it will take several years (three to four is
average) to organize another attempt IF there is strong political motivation.

The collapse seriously undermines US credibility in international economic
issues. There was a strong feeling that the Administration had played the WTO
meeting to domestic political interests, and overplayed its hand to the
extent of jeopardizing the structure of the negotiations. One European
journalist (Guy de Jonquiere, FT) asked Barshefsky what she thought about the
common view that this was a "terrible mess, the worst organized conference"
and that the sabotage was in part deliberate or at least that failure had
been seen as a political option by the US. Barshefsky angrily rejected the
question, and defended her failure on the grounds that "issues that had been
intractable remained intractable." Nonetheless, the question expressed a
general hostility towards the US as host organization, based perhaps partly
on the discomfort of delegates who were beaten up on their way into the
convention center, locked for hours on end in their hotels, and forced to
hide their WTO identification tags whenever they left streets belatedly
cordoned off for the event. Not to mention dodging protestors chaining
themselves to hotel doors, boarded up stores, and transportation difficulties
(several taxi companies went on strike on Tuesday and were thin the rest of
the week).

The failure of the Seattle round comes at a time when the other Bretton Woods
institutions -- the IMF and World Bank -- are under attack as well as the
WTO. All three have suffered from retrenchment of US funding, relentless
criticism by the US Congress, and waffling support from the Administration.
The Seattle fiasco will put more pressure on regional organizations, such as
the EU, NAFTA, FTAA, APEC, and ASEAN to continue to move towards
liberalization and give them more reasons to move into defensive modes. We
can expect to hear a lot in the next months about the possible fragmentation
of the global trading system into regional blocks, just as we did in the late
1980s when the Uruguay Round nearly collapsed. But a drift towards
regionalism may not be all bad. To the extent that regional organizations
themselves have a strong stake in keeping the global trading system open, or
at least in preserving access to major markets, they may provide the momentum
to continue work in some of the areas of interest to multinationals -- for
Enron, energy services, environment and trade, and regulatory harmonization.

Rachel Thompson, as an observer for the OECD, was in the so-called "green
room" where negotiations shifted on Friday afternoon after the attempt to
craft a ministerial declaration through working groups was abandoned. This
represented a return to a more traditional GATT/WTO mode of horsetrading "in
camera" or in a relatively small room, as opposed to the innovative but
failed US strategy of crafting a text in pieces through five working groups
(on agriculture, market access, implementation and rules, systemic and
"other" issues including competition policy, investment, and the
environment). The idea behind the working group structure was to open up the
negotiating process, particularly to developing countries, and make it more
democratic. Instead, it resulted in chaos. Rachel said that the green room
discussions fell apart about 8 pm Friday when it became evident that the
negotiators were "too far apart on too many issues." A crucial element, she
said, was the outrage felt by developing countries over Clinton's statements
on labor rights and sanctions, in an interview en route to Seattle. Rachel
described this as a political miscalculation similar to Clinton's bungling of
the China deal during the visit to the US of Chinese vice premier Zhu Rongji
last March, when he played

At a midnight press conference, US Trade Representative Charlene Barshefsky
defended the Administration's strategy, argued that the interruption to the
WTO process was merely temporary, and described all the agreements reached
prior to the breakdown as "frozen" and ready to move ahead once the round was
launched. Barshefsky described the collapse of the talks as a "timeout" along
the lines of previous occasions when GATT has floundered, as in 1982 (failure
of the US to launch a services negotiation) and 1990 (failure to bring
Uruguay Round to a conclusion as planned; the Uruguay Round ended finally in
1993). Barshefsky was immediately challenged by EU commissioner Pascal Lamy,
who said that the proposals submitted in Seattle were "dead" although some of
the ideas would live on.

"What I think happened -- this was the fourth in a series of this kind of
episode -- was that the delegations came, they proceeded to work
exceptionally hard and in good faith but were not quite willing to make
political decisions," Barshefsky said. Lamy agreed that the issues were
complex but added that the "posturing" of some of the actors helped block the
launch. He blamed the collapse partly on faulty procedure. "Two days ago
prospects seemed brighter [before the working groups were formed]. This is
something that we do have to reflect upon." But he went on to say that the
WTO itself was to blame for the problems. "The process has to be reassessed,
reinvigorated, refurbished and maybe rebuilt," Lamy said. "Efficiency and
transparency are common problems in modern institutions. The WTO does not
have the institutional strength, the culture, or procedures to do this right."

What happens next, and what are the implications for Enron's effort in energy
services?

First, nothing new will happen on energy services until a new round is
launched;
This, however, gives us time to work on definitional issues. If the round had
started as planned in March 2000, we might still be unprepared with arguments
to support the "broad" definition of energy services we have promoted
Third, we will have time to build a dialogue with the EU and Japan in
particular on energy services, and to cultivate programs similar to the APEC
work program on energy services in other regional organizations
Finally, although we have viewed the proposed APEC work program on energy
services as weak and a distraction from WTO work, this may turn out to be the
strongest available vehicle to work on basic issues of definition and best
practices

In terms of WTO itself, two streams of activity are possible, maybe three.

First, existing working groups will continue (separate from the drafting
committees that were set up this week). The most important of these is one on
domestic regulatory issues that is not time-specific, according to Julian
Arkell. Julian describes domestic regulation and regulatory harmonization as
the biggest future area of difficulty for WTO, and it is also one that is
directly relevant to Enron's interest in regulatory standardization in
electricity and natural gas regimes globally. The domestic regulatory working
group has started programs on transparency, "necessity," equivalency
(including harmonization), and international standards. Arcane as these
discussions may be, they have enormous ongoing importance for the rules based
global trading system.
A second possible stream is to push ahead with the so-called "built-in"
agenda on agriculture and services. Barshefsky seemed to be arguing that the
built-in agenda could go ahead regardless of the failure to launch a
comprehensive round. Rachel and Julian both felt this was dubious. In any
event, it does not help energy services because this was not among the
"built-in" service sectors.
A third possible stream would be separate negotiations to complete the
previous services round in 1994, along the lines of the 1997 information
technology agreement and proposed ITA Two. Theoretically, energy services
could be discussed or negotiated in terms of a reference paper indicating the
unique features of the sector and advancing the agenda on domestic
regulation. This also seems unlikely, given that the question of a broader
services round now overhangs any discussion in services.

On electronic commerce, we might expect to see some different viewpoints
along the lines of the basic split between Barshefsky and Lamy. However, Lamy
said in response to a question that "nothing has been agreed" on e-commerce.
"Nothing is agreed until everything is agreed. The followup is probably up to
the normal WTO process. Once that is settled, [the moratorium on e-commerce
taxation] wouldn't be a problem and we can take the issue rapidly."

I may find out more during the day depending on who is still left in Seattle.
The Coalition of Service Industries closed its room early this morning after
doing a terrific job in terms of informing its members and corralling
Administration officials to give briefings. We should take heart from CSI's
experience. It was formed in 1982 to get services on the agenda of the
Uruguay Round. It took four years to launch the round (in 1986) then another
eight years to get the first broad services agreement (in 1994). This was a
setback, but the meetings provided an opportunity to meet some new service
industry players, such as the brand new Japan Services Network (established
Oct. 15, 1999), a new services industry group in Hong Kong, and the European
Services Forum. Back to the drawing board, but the drawing board itself is
much bigger.

Cheers,
Edith Terry
Enron/from Seattle