Seoul Conference on International Trade Law: Integration, Harmonization, and Globalization


COLUMIBA JOURNAL OF ASIAN LAW
VOL. 10 FALL 1996 NO. 2

SEOUL CONFERENCE ON
INTERNATIONAL TRADE LAW:

INTEGRATION, HARMONIZATION, AND
GLOBALIZATION

In July 1995, the Center for Korean Legal Studies at Columbia
University School of Law and the American Studies Institute at Seoul
National University, in conjunction with support from the Samsung Group,
held a conference on issues of international trade law in Seoul, Korea,
attended by academics and practitioners from the United States and Korea.
The purpose of the Conference was to provide a scholarly forum for
discussing some of the salient topics and problems from the perspective of
the new world economic order which has risen out of the Uruguay Round
trade negotiations and the launching of the World Trade Organization
(hereinafter "WTO").

This piece presents slightly edited portions of the Conference
discussions, including summaries of two papers presented at the
Conference, all related to the issues of international trade law.

I. Opening Remarks 306
H. Linkage and Harmonization 308

A. An Analysis of Harmonization Claims - David W. Leebron
B. Discussion

Ill. Overview of Integration, Harmonization and Globalization
- Michael K. Young 329

IV. The WTO, Regional Trade Agreements and Self-Help 332
A. Dispute Resolution in the Uruguay Round - Michael K. Young
B. Discussion



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I. OPENING REMARKS

Park Kil Jun:' Good morning everyone. I would now like to declare
the opening of the International Trade Law Conference between Seoul
National University and Columbia University.

Korea, in its rise through the ranks of international and economic and
business communities, has distinguished itself as an increasingly important
trading partner of the U.S. and is an important member of the World Trade
Organization. Korea and the U.S. face many difficult and important issues
related to trade. The American Studies Institute of Seoul National
University and the Center for Korean Legal Studies of Columbia Law
School will together attempt to address important bilateral and multilateral
issues and to develop concrete, coherent and workable solutions that may
provide a foundation for better relations between Korea and the U.S.

We will focus on three specific subject matters. The first is the
integration and harmonization of international trade regimes. The second
is regionalism in international trade. The third is dispute settlement in
international trade. We will first hear from Professor Choi Dai-Kwon and
Professor Michael K. Young.

Choi Dai-Kwon:2 Distinguished scholars and practitioners from
Columbia Law School and Seoul National University, I'm pleased to
announce the opening of the Conference on International Trade Law, 1995,
Seoul. First and foremost, welcome to Korea and welcome to Seoul
National University.

I am sure that everyone present here today will benefit both
intellectually and practically from this two day discussion and analysis of
today's important topics in international trade law. The importance of these
issues emerges ever more largely with the launching of the WTO, the full
understanding of which requires a joint effort like the one making this
conference possible. I believe and hope that we are now laying the
foundation for an annual meeting that is to be held alternately in Korea and
the U.S., and I also believe that what is well begun is half done in reference
to our future joint endeavors. Thank you very much.

Park Kil Jun: The next opening address will be given by Professor
Michael K. Young, who is the director for the Center for Korean Legal
Studies at Columbia University.

1. Professor of Law, Yonsei University.
2. Professor of Law, Director of the American Studies Institute, Seoul National University.

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Michael K. Young:3 Dr. Park, thank you very nuch.... The U.S.
is Korea's largest trading partner, but I do not think that all Americans
realize that Korea is the U.S.'s fifth largest trading partner. Moreover,
reading the newspapers in the past few days, one sees the extraordinary
growth of the Korean economy, which is, in my judgment, probably
unprecedented historically.

The United States and Korea have a mutual interest in free trade. The
U.S. has focused much of its public attention on opening markets in Japan.
My suspicion is that Korea's interest in opening the Japanese markets is at
least as great or greater than ours, and the same is probably true with
regard to China. Korea's opportunities in these markets in Asia wAll be at
least as great, and frankly speaking, probably greater than our opportunities
in these markets, and so I think we share a very deep mutual interest in
finding ways to create a special alliance that will work within the trade
organization, the multilateral and the regional trade organizations.

What we hope will occur today and through tomorrow afternoon will
be frank and open discussions. There will be disagreements, as there
should be among friends, and there will be points of agreement. But
through it all, I hope that we will be able to keep our eyes on our mutual
set of very important and fundamental interests and that this dialogue that
we start this morning will not end tomorrow afternoon but will continue on
many years into the future. We have worked hard to bring Columbia
professors who know something about these areas as well as two very, very
distinguished practitioners from the U.S. who have written and thought
extensively about these matters and have participated in senior government
positions. We hope that we together with everyone here will start a
dialogue that will continue long into the future and that our chance to
discuss these matters today will be just the first of many in the future.
Thank you.

Park Kil Jun: Thank you to our two directors, Professor Choi and
Professor Young. Next, we will hear a welcome address and congratulatory
remarks by the president of the university, Dr. Soo Sung Lee, who until a
few months ago was a teaching professor of this college in criminology and
criminal law.

Soo Sung Lee:4 Distinguished scholars, lawyers, colleagues, and
students. I cordially welcome you all to Seoul National University. I
especially would like to congratulate Columbia University for undertaking
such a monumental project in light of being an ocean away. I am extremely

3. Fuyo Professor of Law, Columbia University; Director of Center for Korean Legal
Studies, Columbia University.

4. President and Professor of Law, Seoul National University. Took office as Prime
Minister of Korea in December, 1995.

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pleased that the 1995 Seoul Conference is being undertaken with
professors and professionals of both countries for the vital and timely topic
of international trade law.

No one can deny that the world is going through some cataclysmic
changes in the field of international trade. Recently, we have experienced
the emergence of regional trade pacts and the establishment of the WTO,
pitted against constant trade tensions between countries. In light of this, we
as a whole must focus on integration, harmonization, and globalization in
order to effectively enter the twenty-first century. Integration,
harmonization, and globalization are naturally important issues for Korea
and other rapidly industrializing nations.

However, all development activities carry an opportunity cost,
whether with a positive or deleterious effect. Korea, in particular, is at an
ideological crossroads. Korean society is changing at an alarming rate.
Some of the traditional concepts which make Korea so unique are
becoming endangered by the influx of new Western ideas. One impetus is
the issue of trade at the international level. International trade is one of the
most efficient ways to integrate a country's economy and the mind-set of
the people, but a fundamental question is what will remain of Korea in the
process of integration, harmonization and globalization.

II. LINKAGE AND HARMONIZATION

A. An Analysis of Harmonization Claims - David W. Leebron5

The following is a synopsis of "Lying down with Procrustes: An
Analysis of Harmonization Claims, " a paper presented at the Conference
by David W. Leebron.6

Claims for harmonization of national laws and policies have been
closely linked to claims for "fair trade." Many have argued that
harmonization is the mechanism by which unfair differences in legal and
other regimes are eliminated, and the "level playing field," is restored.
Harmonization in this sense is the Procrustean response to international
trade, a response fundamentally at odds with the theory of comparative
advantage that has justified liberal trading policies since the early
nineteenth century. The "fair trade" idea is undoubtedly one source of
harmonization claims, but it would be misleading, and ultimately damaging
to the cause of free trade, to characterize harmonization claims generally
in this way.

5. Dean of Columbia Law School and Professor of Law, Columbia University.
6. This summary is a highly condensed version of a paper that appears in J. Bhagwati and

R. Hudec, Harmonization and Fairness (MIT Press 1996) [cite to be checked].

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The debate over harmonization and trade will be improved if we
make more explicit the underlying assumptions and fundamental issues.
We ought to ask a number of questions regarding any harmonization claim.
What is the basis of the claim that the laws of two or more jurisdictions
should be the same? Why do the laws differ in the first place, and do the
reasons for difference suggest additional costs to the process of
harmonization? What other costs might harmonization entail? What kind
of harmonization is needed and to what degree must the laws be
harmonized? What should the scope of the harmonization effort be in
order to realize any goals without unnecessary costs or distortions? Are
there alternatives to harmonization that might serve the goals of the
proposed harmonization without entailing some of its costs?

1. What is "Harmonization"?

Harmonization can be loosely defined as making the regulatory
requirements or governmental policies of different jurisdictions identical,
or at least more similar. It is one response to the problems arising from
regulatory differences among political units, and potentially one form of
inter-governmental co-operation. A "harmonization claim" is a normative
assertion that the differences in the laws and policies of two jurisdictions
should be reduced.

Types of Harmonization: Rules, Policy Goals, Principles and Institutions

What exactly does it mean to harmonize laws and governmental
policies? Legal regimes, and the broader societal choices in which they are
embedded, can differ in numerous aspects. Some of these differences are
reflected in formal legal rules and institutions, and others are not.
International harmonization has been pursued in a vast array of diverse
fields: monetary and fiscal policy, contract law, banking law, securities
regulation, intellectual property law, labor law, environmental law, food
safety, product standards and liability law, and trade law, to name only a
few. Despite this variety, it is useful to distinguish several broad types of
harmonization.

First, fairly specific rules that regulate the outcome, characteristics or
performance of economic goods, actors, transactions, institutions and
productive facilities could be harmonized. Second, more general
governmental policy objectives can be harmonized. Unlike the
harmonization of performance requirements, states retain broad leeway to
determine how to meet the policy objectives. Third, harmonization
sometimes aims at adopting certain agreed principles that are intended to
influence or constrain the factors that are taken into account in making
policies and rules. In some instances, these principles limit the structure or
implementation of policies. Fourth, harmonization of institutional

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structures and procedures, both private and public, is often sought. Such
harmonization primarily serves to reinforce other types of harmonization.

The Nornative Aspect of Harmonization Claims

Harmonization claims have both a normative and non-normative
component. The normative component consists not in the assertion that
two political entities should adopt the same policies or laws (that is
inherent in any harmonization claim), but rather in any accompanying
claim that the laws of at least one society should be conformed to a better
standard. The non-normative component is the claim that the laws of the
two societies should be made the same, apart from any normative judgment
as to either of the society's laws.

Saying that a harmonization claim is non-normative does not mean
that there is not a normative claim that the laws of two jurisdictions should
be harmonized. Quite the contrary. It means only that the claim is neutral
with regard to which rule should be chosen as the basis of harmonized rule.
In other words, the claim consists only of the assertion that the rules that
govern the two societies should be the same. A claim that the law of all
jurisdictions should be conformed to a particular standard, but contains no
non-normative component, is in some sense not really a harmonization
claim at all. Most harmonization claims are mixed in that they are
assertions both that the laws of two jurisdictions should be made the same,
and that the law of at least one of the jurisdictions should be conformed to
a "higher" standard.

2. The Justifications for Harmonization

Jurisdictional Interface. One of the most important functions of
harmonization is to enable participants or systems from different
jurisdictions to interact or communicate. This interface claim for
harmonization is limited to cases in which transactions occur directly
between two jurisdictions. In some instances, harmonization of domestic
regulatory requirements might appear necessary to make certain
transnational activities possible, but in most cases it will simply be more
efficient. However, the adoption of similar or identical domestic rules is
rarely required. In many cases, a special interface (or international) regime
(applying only to international transactions) will sufficiently serve the
purpose. An alternative to (or perhaps special case of) interface
harmonization in this last sense is the harmonization of rules for deciding
which jurisdiction's regulatory requirements apply.

Externalities. A second argument for harmonization is the presence
of externalities. Rules adopted by one jurisdiction can result in costs
imposed on other jurisdictions. There are three types of externalities that
might result from a nation's regulatory policies. First, domestic activity in

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one nation can directly impose transborder costs on another, usually
neighboring, nation, resulting in an overall welfare loss to that nation.
Second, those policies might adversely affect some individuals in another
nation, but not result in any overall loss in welfare (distributional
externalities). Third, as a result of one nation's policies, another nation
might make political choices that result in a loss of welfare (politically
mediated externalities).

Leakage and the Non-efficacy of Unilateral Rules. A different kind
of externality is the "leakage" into (or out of) a jurisdiction of goods or
transactions that do not conform to a jurisdiction's rules, resulting in the
diminished efficacy of those rules ("non-efficacy"). Government regulation
often attempts to impose a protective envelope around a jurisdiction's
territory and its inhabitants. Goods and services that enter this envelope are
expected to conform with all requirements imposed by that jurisdiction's
government for the protection of its citizens and residents. But borders are
hard to police, especially for invisible transactions such as securities. Even
for physical goods such as cigarettes, weapons, and narcotics, border and
domestic enforcement have proven inadequate in meeting regulatory goals.
An alternative to policing borders and cross-border transactions is to
harmonize the rules of all jurisdictions concerned.

Fair Competition. A prevalent argument in support of harmonization
is fairness in trade competition. The central idea is that lesser regulatory
burdens will give producers an unfair advantage in international trade. A
steel manufacturer that faces no pollution control requirements is able to
sell steel cheaper than a manufacturer located in a jurisdiction that imposes
severe limitations on emissions. This claim attempts to supply the
argument, missing in the non-efficacy claim above, that there is something
inherently wrong about the difference in regulatory policies.

Economies of Scale. A fifth argument for harmonization is economies
of scale. If a manufacturer faces significantly different requirements in
each jurisdiction for which it manufactures, it will not be able to achieve
economies of scale beyond its market share for one jurisdiction. If further
economies could be achieved by increasing the scale of production,
harmonization of the regulatory requirements will make that possible.
Legal information costs represent an additional fixed cost for each
jurisdiction that must be recovered from the sales of products in that
jurisdiction. In the face of ignorance and uncertainty, a producer might be
unwilling to undertake the effort to engage in a small number of
international transactions. In short, every separate legal system to some
extent creates a barrier to trade. Harmonization substantially reduces
information costs, enabling market entrance even for relatively small sales.

Political Economies of Scale. A somewhat different argument for
harmonization could be termed "political economies of scale." Regulatory
requirements generally result from a political process. The political forces
and institutions involved in that process might realize certain economies,

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or greater effectiveness, if decisions were made or influenced by a more
encompassing forum. Some institutions of harmonization shift the process
to a different political forum, with different resources and political forces.
In some instances, the argument for shifting the forum to the integrated
level is that resources can be better marshaled and coordinated. If there is
one optimal standard for all jurisdictions, then it reduces costs to determine
that standard jointly rather than separately. Some participants in the
regulatory process, however, want harmonization shifted to a different
forum because their political power in the alternative forum is greater (or
the costs of exercising that power are less).

Triansparency. The inability to determine whether another nation's
policy choices are made on legitimate or illegitimate grounds is a serious
problem for the international trading system, especially insofar as one of
the prevailing norms is "reciprocity" in trading relationships. If trade
liberalization commitments can be neutralized by disguised regulatory
measures, then the multilateral trade negotiation process would be
undermined. Requiring jurisdictions to adopt harmonized rules (e.g.
international standards) eliminates their ability to choose alternative rules
because of their protective effect. Of course, it also eliminates their ability
to choose rules for reasons other than protective effect (such as a greater
desire to protect human health and the environment), and for this reason
harmonization based solely on the concern to assure trade transparency is
controversial.

3. The Sources and Legitimacy of Difference

Harmonization claims cannot be evaluated solely with respect to the
goals that harmonization is designed to achieve, such as economies of scale
or fairness. Differences between nations may also have value, and
harmonization can only be achieved at the cost of eliminating or reducing
differences. Thus before evaluating claims that laws should be harmonized,
we must ask why nations adopt different laws. Ultimately, the question of
harmonization, particularly where the justification is fairness, is one of the
legitimacy of difference. If differences are legitimate, then a harmonization
claim could not be based solely on the existence of difference, as the
fairness claim appears to be. Other harmonization claims are based at least
in part on the cost of difference. If differences have value in addition to
legitimacy, then even harmonization claims based on these other
arguments must take that value into account in determining whether
harmonization should be pursued.

Differences between national regulatory policies could be regarded
either as substantively legitimate or procedurally legitimate. They are
substantively legitimate if the differences in policy are justified by
differences in the substantive concerns and values that inform policy. They
are procedurally legitimate if we regard the process by which they were

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adopted as establishing their legitimacy, whether or not the differences
could be justified by reference to differing values.

Nations can be said to differ in five attributes that affect the laws and
policies they adopt: endowments, technologies, preferences, institutions,
and coalition formation. In addition, at least some differences in laws are
probably stochastic. Differences in legal and policy regimes which result
from differences in preferences, endowments or technologies reflect
differences in the optimal regime. Any claim of unfairness would seem
fundamentally at odds not only with the theory of comparative advantage,
but also a minimalist notion of sovereignty that allowed each nation to
adopt policies that are best for it. Harmonization in such a case would
require one or both nations to adopt a less than optimal legal regime.
Differences in institutions and coalition formation, on the other hand, result
only in differences in the regime actually adopted, which might be the best
politically attainable regime for any given society. In this event, differences
between societies cannot be adequately defended on a normative basis, but
only on a pragmatic basis, or on the basis of legitimacy conferred by
process.

