Pablo Furche, Ricardo A.
Lagos – Defining Progressive Principles for International Trade
International trade is an activity mainly
conducted by firms or persons led by
the principle of maximising their utility
function. Nevertheless, there is room
for public policy; we can try to define
principles that should apply to the
rules or the policy-making related to
international trade, and particularly to
trade negotiations.
In trade negotiations, every country
pursues its own interests. It cannot be
otherwise because there are always
different sensitivities, interests and
constituencies to answer to. However,
a ‘progressive approach’ or
‘progressive principles’ for trade
negotiations have to be more
sophisticated than just pure and
simple individual profit maximisation.
As a starting point, this would require
a vision and a clear political direction
to address imbalances effectively,
Defining Progressive
Principles for
International Trade
Pablo Furche
Ricardo A. Lagos
and hence, to achieve a better and
fairer environment to negotiate trade
rules and to compete.
The following are some ideas on
principles that should be taken into
account if a progressive approach to
trade negotiations is to be followed.
86 progressive politics vol 4.2
The WTO is Best
For a small economy, highly dependent
on trade, such as Chile, it is very
important to have clear rules in order
to provide some degree of certainty to
our exporters. They face a rough world
and fierce competition. This is true for
Chile, and also for most small or
developing countries.
While Chile has managed to negotiate
bilateral trade agreements with most
of its major trade partners, this is not
the case for most developing
countries. Whether because they have
not conducted domestic reforms to
enable them to open up their markets,
or simply because other partners have
been busy negotiating with someone
else, the important thing is that up to
now, the GATT/WTO has played the
role of setting up the trade rules, and
settling the disputes.
For some people, the role of dispute
settlement is enough to justify the
existence of the WTO. For others, the
WTO has an additional value which is
to level the playing field, and allow for
more balanced results because small
countries create alliances that increase
their leverage, with the G20 as a
remarkable example of this, becoming
one of the key players in the
agricultural negotiations by playing a
constructive role and shifting the
decision-making process from the
Quad to the FIPs (Five Interested
Parties: Australia, Brazil, EU,
India, USA).
Whether WTO should focus ‘simply’
on ensuring that trade rules are
respected, or if it should also pursue
trade liberalisation, needs to be
discussed. However, in both cases,
the WTO has to have legitimacy and
credibility. And so far, it has both.
The WTO is one of the few institutions
which show that multilateralism can
still work. This is the reason why it
should be supported and protected.
Defend your interests,
but don’t overdo it
There are currently 148 WTO Members
with huge differences among them in
size, level of development, and specific
interests. Hence, achieving consensus
is a task that is becoming more
difficult in each successive Round
of negotiations.
What should be done? Acknowledge
this fact, be realistic and try to not
push the line too far.
The WTO is one of
the few institutions
which show that
multilateralism can
still work. This is the
reason why it should
be supported and
protected.
In other words, while we understand
that what some developed members
will have to do in agriculture will
require compensation somewhere else
in order to make the Round attractive
to them, they should bear in mind that
the very same arguments they put
forth to protect their agricultural
sensitivities are valid for most
developing countries when it comes to
industrial products. Some developed
countries argue that, for instance, rice
production is sensitive because some
farmers depend on it for a living.
Fair enough. However, those countries
insist that they need to attain ‘real
market access’ – actual cuts in the
applied tariffs – on industrial markets
in countries such as Brazil and India.
Needless to say, Brazil and India do
not have safety nets to absorb the
negative impacts of trade
liberalisation, as could be the case
with, for example, Japan or Norway.
The differences on ‘social endowment’
should be considered when ‘efforts’
towards liberalisation are discussed in
trade negotiations.
Similarly, some developing countries
apparently believe that as a result of
this Round, developed countries will
have to pay an ‘historic debt’ and
therefore they will get export subsidies
elimination, cuts in applied levels of
domestic support, and reduction of
tariffs for free. That is not going to
happen. Also, some developing
countries face this negotiation as a
North-South confrontation,
disregarding the fact that, for some
developing countries, market access to
developing countries is as important
as market access to developed
countries. Job creation in a developing
country as a consequence of export
growth to other developing countries is
as export-led job creation through
trade with developed countries.
