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SPEECH/04/400












Pascal Lamy

EU Trade Commissioner



The Emergence of collective preferences in international trade: implications for regulating globalisation




















Conference on “Collective preferences and global gouvernance: what future for the multilateral trading system”
Brussels, 15 September 2004

Introduction

International market-opening is a tremendous force for growth and employment that benefits us all. But whatever its benefits, it also has a destabilising impact on the economic and social fabric, and potentially on societal choices. Politicians and trade negotiators should keep this in mind:

  • Politicians must face up to their responsibilities. You cannot preach the virtues of market-opening unless you are prepared to deal with the negative effects on productive structures, people and social choices. This is why it is crucial to plan ahead for the adjustments that have to be made and assist people and structures in coping with change. That has been the aim of programmes to mitigate the effects of market opening, such as Trade Adjustment Assistance in the US, cohesion policy and other measures in Europe and the trade integration mechanism recently set up by the World Bank and the IMF in developing countries. But it is just as important to make sure that market-opening does not jeopardise legitimate collective choices; in all political systems it is a sovereign duty to safeguard such "collective preferences" as markers of identity.
  • Trade negotiators need a proper understanding of the destabilising effects of market-opening to do their job properly. The adverse effects on industries and societies generate opposition from people who believe they will lose out personally whatever the overall benefits for society as a whole. This opposition is reinforced by a biased perception of the costs and benefits of market-opening: the costs (factory closures, job losses and so on) are highly visible, localised and palpable. This masks the real magnitude of the benefits, which tend to be less tangible and more widely spread. This lack of a clear correspondence means that negotiators have a particularly hard job in explaining the benefits of market-opening. Programmes to offset the effects of market-opening do help, however, and the OECD was right to include accompanying measures in its free-trade programme. Fears that social choices might be called into question by an all-powerful WTO are behind the rejection of globalisation and now weigh on international trade negotiations. Whether or not these fears are justified, they must be met with a credible response.
  • But while efforts have been made to educate opinion and develop accompanying measures to deal with the effects of market-opening on industry and employment (though the issue of business relocation has recently rekindled controversy), the threat to societal choices has not received proper attention. Perhaps because the risk seems more theoretical than real, despite mounting tensions, and because the adverse effects on industries and local communities have actually happened (and can't usually be separated out from the benefits of market-opening anyway). Another possible reason is that this issue is not simply a domestic one like, for the most part, support measures to offset social costs, but a wider problem that has to be tackled as a whole in agreement with our international partners.

However, if this threat becomes reality, the consequences will be much more serious than the destabilisation of industries and jobs: it will strike at the heart of the social fabric and democracy, namely the taking of collective decisions, and not merely economic interests, sensitive though they are. Any "cost" of this type is by definition not comparable (not commensurate) with the (economic) benefits engendered by market-opening; the one cannot offset the other.

We have to find a way of tackling this problem because these doubts are already making themselves felt in terms of growing disenchantment with democracy and opposition to market-opening.

The roots of the problem

We all have personal preferences about lots of things, and we are free to choose them without having them thrust upon us by other people. But as soon as we interact with someone else, whether it be in trade or cooperation, the expression of personal preferences, attitudes and choices may pose problems; for instance, conflicts may arise if we de not share the same conception of property and its transfer, of how to punish crimes, or the risks involved in this or that situation.

Happily, democratic societies are organised in such a way as to allow the emergence of "collective" preferences, which synthesise the preferences of individuals through political debate and institutions. These preferences then become standards which apply to everyone and provide a framework for relations between individuals.

The same thing happens at international level whenever countries, each with their own collective preferences, interact, cooperate or engage in trade. There is a big difference, however: if there is a clash of choices at international level, there is no legitimate higher authority, no world government, to act as referee and ensure that a "collective" collective preference emerges.

What are collective preferences?

Collective preferences are the end result of choices made by human communities that apply to the community as a whole. "Community" refers to any group of persons that have set up institutions capable of forging collective preferences. It might be a country; it might be a larger community like Europe. Of course, communities do not necessarily make the same collective choice in response to any given issue. Even the scope of collective preferences can vary: on the issue of "soft drugs", for example, some communities prefer to leave the choice to the individual while others impose a collective rule. Such choices are rooted in the cultural and religious values and traditions of the country in question, and are also determined by political considerations, historical factors and the level of development.[1]

Collective preferences are thus especially difficult to define.