Process-based approaches to legitimacy might be preferable to
substantive approaches. Requiring nations to alter their institutional
processes at least allows those nations to continue to adopt different
regulatory choices. Those choices need then only be defended on the basis
of fair and open processes, not their substantive legitimacy. The difficulty
is in agreeing on the minimal institutional arrangements for procedurally
conferring legitimacy.

4. The Process and Institutions of Harmonization

Insofar as harmonization bespeaks a result - the convergence of
legal and policy regimes - it will occur even in the absence of formal
international efforts. Much harmonization is exogenous to the legal system,
and the critical inquiry is whether international legal efforts at
harmonization should lead rather than follow the forces that produce
harmonization. These forces include not only the convergence of the
factors, such as technology and preferences, that produce differences in
legal regimes, but also the internationalization of the political forces that
influence domestic decision making.

Unilateral efforts, whether through "spontaneous" adoption of
common standards or the application of offensive sanctions, have a limited
ability to achieve harmonization, and are sometimes of dubious legality
under the GAIT. For the most part, they are necessarily aimed at bilateral
rather than multilateral harmonization. More structured, formal
arrangements are needed for broad based harmonization.

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Formal international harmonization processes are either mandatory
or non-mandatory. A mandatory process entails an international
commitment to adopt (and maintain) the harmonized regime. Non-
mandatory harmonization limits itself to the formulation of harmonized
rules. In some cases, each nation must formally indicate whether or not it
accepts the rules, but that does not necessarily entail an international
commitment.

Most international harmonization efforts have taken place without
international legal obligation. A common methodology is the drafting of
model or uniform laws and standards. Because the regime will not be
mandatory, it may be easier to reach agreement on the substantive terms.
Nonetheless, the formulation of a single international regime significantly
alters the incentives to harmonize national rules, and thus parties will
pursue their interests vigorously even when the result is in this sense non-
binding.

Given the difficulties in compromising national regulatory standards,
it is not surprising that international harmonization, other than interface
harmonization, has met with very limited success. The structure of the
harmonization process is often contentious not only internationally, but
domestically as well. Important questions include: Who will be able to
participate in the process? Should the process be one of governmental
representation, or conducted by non-governmental organizations? If a non-
governmental process, should it be subject to a multilateral approval
mechanism, or should each nation make its own decision whether or not
to adopt the harmonization proposal? As these questions suggest, there are
numerous permutations. These include the following.

International Bargaining Through Representation of Nations. The
most common structure for reaching international agreements is the
negotiation by official national representatives, who most often report to
the chief executive of the nation. Critical to the outcome is the perspective
such representatives bring to the negotiations, and which constituencies
they most represent. On the issue of food standards, for example,
negotiation among national trade representatives would probably reach
different results than negotiation among the heads of national agricultural
agencies, or the agencies responsible for consumer safety. Non-
governmental organizations, whether domestic or international, are
sometimes granted observer or participant status. Observer status gives
them a greater ability to maintain domestic debate during the course of the
international process, and to generate political pressures on that process.
Participant status in addition allows them to express their views within the
negotiation process.

International Group of Experts. The formulation of a harmonization
text is sometimes assigned to a group of experts who are instructed that
they are not to represent their home countries in the process. The attraction
of the expert model of harmonization is also its weakness: isolation from

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political forces and, to some extent, self-interested economic forces. If
these groups are excluded from a significant role in the process, they are
more likely to exercise their political power in the domestic process to
prevent the adoption of harmonization proposals they regard as contrary to
their interests.

Constituency Representation at the International Level: The 1LO. One
approach to harmonization is to move the bargaining among various
constituencies to the international level. This is the basic structure of the
ILO, in which representatives of workers' and employers' organizations,
as well as governments, participate directly in the formulation of ILO
conventions. Each delegation to the ILO consists of four members: two
nominated and instructed by their national government, one representative
of labor and one of industry. Other than the double representation granted
to governments, the three "constituencies" participate equally in most
aspects of the ILO's work, including the formulation and adoption of
international labor standards. Even the executive organ of the ILO is
structured along similar representative lines. Trade-offs are thus not
necessarily resolved, either before or after the harmonization process,
within nations.

5. The Costs of Sameness

In a number of contexts, we find expressions of the idea that policy
decisions ought to be made by the smallest appropriate political unit.
Making decisions on a more local basis has both substantive and
procedural value. The substantive value derives from the ability of a more
local population to implement choices which, as suggested above, better
reflect its preferences, resources and technologies. If the optimal policies
for national populations do differ, then harmonization requires that some
measure of local welfare be sacrificed (assuming local policies could be
made effective). The procedural value of localism is one of participation,
of having a more meaningful say over the policies that affect one's life, and
of maintaining a more direct influence over one's government and
governmental officials.

Harmonization also introduces costs not found in comprehensive
regulatory systems. Because harmonization is invariably selective in some
sense, it has the potential not only to introduce new distortions in both
domestic and international policy, but also to result in greater rather than
less divergence in the actual effects of regulatory policy. This is a sort of
legal version of the theory of the second best: when legal regimes are not
completely unified (i.e., all relevant differences eliminated), harmonizing
selected elements might in fact produce greater distortions and
divergences. Indeed, some recent harmonization efforts seem to recognize
that procedures, and in particular enforcement, are more important than the
substantive rules applied.

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6. Alternatives to Harmonization

In cases in which harmonization is not justified despite a worthwhile
objective, there may be means short of harmonization that would at least
partially obtain that objective. Even if harmonization would appear
warranted when measured against the existing regime, the question is
whether harmonization is the best solution to the problems posed by
differing legal regimes. Alternatives that at least in part address the claims
underlying harmonization must be considered as well. Although in some
cases harmonization would be preferable to maintaining the existing
differences in policy and law, an alternative measure could be preferable
to both. There are five common alternatives to harmonization: mutual
recognition, cooperation in enforcement, unilateral measures, "private"
harmonization and circumvention.

Mutual Recognition. The principle of mutual recognition requires that
jurisdictions accept for domestic purposes certain regulatory
determinations of other jurisdictions, even though those determinations,
and the criteria on which they are based, are not harmonized. For example,
products of a foreign producer approved for sale in its home jurisdiction
would, solely on that basis, be permitted for sale in the importing country.
Mutual recognition is most clearly an alternative to harmonization when
the underlying purpose is to enable firms to realize economies of scale
across international markets. In theory, mutual recognition allows two
jurisdictions to maintain policy independence, but at the same time it
exacerbates problems of leakage and non-efficacy, depending in part on the
mobility of the regulated providers or entities. In most contexts, mutual
recognition is not so much an alternative as a complement to
harmonization. Many efforts at harmonization require some mutual
recognition if they are to achieve their purpose.

Recognition of Greater Jurisdictional Authority and Enforcement
Assistance. Some claims to harmonization could be addressed by providing
the affected jurisdiction greater ability to enforce its chosen rules. (Mutual
recognition, by contrast, entails a reduction in enforcement authority.) The
problem of non-efficacy, for example, could be solved by giving the
harmed jurisdiction the necessary lawmaking and enforcement powers. The
force of national rules can be further extended if other jurisdictions agree
to enforce them. Making a jurisdiction's rules more effective entails a
number of elements. First is the choice of law to govern particular actors
or transactions. A second element is the recognition and enforcement of
judgments and other penalties. A third is assistance in the gathering of
information.

Greater Unilateral Efforts. Other states will not always be willing to
cooperate in addressing the problems of non-efficacy and externalities. An
alternative to both harmonization and greater cooperation in enforcement

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is stronger unilateral measures to prevent leakage, including border
enforcement. Such measures may not only be more costly than
harmonization to the jurisdiction seeking greater effectiveness of its laws,
but also to other jurisdictions as well. Greater border enforcement
measures, for example, almost invariably impose costs on trade, and thus
constitute a common nontariff barrier. This could produce welfare losses
to all trade partners. But unilateral efforts aimed directly at achieving more
effective enforcement might again be preferable to unilateral efforts aimed
at achieving harmonization.

"Private" Harmonization. If by harmonization one has in mind
mandatory or non-mandatory regimes arrived at by an inter-governmental
process or institution, an alternative is to allow non-governmental actors
to formulate, and decide whether to adhere to, harmonization proposals or
otherwise achieve harmonization. Government policies can play an
important role in determining the extent of opportunities for such private
harmonization. There may be good reasons to object to industry autonomy
in some contexts, but private harmonization avoids some of the costs and
difficulties of governmental harmonization efforts.

- Circumvention. I use the term circumvention to refer to measures
taken by private actors to reduce or eliminate the consequences of differing
legal regimes. For example, the problem of economies of scale can be
eliminated if a competitive product can be designed that meets the
requirements of both jurisdictions,

7. Conclusion

The evaluation of harmonization claims is a complex and difficult
endeavor. It requires first that we understand the nature of the claim and
the extent to which it is normative (in the sense it asserts certain
substantive outcomes other than harmonization alone must be achieved).
Then we must identify the basis of the harmonization claim: what is
objectionable or unduly costly about the existence of different legal
regimes. Before harmonization is pursued, we need to understand the
sources and value of the difference that is the predicate to harmonization.
With all this in mind, we must determine what harmonization processes
would be most suitable, and whether some alternative to harmonization
would better serve our goals.

Many of these questions are admittedly unanswerable in the context
of actual claims for the harmonization of national laws and policies. More
dubious harmonization claims (e.g., fairness) will sometimes have more
political appeal than sounder harmonization claims (e.g., economies of
scale). Nonetheless, requiring those engaged in a debate over
harmonization to make explicit their underlying arguments and
assumptions should benefit the process.

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B. Discussion

Park Kil Jun: We will now officially begin the first session entitled
"Linkage and Harmonization," which will be moderated by Professor
David Leebron, Professor Oh Seung Kwon, and Sang Jo Jong.

Oh Seung Kwon:7 In this session, Professor Leebron will first give
an outline of harmonization.

David Leebron: I want to say just a word about the relationship
between my topic today and the rest of the conference, and particularly the
topic of this afternoon. International integration, harmonization and policy
coordination, will be the central international economic issues for the next
several decades.

This morning we want to address these questions from both a general,
analytical framework and also from a sectoral perspective, that is, looking
at perhaps a few of the particular issues: worker rights, competition policy,
intellectual property, product standards, and human rights. This afternoon,
by contrast, we will primarily explore the level at which integration should
occur. Should it occur on a multilateral, plurilateral or regional
framework? We have a lot of choices on how to proceed both horizontally
and vertically, but we are all basically dealing with the same problem; that
is, how should this process of integration occur, whether it should occur on
a geographic basis or on a sectoral basis.

Understanding the reasons for and alternatives to harmonization and
other modes of integration is essential to achieving international
agreement. If we put on the table before us only a particular conception or
approach, then we are likely to end in disagreement. However, if we
understand the full range of the processes and reasons that harmonization
is urged, and what alternatives are available, then we may find there is an
opportunity for agreement where perhaps previously we had seen none.

Moving on to the more specific problem of harmonization, there are
two things we need to focus on. First, what kind of reasons can legitimately
be advanced for the claim that nations should conform their laws or
policies to some external standard? I want to clarify, as I attempt to do in
my paper, the distinction between the claim that it is important that two or
more nations have the same policy and the claim that all nations should
adhere to some external standard. Those are somewhat different claims.
For example, the claim that all nations should prohibit slave labor does not
depend upon what any other nation does. We think generally that every
single nation should prohibit slave labor, whether or not any particular
nation already prohibits slave labor. This is distinct from the notion that it

7. Professor of Law, Seoul National University.

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is important that two nations conform their policies. For example, we do
not necessarily think that all nations should drive on the left- or right-hand
side of the road, and this question presents no moral issue. However, the
U.S. may prefer, and perhaps Korea also, that all countries drive on the
right-hand side of the road so that we do not have to make separate
vehicles that are capable of driving on the left-hand side of the road.

I list in the paper, seven different harmonization claims. I am going
to spare you that list, because it will be somewhat incomprehensible
merely by the labels that I attach to them. I will mention only the three that
I think concern us most in the context of this conference. Those are: fair
competition, which is the so called "level playing field" argument that the
U.S. has become so fond of; economies of scale, which I think has been
particularly important historically with respect to things like product
standards; and transparency, which is being able to secure understandable
and enforceable market access commitments in the context of international
trade negotiations.

Beyond these claims for harmonization, there is the issue of the
institutions and mechanisms for achieving that harmonization, and I think
this is as important as the substance of harmonization itself. This is to some
extent where the question of linkage comes in. How should harmonization
issues be linked to the international trade regime? There are three different
kinds of arguments that I see for linking issues to the trade regime. In
discussing the problem before us, it is important that we understand where
these fall.

In one category are the norms or principles that underlie the
multilateral trade system itself, that is, those related to comparative
advantage or efficiency. This is one basis for the claim that environmental
protection policies should be harmonized. For example, if one nation has
stringent environmental policies that require the polluter to pay for either
environmental protection or environmental damage and another nation
either subsidizes environmental protection or has lax requirements
regarding environmental protection, there is some argument that those
differences can lead to distortions in the sense of the trade flows that would
result from notions of comparative advantage. One has to add, particularly
in the context of -environmental policy, that the differences in
environmental protection may themselves represent a comparative
advantage, that is, that different nations either value environmental
protection differently or have different resources such as available water,
clean air, or geography.

A second category of cases in which it is insisted that the trade regime
be linked to other regimes is where trade is a factor in encouraging
violations or in undermining the enforcement of the norms of the other
regime. Examples of this might include protection of intellectual property
or the protection of endangered species, where unrestricted trade in goods
increases the violation of those regimes.

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Lastly, there are those cases in which the only argument for linking
the trade regime to these other regimes is that the trade regime provides a
means of effectively enforcing the norms of the other regime, that is, what
we might call a pure sanction or deterrence-based rationale. The best
example of this is probably human rights. Most human rights do not
directly affect the comparative advantage, or competitive advantage we
should say, of nations. One exception of course, might be worker's rights,
because many argue that this does affect comparative advantage.

This brings us to the third question, which we should keep closely in
mind. If we achieve agreement that there is some case for linking different
norms or different regimes, or if we agree that there should be some link
between trade and environment or between trade and worker rights, then
we face the question of exactly what kind of linkage or what kind of
institutional arrangements are appropriate. I want to briefly lay out the
alternatives that we should keep in mind, again on the theory that if we
understand the full range of alternatives, we might find a path towards
agreement.

The first is what I call macro or institutional linkage. We can require
that participants in the trade regime also participate in some other regime.
For example, we might require that any country that is a member and
beneficiary of the WTO must also be a signatory of the covenants on
international human rights, but not otherwise link the issues of human
rights and trade. We have a couple examples of this. The IMF and the
World Bank are linked in this way. In order to participate in the World
Bank, you must be a member of the IMF. Indeed the IMF and the GATT
are similarly linked. In order to participate in the GATT you must either be
a member of the IMF or undertake obligations comparable to those
undertaken by members of the IMF.

A second alternative is what I call a micro or norm-based linkage.
This is to some extent the other extreme, and I think the source of much of
the controversy, particularly in areas such as workers' rights and
environmental protection. Here, rather than linking the regimes at a macro
institutional level, the norms are directly incorporated into the trade regime
and become enforceable as a part of that regime. That, for example, was
the basic resolution with intellectual property in the Uruguay Round under
the agreement on Trade Related Aspects of Intellectual Property. The
norms of intellectual property were made part of the trade regime and are
subject to dispute settlement and cross retaliation under that regime.

Third, we might empower another regime or institution to impose
trade sanctions. For example, under Article XXI, the GATT is explicitly
subordinated to some aspects of the United Nations. Thus the United
Nations can authorize trade sanctions for certain violations even if those
sanctions would otherwise violate the GATT.

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Fourth, we could adopt what might be called permissive unilateral
linkage, where unilateral action is authorized as an exception to the normal
trade rules. This has been urged, for example, in the U.S. as a response to
what is sometimes called social dumping. By analogy, what is being
demanded is that the U.S. or other countries be permitted to impose
antidumping duties in response to lax labor and environmental regulation
as they can now impose against monetary subsidies.

Let me conclude by briefly mentioning the NAFTA approach to some
of these problems, which is very different from the kind of things that I
have talked about. In NAFTA, the primary response to objections
regarding labor rights and environmental protection that were raised to the
original agreement was not to harmonize the rules of Mexico, the U.S., and
Canada or to insist that they conform to some external standard. Rather
what was required, particularly with regard to Mexico, was that each
country enforce its own laws, and further that such domestic enforcement
be subject to international dispute resolution and supervision. I think in the
future, we are going to see that example followed more. At one level, this
shows greater respect for sovereignty and difference; that is, we allow each
nation to adopt its own policies and only insist that it enforce those
policies. On the other hand, which I think was already seen in NAFTA, this
process of supervision can be perceived just as much as an infringement on
sovereignty as having a mandatory international norm.

