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1. Introduction and Overview.
I have recently maintained that certain narrow new issues in global trade negotiations
belong there quite naturally.1 I labeled those issues market-supportive regulations -- regulations
that enhance the “market system” by making it work better and for a broader constituency.
Here I extend that claim, and maintain that the same narrow new issues are closely
conformable to the World Trade Organization (WTO)’s founding principles and time-refined
instruments. I argue that the WTO is indeed the right forum for the new-issue experiments that I
propose. I believe that the inclusion of market-supportive regulations in WTO-conformable trade
negotiations is in fact the key to generating a new wave of gains from trade and to widely
disseminating those gains within and among societies. Ideally both market enthusiasts and
society will “win,” much as they did during the Progressive Era in the United States around the
turn of the last century.
But only a narrow sub-set of new issues belong. Only those regulatory principles that
conform most closely to the WTO and to the market system belong on the negotiating agenda.
Too broad an array of new issues would threaten the organization with mission creep and
complicate global trade negotiations. My preferred narrow sub-set includes principles and
practices from the domains of intellectual-property policies, competition policies, and –
provocatively --labor-relations policies. But the broad issues are better addressed in dedicated
organizations such as the World Intellectual Property Organization (WIPO) and the International
Labor Organization (ILO).
Going forward on my specific new issues has unappreciated value. It is a way to do two
urgently needed things: to further empower the WTO-centered global market system and,
simultaneously, to increase its constituency and thus enhance its broad legitimacy. Doing two
things in one negotiation is a bargain – in this case a grand social bargain that both supports the
global market system and diffuses its benefits widely.
Why does the market system need further empowerment? I will argue that the market
system is a remarkable social mechanism for reaching objectives of all kinds -- necessary and
noble, individual and communal, monetary and intangible -- non-coercively. Its global extension
promises similar rewards.2 Second, and more important, I believe that the current market system
needs an incentive to negotiate on issues of its own legitimacy, limits, and regulation. Its gains
1
2
Richardson (2000b, 2001).
Further negotiated market integration is still well worth it for all WTO members, including the United States. New
research suggests sizeable gains to further global liberalization, even for relatively open countries like the United
States. These gains are of many kinds -- gains from goods and services, from stronger export engagement and
deeper import dependence, and from inward and outward investment and technology transfer (OECD (1998)).
Much of this new research has been carried out at the grass roots -- firm-by-firm, worker-by-worker, county-bycounty. It is surveyed in Richardson (2000a) and Lewis and Richardson (2001).
2
from negotiating new liberalization with new issues, standing side by side with procedural and
material gains for worker organizations, technology users, and nascent and small firms, are what
make my proposed way forward viable -- because it is mutually attractive, “win-win.”3
Why pay any attention to shrill, sometimes violent pleas for legitimacy? Why any new
issues at all, however narrowly defined by the term “market-supportive”? Why not WTO
business as usual? Why not just say no to new issues?4 I maintain that “business -- as usual” is
no longer an option. The broad, global backlash against it is here to stay.5 There will be no
successful multilateral negotiations this way, no chance to enjoy the new gains from global
integration without some broadening of the perceived beneficiary base beyond business. In fact
such broadening within the United States 100 years ago, via wisely targeted market-supportive
regulation, was the key to unlocking 20th-century prosperity in the integrated American market.6
Why the WTO for my proposal when there are alternative forums and mechanisms? Part
of my answer is that it is natural -- the WTO already oversees a market-supportive body of
regulations; indeed that is one of its main purposes. Another part of my answer is that the WTO
has already started implementing new market-supportive regulation in the Trade-Related Aspects
of Intellectual Property Rights (TRIPs) Agreement, and in basic telecommunications and other
services.7 The most important part of my answer is that WTO principles and precedents,
painstakingly forged over a half-century, have significant promise in helping implement marketsupportive, constituency-broadening, multilateral agreements over new and old concerns. The
principles are already the vital heart of the WTO process -- periodic ministerial meetings and
negotiations over reciprocal, non-discriminatory concessions, implemented transparently with
consultations at the beginning of conflict resolution. The precedents include familiar WTO tools
such as notification, consultation, standstill, and others. Sanctions and formal dispute settlement
play no initial role in my proposals. Nor do I try very hard to go beyond established principles
and precedents to “model” the ideal WTO; that is admittedly a vital question, but better
addressed in a broader essay.8
3
In the language of labor negotiations (see especially Walton and McKersie (1965)), I am proposing integrative
bargaining in restarting WTO negotiations; I am trying to minimize distributive bargaining. Odell (2000) applies
similar categories to ten recent international economic negotiations, comparing them along a spectrum from valuecreating to value-claiming behavior.