An additional element lies in the
conditionality or the linkages with
non-trade related issues that some
countries make. It is arguable whether
or not legitimate concerns on human
rights or labour and environmental
standards should be linked with tariff
concessions, but certainly making
the link does not make negotiations
any easier.
‘Effective’ Special and
Differential Treatment
An additional element of complexity is
that in this Round there are more ‘least
vol 4.2 progressive politics 87
 Pablo Furche, Ricardo A. Lagos – Defining Progressive Principles for International Trade
developed countries’ and others not
quite ‘least developed’, but similarly
poorly developed countries than in any
other previous Round. We should
seriously think why we were asking
these countries to have Competition
Policy laws or disciplines on Trade
and Investment while they barely
have sewerage.
Furthermore, people tend to forget that
these countries have very little – if
anything – to win from this Round,
since:
• they have GSP preferences that
provide them with market access to
most developed countries. These
preferences will be eroded as a
result of this Round;
• some of these countries actually
benefit from agricultural export
subsidies because they buy cheaper
products that they cannot produce
domestically. Once this Round is
concluded, this will no longer be
the case;
• in addition, this Round may affect
their fiscal revenue because tariffs
are the easiest – and sometimes the
only – way for them to collect taxes;
• and, on top of that, it is not obvious
that they will be able to reap the
benefits of liberalisation in other
markets because they face severe
supply-side constraints.
The issue here is that these countries
have problems that cannot be solved
with trade. Pretending that the DDA
will seriously help them to develop is
overestimating the importance of
trade. Nevertheless, they have to be
engaged in the negotiation process.
Maybe this is a good case for
differentiation between developing
88 progressive politics vol 4.2
countries. While the WTO only
recognises three categories of
countries, nobody argues that in
some areas the commitments of Chile
should not necessarily be the same as
those of the EU. But should, for
instance, a $2,000 per capita income
country have to make the same
commitments as a $5,500 per capita
income country?
Some developing
countries face this
negotiation as a
North-South
confrontation,
disregarding the
fact that, for some
developing countries,
market access to
developing countries
is as important as
market access to
developed countries.
WTO purists will certainly answer: yes,
all similar countries will have to make
the same level of commitment. And
they have a very good point in arguing
that the Most Favored Nation (MFN)
treatment is the core principle of the
WTO, and to exempt some country
from a provision may have an
undesired spiraling effect. Fair enough,
but then some new forms of effective
Special and Differential treatment must
be designed, such as:
• A fourth category of countries;
• Commitments that apply to
everybody, but are only claimable
once certain conditions are fulfilled.
 countries with a successful story of
If Trade is the answer,
gradual opening up: China, India,
then what is the question?
Korea, or Taiwan are all good
In trade negotiations, too often,
examples. From this viewpoint, a
arguments in favour of trade
progressive approach to trade
liberalisation are used arguing that this
liberalisation should encourage a
is something good for everybody and
gradual and persistent process of
therefore, every country should open
opening within a long time frame.
their markets, regardless of their
specific conditions. This argument is
WTO rulings must be
not only patronising; it is also flawed.
respected
Chile has had a very successful policy As mentioned above, for some people
of trade liberalisation, combining the WTO should focus mostly on
unilateral, bilateral, and multilateral defining rules, enforcing current
trade liberalisation. However, there is commitments, and on solving the
disputes that inevitably will arise.
Chile has had a very There may be different views on
successful policy of whether or not the Dispute Settlement
Understanding (DSU) is the most
trade liberalisation, efficient mechanism to solve disputes,
combining unilateral, but the most important thing is that
bilateral, and their decisions should be respected.
multilateral trade When a country simply decides that it
will not amend its legislation in
liberalisation. accordance to a DSU ruling, the whole
multilateral trading system (MTS) is
no ‘one size fits all’ model. Trade policy
being undermined. If a country can get
does not operate in a vacuum. Its
away with a WTO violation, what are
success will depend crucially on how it
the incentives for others to comply?
interacts with other economic and
social policies, and on the soundness
Negotiate FTAs or RTAs
of the institutions of the country in
that support the MTS
question. The latter is a very important
Trade liberalisation is currently being
point that tends to be neglected in
conducted mostly through bilateral or
trade talks.
regional trade agreements (RTAs/FTAs).