Sang Jo Jong:' Thank you Professor Leebron for a detailed
explanation of the various reasons for and various approaches to
harmonization and integration in the field of international trade. People
usually believe that because issues of intellectual property were
harmonized under or integrated into the WTO regime, nobody would find
problems arising under the WTO regime with regards to intellectual
property. For the purpose of raising issues, especially regarding the
problem of linkage with international regimes, I simply want to present
examples of problems related to Article 9 of TRIPS (Trade Related
Aspects of Intellectual Property Rights), and Articles 8 and 30 of the Berne
Convention.

Article 9 of the TRIPS, states that "[m]embers shall comply with
Articles 1 through 21 of the Berne Convention (1971)" regarding the
copyright protection of literary and artistic works. In turn, Article 8 of the
Berne Convention concerning the right of translation states that "[a]uthors
of literary and artistic works protected by this Convention shall enjoy the
exclusive right of making and of authorizing the translation of their works
throughout the term of protection of their rights in the original works."

8. Professor of Law, Seoul National University.

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However, the Berne Convention continues in Article 30 to state that:

[a]ny country outside the Union may declare...that it
intends to substitute, temporarily at least, for Article
8 of this Act concerning the right of translation, the
provisions of Article 5 of the Union Convention of
1886, as completed at Paris in 1896, on the clear
understanding that the said provisions are applicable
only to translations into a language in general use in
the said country.

Article 30 of the Berne Convention provides a very important
exception to Article 8. Article 5 of the Union Convention of 1886 states
that authors shall enjoy translation rights under Article 8 of the Berne
Convention only when the original works are translated in the member
country where the translation right is claimed. In other words, Article 5 of
the Union Convention limited translation rights, and so Article 30 is
designed to invite countries to enter the Berne Convention with the
incentive that they can limit translation rights.

There is therefore an inconsistency between the TRIPS and the Berne
Convention. TRIPS only incorporates Articles 1 through 21 of the Berne
Convention, leaving other articles out, so I wonder whether Article 30 of
the Berne Convention is applicable to WTO members or not. This is just
one specific example of a problem arising from linking international
standards with the international trade regime.

I would also like to point out that parallel imports, reverse
engineering and other matters of intellectual property are not dealt with by
the WTO TRIPS agreement and are rather left to member states to decide.
I think this relates to the point Professor Leebron made about there perhaps
being some country specific legislation that should be left out. I found
Professor Leebron's paper very interesting, especially his Procrustean
approach to international trade and his Procrustean response to the theory
of comparative advantage. Parallel imports, reverse engineering, and other
issues not dealt with in the WTO regime are probably those areas which
should fall within the comparative advantage theory or in country specific
legislation.

Sai Ree Yun:9 With respect to competition policy, we understand
that the WTO under the auspices of the U.S. and the European Union is
proposing to have a competition round, in order to harmonize competition
policies of various member countries. I think the purpose of such efforts
would be multifaceted. It could be based on claims of fairness and

9. Attorney at Law, Korea.

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competition, since every country opens its market to other countries in
consideration for access to the markets of those countries. If the free trade
system is based on such reciprocal treatment, then the rules for trade based
on a level playing field should be provided reciprocally to each other.
Because there are significant differences in competition rules and policies
in each market, certain countries may feel that their companies or their
enterprises are disadvantaged compared to their competitors in other
markets. As Professor Leebron pointed out, fair competition can be a good
argument for harmonization, and therefore the competition round may have
its merits.

On the other hand, however, as Professor Leebron also made clear in
his article, arguments for fair competition can be very political. When we
try to reach a uniform or integrated set of rules in the international market,
there always remain questions of who shall make the rules, who shall
interpret them, and then who shall enforce or apply the interpretation of the
rules to specific cases. Countries, particularly developing countries like
Korea, may be concerned, because as a matter of fact, in forming
international rules so far, countries like the U.S., the European Union,
Japan, and other such G7 countries or OECD countries have been most
active in determining the substance of these rules.

Such big countries have also been critical in the process of reaching
an agreement on the rules. Although 150 countries have joined the
Uruguay Round, and most of them have endorsed the agreements, the level
of influence exercised by each participant in the actual rule making process
is significantly different. Therefore, in the area of international rule
making, as in all other political processes, smaller countries or developing
countries are concerned that their interests may not be fairly represented,
because they do not have an equal level of influence and resources.

There can also be significant differences in the level of participation
in the process of interpretation of the rules. If we actually examine how
international organizations function, we see that the level of participation
in both the decision-making process and in the rule-interpreting process of
each country is very different. Some countries may not adequately
understand the purposes for the rules or how they will be applied, because
they may not have similar institutions or regulatory regimes or experiences
in their home countries. Therefore, these rules could be very foreign to
some countries, even though they officially endorsed them.

Finally, at the level of applying or enforcing rules, each country does
not have the same level of bargaining power or influence. As a private
practitioner, I have experienced that even if you have a winning judgment,
many times the judgment may just be a piece of paper, because you do not
have the appropriate level of influence or means of enforcement. At the last
minute, you may find yourself having to settle or yield. I think such
problems or phenomena can be even more pronounced in the international
arena. Therefore, even if we can reach an agreement in a competition

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round or in other areas of harmonization at the international level,
countries like Korea and other smaller countries have different concerns
than countries like the U.S. and the European Union.

Ironically, however, we have heard so far that the U.S.'s single most
concern in joining the WTO regime has been that it may infringe on the
sovereignty of the U.S. If we look at this from our prospective, it is very
ironical, because the U.S. should have the least concern about sovereignty.
In Korea, the issue of sovereignty has not been as large a concern or
problem so far.

To conclude my remarks on competition policy, we should be very
careful in such harmonization and even in the process of reaching any
agreement on the substantive issues. We have to be very mindful of the
concerns of the smaller, developing countries and economies in order to
persuade them to participate in the harmonization efforts. Secondly, the
grounds for harmonization should be more technical and economic or
specific rather than broad based philosophical or political claims. If the
grounds for harmonization in competition or any other area become
political, then such a process would only lead to controversies among
various nations and eventually the process might fail. Even though the best
position may be obtained by countries like the U.S., there may be internal
opposition as experienced in the international trade organization forty or
fifty years ago. Because the problem or the risk of political claims or
political controversies in the area of competition law would be more severe
than in the simple trade or services areas, we should start very
conservatively and very slowly so that we can reach a full agreement that
benefits all participants, such that a harmonized system if formed would
last long.

David Leebron: In my paper, I raise the question of legitimate
sources of difference. I break that down into substantive legitimacy, on the
one hand - reflecting the different stages of development, different
endowment, and different technologies available in nations - and
procedural legitimacy, which is conferred by democratic processes, on the
other hand. I think, ultimately, we are going to have to come to grips with
this question of the relationship between the trade regime and comparative
advantage and democracy. Where I disagree with Professor Bhagwati view
as you have described it, is that I do not think we can describe a nation's
labor regime as purely a result of the state of development or market
forces. It is very much a question of the political processes.

I also want to say that when we talk about harmonization, it is also
important that we keep in mind what it is we are harmonizing. There would
be clear and legitimate objection if the U.S. said, "Well, we ought to have
minimum wage, let me look at U.S. legislation, and it's $5.25 an hour."
That is clearly illegitimate, and the only purpose of such a proposal is to
destroy the comparative advantage of not merely nations with cheaper

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labor so to speak, but nations which have lower productivity, which is a
sign of earlier development. On the other hand, if the proposal is that
countries ought to have a child labor, it is one thing to say there ought to
be no child labor below the age of sixteen, but it is quite another, as it has
been proposed, to say that the standard ought to be that each nation ought
to prohibit child labor and choose that age which it feels is appropriate to
its stage of development and its cultural and economic circumstances. By
focusing on those somewhat different approaches to harmonization, which
I sometimes call principles on policies, I think we have a better chance for
agreement.

Lastly, I want to respond to something that Mr. Yun has said
regarding the question of the power of developing countries. One of the
reasons we see a discussion of harmonization of course is that various
groups and various organizations have different amounts of political
influence in different fora. We see often that certain labor unions would
like to move the discussion to international fora, because they are less
influential domestically, and sometimes the reverse. Another important
issue, which I really did not touch on in my paper but is at the heart of the
future of the WTO, is if these issues are linked to trade and are going to be
dealt with in the WTO, are they going to be negotiated on an isolated
basis? Or should we continue the process of what we may call the mega-
negotiating round where developing countries were in fact able to preserve
some of their power?

Choi Byung Sun: Rather than asking a specific question
concerning the linkage of environmental protection and trade, I would like
to raise a more general question, because I think Professor Leebron has
done a great job in his article. I think he has clearly sorted out a number of
controversial ideas about harmonization.

I suppose in an ideal situation in which stronger countries such as the
U.S. or the EU cling to the principle of free trade there is no need for
harmonization at all. In this sense, I think that the claim for harmonization
is ironical. I think they should give up the unsubstantiated claim or idea
that their rules, procedures and practices are right and that those of other
countries are wrong. What I am saying is that the U.S. and the EU and
other strong countries should be ready and willing to change their views or
to change their own rules or procedures and practices if necessary. I would
like to know how you would respond to these comments?

Regarding my second question, there is no doubt that in theory a
multilateral approach to harmonization is highly preferable in that such an
approach leads to a more fair and stable result, and yet in practice such a
result does not follow, thus making bilateral or unilateral approaches to

10. Professor of Public Administration, Seoul National University.

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COLUMBIA JOURNAL OF ASIAN LAW

harmonization almost inevitable. This is how I see the world trade system
running. Is there a way to avoid this kind of dilemma in the future?

David Leebron: I think the points you make are the important ones,
and they are good ones. I just completed a study of the implementation of
the Uruguay Round in the U.S., and you are quite right, the U.S. is not very
flexible about changing its rules to compromise on regulations, particularly
technical barriers to trade. We have no problem whatsoever in coming to
Korea and saying that your rules on shelf life are not right or that you
should really be more flexible about the additives you permit in your
beverages and foods. The U.S. has really shown very little flexibility on
those issues, and the implementation of the Uruguay Round in the U.S.
reflects that.

Although I do not come here as a representative of my government
and I do not think anyone here will undertake that task, I think that this is
quite a matter of concern. I think that that really is the fundamental
problem with international harmonization. There is an imbalance,
especially for a small international economy. The loss of sovereignty is a
fact of life. It flows from the international system, from the dependence on
international trade, and for that reason, for most small countries or
relatively smaller countries, it simply was not an issue. The U.S. perhaps
surprisingly was willing to adopt the WTO agreements, but that was really
about as far as it was willing to go.

The other issue you mentioned, and I think your perceptions are both
very acute and correct, is to some extent a topic for this afternoon. The
question we might ask for this afternoon is that in light of the expansion of
the agenda of the WTO, what is the need for regional agreements
anymore? If we look at NAFrA for example, and earlier cases, what you
really see is the insistence on addressing certain issues that had not been
previously been addressed. So one may ask, now that these issues have all
been addressed, why bother with regional agreements?

I think you really put your finger on the reason, which is that
compromise is more likely in a regional or bilateral context. I think that
NAFTA has been politically and psychologically a very useful exercise for
the U.S. That is, we are slowly getting used to the lack of economic
hegemony in the world, and we need to occasionally compromise. I think
this might come out more later today or be discussed by Professor
Bhagwati tomorrow, but I am in some disagreement with Professor
Bhagwati. Professor Bhagwati has been very skeptical of regionalism, and
I think potentially regionalism serves as a way for a country like the U.S.
to ease it into the process of negotiation and compromise on issues on
which it has been very unwilling to negotiate and compromise. On the
other hand, implicit in what you say and the foundation of much of
Professor Bhagwati's criticism is that as these become the important issues
in international trade, we have begun to erode the MFN system.

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Oh Byung Sun: " On the occasions when I have traveled abroad, I
have seen the advantages of free trade in the international arena. As a
Korean, I could see where free trade and fair trade would benefit my
country, but I also recalled the past history of harmonization in
international trade law, particularly problems related to international
private law. Even though it took almost two decades, I believe that there
are still some unresolved issues regarding international private law and
international public law, particularly with the international regulatory
regime of international trade law. Although we have achieved a great deal
concerning the WTO, the laws on competition policy, human rights and
labor rights are still very problematic: I feel that labor rights and human
rights are squarely connected with the way of life of each country and I do
not think that many people in different countries are willing to change their
ways of life. If you are trying to change the way of life of each country, I
think harmonization will be a very difficult process.

It was mentioned that labor rights standards are involved when you
try to universally impose the same level of labor standards, and also that
developing countries should have some options regarding forced labor
practices. This means that when trying to raise the minimum wage or other
labor standard, such as child labor - here I am not speaking about other
less developed countries and not Korea - a country might find itself
facing different labor standards. This is a problem when we try to
harmonize all the different regulatory rules. As a Korean I think that this
is a very good idea, but as a member of the world citizenry, I recognize that
the issue of labor rights or human rights seems to be quite removed from
international trade law rules.

Victor P. Goldberg: 2 I would like to speak as another economist
participant. I am rather surprised at discussion that conflates a nation's
interest with the interest of producers. The focus of trade should be on the
consumer's access to goods, although admittedly as a political reality focus
tends to be on the protection of producers. Speaking as an academic,
however, the primary focus should be on the consumer's role in this area
of competition policy.

I confess that as an economist it is very hard for me to understand
what the American interest, and specifically the American consumer's
interest would be, in Korean competition policy. That Korea has a set of
monopolies does not matter much to the American consumer. It matters to
some American producers, perhaps, but it is not clear at all why it matters
to American consumers. I may be taking the extreme position when I say
that competition policy as a matter of harmonization should be off the

11. Professor of Law, Sogang University.
12. Thomas M. Macioce Professor of Law, Columbia University, Co-Director, Center for

Law and Economic Studies, Columbia University.

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table. It just does not really matter as far as the local consumers are
concerned.

David Leebron: One would say that not only about competition
policy but about every issue on the table, with the exception of product
standards, because among the arguments for harmonization, economies of
scale generally is the only one economists like.

In my paper, I did provide a brief explanation of the problem. You are
absolutely right, but I think that whatever the economists might say,
fairness however defined still has an important hold on political life and
the political process. Part of what goes on is the sense that it may be unfair
that there are transition and transaction costs as imports become
competitive and that both capital owners and workers in particular
segments suffer from that process. To take the classic example of a
dumping case, when I go into the store, I do not say when someone tells me
the price, "I'm sorry that's not enough money, please ask for some more."
I think generally economists would say that if you do not like the effects
of that, the best solution is to subsidize the transfer of resources, but in our
country's political process, it is not easy to do that. I think, however, there
is a kind of second best, though not in an economic sense, but a political
sense where the mass of citizens in the political process to some extent are
unwilling to take the benefits of what they regard as unfair competition at
the expense of their fellow citizens. As a normative matter, there may still
be no legitimate interest in another country's policies, but as you
acknowledge at the outset, the political reality is that these fairness
arguments have appeal. I know economists quite rightly hate the American
metaphor of the level playing field, and they are right in hating it, because
field games are zero sum games, where one side wins and the other side
loses. Although this is not what international trade is about, it is a lot of
what influential domestic ideologies are about.

Park Nohyung:13 Professor Leebron gave us food for thought about
linkage issues. I myself study international trade law, and I think disparate
areas can be linked to international trade. I think disparate areas are really
in substance related to international trade, and also there can be very
effective enforcement measures by giving tough sanctions through trade
measures. I think as long as these areas are trade related, the WTO will be
able to achieve success in these areas.

As a matter of fact, the WTO and the GATT and international trade
organizations, like the ITO, experienced this from the beginning. The
mission and the activities of the ITO as suggested by the U.S. in the 1940s
was to cover trade methods, restrictive business practices,

13. Professor of Law, Korea University.

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intergovernmental regimes, and international aspects of domestic or
foreign policies. Interestingly, its charter mandated the ITO to make
arrangements for respective cooperation and the avoidance of unnecessary
complications in the activities of intergovernmental entities. I think the
ITO was about the functions of international trade. But the ITO alone has
survived for about forty years, and the GATT was merely about regulating
the trade in goods. Now we have the WTO that covers the GAIT, TRIPS,
the environment and trade.

