from Greenberg Center for Geoeconomic Studies

An Exclusive Interview With the World’s Leading Trade Scholar, Jagdish Bhagwati

In an interview with Gordon Campbell of Werewolf, Jagdish N. Bhagwati discusses his concerns about the Trans-Pacific Partnership.

December 4, 2012

To help readers better understand the nuances of foreign policy, CFR staff writers and Consulting Editor Bernard Gwertzman conduct in-depth interviews with a wide range of international experts, as well as newsmakers.

In the field of trade economics, describing Jagdish Bhagwati as an eminent figure is like calling Bob Dylan a prominent songwriter. From his professorial post at New York’s Columbia University, Bhagwati has dominated the academic theory on trade economics for the past 25 years, and influenced the trade policies of successive White House administrations in the process. The Financial Times has described him as ’the world’s foremost trade scholar’ – and such is his cultural clout that this episode of The Simpsons nominated him for the Nobel Prize in economics.

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Recently, Werewolf secured an exclusive phone interview with Bhagwati in New Delhi, in between his meeting with the Congress Party trade minister and a courtesy call on Prime Minister Manmoham Singh. As the subsequent interview indicates, Bhagwati is a champion of free trade, but of the multilateral variety. He has little enthusiasm for bilateral and regional pacts – such as the Trans Pacific Partnership – that have displaced the Doha Round as the chosen forum for trade liberalisation. In fact, Bhagwati is highly critical of the way trade agreements are being used for purposes that have little to do with trade, but more with the interests of business lobbies who have enlisted governments to promote profit-maximising provisions that are of little benefit to the countries involved – and which are just as likely to inhibit trade, as to expand it.

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Nothing new about that trend. In his 2006 book Termites in the Trading System Bhagwati coined the disdainful term "spaghetti bowl" to depict the overlapping provisions of the proliferating welter of bilateral and regional pacts that have undermined the ability (or desire) to complete the Doha Round. Such pacts, Bhagwati believes, also subvert the WTO multilateral dispute resolution mechanisms on which small nations like New Zealand depend. By their very nature, he explains, bilateral and regional trade pacts are highly discriminatory:

….They will often divert trade from cheaper non-member sources to more expensive member sources, bringing harm rather than good. Also, the enormous growth of such FTAs, now more than 350 and still growing, has led to a systemic effect: creating a "spaghetti bowl" of preferences and chaos in the world trading system.

Such regional and bilateral readily enable the strong to impose their will on smaller and weaker nations :

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In one-on-one negotiations between America and weak, smaller FTA partners, several lobbies have imposed demands unrelated to trade on these nations, increasing resentments abroad.

In Bhagwati’s view, FTA’s and regional pacts such as the TPP are part of a process of self deception, whereby the advocates of free trade are proving to be its own worst enemies :

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The American doctrine of inducing multilateral trade liberalization by signing on FTAs has proven to be a chimera….So we need to put a moratorium on more FTAs, while treating those already ratified as water under the bridge. The free traders who are passionate supporters of these FTAs are undermining everything that we have worked for to produce and strengthen a non-discriminatory trading system. There is no better example of folly wrought by good intentions.

From New Delhi, Professor Bhagwati expanded to Werewolf editor Gordon Campbell on his concerns about the Trans Pacific Partnership. At the outset, he acknowledged that within a smaller gathering, some countries may feel more willing and able to put concessions on the table.

Campbell : Reportedly, about 80 % of the Doha Round has been completed. When the TPP negotiations eventually reach the same crunch points – on freeing up trade in agriculture or extending copyrights and patents or granting US market access to foreign producers – is there any reason to think the TPP talks will be any more successful ?

Bhagwati : Only in the sense that when far fewer countries are involved, the kind of trade-offs you have to worry about are more limited. Like, if Japan could concede something on rice more than it has been prepared to do [thus far] or if Korea could [offer something similar] then that could be put off against the larger gains, within a smaller regional group. But that is really the only argument one could advance – that in a larger grouping, you mightn’t feel similarly constrained to make offers, and to examine trade-offs. [Note :neither South Korea nor Japan are currently in the TPP.]

OK, if I can rephrase the initial question – do you welcome the advent of the TPP process ?