In the case of the negotiation of
From a ‘systemic’ perspective,
bilateral agreements – where tariffs
RTAs/FTAs are exceptions to the WTO
with the partner are eliminated – it is
MFN principle. As RTAs/FTAs increase,
crucial to have previously undertaken
the MFN principle is undermined, and
some sort of unilateral or multilateral
also the relevance of the WTO as a
liberalisation, simply because the
trade-ruling and trade liberalisation
prospect of moving from an
forum. This is particularly the case in
environment in which protection is
areas such as investment, intellectual
30 per cent to one in which it does not
property, financial services, labour,
exist is likely to create social unrest.
environment, etc. Moreover, should
There are several examples of
RTAs/FTAs be negotiated in such a way

vol 4.2 progressive politics 89

 Pablo Furche, Ricardo A. Lagos – Defining Progressive Principles for International Trade
as to preserve domestic sensitivities,
incentives to negotiate in the WTO
are reduced.
In order for RTAs/FTAs to be ‘building
blocks’ for the MTS, they need to have
some desirable characteristics, such
as consistency with the WTO,
transparency, and flexible rules of
origin. However, comprehensiveness is
the key element because RTAs/FTAs
that include all sectors, with due
consideration of sensitivities, facilitate
multilateral liberalisation and hence
can support the WTO.
Trade policy does not
operate in a vacuum.
Its success will
depend crucially on
how it interacts with
other economic and
social policies, and on
the soundness of the
institutions of the
country in question.
The latter is a very
important point that
tends to be neglected
in trade talks.
Another important element on
RTAs/FTAs is asymmetry. It seems to be
that there is a trade off between the
level of asymmetry among the partners
and the level of ‘progressiveness’ of
the agreement. It is not unusual to
come across trade agreements in
which a developing country had to
adopt very stringent commitments not
only in terms of tariff concessions, but
also in Services, Investment and
Intellectual Property. In addition, there
is pressure to make commitments on
90 progressive politics vol 4.2
labour and the environment that are
not commensurate with their level of
development.
Labour and Environmental
Standards
Labour and the environment (L&E) will
be part of the international agenda for
the time to come. L&E standards are
issues of increasing importance,
particularly in the developed world.
Some of the concerns arising in
relation to L&E are legitimate and,
thus, the international community
(including developing nations) should
be prepared to address them. However,
for a significant number of developing
countries, labour and environmental
standards have the potential to
become disguised protectionist
measures. If one listens and reads
carefully the argumentation by
politicians and opinion makers,
particularly in developed countries,
about why L&E should be part of the
trade agenda, understand why: most
of the time, the rationale is about job
protection and certainly not about a
genuine concern for improving
standards in developing countries.
Making a link between these measures
and trade sanctions can actually be
counterproductive. Stopping exports
on behalf of so-called social dumping
is rarely an efficient way to raise labour
standards in the country of origin.
There are more effective ways to
obtain the same goals, expanding
exports being one of them.
Therefore, the problem here is how to
balance this equation.
Setting international norms and
standards can work for electric
appliances (albeit not without difficulty).
Unfortunately, this is not the case for
labour and the environment. Who is
going to develop those standards?
How can consensus be achieved
among members with such
a vast disparity of income levels
(and hence, labour and environmental
protection levels)?

For a significant
number of developing
countries, labour
and environmental
standards have the
potential to become
disguised protectionist
measures.
Some countries have attained a
creative way to incorporate these
issues in the FTAs while at the same
time not increasing barriers to our
trade. Under this approach, parties
make a commitment to enforce their
own domestic regulations, and if one
of the parties fails to do so, a monetary
contribution is requested from the
infringing party which is deposited in
a jointly managed fund with the sole
purpose of using those resources to
improve the enforcement of domestic
legislation on the infringing party.
Thus, there is no homogenisation of
standards, no trade sanction, no
disruption of trade, and an approach
that places emphasis on cooperation
based on a system that will provide
resources geared towards improving
enforcement. This is a progressive
approach that could be explored
further. Recent agreements
undertaken by Chile with some major
trading partners capture some of
these elements.

vol 4.2 progressive politics 91