  • They are not set in stone: they evolve over time and there are even cases of inversions of collective preferences as happened in the case of America's and Europe's evolving appreciation of risk in the 1980s (awareness of environmental issues developed much earlier in the US).
  • They are not always rational: they are forged by political experience. Europeans' attitudes to food safety and to scientific opinion have been greatly influenced by major scandals in the last two decades (contaminated blood and mad cow disease) while Americans' attitudes to the balance between security and freedom have changed since 9/11.
  • From the regulatory point of view it is difficult to forge collective preferences from a heterogeneous collection of individual preferences, as the economic theory of social choice demonstrates. They are thus open to dispute.

In short, they should be seen as values.

So it is difficult to draw up an exhaustive list of collective preferences in the abstract. We can, however, be definite about certain of Europe's collective preferences: multilateralism, environmental protection, food safety, cultural diversity, public provision of education and healthcare, precautions in the field of biotechnology, and welfare rights. These preferences are not a European monopoly; other countries share them to a greater or lesser extent, though they may be expressed in different ways.

We should not confuse collective preferences as such with the form of regulatory measure used to embody them. There are two different steps here and recognising this is crucial if collective preferences are to be expressed coherently. The specific problems that arise from combining different collective preferences often stem, not from the collective preferences themselves, but from the way in which they have been converted into regulatory measures. And one way of converting them may create more problems for other countries than another way. So the trick in expressing collective preferences is largely one of drawing up or adapting regulatory measures in such a way as to faithfully translate a country's collective preferences while causing as few problems as possible for others.

This is a recurring problem in international relations. The most striking example is in criminal matters, as the need for often complex extradition arrangements testifies. The opposing views of Europeans and Americans on the death penalty[2] have complicated not only extradition arrangements but also, though less perceptibly, judicial assistance and exchanges of information in the course of investigations. It is even more difficult to give up exclusive competence over extradition procedures, as Europeans have recently, and reach agreement on a European arrest warrant. Doing this involved the emergence of a common definition of criminal acts and, finally, of a "collective preference". Another issue causing similar difficulties is the exchange of personal information, airline passenger lists being one recent example. This issue throws the spotlight on different conceptions of the right to privacy and the balance between security and freedom.

Such difficulties arise in trade as well as other areas of international cooperation. Traded goods and services are both an embodiment of and vehicle for the collective preferences of the countries producing them; they then become an interface with the collective preferences of the consumer country. Trade is the natural point of intersection for different systems of collective preferences.

This interface function is not new. The issue of slavery raised the question of how to articulate collective preferences very early in the course of international trade organisation. But for a long time it remained implicit, only emerging in the most flagrant of cases. Only recently has the interface function become a key feature of international trade, for three reasons:

  • lower customs duties and the removal of quantitative barriers to trade at borders, which, when high, acted as a brake on trade anyway. To use Richard Baldwin's image, a low tide uncovers the reefs that are hidden at high water;
  • the trend towards a greater "ideological content" in goods and services. The development of trade in farm products raises issues about our relationship to nature, the environment and food, all things that ethnologists class as cultural markers; trade in services raises the question of regulation of public services; and cultural diversity is a modern version of the cultural exception;
  • changes in society itself as citizens and consumers have become better informed and more demanding. This greater awareness of issues has crystallised in the form of NGOs and global communications media whose development has given an ideological spin to previously humdrum issues (for instance, we used to change batteries without thinking twice, now it is an act fraught with environmental consequences).

And is it really a problem?

Bringing collective preferences into contact, as happens in international trade, may provoke clashes. These potential difficulties fuel fears that globalisation may threaten these preferences. Are such fears justified? Basically, no. Different collective preferences tend to be complementary rather than conflicting, though experience show that problems of compatibility may arise.

  1. Collective preferences are essentially complementary

Diverse collective preferences and international market-opening are mutually beneficial. Trade bolsters, indeed promotes, variety in preferences because it allows everyone to make their own choices while enjoying their partners’ choices. A good example is the ban on usury in medieval Europe: no interest could be paid on money lent between "brothers". In conditions of autarky this situation would have been unsustainable because it would have held back economic development. The ban on profiting from money-lending restricted the opportunities for borrowing by artisans, traders and peasants who need loans to develop their businesses. This problem was solved by international market-opening: outsiders of a different nationality (Lombards and Cahorsins) or religion (Jews) were allowed to lend money and so played a vital role in the economic development of such societies without overturning their social choice, indeed they reduced the economic cost of this choice.