Not really. Because I see the many other downsides to it – which don’t have simply to do with the fact that certain further concessions might be made by the relatively few countries that are going to join it. Tell me again…what were the concessions you mentioned ?

Well, the very important one for New Zealand has always been the freeing up of trade in agriculture. Any gains there would be the rationale for us making trade-offs elsewhere –

Yes, I know the New Zealand case. New Zealand was certainly among those Cairns Group countries that felt not enough was being done [via the Doha Round] in agriculture. But I think New Zealand makes one mistake compared to Brazil, which I think had it right, in the following sense : if you want agriculture to be liberalized (and this doesn’t apply to the other issues that you mentioned ) then you have to look at two different things. One is the production subsidies and the other is the export subsidies. Now, when it came to export subsidies we already had succeeded in getting agreement at the meeting that came after Cancun…But when it comes to production subsidies. Brazil has understood that to get rid of those you really do need a multilateral agreement, and not a bilateral one. Because you cannot – bilaterally – say that if the US reduces or relaxes production subsidies, it will be only for New Zealand. Or only for Brazil.

Does that problem recede in a regional context such as the TPP?

No, it doesn’t. It is only slightly reduced. You have a few more countries but you will never have enough countries (as you would have within a multilateral agreement) because it is technically impossible foe me to reduce a production subsidy and say oh, it is only for you. I can do that with export subsidies, but not with production subsidies. Brazil has always been keen to pursue trade reform in agriculture – as have many other countries that have been agricultural exporters – but really the Doha Round was absolutely critical…. If we are to get rid of agricultural subsidies.

For those kind of reasons, do you think the effective abandonment of the Doha Round has been premature?

I think so. I often say that the United States under Obama played a major role [in that decision] Smaller parts were also played by other countries like India, Brazil and so on. But essentially the United States decided during Obama’s first term that there was nothing in it for them. In my view, Obama came in as pro-multilateral and he had won the Nobel Prize for multilateralism – rather prematurely – and here was a multilateral treaty within his grasp, more or less, if he provided strong leadership. But he just abandoned it. For two reasons. One, Clinton had failed to convince the unions of its merits –

Well, that was because of what had happened in the wake of NAFTA

Yes, Clinton vanquished them, he didn’t convert them.

But you said there were two reasons. What was the other one?

The second one was that the business lobbies also abandoned the Doha Round.

Looking then at the role being played by those same business lobbies on freeing up agricultural market access under the TPP. Any deal will ultimately need to be ratified by Congress. In your opinion, is Congress likely to ratify any TPP deal that involves greater access to US dairy markets for countries such as New Zealand?

Umm. I think there is some hope but that would only be because prices have risen and the way these subsidies operate is that it is the difference between the price that you promise, and the price that the market pays. But these go up and down, and there’s no reason to think [current] prices will hold up forever.

The reason I ask is that from New Zealand’s point of view there seems to be a certain air of unreality about the TPP when you consider the obstructionist mood the US Congress has been in for the last couple of years. While we busily beaver away and tot up the theoretical gains from the TPP, the lurking feeling remains that Congress will never let this thing fly.

I agree. I don’t think they will. The Republicans – who are much more into protecting agriculture – will now be much more fiercely jealous about holding onto it. It seems to me that the outcome of the [US presidential] elections is to make it more difficult to get an agricultural deal going under the TPP, because you have a whole lot of dissatisfied, disgruntled Republicans from the red states who will hold up any kind of deal. I would say that on the agriculture front, things have worsened a little bit. And remember, the business lobbies again feel that agriculture is really something of no interest to them. They want concessions in manufacturing and services. And it is not yet clear that they can get anything significant there either. That’s why they said "No" to the Doha Round.

According to rumour, New Zealand believes the only way we might get significant further agricultural access to the US market is if the US can gain greater access to the Canadian market, and somehow induce Canadian Prime Minister Stephen Harper to forego the subsidies paid to Canadian farmers. Does that seem like a forlorn hope to you ?

I think it is. Canada too, is always subject to democratic politics. When you look at the asbestos case where they lost at the WTO…and when you look at the politics of it, asbestos is mainly produced in Quebec, and Quebec is a province they have always got to worry about. So Harper abandoned any principles against harmful trade and has been trying to push it even down India’s throat for that matter, bilaterally. My sense is that this is happening not because of the trade issues we have been discussing – OK? – but on what I’d call the non-trade front.