As you might know, in 1994 the General Assembly of WIPO, the
World Intellectual Property Organization, adopted a resolution reiterating
the desire of establishing a mutual and supporting relationship between
WIPO and the WTO. But the resolution states that the international bureau
of the WIPO should be at the disposal of any state that expressly asks for
advice on any questions of the compatibility of existing or planned
intellectual property legislation, not only with issues admitted by the WIPO
but also with other international laws and plans, including, of course, the
WTO.

In the future I think we will be have to deal with jurisdictional
conflicts, as well as management problems or sovereignty issues. As you
know, in the implementation of the Uruguay Round agreement in the U.S.,
sovereignty was a very hot issue, but if ever the WTO assumes or contains
these errors, then I think at least in the U.S., the sovereignty issue or the
management issue of the WTO will be troublesome.

III. OVERVIEW OF INTEGRATION, HARMONIZATION AND GLOBALIZATION

- MICHAEL K. YOUNG

The following is a summary of the article "Dispute Resolution in the
Uruguay Rounds: Lawyers Triumph over Diplomats" presented by
Michael K. Young.14

When the contracting parties to GAIT met for the Uruguay round of
negotiations, they spent some time improving dispute resolution methods.
There were two views: the diplomatic, flexible approach and the
adjudicatory, legalistic approach. The results of the Uruguay round lean
toward the latter. A historical and textual analysis of the agreements
enhances the understanding and predictability of dispute resolution under
the Uruguay agreements.

Articles XXII and XXIII, the initial GAT dispute resolution
provisions, were non-legalistic. Per Article XXII, complainant had a right

14. The article in its entirety can be found at 29 INT'L LAW 389.

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to consultations and sympathetic consideration. If this was not fruitful,
multilateral consultation could be sought. Article XXIII was slightly
stronger in that it required prompt investigations and appropriate
recommendations.

Those who favored the legalistic approach anticipated that the
Multilateral Trade Organization would serve as an implementor and
interpreter of dispute resolution. The MTO was not enacted and out of
necessity, Article XXIII became the basis of a slightly more formal dispute
resolution process.

Until 1952, contracting parties formed working parties to carry out
their Article XXIII responsibilities. In 1952, these parties became panels
and more adjudicatory. These panels were often required to offer briefs.
Also, reports were more like arbitration decisions than negotiated
compromises. The late 1950s to the early 1960s are labeled the "golden
years of the GATT" from the perspective of the more legalistic,
adjudicatory proponents.

Unanticipated events and shift in basic understandings on the part of
the GATT participants led to dissatisfaction in the results of the dispute
resolution processes. Thus, in the Tokyo Round, the "Understanding of
1979" was created. It basically confirmed and refined the customs of
dispute resolution which evolved during the 20 years prior. Although the
Understanding appears to move to a more legalistic approach, it includes
many provisions which preserve mediatory and flexible approaches.

Despite the changes, many complaints remained. The Uruguay Round
is a clear step in the direction of a legalistic, adjudicatory process. This was
done through two mechanisms, the "Improvements of 1989" and the
"Understanding on Rules and Procedures Governing the Settlement of
Disputes."

The Improvements of 1989 took seven important steps toward a more
formal approach. It set time limits; made technical refinements to good
offices, conciliation, and mediation procedures; created a formal approach
to panel formation, resulting in panels of independent experts; allowed
third parties to intervene in proceedings of interest; established methods of
calculating a panel's time limit in completing a proceeding; addressed
monitoring of implementation of a panel's recommendations; and
authorized dispute resolution via binding arbitration.

The Understanding of 1994 is a clear step towards the legalistic
approach. First, it creates a Dispute Settlement Body (DSB) which
facilitates the Understanding. Second, it expands the scope of the general
GATT dispute resolution process.

The third important aspect of the Understanding is the strengthening
of the multilateral dispute resolution system. Freelance, unilateral, and
even unauthorized bilateral dispute resolutions are unacceptable. In theory,
the parties may resolve disputes only according to approved ways using
approved substantive rules. The purpose of this exclusivity of procedure is

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to limit the procedural and substantive problems that might occur when
countries of vastly different economic and political power are in
disagreement.

The fourth focus of the Understanding is the facilitation of the
establishment of a panel. The Understanding makes it clear that the DSB
must establish a panel at the request of an aggrieved party. It also obligates
the DSB to act quickly in establishing the panel, and governs the selection
of terms of reference for the panel.

The fifth and perhaps most startling innovation of the Understanding
is its creation of a rule of almost automatic adoption of panel reports.
Article 16.4 provides: "Within 60 days after the date of circulation of a
panel report to the Members, the report shall be adopted at a DSB meeting
unless a party to the dispute formally notifies the DSB of its decision to
appeal or the DSB decides by consensus not to adopt the report." This new
rule ensures that a victorious party will at least have the satisfaction of an
authoritative, putatively binding decision in its favor.

Sixth, the Understanding requires the DSB to establish a standing
body to hear appeals from panel cases. The DSB will appoint seven non-
governmental persons "of recognized authority, with demonstrated
expertise in law, international trade and the subject matter of covered
agreements generally" to comprise the appellate body. In apparent support
of American legalism, the appellate body may uphold, modify, or reverse
only the legal conclusions of the panel. The appellate body's ruling is
subject to basically the same rule as that of the panel, namely, adoption is
automatic unless the DSB members agree otherwise by consensus. This
automatic adoption occurs within thirty days following the circulation of
the appellate body's report.

Seventh, the Understanding attempts to enforce compliance with the
recommendations of the panel reports. If a concerned party indicates that
it cannot implement the recommendations of the DSB immediately, the
Understanding establishes procedures to ensure the determination of a
reasonable time within which the party should comply. First, the party
itself must submit a proposal that requires approval by the DSB. Next, the
Understanding makes specific provision to evaluate and monitor the
consistency of proposed compliance measures with the GATT, as well as
the adequacy of the implementation in general. Finally, the Understanding
requires the DSB to monitor and periodically review the implementation.

There are three major threats to the integrity and efficacy of the
GATT dispute-resolution process. First, many groups whose interests are
immediately and directly affected by GATT decisions and rulings protest
the confidentiality requirement of the GATT. For example, the
environmental community has been unhappy about the inadequate
reasoning given for the GATT panel decisions, as well as the secretive
nature of the dispute-resolution proceedings. Second, there is concern
regarding the enforcement of compliance with panel and appellate body

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rulings and recommendations. It appears that until sanctions for non-
compliance are enhanced, enforcement of rulings and recommendations
may prove to be somewhat problematic. Finally, there is uncertainty
concerning insulation of the GATT disputes from political pressure.

Despite these problems, the changes generated by the Understanding
are a clear step in the direction of creating a more coherent, consistent,
comprehensive, and well enforced set of GATT. principles and rules. The
provisions of the Understanding appreciably increase the likelihood that
GAIT disputes will be more efficiently resolved and that the parties will
enjoy more of the benefits for which they negotiated.

IV. THE WTO, REGIONAL TRADE AGREEMENTS AND SELF-HELP

A. Dispute Resolution in the Uruguay Round - Michael K. Young

Dae Yun Cho: 5 We are having this conference to discuss different
aspects of international trade law, particularly in terms of integration,
harmonization, and globalization. This is an open session for the public,
and for benefit of the audience, co-moderator Professor Young of
Columbia Law School will summarize what transpired in the sessions
yesterday.

Michael K. Young: The morning session yesterday covered a series
of issues that fall very generally under the rubric of integration or
harmonization. It has become increasingly apparent over the years that we
have been very successful, in a virtually unprecedented way, in reducing
tariffs. The GATT has been very effective in eliminating tariffs and quotas,
but nevertheless it appears that goods in some cases still do not flow freely.
Tariffs are not necessarily the only barrier to the free trade of goods. The
international community, certainly for much of the past decade, but I think
with particular intensity in the past two to four years, has been trying to
identify those things that inhibit the free flow of goods and to see if there
are some ways in which we can address those in some cooperative fashion.

Much of the discussion in the morning session yesterday centered on
what some of those issues may be and also what the methods and
mechanisms for addressing those problems may be. We started out with
some general, theoretical overviews of the problem, which were useful in
focusing particularly on some of the major tensions. The principal tension
that was discussed and then illuminated through much of the rest of the
discussion really involved a tension between sovereignty on the one hand
and protectionism on the other. These are not mutually exclusive ends of

15. Attorney at Law, Kim & Chang, Korea.

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a pole, but they are both concerns that animate very deeply any attempt to
address trade concerns beyond mere tariffs and quotas.

On the issue of sovereignty, it was pointed out that the U.S.,
particularly since the end of the Cold War, has begun to reassess both its
position in the world and its own status and in the process, though perhaps
not readily apparent to many of our allies and friends, has developed a
heightened sense of insecurity and a sense of uncertainty about what our
position exactly is in the world. I think this may have come as a surprise
to many of our Korean friends in yesterday's discussion who somehow do
not seem to see U.S. trade negotiators as tentative or hesitant or unsure of
themselves.

That sense of unsureness, however, manifested itself particularly
strongly in the debate over the Uruguay Round and particularly whether the
U.S. should subject itself to the decisions of the World Trade Organization
with the potential modification of sovereignty that occurs. That was not
always a very rational and certainly not always an intelligently done debate
in the U.S. but nevertheless a very heated one. We focused upon many
issues, for example, domestic competition policy, environmental
regulations that may somehow inhibit trade or conversely the interest of
one country in increasing the environmental protection in another country,
as well as concerns about the harmonization of labor standards and even
addressing human rights issues through the mechanism of trade. These are
questions about the extent to which one country could legitimately demand
changes inside another country with respect to matters that have
historically been thought to be exclusively the province of that government.

The other tension that intellectually animated much of the discussion
in this area is also protectionism, because in many cases these policies that
may serve some domestic purpose may also disproportionately
disadvantage imports from foreign countries. In some cases, that may be
quite intentional. There have been a number of GATT panel rulings that
have addressed the issue of whether certain kinds of product safety
standards are really designed to protect the citizens of the country that
would consume the product or in fact were more likely to be a result of
some interest in protecting its domestic industry.

Against the backdrop of that theoretical discussion, we then moved
into a discussion in very concrete terms of the major issues, in particular,
intellectual property, competition policy, environmental standards, labor
standards, and the like. Summing up, I think it is probably fair to say that
interesting problems were pointed out in all the areas. The area in which
there was at least an initial thought that harmonization had advanced the
farthest was in the area of intellectual property, and yet it was pointed out
very perceptively that there are still serious problems in harmonization
even in the TRIPS agreement, which is the part of the Uruguay Round that
deals with trade related intellectual property issues. Even that agreement
and other parts of the WTO have aspects which may be in conflict and

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quite inconsistent and may not lead to harmonization, and even in this area,
there are tensions and conflicts with the World Intellectual Property
Organization, the WIPO rules, and the WTO rules as well. Even in that
area which seems most clear cut and straightforward with respect to which
most international progress has been made has in fact serious questions
both conceptually and practically.

Naturally that perception increased quite a bit as we began to discuss
competition policy. There were many different views on competition
policy. There were about three economists and about thirty-five lawyers,
and therefore the economists said they outnumbered the lawyers. Some of
our economists said there was some question as to whether it was ever
legitimate to be interested in the competition policy of a foreign country,
because the primary concern ought to be the welfare of the consumers, and
the consumers of your country are not likely to be adversely affected in any
significant way by the activities of producers in foreign countries. There
was some sense that nevertheless, at least as a political and psychological
matter, that view is not likely to prevail in world trade negotiations.

So we moved into some discussion of what we meant by
harmonization, and two or three views emerged. One view was that we
were relatively happy with the substantive rules in competition policy in
most countries around the world, but the question was one of enforcement.
That then raised the issue of sovereignty again, the legitimacy of the World
Trade Organization, multilateral organizations, and individual countries.
Looking at the enforcement priorities and the commitment of enforcement
resources of the laws of another country seems something that at least does
not have deep historical precedent.

There was also some discussion of what we meant by harmonization
in this case. Did we mean harmonization in the sense of really bringing our
laws together? Or did we mean harmonization in the somewhat more
strongly normative way such that it does not mean that we bring the laws
together but that a few dominant countries try to make everybody else's
laws like theirs? You can fill in the blanks as to which countries try to
encourage that their laws be the model.

There was appreciably more skepticism on attempts to link
environment, labor, and human rights. Skepticism increased in just about
that order. There was some sense that the use of trade leverage to force
other countries to increase their environmental standards was not
necessarily such a good idea. On the other hand, there was an awareness
that there is a tremendous linkage between things that affected
environment of one country and the environmental impact of other country.
There was also some sense of inevitability, that necessarily environmental
regulations turn out to have a trade preclusive effect. One has to examine
whether that environmental regulation is legitimate or inappropriate and to
determine what the standard is for determining legitimacy, which is a very
hard line to draw. So I think there was a conclusion that there was some

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inevitability to addressing the environmental issue within the context of
trade and that perhaps we did not have very clear guidelines for doing that.

For labor and human rights, I think there was substantially more
skepticism. That seemed to many commentators to deal really with the
fundamental nature of the society, and perhaps the least appropriate for
international oversight, except in the area of the extreme cases. For
example, commentators thought it important to distinguish between things
like regulating child labor as opposed to the notion of child abuse, which
may be a somewhat different problem. However, there was also a question
even with respect to the latter and what kind of mechanisms were
appropriate. Was trade an appropriate device to use to encourage behavior
in other countries? Certainly it is not unprecedented by any stretch, but
there is question of propriety.

The afternoon session turned to the question of organizations within
which these kinds of discussions might occur. I think the particular focus
was on APEC, and whether APEC could play a significant role in the
Asian region in enhancing trade and opening markets. There was a great
deal of discussion about terms, which as perceptive commentators noted
sounded somewhat like oxymorons. Open regionalism sounded like one
which we have some trouble defining, because if it is regional, it does not
seem open, and if it is open, it does not seem regional. There was also
some discussion about conditional most favored nation status, which
somehow seems wrong, because the basic principle of MFN status is that
it is not conditional, and the principle notion of conditionality is that it is
not MFN. Nevertheless, however, it is with this rhetorical framework that
questions about how APEC may evolve as an organization to enhance trade
became quite interesting.

There was some substantial representation of Professor Bhagwati's
views. There was much discussion about whether there was any way in
which the APEC could turn into an effective economic organization that
would enhance trade without becoming a trade block, although there was
some discussion as to whether one ought to look to the creation of an Asian
trade block to compete effectively in the formation of trade rules with the
European Union and with the American free trade agreement, the so-called
NAFTA. There was some quite divergent views on the use of that and the
likelihood that that would result in more market openings that would be
favorable to Korea or even the ability of Korea to erect its own trade policy
in that kind of a situation.

There was further discussion about the relationship between APEC
and the other free trade organizations with the WTO, which lead very
nicely at the end of the day into what is going to be at least some of our
discussion today, which is the question of everyone's commitment to the
WTO. There was some question about the level of the U.S.'s commitment
to the WTO in light of'the Japan automobile dispute and other recent
disputes, and that was again a theme that was being echoed throughout the

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session. There were questions on the strategic level and the tactical level
in terms of what the U.S. government was doing, but the fundamental
question which remained on the table and which related directly to the
APEC was what is the commitment of the countries around the world to
the WTO and what does that level of commitment suggest for the way in
which APEC will or perhaps should evolve over the next several years?

That all leads us in, as I said, to a whole series of questions with
respect to which we have two very distinguished guests today who will
answer them.

B. Discussion

Dae Yun Cho: Thank you, Professor Young. On that basis we will
continue our discussion today. In order to better identify the issues to
facilitate points of discussion, we have two distinguished guest speakers.
The first will be Professor Jagdish Bhagwati, who is a professor of
economics and political science at Columbia University, and who was a
former Senior Economic Advisor for the Director General of the GATT.
Professor Bhagwati will discuss various issues in the context of APEC.

Jagdish Bhagwati: t6 I will give a particular perspective on APEC
and illustrate where I think the main decisions need to be made and why
they need to be made from that perspective. The pamphlet which was
circulated to you is written in my inimitable style to provoke. This is
because I think there is a very strong move in favor of free trade
arrangements in Washington. I prefer to call these agreements preferential
trade arrangements. To make my perspective on this very clear, preferential
is not necessarily bad although I think there is a presumption in the U.S.
to that effect. I think these are preferential arrangements, despite the
rhetoric such as "open regionalism," because they have limited
membership as of a particular point in time - APEC's eighteen members
or NAFTA's three and probably four by the end of the year, with the
admittance of Chile. If you admit more people, it is then going to be
subject to the same conditions of entry as the initial members established.

Since these are not just trade related, that is going to be another
problem. You have specific exceptions about what are called in GATT
jargon "trade related issues." I call them trade unrelated issues, because
that is really part of newspeak, since every lobbyist in the world wants to
get back into the trade negotiations. So we got in the Uruguay Round,
intellectual property, which has some trade dimension although it is
basically a matter of collecting your royalties. It is more an enforcement

16. Arthur Lehman Professor of Economics and Professor of Political Science, Columbia
University; former senior economic advisor to the GAT.

