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333: Congressman James Bacchus on the state of Free Trade and the WTO

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Buck: Welcome back to the show. Again today. My guest on Wealth Formula Podcast is Professor James Bacchus. Professor Bacchus is the Distinguished University Professor of Global Affairs and Director of the center of Global Economic and Environmental Opportunity at the University of Central Florida. He was also a congressman as well in Florida from 1991 until 1995. And during that time, he was a founding judge and twice chairman, the chief judge, one of the highest court of the World Trade Organization, the Applet body of the World Trade Organization. Professor Bacchus, welcome to the show. 

James: Well, it’s great to be here. I’m a big fan of yours, and it’s an honor to be asked to be on your show. 

Buck: Well, that’s very kind of you. We have a bunch of very smart listeners, but a lot of us don’t know very much about the global economy and trade and that sort of thing. So maybe we can start with this time when you were in the Congress and you and your colleagues put together the World Trade Organization. I guess it would be a good idea for us to just talk about sort of what the circumstances were during that time, how things worked before that ultimately led to the need for this organization and what exactly its goals were. 

James: I was a trade negotiator for the United States before I became a member of Congress. I was the first former trade negotiator for this country. Later to serve in the Congress unless we count John Quincy Adams, who had far more achievements overall than I. Admire of President Adams. Therefore, even as a junior member of the Congress, I was much involved on trade issues in the early 1990s. I was a strong opponent of the NAFTA. I was much involved in the effort to get China permanent normal trade relations status, what we call the Trade World Most Favored Nation status. And I was one of the six original co sponsors in the house of the implementing legislation for the Urbana round of trade agreements that did many things, but among them included all the various agreements that together comprise the WTO Treaty and also established the World Trade Organization as an international institution. But this was not something we created from nothing. In the aftermath of the Second World War, leading countries came together and created the General Agreement on Tariffs and Trade, which had created a rule based trading system that had lasted for nearly half a century before it was transformed into the WTO. What we did with the WTO is vastly broadened the scope of what had been the gap, and also we made the rules in the agreement. Our challenge in bringing the United States into the WTO was that we went to certain ways to continue to free trade worldwide while also making the rules of trade binding on everyone, not only the United States of America. The theory is that in lowering barriers to trade worldwide, we can vastly increase the amount of trade worldwide and thus increase the economic gains from trade for each individual country. And then each country can, in its own domestic deliberations, decide how best to distribute those canes domestic through tax policy, through other forms of domestic policy. And that’s exactly what we succeeded in doing with the WTO more than a quarter of a century later. The Burdlesman Foundation in Germany has recently concluded a study of the extent to which all the 164 countries that are members of the WTO now have benefited from being a part of this multilateral trading system. They found that every single one of those countries benefited economically, and they found that the country that benefited the most was the United States of America. So this has been a very worthwhile endeavor from the point of view of Americans, but also from the point of view of everyone else. 

Buck: What about when you talk about everyone in the World Trade Organization, you’re including, obviously, China and Russia in a way wonder, because you hear about China breaking rules all the time. It almost seems like a little bit of a little unfair, right? Like, we have a set of guidelines that we’re going to run by, but they cheat and no one’s going to get kicked out for it. So in that regard, do you see that as an ongoing project? How do you view those kinds of situations? 

James: China came into the WTO in 2001, a few years after it was established. And in becoming a member of the WTO, china into what is called an accession agreement. And in that agreement is not only agreed to comply with all the obligations that bound everyone else the WTO Treaty, but also a lot of additional obligations that applied only to China. For the most part, China has kept its obligations and also when China has been brought before the bar of justice and WTO dispute settlement, where in the first decade of the WTO, as you mentioned, I was the chief judge, china is largely compliant with rulings that went against China. Yet it’s true that in many respects, China, which is a huge country of more than a billion people, does not always comply with its WTO obligations. Of course it should. And in my view, the United States and other countries should join together more often to bring complaints, lawsuits against China and the WTO because China has had a good record of complying with WTO rulings when they are adverse to China. Yet the size of China and the recent shift of China away from more open markets and a more open economy and society and back toward an inwardness creates a continuing problem for the other members of the WTO in dealing with China within the trading system. But I’d like to emphasize that it’s not only China that does not always comply with all of its WTO obligations. Many other countries do not always comply with them either. The United States has not complied with many of its WTO obligations in the past half dozen years, since first Donald Trump was elected, and now under the Biden administration. The unilateral terrorists that were imposed by President Trump and his administration against China are all flagrantly illegal under the WTO Treaty. Some of the other unilateral measures that were taken by the Trump administration, I guess stevens of our allies, were equally unlikely. Right now, there are more than half a dozen cases pending against the United States relating to these Trump tariffs and unilateral measures of other kinds imposed by President Trump that the United States is likely to lose. This isn’t mentioned very often in the media, but those cases are there, and they’re moving toward a conclusion. In my view, every country that’s a member of the WTO, every country that signed the WTO treaty, should always fulfill all of its obligations. I’m committed to the international rule of law, and that’s precisely what the international rule of law requires. 