What I mean by that is when it comes to US trade policy, it is lobby led. The business lobbies say : ’We haven’t got enough business in services and manufacturers.’ There is nothing the President can do [in response] unless he exercises his leadership and wants to take some risks. That, basically, is what has killed the Doha Round in my judgment. Secondly, every lobby under the sun manages to get to the US Trade Representative and makes its issue into a trade issue. Meaning : they get it made part of a trade agreement.

This cannot be done with Doha you see, which is why they are not enthusiastic about Doha. But when you get to small countries – and I’m sorry to say it about New Zealand, but you are small compared to this big Rottweiler that is the United States. So you, and Vietnam and Singapore….you will have these lobbyists come and say that you have to have "WTO Plus" kinds of copyright protection. Now, every economist and trade lawyer knows there is an optimum : you can have too much in the way of IP controls, or too little, or something in between. But those who lobby for IP [trade regulation] want it at a maximum level. So they call it "WTO Plus" which sounds wonderfully benign. Or they say that it is an agreement for the 21st century. Jokingly, I sometimes say ’Why don’t you call it an agreement for the 22nd century and just leave the 21st century alone?’ George Orwell would have admired them.

From what you’re saying, the confidentiality provisions that are also surrounding the TPP are being driven more by commercial interests than by anything to do with the trade interests of the countries involved?

By these lobbying interests, yes. Take labour standards as an example. I’m a liberal and a democrat and believe we ought to have better labour standards. But to try and to it through trade treaties is exactly the wrong way to do it. which is why even Lula [the former president of Brazil and a former trade unionist] opposed them….Every lobbyist under the sun has an agenda [with then TPP] and there are two things they are doing. They’re making smaller countries – yours included – agree to a template where all kinds of things will have been sunk into it. And then they will go to the bigger countries and say look, here is a template –

Signed onto by a coalition of the willing?

Exactly. I’m in India now and I’m going to see the Trade Minister and say that we have here a TPP with all these things that are really US –lobby reflected demands, and which is really calculated to reduce the openness of the system in terms of new members. Because India could never agree to these things. Its not that we want to pull out the fingernails of these business lobbyists or torture them. We are a democratic country. So is Brazil. But we don’t want the things that are in the TPP [to be introduced] here. Because we think they will be misused. We ought to ask for – and this I think, is what New Zealand ought to do, since New Zealand is a very interesting and important country…We ought to insist that the membership of TPP must be open to people provided they make trade concessions. But it should not be required of people that they must go on to sign onto all these other provisions.

On that point of keeping the trade focus and being more inclusive we are seeing the launch this month of the so called Asean Plus Six grouping aka the Regional Comprehensive Economic Partnership, or RCEP. It includes China and India and currently excludes the US. In your view, is the RCEP likely to result in more egalitarian outcomes and a higher level of inclusiveness than the TPP ?

No, I don’t think it will happen. For the simple reason that you have to take the geo-politics into consideration. Asean Plus One, Asean Plus Three, which preceded Asean Plus Six deliberately excluded the United States, as you know. That was because Mahathir [of Malaysia] at that time said you Americans are going south to South America and we are not allowed to join that. So tit for tat, you can’t join Asian trade agreements. We were left biting our fingernails in Washington because Asia is a dynamic region, and while South America has done reasonably well in the current crisis it is still an up and down system, right? There’s much more variance there.

That being the case we in the US were wondering how the bloody hell to get into Asia, where the real payoffs are. Then we saw China’s aggressiveness on the external front. It pushed all the little countries in Asia – I’m not sure about New Zealand – but certainly Vietnam, Malaysia and Singapore turned around, and all of them suddenly wanted the TPP. The TPP became America’s way of getting back into the region, which it had always wanted to do before.

For those China-related reasons, the TPP has always looked as much of defence/security pact in the eyes of the US, as it does a trade pact.

Yes. But the point is the US wanted to be in that area…

Right. So, within the RCEP, why wouldn’t India serve as an ideal counterweight and re-assurance against any perceived aggressiveness on the part of China, while still retaining an Asian-focus within an Asian–led pact ?