A diversity of preferences should be seen as complementary and mutually enriching. If all countries had the same preferences, the lack of complementarity would diminish the benefits of trade. The ban on money-lending is an extreme example but there are other, more contemporary cases of countries having different social arrangements for the organisation of the labour market. This is true of Europe and the US: as the OECD has shown, they have differently organised labour markets (emphasis on providing people with security in Europe, greater flexibility in the US), giving rise to different forms of innovation (incremental and cumulative in Europe, more abrupt in the US) which in the end prove to be complementary, even in sectoral terms (technology sector geared to aircraft engineering and vehicle manufacture in Europe, precision instruments and software in the US). The even more flagrant differences between developing and industrialised countries are another one of the fundamental divisions of international labour.

The WTO acknowledges the legitimacy of preferences as long as they comply with the basic principles of the trading system (transparency, non-discrimination, etc.) and commitments entered into. WTO rules do not impose uniform standards for products any more than they dictate the conditions of production.

As long as there is transparency and no discrimination a country cannot be accused of protectionism just because it applies specific health, plant health or technical rules on access to its market, just as another cannot be accused of dumping simply because it sells its products at lower prices than other countries as a result of, say, lower labour costs.

In practice, and contrary to what is widely believed, there has been no inexorable standardisation or dilution of collective preferences as a result of globalisation. Any convergence of such preferences has been uneven at most and there are countersigns of persistent and marked disparities, even between economies at the same level of development. Examples are the participation of the private and public sectors in the supply of public services and social insurance (here the gap between America and Europe has grown over the last 30 years), attitudes to inequality and the redistribution of wealth (where transatlantic differences endure, as shown by transfers as a share of GDP and the impact of inequalities on welfare indexes), risk assessment and how to manage risk (GMOs being a case in point), and the definition of property rights.

  1. ...but it is sometimes difficult to accommodate them.

Although trade and diversified preferences are as a general rule mutually beneficial, there is a point at which differences may start to create problems of compatibility. The potential scope for incompatibility is not huge but it is there. By definition it includes collective preferences having a universal dimension that are supposed to be shared by partner countries as well as the country that formed them. The Jews and the Lombards of the Middle Ages were able to operate only because Christianity did not demand of "foreigners" what it demanded of believers. The international division of labour between countries that have different models of labour market is possible only as long as the models are not incompatible, which is usually the case. The European social model is not meant to be copied worldwide, anymore than the American, Japanese or Philippine models are. But there are some social issues - fundamental social standards (such as bans on forced labour and child labour) – that are considered by their promoters to be universal and applicable to all. This sets limits to the working of comparative advantage.

At this point trade, from being the geometric point at which preferences interconnect, becomes the geometric point where incompatibilities emerge. It exposes them. Trade is not alone in doing this. As we said earlier, this applies to any form of international cooperation or exchange and problems of compatibility of collective preferences have played a part in holding back progress in international judicial cooperation.

All aspects of international relations are affected by increasing openness and the interaction between different collective preferences, but trade is at the sharp end, for two main reasons: the underlying stakes are considerable (the exporting countries' offensive interests may not sit well with the importing country's collective preferences) and trade is the only area in which there is an effective and binding mechanism for settling disputes, capable of imposing real penalties. These two factors tend to exacerbate any incompatibilities, which are made even more problematic by the fact that collective preferences relating to trade may coincide with protectionist interests: the suspicion is always there that collective interests could be used by special interest groups as excuse for protection for uncompetitive industries. This is a particularly thorny issue because, as we said above, it is difficult to describe collective preferences without ambiguity (in the absence of unanimous individual preferences).

This is a new difficulty for the trading system, in addition to conventional trade disputes, because it brings two legitimate demands into conflict with each other: the demand that commitments given to the WTO be honoured on the one hand and the demand to exercise legitimate social choices on the other. The old mercantilist barriers to trade such as quotas and customs duties are no longer the only barriers. Now there are also well thought-out rules and standards, seen as a reflection of legitimate social choices.

Collective preferences in international trade are by no means new but, for a long time, their emergence was obscured by the emphasis in trade policy on market access and the dismantling of tariffs. It is only recently that the issue has risen to prominence, as the world economy has become more integrated, the range of traded goods and services has increased and the level of public awareness has risen, resulting in more and more disputes (the turtle-shrimp case, hormones, asbestos etc.), perceived as disputes about collective preferences.

A North-South problem?

The issue of collective preferences in trade conceals a structural divide between the North and the South; sensitivity to collective preferences is one of the features of development. The very formation of collective preferences is dependent on income levels: the trade-off between greater affluence and environmental protection or between greater affluence and reduction of inequalities changes with income levels.