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question rather than a pure trade question. From a trade perspective, there
is a presumption that when two parties agree on a trade negotiation, both
parties profit from each other's liberalization or even from a particular
country's liberalization unilaterally.

However, there is no such presumption in intellectual property,
because it is just a matter of largely collecting royalty payments. It depends
on the parameters of the case, and there is a protection angle to it. You get
a rate of return that is higher on what you produce and at the same time it
reduces the diffusion. It is a trade-off question. I think most economists
who have looked at the agreement and the kind of extended protection they
have provided at the Uruguay Round think the line was pushed towards
over-protection of intellectual property rather than under-protection.
Therefore, it was really a transfer payment from the users to the producers,
so it is not a mutual gain transaction.

In that sense, one can approach it from several rational ways, but it is
not quite like trade negotiations. There is some bit of trade if you say you
are producing technology down the road, but then environmental and labor
and other issues keep coming up. So when you have a regional or
preferential agreement where everybody is not (as in the WVTO or the
GATT) a party to designing the rules, then to say you can be admitted if
you buy all these other issues is not quite the same thing from a trade
perspective. This is the problem people are running into with Chile and
NAFTA. The Republicans want none of these extraneous things, which the
Democrats, unions, and environmental groups want to a fiercer degree.
Already the main power in NAFTA is divided internally.

In a way, regionalism makes it more complex, although there are
advantages to it as well, depending on the way that you look at these
preferential arrangements. How does one look at the existing situation as
an economist in that there are a lot of FrAs in the world today? The
developing countries or the poorer countries or non-OECD countries are
actually moving into FTAs. Then there are those that consist of powerful
countries or hegemonies, like the U.S. or Japan, which are the major
players and initiators of arrangements like NAFTA and APEC. The
skepticism I have is not extended to the small and developing countries,
purely in policy terms, because what they were doing until now is to have
no discipline. In any three or five countries under Part Four of the GATT
under which there is special and preferential treatment, you could do
virtually anything; if you want to shoot yourself in the foot, go ahead,
because you are a developing country. You have no obligations, only
rights. That was for economic cooperation among developing countries;
you could have any level of preferences, by sectors, degree or tariffs, and
so on, and that was for ECDC.

Compared to that, I am delighted to see them taking on Article XXIV
discipline because that is an improvement in my opinion compared to what
went before. But where I am a bit disappointed is that once they have now

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decided that trade is good for them, why not go for the whole thing? Why
do it just for three people? That is very much again a hang-over to some
extent from the 30s and 60s when they were scared of trade and just
wanted to open a little trade with one another to try to minimize the cost
of import protection against the outside world. Today, I think developing
countries think of trade basically as an engine of growth, if integration
really works, and in that case, why take little, hesitant steps? Of course
politics and other things come in. But there are three alternatives available
for them: ECDC, Article XXIV, and just pure multilateralism. Developing
countries are moving from ECDC to Article XXIV and are also WTO
members, and if they want to do Article XXIV, I am not particularly
worried. They are not setting jurisprudence the way the U.S. would by
what it does.

So then I come to my much more skeptical view about preferential
trading areas centered around the U.S. My basic view is that if you have
preferential trading arrangements or preferential trade policies like
voluntary exporter restraints (VERs) on somebody outside, depending on
where the product is coming from, or if you have a discriminatory
approach or a preferential approach to exclusion or treatment in your trade
policy as against an MFN nondiscriminatory one, then you are going to run
into a lot of trouble.

The main reason is that today you do not know whose product is
whose. We are still having problems like a Japanese car produced in
England or in a transplant in the U.S. and we get tied up in all kinds of
contradictions which I have mentioned. So increasingly, it is becoming a
matter of arbitrary political and administrative decisions to deal with such
problems, and political and economic organizations of trade are trying to
locate who is making what and then to hit them selectively. Now, I think
the Far East has suffered from antidumping and VERs. For instance, if you
take Article XIX on safeguards, you have to give a nondiscriminatory trade
commitment to liberalization. But in reality, people decided against it just
as we do not have it in VERs, because the tendency was to say, look, Korea
is really growing fast, so hit it back but not on our friends who are not
growing so fast.

The political tendency to favor your friends and to target whomever
you want to for one reason or another, has been built into the system.
Article XXIV basically is an arrangement where you permit discrimination
on other grounds. Now I think it increasingly leads to problems: arbitrary
rules of origin. You have hub and spoke systems: Israel has free trade with
the U.S. but not with Canada and Mexico. The common market has gotten
many associations of meetings of different kinds, with different tariff rates
and so on depending on what stage of so called integration they might be
at. So what you are getting is a proliferation. If you gave a child a piece of
chalk and told him to draw circles around countries with regional
preferences of one kind or another, you would get a chaotic, a kind of

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spaghetti bowl kind of picture. Now do you really want that kind of world
when in fact you can have MFN?

So my view is conditioned by various downsizings, which I do not
have time to go into, but you should consider why several economists on
balance do not seem to think this preferential treatment is a great way to
go. On the other hand, it may be a great way to go, because there are
offsetting arguments to choose this. Those offsetting arguments are
basically twofold as far as I can see. One is that if you are really integrating
politically and economically like in the core of the Common Market, that
is forming a United States of Europe someday asymptomatically, it ,ill
facilitate mobility of labor and capital. It is taking a long time to get there,
but it is a model where I, as an economist, would not want to stand in the
way, because that is deeply integrationist. I cannot prove to you that that
is better in economic terms than not having it, but it is almost
overwhelmingly likely to be true, and this is where political commitments
are being made at a very deep level. So that deep integration model you
could call a common market model.

On the trade dimension, it is simply a common external tariff and a
common external policy, so you have the EU represented in the GATT and
the WTO by one ambassador who can technically negotiate and the other
ones play tennis and have a good time, and sometimes make trouble, but
have no real locus or standing to speak of. So, this is one model which I
would exempt from this kind of downsizing. However, their tendency to
give all these non-core preferences around the world is really not
something that I approve of at all, because I think that there are a lot of
chaotic arrangements there - one thing leading to another. Even my own
country of origin, India, now wants to start talking about an association
agreement, because of these arrangements multiplying everywhere.
Everybody wants to get into everything, so you have got even more of a
spaghetti bowl phenomenon. Moreover, Australia just told India, why do
you not start some Indian Ocean thing rather than coming into APEC?

The second one, I think, is really the key one, which we have to think
about in relation to APEC. The U.S., which has been a leader in
multilateralism, basically did not want any of this, despite all the criticisms
made of its policies. It never used Article XXIV for itself, and when it
came to the European Community, the Common Market was warmly
supported on political grounds. But as for the European free trade area,
which is pure trade, we were very hesitant about endorsing that, although
technically it was compatible with Article XXIV, which does not
distinguish free trade areas or common markets. So we were really
skeptical throughout any preferential arrangement which was purely on a
trade dimension, and I think fundamentally it was good sound common
sense which was steeped in this whole MFN tradition of international trade
and international economics, and I think they were basically wise even

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before it became difficult to identify who was making what. Their
viewpoint has only been scrambling.

Then, however, we changed our opinion. I think that was quite
deliberate, because it was what I call the dynamic time-path question.
Mainly, if you want to be like the U.S., which really wants to dismantle
barriers around the world and genuinely believes in multilateral free trade,
if you cannot get negotiations started on an MIFN basis in Geneva, then you
think of an alternative route, which may involve embracing Article XXIV.
So when the Europeans said no in 1982 to a new round where new issues
were to be discussed and where we were having very legitimate reasons to
start talking about these matters in the U.S., then the U.S., under Brock, 7

basically turned around and said we will go the Article XXIV route
because we will simply open up with Canada which is available for
historical reasons to sign such an agreement. Brock was very clear that he
was doing this not on a regional basis or necessarily on a preferential basis
once and for all. He really wanted to add everybody. If life had been
discovered on the moon, he would have negotiated with the government
there for an FTA. So he wanted to add more and more countries and
thereby to get everybody through this alternative route. I think he offered
it to ASEAN, if I remember, and offered it to Egypt but obviously did not
clear it with Congress.

It is very interesting because at the end of the Kennedy Round, there
was a move for a North Atlantic free trade area, what I call "NAFTA I," as
against the North American Free Trade Area, which is NAFTA II, which
we are now in. A number of economists from the U.S., Canada, and the
U.K. wanted to start such a thing, because they thought that the EC after
the Kennedy Round would never be interested in multilateral free trade and
therefore it was the last round. Among the American politicians who were
pushing for NAFTA were Jacob Javits 8 and Paul Douglas. However,
politically it would not fly, because we were still into multilateralism at the
governmental level. We simply did not want to start down that route, and
politically again, we did not want the U.K. to come our way. We wanted
Great Britain to remain in its position where having changed its mind, it
was still trying to get into the E.C., and de Gaulle was saying repeatedly
no.

This is where the politics of these things enter. We are not talking
about trade per se. As soon as you talk about preferences and so on,
immediately the politics become more highlighted. Here, you had the U.S.
basically telling these people, no, we do not want NAFTA I, we do not
want North Atlantic, because we really wanted Britain to persist in trying
to get into the EC despite de Gaulle's repeated vetoes, and we Americans

17. Ed.: William E. Brock, in 1982 the chief trade negotiator for the U.S.
18. Former U.S. Senator (New York).

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wanted Britain to balance France, which goes through occasional anti-
American tremors, to act them out. Britain is actually still playing that role
in the European Community. So those guys were smart too in not wanting
to be Atlanticists, but then again, it was not Atlanticism, because as a part
of the NAFMA I, the blueprint included immediately moving out to the
Pacific, and to bring in Japan and the Asian nations. It was really the early
Brock scenario, and it never got on because of economic and political
reasons. We were too into multilateralism, and we probably did not believe
that the EC would not play ball, that we could continue on, and moreover,
politically we did not want to go that route.

All this changed in 1982. In 1982, Brock came in and said I have got
to do this, and he was very clear that he had no interest in regionalism, no
interest in preferences, and that he simply wanted to do this truly openly.
His mind-set was that this was really a quick-fire alternative way to do it.
He wanted MFN, but you have to distinguish MFN as a process and MFN
as an outcome. He was interested in worldwide free trade and multilateral
free trade, MFN free trade, but he could not go the Geneva route, so he had
to start this route. But then of course, it becomes gelled. I think ultimately
we got the Uruguay Round jump-started, and the question then is, do we
still want to persist in that mentality? I think this is the way to look at it,
in terms of the American dynamic. We started down this route, and now
we have got a lot of people who are committed to that route. I do not mean
regionalism like APEC in the sense that talking really does a number of
important things, but a substantial thing which one is talking about is
taming it into a free trade area. Now why is it that we do this?

That is really the interesting question, because we are providing the
jurisprudence on this. It is true that people like in South America are keen
on it now, but if we did not show enthusiasm, they would disappear as well
and stick to the WTO. We cannot absolve ourselves of the leadership
question. It is our leadership implied or explicit which is leading to it. I feel
that there are really two schools of thought. One is simply what I call the
"ITO plus" approach, which is the thinking that now we can just walk on
two feet. We should dismantle trade barriers wherever we see them
regardless of whether they are preferentially or non-preferentially done.
Larry Summers,19 my former student who runs U.S. international economic
policy, says that every kind of lateralism, uni-, bi-, tri-, multi-, and so on,
should be dismantled. As a trade economist, I feel frightened by such an
approach, because he is saying that in my field, which is trade. If I were to
say in his field, which is public finance, that if you want to raise taxes, it
does not matter which taxes you raise, just take whatever taxes as long as
you raise revenue. Or if you want to cut spending to reduce the budget

19. Lawrence H. Summers, former Harvard professor of economics, currently Under
Secretary for International Affairs, Treasury Department.

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deficit, it does not matter which spending you cut ... do not worry about
the exact economic efficiency implications. I think I would be thrown out
of the Treasury right away.

On the trade side, however, there is this little bit of sloppiness in
terms of the architecture and efficiency implications, which we
"traditional, conventional, neo-classical economists," as people say to
condemn us, look at things like cost-benefits, optimality approach and so
on. I think there is a slight sloppiness in the WTO-plus approach, where the
two processes are independent and simply additive. You go WTO and
other routes. That is a bit like the movie "Indecent Proposal," where you
have a marriage-plus thing. In those terms, which turns out not to be
exactly separable, there are consequences to getting such an offer to play
for just a million bucks. So I think the smart fellows do not think in terms
of additivity or two independent processes. The really smart people say it
is a benign symbiotic relationship. That is, if you want to go the WTO
route, you can still turn APEC into an FTA as a way of expediting and
pushing the WTO programs. That is a serious issue on which economists
can divide. As to whether we can use these FTAs to create a domino effect,
where two people get together, and a third one feels left out and wants to
join. Of course countervailing that is the notion that if two people join in
and provide preferences to each other, you also have lobbyists to keep the
third guy out. So you have two competing forces, and of course it can come
out any way, and that is where your policy judgment matters.

Rather than the benign relationship direction, the malign relationship
people tend to think of this as diverting attention from wanting to do things
in the WTO. Suppose Canada got into a free trade area with the U.S. and
got basically its antidumping problems taken care of, then it has less
incentive. Because 70 percent of its trade is with the U.S., it has less
incentive, from having gotten what it really needs from its principal trading
partner, to go and really become unpleasant in terms of bargaining and
aggressively pushing for the WTO agenda or the GATT agenda. It is not
just a matter of there only being five smart people like Merit Janow in the
USTR, who cannot do everything, because they are not like Hindu gods
with ten heads and twenty hands. You really have a limited amount of
bureaucratic energy, but it is more than that. If they strike special deals
with principal trading partners, which is often the way it develops, the loss
of incentive to go and do things at the WTO on the part of governments is
something that you need to worry about. So the malign relationship people
have some good points on their side as well.

Now it is a matter of judgment, but I think on APEC, the arguments
which are used on the benign side are not particularly compelling. Seattle
is often used as an argument. Without Seattle, it is said, we would not have
been able to go ahead and get the Round closed. Now we can have as many
seminars as we want on that issue. I think the time was right for the
Uruguay Round to be settled. I think the U.S. played a major role in

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deciding that we were also going to take what we could get and go on to
build other things. I do not think Seattle or the threat of APEC being
formed forced the Europeans to come to terms. That is too simple-minded
in my opinion. It might be a 5 percent explanation, but nothing very much
more. I do not buy that.

NAFTA is also often used as an argument, saying that the President
found his voice for free trade on NAFTA. But he would have found it
equally well on the Uruguay Round if there were no NAFTA. I think
NAFTA actually also created the trade in jobs issue, because if the
Uruguay Round were still being discussed with so many countries, the
notion that you have many unskilled people in China or India would not
have meant anything to the average American. I do not mean smart people
like us, but the average Americans, because they probably do not even
know where India and China are. They probably think they are in South
America, because nobody learns geography anymore. So I think they
would have thought about an Indian as people like me or Chinese as people
like I. M. Pei, for example, because these are the images they have,
doctors, professionals and so on. But Mexico had the image of all these
illegal, undernourished, underclass people streaming across. So then they
thought, my gosh, free trade with this nation is going to mean that all these
guys are going to be producing things and competing with us freely. In fact
they were competing with us freely anyway, because we had hardly any
barriers to talk about even earlier with Mexico.

However, the mind-set was that this is going to be an indirect way in
which these guys are going to come over through their products and then
going to demolish our workers. And that became a big political issue. In
my opinion, the legacy of NAFTA was to create more difficulties with
multilateral negotiations between North and South, poor and rich countries,
because we did not have a Jacques Delors phenomenon in the U.S. The
U.S. is a very trade-oriented and frugality-driven country on markets and
trade. That is why it is the leader in world trade. We do not have a Jacques
Delors talking about Asiatic ants and competition from the Far East and so
on. We are a very open country. But suddenly this became a big issue, and
that was a legacy of regionalism which enables you to focus then on one
or two countries and worry about the special characteristics of this country
which might affect some particular dimension you have. So I think that
was a malign relationship, not a benign one.