4
As recommended most strongly, for example, in a number of the chapters in Bhagwati (1999) or Bhagwati and
Hudec (1996).
5
For evidence that the backlash characterizes even the middle classes of the richest countries, and not just Seattle
street protestors, see Scheve and Slaughter (2001), O’Rourke and Sinnott (2001), and Mayda and Rodrik (2001).
6
This observation, however, begs the question of how the global governance structure (including that of the WTO)
might have to change to accommodate further market-supportive regulation. For provocative treatments of this
question, see Falk and Strauss () and Schott and Watal ().
7
8
See Blackhurst (1998) and Winham and Lanoszka (2000).
See, for the beginnings of debate on what the WTO should be ideally Barfield (2001), Charnovitz (2001), Howse
and Nicolaidis (2001), Ostry (2001), and Roessler (2001).
3
Why include any incendiary labor issues, putting at risk easier and wiser incorporation of
policies to buttress competition and diffusion of ideas? My primary answer is that without some
predictable means for typical workers world-wide to share more widely in the gains from deeper
global integration, there is no longer a political coalition to sustain it. Its mutual benefits are no
longer adequate to be approved in a democratic referendum, to say nothing of popular opinion.9
My secondary answer is that narrow, well-designed regulations to govern worker-agency services
actually alleviate market shortcomings; allowing open trade in worker-agency services would
alleviate them even better.
In Section 2 below, I describe what I mean by idiosyncratic terms such as market system
and market-supportive regulation, and relate them to the WTO. In Sections 3, 4, and 5, I outline
my case for including three very specific market-supportive new issues in the WTO’s negotiating
agenda. In Section 6, I review in more detail how it could work for the WTO in practice,
naturally. I finish with brief discussions of why domestic political constituencies might come to
support incorporation of these narrow new issues into the WTO, and how my proposal differs
from those that emphasize political deal-making or stakeholder democratization.
2. Market-Supportive Regulation and the Market System
Market-supportive regulations are those that enhance the market system, making it more
effective, stable, and sustainable, both economically and politically. They are in fact vital organs
for a healthy market system.
What I call the "market system" is a peculiar mix of competition and cooperation.
Everyone is familiar with the competition. But few reflect very deeply on the cooperation.
Almost all the units that compete are social groupings, whose internal organization is for the
most part cooperative, not competitive. “Firm” is the generic term for these units -- corporations,
partnerships, “not-for-profits,” labor unions, and others. The final goods, on which households
and much of economics focuses, are assembled from materials and components that have already
been bought and sold many times by firms, through a long series of exchanges in both input
markets and in internal, intra-firm transactions.
The market system is thus a complex, vertical, and social network of purchases and sales,
contracts and conventions among firms -- social units. The market system is itself a mix of
competition and cooperation, a social organism.10 The quality of the organism’s competition and
cooperation determines how effectively and efficiently it combines fundamental inputs such as
9
See Richardson et al. (1998)) for expansion of this argument that the distribution of gains from traditional trade
liberalization is not democratically sustainable. See Scheve and Slaughter (2001), Ch. 4, for evidence that in the
United States, the typical worker and voter has gained disproportionately little of the gains from recent globalization.
See Elliott and Freeman (2001) for an argument that some form of international agreement on core labor standards,
though not ideally at the WTO, is the natural complement to freer trade because of its income distributional effects.
10
Lindblom (2001) and Fligstein (2001) describe a market system in similar terms, and provide extensive discussion
of “market-systemic” thinking and issues.
4
worker services to produce final goods for those very workers. In other words, the quality of this
social market system determines the standard of living of its workers.
Economic regulations condition this competitive-cooperative market system, internally
within a firm and externally across them.11 Among other goals, such regulations aim to make the
market system work better and for a broader constituency. Designed properly, they are marketsupportive and simultaneously part of the broader social infrastructure.12 They regulate the
intensity of competition, the scope of cooperation, and define the due processes and legal
boundaries for both, including the important boundary between coercive and voluntary
transactions.13
Specific examples help to make this argument tight. 1. Company law enhances the
market for corporate control; it establishes categories of voting rights and procedures for
shareholders, and determines when and how a rival firm’s managers can compete for the
shareholders’ allegiance (cooperation). 2. Labor-relations law enhances the market for
cooperative representation -- agency14; it establishes workplace voting procedures for workers to
be represented collectively by a union, and when and how another union could compete for
certification to organize the workers cooperatively. 3. Intellectual-property law aims to undergird
the markets for artistic creation and productive innovation, indirectly compensating for
externalities and for missing inter-generational markets.