At first sight, this may appear to reflect a contradiction between the North's collective preferences which it is keen to defend and the legitimate development needs of the South. But that is not how it really is: just because there is a difference in the level of awareness of questions relating to collective preferences, it by no means follows that social choices are themselves contradictory. Only occasionally are different collective preferences source of incompatibility (one possible example being the differences in basic social standards between North and South). As a rule, they tend to enhance the benefits of trade. The defence of collective preferences, including universal standards such as basic social standards, is in no way a challenge to the social arrangements that keep the labour-intensive southern countries competitive.

The concept of the legitimacy of choices cuts both ways. Developing countries have their own needs, relating to their situation – Dany Rodrick calls this the "institutions of transition" - and, like industrialised countries, they are entitled to recognition for their specific, and legitimate, social choices.

How has the problem been handled up to now?

One thing needs to be made clear: the WTO has not dodged this issue. It recognises the legitimacy of preferences and attempts to reconcile openness with respect for legitimate collective preferences. It does not lack the means to do this: its rules allow exceptions to be made on grounds of public health, public order, public morality, the environment or national security, and countries have no qualms about adopting standards that reflect their collective preferences. Where these standards have led to conflict, experience has shown that the dispute settlement body has always sought to strike a balance between the need to ensure that standards are not just protectionism in disguise and the need to protect legitimate collective preferences (see inset below).

The Appellate Body and “Collective Preferences”

In its rulings, the AB has been guided by three basic considerations: a) the need to interpret WTO provisions in accordance with rules of public international law; b) the need to ensure that measures that are not in themselves discriminatory are not used for protectionist ends; c) the need to maintain institutional sensitivity and deference in relation to measures taken for non-trade concerns.

At the outset, the AB set out some important rulings to avoid the risk of protectionism concealed behind measures that are not discriminatory per se:

  • a broad interpretation of the non-discrimination principle, which covers de facto discrimination (e.g. bananas);
  • an interpretation of the term “like product” which, in accordance with traditional GATT practice, is essentially based on product characteristics and competition in the market (tax-discrimination cases, asbestos).

At the same time, a number of important AB rulings have shown sensitivity towards non-trade concerns and appropriate deference (both as regards the actions of members and the expertise of other international organisations):

  • in the “reformulated gasoline” case, the AB affirmed the fundamental principle that WTO law could not be interpreted in “clinical isolation” from other rules of public international law. On this basis, the AB made a “progressive” reading of Article XX(g) as encompassing environmental concerns. It also shifted the focus of enquiry from the “justification” of the measures to their “application” (i.e., whether the measure entails arbitrary discrimination or disguised protectionism);
  • in the “hormones” case, the Appellate Body reversed the panel's decision and made clear that there was no strict obligation under the SPS agreement to follow international standards. The complainant has the burden of demonstrating that a SPS measure is not based on sufficient scientific evidence. Moreover, Article 5.7 incorporates the precautionary principle. The EC ban was only condemned because of the EC’s failure to carry out a specific risk assessment. (This “case law” has also been applied to SPS measures taken by Japan and Australia.);
  • in the shrimp-turtle” case, the Appellate Body accepted that the protection of the global commons (i.e., migratory species) could be encompassed by Article XX (g), thereby departing from the strict jurisdictional reading of the “tuna-dolphin” panel. It also accepted that a PPM based measure – even if not covered by Article III – could be justified under Article XX. The US ban was only condemned because of its arbitrary nature and the failure to engage in serious negotiations with affected countries. After the US modified the measure and engaged in “good-faith” negotiations, the AB considered that the US had provisionally complied, even though no agreement had been concluded with one complainant (Malaysia). ;
  • in the “asbestos” case, the Appellate Body reversed the panel's decision, taking the view that the ban was justified under Article III and did not therefore require justification under Article XX. It moreover considered that health risk was a factor that had to be considered in determining whether two products could be considered as “like”. Even more importantly, it made it clear that different treatment of “like products” does not automatically imply a breach of national treatment under Article III.

The complaint has to demonstrate that “imported products” are treated “less favourably” than “domestic products”. (How this test would be applied has not yet been clarified.).

Like most courts of law (including of course the ECJ), the AB follows the principle of “judicial economy”, i.e. it interprets law only when it has to in order to solve a dispute. This means, of course, that there are still areas of the interface between WTO rules and non-trade concerns that have not been clarified. It can be said, however, that so far the AB has been a faithful guardian of “collective preferences” under the WTO system.