Buck: Part of what’s going to make this work, obviously, is the interest in world trade in general. And you look around the world, starting with the United States, and you talk about sort of the shifting politics and President Trump’s foreign policy. There’s an increasing amount of nationalism, not only here, but in other countries, that is creating more of maybe an insular approach. And so I’m curious on if you feel that the World Trade Organization in some regards is in trouble, or if it’s not as effective now because of that sort of overall switch in global nationalism. 

James: Nationalism is dangerous. It leads to war, at least to death, at least to destruction. The history of the past two centuries proves that I distinguish nationalism from patriotism. Patriotism is love the country nationalism is the belief that your country is the only country and that other countries should step aside. And yes, therefore, economic nationalism is a threat to the WTO. But it’s incumbent on all members of the WTO to fight back against economic nationalism. In pursuit of economic nationalism, members of the WTO will take measures that discriminate in favor of domestic producers and suppliers, and these measures are many times inconsistent with their obligations under the WTO treaty. When that happens, other countries should take them to WTO, dispute settlement, and they should pay the price in speed settlement. If the country loses the case, speed settlement has choice comply with the ruling by eliminating or fixing whatever measure, law, regulation, practice has been challenged, or it can suffer economic sanctions, and those sanctions can be to the tens of billions of dollars annually and lost trade. The reason why the WTO is so controversial is because the WTO is the only international institution that has the leverage and therefore the power to impose its rules to make certain that the rule of law is upheld. I believe that the WTO can be an effective tool providing back against economic nationalism. Let me add, too, that economic nationalism is just wholly misguided in terms of economics. Economic nationalism does not help the people of whatever country is practicing it. It hurts them. It diminishes their choices. It increases the prices that people have to pay. It reduces the competitiveness of their industries. The protectionism is another name for economic nationalism. Protectionism does not work. 

Buck: And I should point out that when you were in Congress, you were a Democrat, and so traditionally the actually

James: I’m still a Democrat. 

Buck: Right. Well, I didn’t want to presume, but people are changing all the time. 

James: I agree with everything my fellow Democrats in Washington are doing. 

Buck: Right. Well, I’ll say that’s probably a good thing to say. One of the things that strikes me is back when you were in Congress well, actually, even before you were in Congress, I should say, because Bill Clinton changed things a little bit, but there was the party of free trade and open global trade, and that was a Republican Party. And the Democratic Party was not, as you know, that was not a major part of their platform. The Clinton administration comes in and they really become sort of a free trade administration, which was, I think correct me if I’m wrong, but it’s pretty unusual shift for a Democrat. 

James: Well, let me correct you just a bit of history. You’re certainly not wrong about President Clinton or Vice President Gordon. Their views on trade very similar to mine, and it can rightly be described as Clinton, Gordon Krat and all three of us are in favor of free or trade. But it’s not the case that before President Clinton went into office, democrats were largely against free or trade. That happened later, and I think it’s certainly true now. But looking back into the 20th century, woodrow Wilson was in favor of freer trade. Franklin Delano Roosevelt was a strong advocate of freedom trade. His secretary of state, Cornell Hall helped create the trading system. Harry Truman supported it. John F. Kennedy did as well. There was something called the Kennedy round. President Carter actively and strongly supported the Tokyo Round. And then, as you’ve already mentioned, bill Clinton and others came along, including me, who strongly supported the Uruguay Round. The Democrats began to turn against trade in the 1990s while I was there, but only strongly turned against trade after I left. As for the Republicans, historically, up until a few years ago, they were, to their credit, very much in favor of free trade and international responsibility and trade and multilateralism in trade. But President Trump changed all that. They are still Republicans who support free trade, but for the most part they’re not in Congress and they’re not running for office. 