Because I do not think anyone, including the U.S., wants FTA for its
own sake, the real issue before APEC, therefore, is whether to go the
conditional MF-N route by buying the scenario that we are somehow getting
these Europeans and others to involve in a WTO multilateral reduction of
barriers. That is an instrumental policy. Now I think this is not necessary,

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and it is also dangerous. Bergsten ° has been talking about temporary
suspension of MFN, but there is no such thing. You would have to get a
waiver. I do not see the EU or India or anyone agreeing to a waiver on
Article XXIV, saying you can discriminate without involving Article
XXIV for any length of time. So I think you would have to invoke Article
XXIV, which means that you get the dynamic set already in favor of an
FTA. So the real choice we are discussing here is unconditional MFN or
taking Article XXIV. Now if you take Article XXIV, I think it is not really
open regionalism. True open regionalism as far as trade is concerned is
MFN. All else is simply saying, yes, we will add more people. I was once
at a meeting in Tokyo a couple of years ago, and the Foreign Secretary of
Brazil from Mercasur was there and the Trade Minister of Hong Kong, and
the Mercasur guy said, we have open regionalism and nobody has anything
to worry about. So this lady said, well, I will put in an application tonight,
would you agree to it tomorrow? It would really take a long time. So open
regionalism is a sentiment by and large.

I feel we ought to go more in the direction of unconditional MFN.
Will this mean the EU, etc., will not come on board? I think the desire for
more free trade worldwide in the post-Uruguay Round era has resulted in
politicians who endorse free trade being seen as true leaders or as
statesmen rather than simply as politicians. Look at the reaction of the EU
itself. As soon as the U.S. faltered on the financial services agreement and
said we do not have enough reciprocity and will hold up this agreement,
what did the EU do? In the old days, it would have just stood on the
sidelines. Today, they moved right in and said we are going to do it, and
they have now got Japan on board saying we are going to do it even if the
U.S. does not. So why does the EU do it? That is because being for
protectionism today does not really pay dividends to politicians around the
world. Indonesian President Suharto says 2020, and even though he is not
a democratically elected person and has a military background, he sees
somehow that free trade is going to make him look different and good.

I think by and large politicians think they can turn into statesmen by
signing on to these great big things, and I feel the evidence on the EU
makes it very clear that it wants to take more initiative in sustaining the
WTO. No matter how much we may resent the fact that the Europeans
have lectured us on managed trade, the reality is that they really came out
consistently against it if managed trade is just defined as asking for
quantities. There is nothing deeper than that. It means to go for quantity
outcomes, and that was what we were asking for. We made legitimate
protests and said that there were good reasons for it, but to say that they are
not asking for managed trade is not correct. Look at the last few months.

20. C. Fred Bergsten, Director of the Institute for International Economics in Washington,

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The EU is really behaving very much as a supporter of multilateral trade
while we appear a little afraid of the margins on these issues.

I am not pessimistic, and I do not see APEC turning into an FTA,
which would be bad form, as necessary to get people to move into the
direction of better rules including worldwide liberalization. So my
recommendation would be, as the Japanese noted in my writing recently,
to suggest that alongside the so-called concerted unilateral liberalization
where people do liberalize on an MFN basis, through which we know
obviously we cannot go very far, they should set up power negotiations
with the big countries at the same time, and then quickly move that under
the WTO framework on the trade side. I do not think this is incompatible
with doing a number of other things like investment codes and collective
actions, which is entirely strengthening WTO or getting your customs and
rules of origins more consistent with what the WTO requires. All that can
be a part of the agenda, but I think the APEC at Osaka in November would
provide an invaluable opportunity for this region to make a statement that
we really are for MFN and that that is the true nature of open regionalism.

To suggest that a regional framework becomes a stepping stone
complimentary to the WTO is rather to play what I see as essentially
geopolitical games. I see people write about this. Charlie Krauthammer2 '
and Mrs. Thatcher, who do not like the Far East as much as they like one
another, have been saying that the Transatlantic one should be a way of
kicking tese guys including South Korea in the butt. People play-act.
These economists and columnists play out these juvenile geopolitical
fantasies through these recommendations or these airs, and I think we
should get out of it and restore the focus on trade. Let regionalism deal
with the commonality of positions on things like labor standards where we,
on the American side, have different views on the governmental level from
what you find over here, because the perspectives are very different on
these matters and people do not face pressure here as much as President
Clinton does. So maybe we should get the non-American members here to
talk about these issues first among themselves and then to go to the
American members of the APEC. That could be carried out under the
APEC umbrella.

I think now, however, we have to learn to restore the trade focus and
say that MFN is the way that we want to go. That is my view, and I think
it can be done. I think this is also Asia's legacy in a way. Asia is not a free
trader, and I have never argued that Japan is a free trader though I have
been often accused of saying that, but I only said that it is less protectionist
than we think - they just ignore what negotiations demand. On the output
orientation side, however, they have always treated the world as their
market. They have never been interested in a regionally or subregionally

21. Syndicated Columnist.

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limited focus. Anyway, in Osaka, one could make a statement which you
would never hear in any other part of the world. You would not hear it in
Europe, and you would not hear it in North American anymore. Mainly, we
stand for MFN, and we stand for strengthening the WTO. In fact, that
would also be a good time to announce something like we want to go into
a WTO round, since there will be two thousand cameras at that time and
eighteen presidents. It is a great opportunity to make a statement that
would strengthen the WTO multilateralism especially at a time when the
WTO has started functioning.

In fact, this is the U.S. initiative too, since the President suggested a
new round two summers ago in Italy. I do not see the U.S. actually
objecting to this in the end, if it could get something like this, because it
was originally an American idea. At that time, I am told, Japan and Britain
supported us. To the French, however, the U.S. leadership in trade is like
Mao's permanent revolution. As soon as we finish one negotiation we want
to start another one, because we have the drive. There is no country like the
U.S. We are the exception. Without us, these things would not have
happened. The French reaction was, "Good God, we have just recovered
from this trauma of the Uruguay Round, and you want to start another
one?" They said, "No way." But I think the pressures are quite immense
now to get into a competition policy which is affecting Korea and Japan,
and that is another good APEC issue: the two capitalisms, ours and the Far
Eastern one. What better place to discuss these things than under APEC
auspices then to generalize it to WTO auspices? There are so many
opportunities, but none of them require, in my opinion, going the FTA
route. In fact, if you go for the FTA, you will be just another crummy FTA,
bigger and worse. But here you've got the chance to do something really
dramatic, and I hope it is taken. Thank you.

Dae Yun Cho: Thank you, Professor Bhagwati. We appreciate your
deep insights into free trade and regionalism versus multilateralism, based
on true MFN. If I understand you correctly, APEC can be viewed as a
forum for constructive discussion and coordination, but as a free trade area
it may become a stumbling block rather than a building block toward more
liberalized world trade.

We will now have Doctor Kim Wan-Soon address the issue of a post-
Uruguay Round agenda for APEC. Doctor Kim is a professor at Korea
University and also Chief Commissioner of the Korea Trade Commission.

Kim Wan-Soon:' My overall view, which is by and large very much
in agreement with Professor Bhagwati, is that the continued support of the
multilateral trading system is a must for the growing Asia Pacific

22. Professor of Economics, Korea University.

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interdependence. Therefore, interest in closer, more effective cooperation
remains very strong in this region, supporting the process of ongoing global
trade liberalization. To this end, the APEC, committed to open
regionalism, upon which I will comment soon, could help the bilateral
tensions that now exist among several pairs of member countries, and
APEC can and should step in to supplement major weaknesses of the
Marrakesh Accord and fill the void left by the WTO Agreement.
Specifically, the APEC could move forward on the unfinished business of
the Uruguay Round and seek regional agreements on new proposals which
had been considered in the UR negotiations but could not be adopted there.
In so doing, the APEC could develop workable regional models that may
be adopted subsequently at the global level. The APEC could pursue a
regional arrangement as a fallback and lead the world in trade and
investment liberalization.

On open regionalism, we had several comments yesterday on the
definition of open regionalism, and I am going to add to that. Of the several
initiatives for the creation of a regional cooperation mechanism in the Asia
Pacific, the most significant region-wide initiative has been the ministerial
level Asia Pacific Economic Cooperation, which was chiefly engineered
by Australia and Korea, and launched formally in Canberra in November
1989. APEC participants at the time included the six ASEAN countries,
the U.S., Canada, Japan, Korea, Australia, and New Zealand. China,
Taiwan, and Hong Kongjoined the APEC at its third annual meeting held
in Seoul during November 1991, bringing total membership to fifteen
economies.

In November 1993 at the fifth annual meeting, President Clinton
successfully elevated the APEC Ministerial Meeting to an informal
leadership conference. At that meeting, two countries became new
members of the APEC-Mexico and Papua New Guinea, bringing APEC
membership up to 17 economies, now 18, including Chile. The
unprecedented Informal Leaders' Conference in Seattle contributed
substantially to the successful conclusion of the GATT Uruguay Round
and added substance to the vision of a community of Asia Pacific
economies. On November 15 of last year, in Bogor, Indonesia, leaders of
the 18 APEC countries adopted the "APEC Economic Leaders'
Declaration of Common Resolve," in which they agreed to achieve the
long-term goal of free and open trade and investment in the region: the
industrialized members by 2010 and developing countries by 2020. But the
crucial question of how to actually implement the Bogor Declaration,
particularly as to the exact mechanism of the liberalization and treatment
for non-APEC members, is left to the November 1995 APEC meeting at
Osaka, Japan. Though the Bogor Declaration clearly does not envisage the
creation of a free trade area in the Asia Pacific region, the U.S. has exerted
efforts to move APEC, as Professor Bhagwati notes, in the direction of
becoming a preferential free trade agreement.

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Of the seven principles upon which APEC is recommended by its
Eminent Persons Group (EPG) in order to achieve the long-term goal of
free and open trade and investment in the Asia Pacific region, the question
of how to interpret "open regionalism" is a critical issue. In Asia, the view
held chiefly by the ASEAN countries is that open regionalism should mean
an "inclusive MFN" system where the benefits of regional trade
liberalization are extended to the rest of the world on an unconditional
MFN basis. This was also the meaning of open regionalism originally
espoused in the first report of the EPG. However, unconditional MFN
treatment of nonmembers has generated a free-rider issue. Although the
extent of free-riding would be limited, even if the APEC countries were to
liberalize jointly on an unconditional basis (since over 75 percent of the
majority of APEC markets for trade in goods are located within the
region), the U.S. is willing to trade off regional liberalization measures to
obtain maximum liberalization around the world, particularly vis-a-vis the
EU. With respect to the question of conditional MFN versus unconditional
MFN, Professor Patrick' argues that a tit-for-tat approach may make the
EU inward-looking and split the world economy into two groups.
Committed to open regionalism, APEC should encourage the EU to keep
an outward looking stance and to reduce trade barriers on an MFN basis.

Such differing North American and Asian views of open regionalism
resulted in ambiguity within the 1994 EPG report. It proposes two
operational solutions to the concept of open regionalism in order to
advance the principle of unilateral liberalization and at the same time to
deal with serious free-rider problems by offering the benefits of regional
liberalization to nonmembers on a reciprocal basis. As the ratcheting-up
approach to nonmembers is opposed by the Asian countries, the EPG
advocates, (particularly Fred Bergsten), that individual APEC economies
could unilaterally extend the benefits of their APEC liberalization to
nonmember countries on an unconditional or a conditional basis. What is
very confusing, however, is that the EPG's second report appears to apply
reciprocity even to liberalization within the APEC. Referring to the
ASEAN's CEPT scheme, the second EPG report notes that for an APEC
member to be eligible to enjoy the benefits of liberalization undertaken by
others in a particular sector, it must remove all quantitative restrictions in
that sector and reduce its own tariffs below some agreed level in that sector
as well.

In view of the diversity of the Asia Pacific region, it will not be easy
for the group to come up with clear, unambiguous guiding principles for
trade liberalization. Opposing a legally binding agreement, China,
Malaysia, Philippines and Thailand prefer, according to Professor Patrick,

23. Hugh Patrick, Professor, Columbia University Graduate School of Business; Director,
Columbia University Center on the Japanese Economy and Business.

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a voluntary and unilateral approach to trade liberalization. This could be
a very slow process, since they plan to protect their domestic industries
until they become internationally competitive. In contrast, the U.S.,
Canada, Mexico, Singapore, and Hong Kong prefer to pursue negotiated
liberalizations with targeted deadlines and enforceable commitments.
Others, including Japan, Indonesia, and Korea, seem to lean toward a
middle way. Indonesia has proposed the concept of concerted unilateral
liberalization, while Japan advocates for an open economic association
modality of trade liberalization.

In my view, however, any proposals which would introduce trade
discrimination among Asia Pacific economies or against nonmembers will
prove divisive and impossible to reach by consensus. Achieving a free and
open market in the Asia Pacific is a long-term vision. To this end, during
the next ten years or so, APEC governments should endeavor, initially, to
reduce the difficulties, uncertainties, and costs involved in cross-border
economic transactions within the region. Agreement on and absorption of
the guiding principles (transparency, nondiscrimination, and national
treatment) for genuine trade liberalization shall follow naturally over the
years. Thus, Professor Bhagwati emphatically states that the Asian
members of APEC, by opposing APEC being turned into another free trade
area, must support multilateralism at the WTO.

Another feature of APEC is that the U.S. and Canada, who are the
principal players of the NAFTA, are also members of APEC. Naturally,
East Asian members have doubts concerning the role of the U.S., when
there are serious conflicts of interest between the two. There have also
been constant fears that APEC will become a bargaining chip for the U.S.
in its dealings with the EU and that the U.S. may dominate APEC for its
own interests. In considering these uncertainties, APEC should have the
capacity to influence the U.S. not to make the NAFFA an inward-looking,
discriminatory regional trade arrangement.

On the agenda for APEC, I will first comment on the first unfinished
business of the Uruguay Round. First, antidumping measures and dispute
settlement procedures. The successful outcome of the UR has restored
much of the credibility of the global trading system. But the UR made only
modest progress at best in dealing with a number of contentious subjects,
such as antidumping, dispute settlement procedures, regional trading
arrangements, and the like. Furthermore, it left many key trade problems,
such as trade-environment linkages, labor standards, and competition
policy issues, unresolved. APEC could initiate regional negotiations on
several specific issues and develop fresh precedents that could
subsequently be adopted at the global level. In short, APEC could be
complementary to and be supportive of multilateralism by resolving some
of the major issues that continue to plague global liberalization through the
GATT/WTO.

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One of the natural candidates for the APEC agenda is the
antidumping issue. Because implementation of antidumping policies by
national governments is a source of contention in the Asia Pacific region,
the EPG recommends the creation of a task force to address the urgent
problems of the proliferation of abusive antidumping practices. The EPG
is of the view that a successful mediation in resolving trade disputes at the
regional level in APEC would eventually lead to a similar approach at the
global level.

As the GATT succeeded in progressively eliminating traditional tariff
and non-tariff barriers on the one hand, a temptation to allow antidumping
measures to serve as a surrogate for an alternative form of protection has
sharply increased on the other. In addition, the lack of sufficiently detailed
rules and guidelines in the GATT Article VI and the Antidumping
Agreement has given rise to the initiation of antidumping investigations
without accurate and adequate evidence. The antidumping inquiry in the
absence of a clear causal linkage between the import and its injury has,
however, a chilling effect on exporters who are often forced to cut their
prices drastically or even abandon their exports in addition to bearing
heavy legal expenses in defending themselves.

The new agreement also failed to provide sufficiently detailed
provisions to deal with the abuses of antidumping policies because of the
sharply conflicting views of the participants regarding antidumping rules
and concepts such as dumping, industry, injury, and material retardation.
Most importantly, from the viewpoints of the Asian NIEs, by failing to
agree on anti-circumvention measures, there is a new risk that anti-
circumvention measures will be invoked to undermine legitimate efforts
to globalize sourcing and production. Absence of specific statutory
guidance in the application of a material retardation standard in the Dunkel
Draft is a setback. For several middle income countries which have just
embarked on the production of high-technology items, they cannot provide
relief to their young industries by eliminating the injurious effects of
dumped goods from abroad, unless they can justify dumping investigations
on the basis of the material retardation provision.

In view of the trade restrictive effects of antidumping measures which
have caused most of the intense and recurrent bilateral trade disputes
among so many APEC members, the EPG recommends the creation of a
task force to review the ways in which APEC countries are implementing
their antidumping policies. Since the abuses of antidumping measures pose
a serious threat to the predictability and security of market access, and as
a result, threaten the evolution of the community of Asia Pacific
economies, the EPG further proposes that the APEC should set up a non-
confrontational, non-binding, and voluntary Dispute Mediation Service
(DMS), as a complement to the GATT/WTO dispute settlement
procedures, which would assist its members in resolving some of the
highly contentious trade disputes.

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APEC DMS is probably one of the most contributory proposals put
forward by the EPG. Since domestic laws implementing antidumping
policies are so incomparable among APEC members, the EPG supports an
amicable process of voluntary, non-confrontational dispute mediation -
a cooling off period, so to speak - rather than the adoption of binding
arbitration in resolving trade disputes among APEC members.