However, the scope of the rules is not always clear enough and, though it is to be welcomed, the case law is incomplete and leaves room for interpretation. That is one of the reasons Europe wanted WTO negotiations to include discussions on clarifying the relationship between the WTO and multilateral environmental agreements. To the extent that WTO rules explicitly acknowledge collective preferences, they deal chiefly with extreme cases, whereas the issue is an extremely broad and rapidly developing one.

Furthermore, case law has not always been correctly understood and has led to misunderstandings, giving rise to the fear that collective preferences were being challenged.

By their sudden emergence in international trade, collective preferences risk provoking a backlash against market opening when that openness is seen as a challenge to legitimately expressed collective preferences. This backlash is fed by the feeling of "dispossession" traditionally associated with globalisation (the people affected by decisions feel remote from the people who take them), but the feeling goes deeper than that because people feel "dispossessed" of their social choices and unhappy that their social choices are being placed on an equal footing with commercial considerations, in a world where everything is viewed as a commodity.

The Members of the WTO and above all Europe are partly to blame for this, through their failure to explain or educate. But beyond that, the WTO rules are in need of clarity, formal guarantees and symbolic significance, all currently lacking.

Clarification would be in everybody's interests: it would be welcomed not just by those who fear that collective preferences are under threat but also by the defenders of freer trade, assuming they want to maintain majority support in the democracies.

How could it be handled better?

The challenge is to design an open trading system that everyone accepts and that safeguards legitimate social choices. Every player wants respect for their political autonomy and for their collective preferences at the same time as gaining access to their partners' markets. The problem is that the cause of safeguarding legitimate social choices can be hijacked by protectionist interests. This has been the subject of intense discussion, quite understandably so on occasion, in the debate on social standards. The result of this is a certain defiance when these topics are discussed, particularly from the southern countries. Many liberal economists will not even allow the issue to be raised because, for them, it is inevitable that the debate will be taken over by protectionist interests.

That amounts to throwing the baby out with the bath-water. You cannot refuse to deal with a problem just because there are risks involved in doing so. The whole point of discussing how to design a trading system that can take account of collective preferences is to find a way of distinguishing between legitimate collective preferences and protectionist excuses. But to do that, the problem (and no-one can deny there is one) needs to be addressed head-on, the risks need to be clearly identified and instruments need to be devised to contain them.

1. By falling back on the market?

The people most concerned that protectionist interests might hijack policy advocate going back to the market and letting consumers decide: it is difficult to prove that collective preferences are genuine, but we can fall back on individual preferences: give consumers all the information they need to make a choice, through labelling, and let them choose. This is an attractive solution but, on closer inspection, unsatisfactory. First of all, it is not that simple; labelling can also be misused when the very act of putting a label on something suggest that there is something to be concerned about. But, above all, this solution to the problem assumes that individual preferences are paramount, which is highly debatable.

It is all well and good if, in line with the model described above, the collective choice is to allow individuals to make their own choices, as is the case with soft drugs in some countries.

But if there is such a thing as a collective choice, then asserting the supremacy of individual preferences and choices amounts to denying the existence of the entire social edifice and valuing the consumer above the citizen. This is unacceptable. Certain collective choices are binding on society as a whole and transcend individual preferences. The rejection of the death penalty in European countries is binding on all European citizens, even if they are individually in favour of it. As a rule, national collective choices relating to health-care quite closely define the scope of individual choice. Except in relation to tobacco, consumer information is not a substitute for measures to protect public health. Collective preferences mean collective regulation.

This is not incompatible with the existence of individual choices. But individual choices, if necessary facilitated by labelling, are done within the limits fixed by collective choices: this is typically the EU approach regarding GMOs.

2. By adjusting the way the trading system works?

  • Wrangling can be beneficial if it is done early enough

We should start by stressing that certain beneficial effects flow from the clash of collective preferences and the constraints imposed by trading rules. The way the EU's agricultural policy has evolved provides a good illustration. Greater openness, dialogue and negotiation led the EU to examine the basis of its agricultural policy and to clearly identify the collective preferences underlying it (rural development, environmental protection, food safety and animal welfare), to distinguish these from mercantilist interests and to rethink its policy accordingly. At the end of this clarification exercise, it was clear that export subsidies are not necessarily the best way of achieving the objectives referred to with the least possible disruption for our partners. The question then remains: what are the best instruments for achieving those fundamental social objectives while creating as little disruption as possible for other countries?