Buck: My point in bringing this up a little bit is that there is no real neither major party has a significant interest in free markets and global trade right now. And how does that bode for an organization like World Trade Organization? 

James: Well, the United States is key to the success of the WTO. Trump’s continuing threats to pull out the WTO were not helpful to the trading system, nor were his actions and plotting WTO rules, simply ignoring them and going ahead with his bluster and posing unilateral illegal measures. And right now, I have to say that in my view, the biotech administration is engaging largely in a black form of protectionism. They are, for the most part, continuing with President Trump’s protectionist policies. They’re just not insulting people and yelling about it and making a fuss. They’re very polite about it, but policy is pretty much the same. 

Buck: Again. Yeah, again, that’s the point I was making, is that neither party seems to have a significant interest. 

James: And I think that’s true, and indeed, it’s an understatement. And this puzzles me to some extent, because if you look at any of the polls that have been taken nationally by established polling organizations, they all find that overwhelming. The American people are in favor of lowering barriers to trade and being engaged internationally in business and commerce. Much of the economic gains that we’ve seen over the past generation can be attributed to lowering barriers to trade and promoting investment and opening our economy in other ways. The problem is that we should have been doing two things during all that time, and we were only doing one. The one we were doing is lowering barriers to trade, opening up economy when we were not doing was making certain that many of the American people had the skills and the opportunities they needed to be able to succeed in a world economy. And those are the people who’ve been displaced. They’re largely in uncompetitive industries that continue to exist only because of trade protectionism and they’re largely workers who don’t have higher levels of formal education and they have needed help in getting through this transition toward a more open. More globalized economy and they haven’t gotten of course. What’s happening now is that the people who forgot to help them both Democrats and Republicans alike are pointing at the wrong target. They’re blaming these consequences on trade when they should be blaming themselves for not providing the opportunities and broader safety net and the economic help in making a job transition that is necessary. Where we have failed in the United States is making certain that the bountiful economic gains from trade are shared widely among the American people. 

Buck: Senator, tell us about the book you wrote and why you wrote it. 

James: Well, my latest book is called Trade Links: New Rules for a New World. I am committed not only to trade but more broadly to sustainable development. I believe and have been working for decades for the environmental, economic and social goals of sustainable development and I’m much engaged in that still. Now, the trading system, I believe, and I was there and helped make this happen was intended at the outset as the very first paragraph in the preamble to the WTO treaty says to pursue trade and other economic endeavor consistently with the objectives of sustainable development. And here I’m quoting the treaty. And that’s exactly what this book is about how we could change the WTO rules, the provisions and the far reaching WTO treaty to make certain not only that trade does not stand in the way of sustainable development but that trade is an affirmative agent for sustainable development. In the book I explained why we need to do that and I also explain how we can do it. I make many specific proposals and I’m pleased to say that although when I began talking about this after I ceased being a judge of the WTO in 2004 there were no WTO members who were at all interested in what I had to say. Today 74 WTO members nearly half of the membership but accounting for about 85%. All global trade are actively engaged in what they call structured discussions on the relationship between trade and environmental sustainability. Indeed, I’ve been speaking with these members and those staffers who are working with them frequently in recent weeks and I’ll be meeting with them in Geneva later this month when I speak at the WTO about trade links. My book and this is a serious amount of progress structured discussions in WTO speak are usually a prelude to genuine negotiations that may happen within the next year or so and they’re looking on the environmental front and a number of issues that I talk about in trade Links that I think need to be addressed. The need to spread technology transfer of new green technologies by eliminating barriers to that trade. They need to address subsidies that cause environmental harms. They need to begin building toward a much more circular economy. Such as through discipline. A lot of the environmentally harmful consequences of plastics trade. And also addressing the nexus between trade and climate change. Which means trying to figure out how the WTO Rules framework can support climate actions when they are genuine climate actions and not stand in the way.

Buck: The book is. Again. Trade Links. Senator James Bacchus. The book is available everywhere, right? Including Amazon, which is where most of us seem to get our books these days. Is there an Audible book too? 

James: I’m not sure if there is or not. There may be one already from the publisher, Cambridge University Press. It’s certainly available on Amazon, but it’s also available on the website of Cambridge University Press publisher. 

Buck: Wonderful. Senator, thank you so much for joining us on Wealth Formula Podcast. 

James:  I’ve enjoyed this chat with you and I’m happy to come back anytime, Buck. Thanks so much. 

Buck: We’ll be right back.