I understand that yesterday there was discussion on the dispute
settlement procedures in the WTO, which I know is an improvement over
the existing system. But I would like to give an additional perspective
regarding this system.

The dispute settlement procedures under the new WTO Agreement
significantly improve the existing system by including six new features: (1)
guaranteeing a right to a dumping panel (the rule of negative consensus);
(2) strict time limits for each step in the dispute settlement process; (3)
appellate review of the legal aspects of the panel report; (4) more
retaliatory options for the country winning the dispute (the "cross
retaliation provision") if the panel recommendations are not acted upon;
(5) greater transparency in procedures; and (6) restrictions against
unilateral measures. In addition, the Trade Policy Review Mechanism,
established in April 1989, is sure to enable the WTO to search for
violations of multilateral rules and to encourage governments to live up to
their WTO obligations.

In reality, however, the WTO system does not seem to be a very
significant departure from the GAT mechanism, if the panel decisions are
to be often flouted as in the past. To be specific, retaliation for failure to
implement the panel's recommendations will be far easier under the WTO
system than it was under the GATT. However, the WTO can neither
organize an international trade embargo to punish recalcitrant countries nor
does it have an army to enforce its rulings. As an entity under the previous
system, a country like the U.S., the world's largest trader, may still refuse
to comply with a panel judgment and simply accept the complaining
country's retaliatory measures as a tolerable price for continuing a
particular disputed trade practice. In contrast, the right to retaliate legally
is obviously not much use to a small country with little economic clout.
Therefore, because of the concern about a supposed loss of sovereignty due
to WTO dispute settlement procedures, if the U.S. refuses to endorse and
embrace the new system, the very foundation of the multilateral trading
system will be in gravejeopardy. The U.S. should, therefore, be a bona fide
user of the WTO's new dispute settlement mechanisms when it is
necessary.

Although Professor Bhagwati has already spoken about the further
substantial strengthening of GAIT Article XXIV, I will briefly discuss the
issue as well.

GATT Article XXIV approves of the creation of free trade areas,
customs unions, or interim agreements, as long as their purpose is to

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facilitate trade within the region and not to raise trade barriers against
nonmember countries. Article XXIV of the GATT has not been, however,
administered strictly, particularly since 1985 sub-regional arrangements
have proliferated throughout the world. If the world economy veers into
inward-looking regionalism, this would have devastating consequences for
the survival of the multilateral trading system. To this end, therefore,
serious consideration should be given to revision and tightening of GATT
Article XXIV. For example, Article XXIV could be modified to rule out
FTA's and allow only customs unions.

While some 90 percent of GATT contracting parties are signatories
to regional groupings, East Asian countries have not yet created a regional
arrangement of their own. But should the NAFTA and the EU turn inward
into a protectionist trading block, and if the NAFTA expands its
geographical coverage to include the whole Western hemisphere, this
could trigger the formation, in East Asia, of a countervailing trading block
of its own as a deterrent to discrimination and protectionism in Europe and
North America. An extending, discriminatory NAFTA could well split the
Asia Pacific, a region which adheres to open regionalism.

The EPG rightly notes that despite the questionable value of sub-
regional groupings for the process of global liberalization, their continued
proliferation involves the risk of creating new sources of divisive strains
and entrenched interests within the broader Asia Pacific and could blight
the prospects for APEC liberalization. Consequently, the EPG recommends
that the sub-regional arrangements within the APEC publicly indicate their
willingness to equalize the margins of tariff concessions granted to their
members with their nonmembers within the region, and eventually
eliminate these margins on a APEC-wide basis.

China has become de facto integrated with Asia Pacific economies
because of its high economic growth and its maintenance of an open-door
policy over the past decade. The prosperity of the region will be further
advanced by facilitating China's enlarged integration in the world
economy. Therefore, the major WTO issue for APEC is China's accession.

The Republic of China was an original contracting party of the GATT
but withdrew in 1950, because it was unable to meet its obligations under
the GATT. In 1986, the People's Republic of China formally applied to
accede to the GATT in the form of a "resumption of its status as a
contracting party," and a working party was established in 1987 to
negotiate on its accession to the GATT. In addition, China wishes to be an
original member of the WTO.

China's accession to the GATT/WTO, I believe, is a major issue for
APEC. Though Korea supports China's accession to the GATT, it is
important that the Chinese agree to a demanding list of reductions in tariffs
and quantitative restrictions, such as quotas and other non-tariff measures.
Furthermore, what is most important, as Professor Patrick argues, is that
China cannot be given blanket developing country status without

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countervailing commitments to ensure that China will not become an
enormous free rider on the global trading system.

The EPG is silent on the linkages between trade and labor standards.
The EPG may have felt that it is of questionable utility for APEC to be
overly involved in a debate over "the social clause" which may ignite a
flame of discord among APEC members, in view of the various stages of
growth of the countries of the Asia Pacific and of the export-oriented
strategies, based on labor intensive manufactured items, adopted by a large
number of developing East Asia countries.

To conclude my presentation, Korea was one of the co-founders of
APEC and was elected as the first chair country of the APEC Committee
on Trade and Investment (CIT). Korea is expected not only to strengthen
APEC and bolster the multilateral trading system but also to advance its
own national interests. Korea is sure to gain much from expanded global
and regional trade and investment which will help accelerate Korea's
structural adjustments.

The many weaknesses of the Marrakesh Accord reveal that faith in
the new WTO will not be sufficient. As a mechanism for initiating and
sustaining trade liberalization, APEC can and should step in to
complement the global effort for trade and investment liberalization. On
the more sensitive and critical issues, APEC-wide cooperation may
become the beginning of the process to establish a set of reasonable global
rules.

Promotion of APEC by itself does not resolve the issue of NAFTA
becoming too inward-looking. In effect, the GATT Article XXIV has no
teeth, as also noted by Professor Bhagwati. No significant bilateral
agreement has been vetoed by the GATT. For example, the content
requirement of the NAFTA is a disguised form of protection. The best
solution is to revise Article XXIV such that the GATT/WTO permits only
custom unions. At the regional level, the APEC should look for
mechanisms that can help to ensure that subregional arrangements will be
"building blocks" for the multilateral free trade system.

In view of the Asia Pacific region as a diverse region with an
assortment of economies that are different in their socio-economic
structures, policy orientation and development stages, any rash attempts to
integrate environmental concerns and labor standards into trade agreements
and the multilateral rules and procedures may easily lead to a head-on
collision between developed and developing countries. At the regional
level, the APEC could show to the world a region-wide approach by
tackling these new issues of GATT and by initiating discussions among
APEC members and seeking their views on the future agenda. Within the
region, Korea's recent experience in dealing with its environmental
degradation problems and labor management will be a valuable
contribution to the WTO trade policy review mechanism. In terms of the
normative negotiations on such issues as environment and labor standards,

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Korea should be an active participant as well as a leader in looking for new
rules to define the appropriate scope and bounds for trade action to be
taken in support of the new agenda. Thank you for your kind attention.

Dae Yun Cho: Thank you Doctor Kim. Doctor Kim has provided
some deep insights into some post-Uruguay Round issues for APEC.

Michael K. Young: We have had two extremely illuminating
discussions, and as it is often the case when I listen to Professor Bhagwati,
I frankly find nothing to disagree with. So I do not know what I would say,
but I think there are those of you out there who do have some comments
that you would like to make, and we will follow yesterday's format as a
free and open discussion.

Stewart Baker:24 I have some comments on Professor Bhagwati's
position. First, I am a little astonished that a customs union is better than
an FTA, especially since a customs union has a resolution of a host of
investment and immigration rules, whereas a FTA involves extra labor
codes, etc. Secondly, I think that these two examples simply seem to be
just about harmonization. Thirdly, Professor Bhagwati's suggestion might
hold water regarding rules of origin, which are complex, but the real
question in my view is whether there are higher barriers or not, because
there is no highly protectionist aspect to FTAs.

Jagdish Bhagwati: Basically, both raise the same issues correctly.
The rules of origin have to be more pointed when you do not have common
external tariffs. That is really the only point that I was making in relation
to those two. I was talking really more about the common market
approach, where you are really integrating across the board. So in my book
the customs unions are marginally better, and compared to FTAs, since
they have less rules of origin problems. You would still have rules of origin
problems in customs unions such as when deciding whether an automobile
is properly designated as British, British-Japanese, or Japanese? So you do
not eliminate that issue within a customs union.

I was also making a political point about a general, unproven
economic point that if you really integrate a market fully so that it becomes
like one country as far as possible, that is a very different approach. I
would contrast the EU as a common market with our FTAs.

Now you said that in your experience, you did not see anything like
trade diversion in FTAs. That is a possibility, but just two weeks ago, I was
at a seminar where people were talking about how Hungary, Mexico, and
Brazil were recently under pressure not to change their tariff rates in their

24. Partner, Steptoe & Johnson.

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countries within their association with the EU or with their FTAs. Some,
in fact, just raised their tariffs. This is exactly what I am afraid of.
Obviously, if it is a huge tariff, you probably could get it, because it is so
uncompetitive, but if you are within the ballpark, the temptation is to
accommodate one another at the expense of third parties. My own view,
again, is that if you are going to take the preferential route, then I think it
is very important to have the discipline of the VTO so that you cannot
selectively raise barriers against nonmembers. I take a slightly different but
more traditional view in terms of deciding what you want. If you are going
to continue to take a preferential route, make sure that you do not indulge
your preferences.

You cannot have a position which we had in the Uruguay Round,
where what we voted for in much of the Dunkel Draft is that we can be
antidumping basically. At the same time, you want to remain preferential
to your approach to the world alongside the WTO. That seems to me a
dangerous combination. I do not deny the possibility of having in fact a
convergence under selective parameters.

One argument for FTAs is the ease with which it can expand
membership. In contrast, in a customs union you must harmonize tariffs,
which is more of an obstacle. There is a whole industry among economists
on ranking those two, and then there are people like me who say, plague
on both of them. If you want to strengthen the VTO without those two,
then just proceed with the WTO.

Kim Wan-Soon: Although Professor Bhagwati answered your
question, I would like to clarify that I was not really concerned in my paper
between customs unions versus free trade areas or other agreements. I was
more concerned that while the GATT stands for nondiscrimination and
while Article XXIV is an exception to that, this article has not really been
strictly administered in the past. From now on, to bolster multilateralism,
we should be more aware of the many aspects involved. This is much more
my concern rather than which regional arrangement is better.

Jagdish Bhagwati: I do have one comment on why we should worry
so much about rules of origin. They matter very much, because there is a
lot of discretion built into defining the matter within those rules of origin,
for instance, as in the Canadian Honda case. The rule of origin was clear
in the case, but there was a heated debate, and a lot of people made money
making up these numbers. A lot of energy gets taken up by people
digressing, making money by playing these rules, and getting people to
decide whether you are truly satisfied by the requirements of the lower
duty rather than a higher duty. There are generally transaction costs, and
there is also manipulation depending on rivalry, corruption, and so on. I am
told that in the EU, which has a huge number of these agreements, you can
have a really successful career as a customs officer. Again, there are some

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studies in process on how much this matters, so you will get more
documentation.

Choi Byung Sun: Professor Bhagwati seemed to warn against the
temptation to spread regionalism and to fall back on your own background
when there are problems. Do you believe in the success of that strategy in
the face of U.S. insistence? And if your group strategy does not work,
what should Korea's strategy be except to go to FTAs?

Jagdish Bhagwati: I do believe that ideas and examples matter. I
feel that if APEC does manage to emphasize open regionalism on the trade
side to MFN, then it can exercise a very good influence even in truly
opening up NAFTA, because NAFTA members are a part of APEC. I am
of the idea that you should not emphasize reciprocity so much, which is
something that the Americans are very obsessed with right now. That itself
amounts to some bit of unilateralism. Even though the offers from the Far
East are not as good as we would like them to be, we should go ahead and
close the deal. We should not really be reciprocitarians. Just go ahead and
close the deal, even though it is an imbalanced deal from the point of view
of reciprocity. This, in effect, is to say that some marginal unilateralism is
not a bad idea. Now why is it not a bad idea?

In my judgment, if you look at U.S. experience in telecommunication
and financial services by being ahead of the curve on deregulating, we have
become substantial competitors. Today you see the Nikkei in Japan having
the sentiment that you are really going to see that it is competitive,
regardless of foreign pressure, as demonstrated in the Eastman Kodak case,
for example. If there is some unsavory practice going on, we want to get
to the bottom of it, regardless of what Mr. Kantor' does or does not do.
You may be able to protect yourself domestically in Korea or in Japan, but
it really does not help you compete in the outside world, which is wide
open in many cases.

I think those are matters which the Europeans have learned more in
terms of policymaking. The leadership there, like Leon Brittain,26 looks at
these arguments unilaterally and say, we have done better by not worrying
about reciprocity so much. Admittedly, you cannot ignore reciprocity all
together because of politics or because of notions of fairness, and it has got
to be there in some form in the real world. However, to get so hung up on
it and so worried about having it exactly the same way as I am, like the
U.S., is like having a trauma for no reason at all in terms of modem
thinking. In that sense, I would say again that the Europeans paradoxically
are learning from the American example and now are willing to say, let us

25. Mickey Kantor, former United States Trade Representative.
26. European Union Trade Commissioner.

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close the deal and not worry about reciprocity. I would simply say in
response to your question that I do believe that leadership, examples, and
ideas do matter.

America right now is really keen on reciprocity, conditional MFN,
and preferences to some extent, at least in terms of the other proposals we
have been discussing. All of that comes from worries in the 1980s' about
reciprocity. I think our industrial and financial sector experience is really
contrary to all that. During the 80s, U.S. economists and even my star
pupil, Paul Krugman,27 actually formalized those arguments. He said
essentially the following. Assume you are an identical firm to me, for
example. You are in Japan, and I am in the U.S. If your market is closed
and mine is open, then you have your market and mine, and I have only
mine. So you have two markets, and I have only one. In addition, if there
is learning by doing as your production increases, then the more you will
learn and become efficient, and the more your costs will fall. Once you
make all those assumptions about identity of learning and so on, then
reciprocity becomes important from an economic point of view, not just as
fairness or politics. In the 1980s model, the real damage done by Krugman
was that he formalized these worries of protection, which lead ultimately
to a cleaning out of my industries rather than your industries, because the
latter market is protected.

That is because the assumption was that the two firms are identical
regardless of the framework within which they were developing. If one is
developing in a protectionist framework, it is not going to learn as much
as I am learning in a very open framework where my home ground
continues to deregulate. In economics, if you make wrong assumptions you
reach wrong conclusions. So that model of the 1980s was wrong to
emphasize reciprocity. I think you can blame policymakers for becoming
so wedded to reciprocity, who say, in no way can we have unconditional
MFN unless we can have exact reciprocity or we would somehow be
cleaned out. I think that kind of thinking should be phased out. In my view,
I would like to see APEC place less emphasis on reciprocity, and say
instead, let us move to a world which is truly open and nondiscriminatory,
which is the objective of the WTO. In that sense, U.S. policy is not
consonant with U.S. experience. It is true that one will be left holding the
parcel part of the way, but the U.S. has demonstrated the virtue of
unilateralism, meaning the reduction of its tariff barriers by itself, whereas
the politics are still based on the 1980s' worries. With a slight shift in
focus, U.S. policymakers can be of a better mold. Whether we can do it is
another question.

27. Professor of Economics, Massachusetts Institute of Technology.

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COLUMBIA JOURNAL OF ASIAN LAW

Conference Participant: Do you see a need for bilateral
negotiations to alleviate predation?

Jagdish Bhagwati: This is what we call competition policy. If you
are worried about predation, a necessary condition to any model is that
markets should be segmented somehow. Suppose your ability to compete
effectively is reduced not just because of openness but maybe because of
a lack of penetrability due to all kinds of regulations on distribution
networks and so on. Then one of the necessary conditions is satisfied for
devising suitable antidumping measures. Within a national market,
assuming there is one common jurisdiction, by definition you have
identical policies, and therefore the usual argument for antidumping is that
when you have segmented markets, you need it. But of course, that is not
actually the way it operates. The way it operates has no relationship to any
real definition of predation. Nobody actually ever goes to an antidumping
case and really looks at whether in fact markets are truly open.

I think you do not need more emphasis on bilateral negotiations,
because many negotiations are already bilateral, with two principal parties.
Even the MFN negotiations of the GATT have always started with
principal suppliers and so on and then extended to MFN. So the most
interested parties are bound to start it, but I think APEC has an advantage.
These are all virtually exporting nations, and the antidumping advocates
are mostly in the EU and, unfortunately, in the U.S. as well. APEC is a
good regional body to bring at least the two principal sets of players
together and then to spread them to the WTO, because I think the WTO
may be an area where negotiation of these kinds of competition policies is
a bit more complicated - a real can of worms. It would be a good idea to
get some principal players like Korea and Japan on the one hand and the
U.S. on the other to use APEC auspices to try and make progress on how
to define barriers to entry.