The constraints imposed by WTO membership and peer pressure provide a powerful incentive to do the work involved in this process. In cases of conflict, the dispute-settlement body has always stressed the importance of dialogue, negotiation and persuasion (as in the shrimp-turtle case, which resulted in approval for American efforts to produce an international convention on the protection of sea-turtles).

It is one of the positive aspects of market opening and the clash of preferences that they make it essential to develop forums for discussion and identify preferences in order to head off conflict. The dialogue between countries and other parties involved in sustainability impact assessments for trade agreements could be used for this. The EU's experience with developing this kind of dialogue shows that the attempt often fails because of differences of opinion between the various parties as to what is at stake and what constraints the trade agreements actually impose on their signatories. Europe's development partners for example, see in Europe's environmental and social concerns the threat of more protectionist measures, which makes analysis of that aspect of trade agreements less attractive.

Using sustainability impact assessments to inform discussions on collective preferences would stand this thinking on its head to create an instrument for revealing trading partners' collective preferences, incorporating dialogue with the various parts of civil society in each of the countries concerned. The purpose of this instrument would be to highlight the difficulties caused by clashes of collective preferences in international trade. This, in turn, would make it possible to anticipate any conflicts that might arise from greater openness, by revealing incompatibilities between collective preferences before greater openness made them apparent, and by examining possible solutions.

This is relevant not just to what is happening now but to the future too. If we are going to start taking account of collective preferences, this will influence the content of future negotiations. The cost effectiveness of discussing specific issues in international negotiations will have to be reviewed, bearing in mind the risk of failure over questions relating to collective preferences. It is advisable not to push for integration in areas rich in collective preferences.[3] Here too, we need instruments that will reveal preferences, so that we can identify potential differences, incompatibilities and difficulties in advance.

  • The need for formal guarantees

Creating a space in which collective preferences can clash without doing so much damage will not stop them from generating tension. We have already said that the way the WTO has dealt with these tensions has been satisfactory by and large but has given rise to certain doubts and questions. To clarify how collective preferences might be integrated into WTO rules, the idea of a special safeguard clause has been put forward. The idea has become a focal point for the many concerns people have about the undoing of international integration, and an undermining of commitments on both sides. The idea has been held up as a bogeyman to stifle the debate on collective preferences.

In fact, a safeguard clause should be seen as an insurance policy, as the ultimate guarantee that trade integration will not pose a threat to legitimate collective preferences. Once again: that is largely how it works now. But it is not seen in that way. So, it would be useful to have an ultimate, formal guarantee to stand as a symbol. It would take some of the heat out of the debate. It would enable the other instruments to fulfil their function more effectively, and stop the issue from paralysing the entire debate on trade policy. The outcome of conflicts involving collective preferences would be much the same as today but the existence of a safety net like a safeguard clause would enable the parties concerned to achieve that outcome without generating so much tension and friction. The European experience could be drawn upon to good effect. It is often safeguards of this type that enable political consensus to be formed.

It is important to realise that, like any insurance policy, a safeguard clause would rarely need to be used. You only have to look at the way the WTO and its existing safeguard clauses work to see that: trade agreements are full of rarely invoked safeguard clauses. Of course the range of areas in which collective preferences could be an issue is immense, which is why there is so much concern about the idea of a safeguard clause, but we should not lose sight of the fact that in practice different collective preferences usually pose no problem, and that allowing countries to make a case on the basis of collective preferences is not the same as giving them carte blanche. It all depends on the conditions attached to use of the clause. The US's experience in the steel case shows that when a country invokes a safeguard clause without just cause, it does not matter how big the country, peer pressure and the WTO's robust rules will soon force it to back down.

Obviously, there is no question of giving WTO members an unlimited right to take any measure they like without just and reasonable cause.

A safeguard clause would have to be accompanied by two major provisos:

  • one regarding the formulation of social demands: it would be necessary to demonstrate that there really was a coherent underlying social demand and that the measure adopted was consistent with that demand (i.e. that the legal response did not misrepresent the social demand);
  • and another regarding the legal response to social demands: it would be necessary to demonstrate that the measures adopted did not restrict trade more than other measures capable of satisfying the same demand, and complied with the basic principles underlying the multilateral trading system (transparency, non-discrimination, national treatment and proportionality); and, lastly, the safeguard clause could not be used to sanction customs duties, as conventional safeguard clauses do; that would simply fail to address the issue raised.