It would work only insofar as we really strip it of any of these trade-un-related demands. Which are the things that the American lobbies want. But the Americans can’t get into the RCEP – just as India and China can’t get into the TPP – with all these demands for ’WTO Plus’ IP provisions etc, that it would involve.

But I’m surprised you think the RCEP can’t work, because it seems like the only alternative to having the Americans inside the tent, dictating the terms with everything that it would entail. Namely, the whole array of business lobby-driven demands.

[But] if Asean Plus Six has India, China joining they’re going to say this has got to be a template where no side conditions like that are to apply. It is only going to be a trade grouping. And if they say that, Washington cannot join.

And do you see that as being something of a self defeating position for Asean to be taking ?

Yes, exactly..It seems to me that the way this TPP can be moved forward is to say that we should have open membership to it. Which would mean that if people wanted to sign onto ’WTO Plus’ rules on IP, or they wanted to sign onto different labour standards, let them sign onto them. Nothing prevents them from doing it voluntarily. But you should not make it a pre-condition where you have to sign onto all these wretched demands that are being made by the lobbyists in the United States and by Washington.

And presumably, we all need to pray that the political will exists in Washington to be content even if the business lobbies don’t get everything that’s on their wishlist ?

Yes. But that will mean Obama will have to stand up to all of these goddamn lobbies. And his record in his first term is that he doesn’t. This is what worries me. Unless he decides in his second term that his credibility and US leadership are at stake, and that he is not interested in fragmenting Asia. Because the US has already fragmented South America. Already you have Brazil, Argentina etc saying that they don’t want these kind of side conditions. And yet there are other [Mercosur] market countries that have already accepted them. Already you have two very different sets of countries which have very different views on these things. And US policy – wittingly or unwittingly – is moving to fragment Asia in the same way. This is where I think the Asean Plus Six grouping could play a role in saying to the US…look, you are most welcome United States, but we will make this a trade group, and not this other thing.

So we would then have, in fact, a rival template ?

Yes. One where other countries – even countries such as Canada and France – could be included [within the RCEP]. It would be to everyone’s advantage, if we were not to go down the American road. Because we would achieve something which is really trade –oriented, and not something which uses trade agreements as instruments through which to achieve other objectives that people don’t share.

I have one last question. Some people look at the investor/state dispute mechanisms being mooted within the TPP, and feel that they pose a genuine threat to national autonomy. Do they, in your view, and if not, why not ?

Let me put it another way. I don’t think it is national autonomy I am worried about. Because whenever you join any international agreement, you automatically surrender some sovereignty in order to gain other benefits against it, right? What bothers me is that we have an incredibly successful dispute settlement mechanism at the WTO, which is a multilateral institution, It is the envy of the world. No other institution has that kind of clout – where you can punish, and hold countries’ feet to the fire. But once you get these regional agreements like the TPP and bilateral agreements, you automatically see more and more dispute settlements and more so-called arbitration occurring within those groups alone. That means the bigger power will be having more say about what comes out of them. And that will in turn, eventually undermine the WTO dispute settlement process…..

So, If there is a dispute with New Zealand in future, arbitration or dispute settlement mechanisms will have already started developing where New Zealand doesn’t have the same sort of clout vis a vis the United States, you see. That will influence the outcome. The rights of not just New Zealand are likely to be undermined. One of the things I’m saying is that as we undermine the WTO multilateral trade system, we are also likely to undermine the WTO dispute settlement system. Those of us who are smaller powers have to ensure that the WTO dispute system remains paramount. But unless we understand these complexities, we are going to miss the bus.

Unwittingly through the TPP, couldn’t we also be enabling bigger countries to shop around for jurisdictions and for sympathetic arbitration panels in trade disputes, with all the potential for capture this will entail?

Exactly. And bigger countries like the US, or the EU will have a vested interest in the de facto intimidation of countries into accepting bilateral panels and regional panels, where they can carry greater clout. I’m only taking the realistic scenario. People can say ’Oh no no no, judges are quite impartial’ and so on, but that’s a lot of hogwash. I come from a judicial family, and I know. They live in the real world.



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