It sounds simple, but like the U.S., the French were complaining at
the close of the Uruguay Round that as a matter of principle, to have only
one percent of the U.S. movie market means that the U.S. market is closed.
Obviously Americans don't want to read subtitles, but then why not teach
French in your schools? That is a barrier to entry. Where do you draw the
line? Or in the car industry, what if you can set up your own distributive
network? Even with Eastman Kodak, which has locked up everything in
terms of formal favors and other retailers like the little kiosks we have on
Broadway, like Fotomat and so on, which really is an alternative method
that is very low cost, why should it complain about these other matters?
So when does something become a barrier to entry? I am afraid I do not
know. I do not think economists have sorted these things out. When is
something really critical to market access, and when is it to be
disregarded? To me, these are the kinds of issues which will come up,
because car manufacturers, for example, think that a single agency system

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is the way to maintain quality, and this is also the way Americans used to
think. The Europeans still give an exemption from the competition policy
directed to the car industry. Economists and antitrust lawyers, I suppose,
are not unified or do not have a clear set of principles. I think we have to
draw up and try and get them.

I can see that going to the WTO, which I often recommended, is a
problem, because it is a question of how you make law. Competition policy
is a case that is so complex, with different points of view and undefined
principles, that if you go to a panel of judges, if they do not throw out the
case on jurisdictional grounds, they will make up some kind of law by
rendering a decision. Do you want the WTO with these different sets of
panels to make law in an area that is so complicated? Or do you really
want to set up economists, lawyers, and policymakers from very different
cultural and economic perspectives and then really make the law. I think
to be fair, unless you can identify a very clear cut case upon which most
regional people can agree, the general issue has to be done by raising the
matter in a certain entity like APEC which could then take the issue to the
WTO.

I would say APEC is an excellent place to start, whereas NAFTA
would be a terrible place to start this process. The APEC member countries
are basically friendly with each other. APEC is a friendly umbrella, where
Japan can talk to the U.S., and Korea can talk to both of them and so on.
I think it is an ideal place to start the talks and maybe bring in the
Europeans, someone in the middle between Japan and the U.S. or another
as far as some of these practices are concerned. Ultimately, it is going to
be some sort of compromise agreement. We are going to have to arrive at
something that might be undesirable yet unavoidable, because people are
continuously worried about rights to basics and so on, as well as disputes.
You will probably never completely have clear principles with which we
would be happy academically, but you have to arrive at some agreement
to bury points of conflict or resolve them in some particular way. As a
trade matter, competition policy is a very complex matter. It is very hard
to decide which is the correct position to take on some of these things. If
you have a clear barrier to entry, as I wrote about in my article on the car
dispute, where the Japanese distributor sends the Yakuza (Japanese mafia)
to break the legs of people working for your dealership, that is clear
enough. You do not need any advanced principles to discuss whether this
is a barrier to entry or not.

This is a matter of relative costs. I asked economists and industrial
organizers in that article about their talk about distribution becoming
expensive. However, there is a whole chain from production down to the
consumer. So suppose, just like as it was said with the distribution system,

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that Iacocca28 said, "It is very expensive for me to produce Chryslers in
Japan, because I am coming in late and Toyota bought its land thirty years
ago, and therefore Chrysler cars should be produced by Toyota or rather
Japan should open up its production facilities." From an economic point
of view, one is just dealing with production, and the other with distribution
in the chain, and the same argument could be made symmetrically. I was
of course just being naughty and mischievous, but they could not answer
that question, because they always thought of distribution as the subject to
focus on because of Rockefeller and antitrust. So there are very difficult
issues in my judgment as an economist, and it is actually quite fascinating.
Nothing that can be solved by simply using Section 301 and knocking
people on the head, because that will just leave a lot of ill will as people
think this is unreasonable.

I think you have to sit down and discuss matters, but this is also where
impatience enters. I think one of the major reasons for the impatience is the
thinking that if we are open, and they are closed, we will get cleaned out.
I am not denying that we should do it. In fact, I am asserting that we do it
at the APEC and then go to the WTO. But to take quick decisions on what
should be done by using pressure unilaterally, I think this is just going to
raise people's hackles, because there are reasonable questions about
whether many of these complaints really relate to what we all agree are
barriers to entry in excess. I think some wisdom and more patience, which
we can afford, are necessary.

Conference Participant: International rule-making is performed by
big nations. What room is there for self-determination? Korea is under a
lot of pressure, especially regarding foreign direct investment and capital
movement into Korea.

Jagdish Bhagwati: After the problems with the Mexican bailout, I
do not think that pressure is going to persist on the opening up of capital
flow. There was testimony before the U.S. Congress by Jeffrey Garten' on
India and South Asia. At that time, Senator Hank Brown" asked how we
were going to put pressure on India to open up its financial markets?
Jeffrey Garten responded that he had spent most of his life trying to push
such regulations, but today, new institutions are in place, the IMF and so
on, so it does not make sense to treat financial sector liberalization in this
way like portfolio capital liberalization. So I think there is going to be
more understanding because of the whole Mexican crisis. Moreover, the
financial sector is really not like the commodities market. It is subject to
panic and all the classical ambiguities economists know. Of course,

28. Former CEO of Chrysler Corporation.
29. Former Undersecretary of Commerce for International Trade.
30. Former U.S. Senator (Colorado).

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Salomon Brothers and the others are bound to continue pushing, but I think
it viii be more moderate in the next few years certainly, thanks to poor
Mexico's troubles.

On labor, I have an opinion although no wisdom on this subject.
Essentially, my view is that the pressure for service sector liberalization
was coming up in the nonfinancial sectors, from professional bodies, like
lawyers, advertising executives, analysts, and all the different professions
who wanted to practice in Tokyo. My feeling is that this is a good time for
the developing countries to use these services moving in this direction and
to say that they would have access. You cannot do the same for unskilled
labor, because that goes a little bit too close to the bowl. Technically, you
can say that there is no difference between skilled and unskilled labor, but
we are talking about the real world. It is not easy, for example, to export
Korean construction workers on a temporary basis, outside of the
construction industry. You really couldn't get much mileage, certainly not
in model conditions when trade is supposed to be such a source of
difficulty for unskilled labor. So I think that is a non-starter. Maybe this is
contrary to other opinions, but I think the area of skilled labor is different.
This is going to be the area where you could export a whole lot of people
who can provide those kinds of services by the mutual recognition of
standards. Again look at the professional bodies.

Also, one of my students did a thesis looking at the examination for
foreign medical graduates as an entry restrictive device. You would not
even have to use the INS, because you could restrict entry directly by just
varying the exam's difficulty, so that people do not pass and cannot get
their visas. He found a very good relationship between the success and
failure rates, the state of the internships, and drops in the market in the U.S.
It will take time to be able to get at these kinds of things, but the point is
that it is the developed countries which are really pushing for these
professional services. Let them walk into this web, and then they go back
to the supply, because Korea, India, Brazil, Mexico, and Egypt have fairly
well developed skilled manpower. They could take temporary visas to do
services, like import doctor services, export patients, and do all sorts of
things. There are endless possibilities here for trade, which I think, thanks
to OECD initiatives, we can take advantage of in developing countries,
because there are several overdeveloped developing countries in terms of
skilled manpower.

So I am quite optimistic, but if you say our people should be free to
go with unskilled, underpaid labor, you will never make it. That is a crazy
position to have. In my country, often people take very logical positions.

David Leebron: I believe that it is the details that matter, and
economic models which operate at too high a level of abstraction cannot
be relied upon. We are struggling with many difficult questions. Is
multilateralism good and unilateralism bad? What we are in fact dealing

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with are mere labels. How much of a difference is there really? Professor
Bhagwati says that after the Uruguay Round, the FTA obsession lingers,
and we should get rid of it. But what are the problems-we are talking about,
and what is the complaint here? What we talked about made sense before
the Uruguay Round, but not now without details. I can think of a list of
problems that might be addressed in regional approaches: high tariffs of
lesser developed countries; very high agricultural tariffs; services where
preferences are still problematic; non-quantified barriers (such as
antidumping); alternative dispute resolution; and rules of origin. How
much can we address these without a revision of Article XXIV? Professor
Bhagwati said there comes a time when you have to shift back to the WTO,
but is this an idealism of multilateralism that ought to be respected?

Jagdish Bhagwati: I think that is a relevant question. Before I
answer, to go back to unilateralism, I have just one thought on the pro-
regionalism side, or rather pro-some-kind-of-reciprocity oriented
mechanism. I think a lot of people tend to prefer bargaining within an FTA
framework, because they see that as a framework where ultimately the end
result is given to you, which is free trade for everyone within it. On the
other hand, the GATT approach or the WTO approach is usually akin to
having first order reciprocity. I make some concessions, and you make
some concessions. That leads fundamentally to a whole lot of these people
who file these Section 301 cases saying, "I have a higher tariff which I face
somewhere else than they face in my market, and sectoral reciprocity is
something that can be better satisfied in a framework where everybody is
going to reduce tariffs." Again, I think this is one of the main reasons why
FTAs continue - since you are asking me what is the role of these FTAs.
Somehow if we could put into the WTO a credible framework saying we
are going to be continuously negotiating our way down to zero tariffs, then
somebody whose market is symmetrically covered is not able to then say,
"I am not ever going to get there."

I am obviously going to get complete sectoral reciprocity within an
FTA because the target is clear. Given the modern emphasis on sectoral
reciprocity as well, I think that is one kind of rationale and perhaps the
only political way to go. When political economists theorize as to why
governments prefer these kinds of arrangements rather than multilateral
ones, we look for incentives, and this is one clear incentive. The businesses
have incentives or clear preferences for going into this kind of
arrangement, and a lot of money and propaganda goes into it compared to
the WTO or the Uruguay Round. This, I think, is one answer to what you
were saying. I think the same kind of thing would also apply to a number
of these areas that may be more easily negotiated within limited
frameworks.

My feeling again is that even if you go down the route of FTAs, there
is still nothing which we have not already negotiated at the WTO. So it is

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not a matter of new topics or new areas which you cannot handle at the
WTO. Now, to move back into fundamental political science, you have got
to go back to the incentives. When Salinas was in a one-on-one bargain in
NAFTA with our President, because he so badly wanted NAFTA, and
because it was extremely important for Mexico, Mexico was willing to sign
on to what are called world-class standards, meaning the ones the U.S.
were looking for and wanting. There is no way in which at the multilateral
negotiations you could get that, because then everybody from here, like
Korea, etc., would be there giving support to Salinas and saying, this is
counterproductive to trade according to their point of view. We would then
have never had these supplemental agreements.

I believe that lobbies have now begun to see the fact that there is such
an enormous power, economic and political, so many instruments of
punishment and incentive, and so many policy instruments in a bargain that
is not of the WTO. A hegemonic power, pejoratively speaking, can in fact
play a leadership role or play to its lobbies which claim leadership to get
things done. Even Chile, which has always been against these kinds of
things, is now going to be willing to accept them. So you can break the
opposition. It is easier for you to bargain sequentially rather than all at once
at the WTO. It all depends on what you are putting into the pot. Some of
them might be good, and some might be bad, but it all depends a great deal
on lobbying today. A lot of trade policy is now privatized in the U.S., and
that is the other argument I would use. Today, you are never going to get
rid of this kind of approach. The only place where the kinds of demands
that we want to put in other than competition policy from our part of the
world or that a lot of these other lobbies are not going to get their way is
here. It is the only way. This is why it is a little frustrating for us to come
here, because they say we will not even discuss it being too divisive,
meaning that that is not where we are going.

In fact, this is also why I just do not see how you could put in
anything like labor and environment and get it through Congress as an FTA
under the existing administration, unless perhaps if the Republicans
become much more powerful and carry the White House. Whereas if you
simply go for some concerted unilateral liberalization you will be able to
keep a lot of these out of the way and get it going, I think. I would say
these are the kinds of reasons why we are going to see some bit of pressure
for regional, unilateral arrangements from our part of the world, because
our policy is extremely privatized. I think from their perspective it is better
to bargain unilaterally, which is not bargaining really but rather a kind of
pressure. I think from our perspective, it is going to stay. I think we see
therefore going to WTO as ultimately the last of where we finally clear the
deck, having first really set the standards on a lot of these things.

There is a whole article in here as to why and what are the political
and economic reasons for FTAs when we have the WTO, but it is an
interesting question as to why we have it and whether we can persist with

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COLUMBIA JOURNAL OF ASIAN LAW

it outside of our own region. Because our own region is just our backyard,
and even Canada is perhaps like our front yard. Canadians do not really
exercise any initiative on these issues of trade policy. We are the ones to
initiate membership and so on. They simply decide whether they will go
on with it, and they usually do. So I think we will not have a problem with
this approach. However, with APEC, it is a different ballgame, where you
can get true open regionalism, because perceptions, lobbies, governments,
and export policies are very different. I think this is where the FTA
approach can grind to a halt, but I am really worried about the thing turning
into an FTA. I do not think that it will for the reasons that I mentioned,
namely that these countries do not share our objectives and constraints
under which we operate. However, you have to put something in place in
a very concrete way, and what I was arguing is that you could use this
occasion to make a very positive and pro-WTO statement that we have a
WTO round on the trade issues and competition policy, just the two critical
elements of trade liberalization and competition policy. Let that be the first
Asian Round, as it were, and I think this is the time when they can do it.

Judy Bello: Actually, I have just a brief comment. My name is Judy
Bello, and I am from Sidley & Austin in Washington. Professor Goldberg
has suggested that maybe we can make headway on the antidumping law
by discussing it bilaterally. I feel compelled to inject a brief note of bitter
Washington political realism on these suggestions. I certainly share the
underlying concern about the antidumping law and its proliferation. I think
even before the end of the Uruguay Round, this law has become the
leading barrier to trade, and so I share your objective. Nonetheless, I think
it is important to recall that we had our largest trading partner, Canada, our
front yard, have as its number one objective in the free trade negotiations,
the achievement of a safe harbor from U.S. antidumping and countervailing
duty laws, and they did not achieve it. We also just had, in case anybody
missed it, a minor war in Washington throughout the Uruguay Round over
the extent to which the U.S. would support reforms to the antidumping law,
and the good guys did not win. We did actually have a battle for the first
time, and we can all rejoice that there at least was some political support
expressed for the first time in the U.S. for streamlining these very
draconian laws. I think while it is fine to be idealistic, and I would hope
also we could make some progress, but nonetheless, until politics in
Washington change, I do not want people to have expectations that will be
disappointed. Those politics will not change until more U.S. exporters
complain that they are damaged by the application of antidumping laws to
U.S. exports and more U.S. manufacturers complain that they are rendered
less competitive when they cannot have access to inputs at world market
prices because of the application of our antidumping law.

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SEOUL CONFERENCE ON INTERNATIONAL TRADE LA IV

Jagdish Bhagwati: This is a matter of changing the politics. You get
effective countervailing effects on your exporters, and it is a variation on
the old argument of reciprocity. The only way to open your markets is by
giving incentives to exporters. It is part of the same negotiations. I think a
lot of people argue that, but the trouble about that is that once other
countries start using those antidumping laws, they will fall in love with
them too.

Some developing countries, which have been opening up under one
form or another of trade liberalization, have been busy setting up
antidumping legislation. I did, I am afraid, say to the Indian Finance
Minister on Indian reforms that you have got to set up antidumping too,
because you cannot be holier than other people. You might be simply be
compromised in terms of continually opening the door. So I said, here were
these downsides, and you have to be careful about the way you write your
rules, but in the end, everybody gets onto this trend. It is such an easy way
to do it. Whether you then are able to get everybody to say, what a
wonderful way to live, or gosh, nuclear winter has broken out and we want
to change it by cooperative action, I do not know which way it will go, but
it is a sign of desperation when people use it as a way of changing the
system.

Michael K. Young: We are going to conclude this session now. I am
very grateful for your attendance. Allow me to express, on behalf of
Columbia University, our gratitude for the tremendous facilities, for the
efforts of Doctor Choi and his Institute that has been extremely cooperative
in setting this up, and Mr. Song from Samsung, who has been with us
throughout the entire Conference, as a sponsor and as an intellectual. We
appreciate all of you attending, participating, and sharing with us your
thoughts and ideas. We hope that this is just the first of many opportunities
for all of us to discuss together matters of obvious import. I think in
closing, I would like to express particular thanks to our very distinguished
speakers today, Professor Bhagwati and Professor Kim. It has been highly
illuminating, and since they did answer our questions, we will have to meet
again to raise more. Thank you very much.

1996]