Countries wishing to use the safeguard clause would have to conduct an internal review of the collective preference underlying the measure adopted, in order to find out more about the nature of it and establish whether it was well-founded. That would entail widespread consultation, study or further scientific research and, in the case of unwarranted collective preferences, educating people with a view to changing their preferences (e.g. where preferences expressed have been radicalised by particular circumstances or where they are a hang-over from a bygone age, with no real raison d'être).

The protection granted by the safeguard clause should be temporary.

In the debate, there is one fundamental point about a "genuine", responsible safeguard clause that few commentators have raised: it would have to be accompanied by a compensation mechanism. This would increase the cost of invoking a collective preference (a point on which WTO case law is undoubtedly rather soft).

A compensation mechanism (which would act as a counterweight to the guarantee) would be needed to:

  • keep up the pressure on countries that used the safeguard clause (since it would not be free of charge), and test their determination and the strength of the collective preferences underlying the choice expressed;
  • partially compensate the affected exporters: we should be aware of the effects of our domestic choices on other countries, try to minimise negative effects (when deciding what measures to take in response to a social demand), and help countries, particularly poor countries, that suffer as a result of those choices. Compensation should take account of the nature of the interests affected (the cost of a restrictive measure to African exporters will differ from its impact on American exporters) and should take the form of payment of a pre-set amount or, in the case of developing countries, for instance, complementary policies (trade-related technical assistance or capacity building to help them meet strict health standards and social and educational policies in connection with the ban on child labour etc.)

Responsibility

In more general terms, it is worth thinking about compensation as an alternative to the penalty/dispute settlement solution for conflicts relating to collective preferences. Compensation is perfectly in keeping with the spirit of the WTO, which is more concerned with ensuring concessions are balanced that with free trade per se, and the idea of compensation has already made it into existing agreements. At a more fundamental level, compensation embodies the notions of international fairness and responsibility; we need to be aware that, in an open system, our trading partners pay a heavy price for some of our domestic choices.

This imposes two responsibilities on us: firstly, when looking for ways to put our choices into practice, we have a responsibility to find the measures that cause the least possible disturbance for our partners; secondly, we have a responsibility to bear the external cost of those measures.

The fairness imperative is of course all the stronger when poor countries are affected. Rather than have a two-tier WTO in which only the rich countries are deemed able to "afford" compensation, and favouring the poor countries in this way, we think the ethical thing to do is to make compensation payments bigger when poor countries are affected.

  1. By going beyond the world of trade?

The search for core "collective preferences"

At a more fundamental level, we should be looking beyond the WTO and thinking about what type of social contract we want for the world as a whole. Even if such a thing were possible to achieve, uniform choices would not be desirable from a political or an economic point of view.

However, it would be in the international community's interests to identify certain core shred preferences, or collective preferences, that would translate into universally applicable standards. Most of the difficulties with collective preferences arise when countries think that their choices should apply to everyone, not just to them. Identifying basic core shared preferences on a limited number of the most universal themes would be a first step on the road to tackling those difficulties. These universal preferences would have to be translated into standards, which without being over-ambitious, would apply to everyone. Then the bar could gradually be raised as and when countries started to think in more similar ways. This method has been tried and tested in Europe, in relation to working time, for instance. It does not lead to lowest-common-denominator solutions: it is a first step that enables collective preferences to co-exist peacefully as expectations are gradually raised. The ratchet effect that standards of this kind deliver means that there is no going backwards but the movement forwards is still possible.

There are a great many areas where this sort of agreement on core values seems necessary. That was the idea behind the International Criminal Court, which came into being despite very different political and legal traditions, and certain notable "absences". In some cases, it is not possible to preserve national collective preferences unless agreement is reached on a "collective preference". This is the case, for example, with ethics in relation to life sciences and health care, and related technological and medical applications; without a "new world social contract", they are meaningless.[4] In this respect, a comparison can be drawn between collective preferences and the globalisation of law: beyond the systematic use of comparative law, the need for supranational law is gradually making itself felt; similarly, collective preferences are starting to be needed, rather than just systematic attempts to reconcile different collective preferences.

The fundamental question is how to reconcile different standards with each other when they conflict with one another. This calls for political arbitration of a still more ambitious kind; for government not through the imposition of standards but through choice: deciding how to reconcile two different standards is a political choice par excellence. And it is particularly difficult in the absence of a world government. However, with enough political will and resources, progress is possible. Look at how the developing countries won access to patented medicines.

That involved weighing up two fundamental imperatives: urgent health-care needs and the protection of intellectual property, essential for attracting funding in the future.

The importance of the regional level

Regional groupings may prove more effective at reconciling collective preferences and limiting the destabilising effects of greater openness. Countries in given region have been shaped by a shared history; their political cultures, economies and demographic structures have certain features in common; it is reasonable to expect that they will more readily form bonds that affect their policies and their sovereignty.

Regional groups are a re-useable resource on the world stage, as initial synthesisers and coordinators of collective preferences. They also play an educational role (teaching members about the constraints that accompany the reconciling of collective preferences) and, at global level, they can act as a precursor (demonstration effect), incite others - regional and global competitors - to emulate them and simplify matters by reducing the number of players on the field.

Looking at it from the other end, the reconciling of collective preferences through regional agreements is probably the biggest single justification for the existence of regional groupings, making it possible to address the hardest problems, the kind on which multilateral trade negotiations often founder, since the "depth" of regional agreements alters the traditional rationale of free-trade agreements, in terms of the creation and diversion of trade.

Conclusion

The issue of collective preferences is at the very heart of the debates on regulating globalisation (i.e. formulating rules for the opening of markets, minimising the destabilising effects and maximising the benefits) and on global governance (how to coordinate collective choices, why and how to foster collective preferences).

Since the issue is a relatively new one and raises certain conceptual difficulties, there is a risk that it may be misunderstood in one way or another and that it will run up against an unholy alliance of opponents: liberals might see it as opening a Pandora's box of arbitrary barriers; the southern countries as protectionism and euro-centrism in disguise; and environmentalists and human-rights activists might see it as representing an unacceptable status quo because it fails to put pressure on those who infringe social standards and destroy the environment.

The ideas discussed in this paper are especially likely to provoke discussion because they bring together two objectives that are viewed as mutually exclusive: to promote greater openness and international integration, except where social choices are at stake, but also to think about imposing limits on international integration to defend the legitimacy and diversity of social choices.

These ideas are not a call for countries to withdraw to more isolationist positions. In promoting a system of governance that takes account of collective preferences, our aim is to make the most of greater openness while ensuring that it does not threaten to override choices in a way that it could not possibly compensate for. And while countries may feel the need to hang on to their regulatory autonomy, they should take those measures that cause the least disruption to others and, if necessary, pay compensation for that disruption.

Beyond that, greater openness should itself improve the way in which collective preferences are expressed, through contact with different preferences and through the creation of common rules.
These ideas started out as a rather defensive reaction to the difficulties caused by greater openness. Now, though, they are paving the way to a more constructive attitude, which views the world as a social entity, not just as a market.

A few final clarifications...

  • Europe has no intention of reneging on its international commitments or giving collective preferences absolute priority over them. We just want to make sure that we get all that we should get from those international commitments (which, in relation to the WTO, means no protectionist or excessive trade restrictions) but without having legitimate social choices threatened. Multilateralism is a European collective preference demonstrated by ongoing support for the multilateral trading system.
  • It is not our aim to identify collective preferences that do not exist but to see things as they are: all societies make collective choices on a range of subjects: whether to have the death penalty; whether to have a minimum wage and, if so, how much it should be; what attitude to take towards drugs etc. The scope of these collective choices varies, as does the scope which they allow for individual choices. We are not trying to change that, but to take on board the implications of those choices for the way societies interact with one another at international level, and to coordinate them as much as possible.
  • Discussion of collective preferences is not a pre-condition for the carrying out of WTO negotiations. Both are essential, but they should be conducted in parallel even though the time-scales are different. The aim in discussing collective preferences is to review the way we think about trade policy so as to respond to the concerns raised by greater openness, to minimise the destabilising effects and, lastly, to help the people who will be responsible for trade policy in ten years' time.

[1] They may also be affected by income: the process of arbitration between, say, increased wealth and environmental protection, or increased wealth and inequality reduction, will vary according to the standard of living

[2] Obviously, not all Europeans are against the death penalty nor are all Americans for it. But on both sides there has been a collective choice as to whether or not to apply the death penalty that commits each one's judicial system "as if" everyone supported that collective choice.

[3] This is true up to a point. Concentrating on easy integration at the expense of tackling more difficult subjects eventually gives rise to an unbalanced structure if political will runs out (e.g. the construction of the single market without corresponding integration of social policy in Europe).

[4] Collectif, “Pour un comité mondial d’éthique”, Le Monde, 29 January 2003.


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