In sum, the market system is socially populated, socially rooted, socially conditioned, and
socially constructed. It is far, far away from the chaotically competitive "law of the jungle" with
which it is sometimes rhetorically confused.
Many of the market’s social groups have legal status that grants them the right to collectively own and exchange
property, including intangible property (e.g., intellectual property) and licenses (e.g., to represent a set of workers),
and to differentiate and isolate their legal liability as group members from their liability as individuals.
11
This “progressive” view of the way government regulation can support markets (or “augment” them, to use
Mancur Olson’s term) has deep roots in economic history and philosophy, in the institutional school, and in the
social gospel. For recent articulations, see Reich (1991), World Bank (1997), Garrett (1998), Holmes and Sunstein
(1999), Olson and Kahkonen (2000), and Blunden and Burke (2001), and, for underlying theory, Anderson and
Young (2000) and Glaeser and Schleifer (2001a,b). It is unfortunate that the progressive view is often submerged by
both shallow, breathless defenses of “free” markets and alarmist, populist accounts of the war between greed and
governance.
12
13
Not all economic regulations are market-supportive. Some are market-prohibiting, others market-inhibiting -though often “for a good cause” (e.g., prohibitions on slavery or on markets in socially dangerous goods and
services, or limitations on current markets to avoid extinction of future markets, as in fisheries regulation). Still
other regulations are distant from markets, such as so-called social regulation (Noll (1997)). Social regulations are
important -- vitally important -- but they are not promising issues for impending trade negotiations. Social
regulations are too distant, too diversionary, not sufficiently conformable, orthogonal ((Nivola (1997), though
Rodrik (1997), Ch. 5 provides an economist’s counter-position).
14
Markets for agency are often missing because of well-known dilemmas such as coordination or collective-action
problems.
5
I maintain that, correspondingly, an economically and politically sustainable global
market system will be socially constructed and conditioned, too, by policy design.15 I maintain
further that three kinds of limited, market-supportive economic regulations are natural
companions to global markets, enhancing their performance and broadening their legitimacy, and
natural friends of the WTO process. The best illustration and least controversial of these three is
the WTO’s Trade-Related Intellectual Property (TRIPs) Agreement.
3. Supporting Both Markets for Ideas in the WTO.
The TRIPs Agreement is a noble and natural WTO experiment in market-supportive
regulation, with promising features to be nurtured and imitated. Yet I maintain that it is a pilot
for only half of what I have in mind. It supports the global market for generating new ideas far
more strongly than it supports the global market for selling and distributing new ideas. In a
sense, it is too narrow. The whole market is really two markets, innovation and dissemination, as
are production and distribution for many other goods. A TRIPs distributionAgreement could
empower final users of intellectual property, not just the owner/developer. It would also broaden
the constituency of support for TRIPs and the WTO.
At a basic level, ideas are information. Reasonably complete, diffuse information is a
good itself, capable of being owned, and a pre-condition for markets to work well — effectively,
fairly, with minimal discrimination. These three criteria are virtually the same desiderata as the
WTO pursues fundamentally for global markets. Market-supportive information is the reason
that the WTO insists on detailed, accurate, accessible “notification” of border-relevant policies
by every member country (an unsung requirement and benefit of membership). The WTO’s firm
commitment to non-discrimination is both fair and efficient.
Markets work anyway, of course, in environments with imperfect or asymmetric
information, including uncertain property rights. But they don’t necessarily work well
(effectively, fairly, with minimal discrimination). A large microeconomics literature has shown
this over the past twenty years. Imperfectly informed markets sometimes waste resources; they
sometimes leave capable buyers isolated (rationed by discrimination); they sometimes violate the
market system’s self-imposed limitation to voluntary, non-coercive transactions.
Imperfectly informed markets and information markets themselves need regulatory
support to enhance their performance and to make them both defensible and legitimate. That is
what led to the development of intellectual property (IP) rights historically. The globalization of
these markets led to the family of IP treaties overseen by the World Intellectual Property
Association (WIPO), and the WTO’s TRIPs Agreement refined and rationalized aspects of that
regulatory support. But it embodied only partial support at best. It was a good beginning at
further support for producing new information, new ideas, and new technologies. But ongoing
15
Wright (2000) and the more constructive globalization protestors argue a similar thesis.
6
second-phase TRIPs negotiations should more strongly support the global sub-market for
distribution -- the business-to-business “retail market” for information users and traders.16
With this aim, in Richardson (2000b, 2001) I proposed two families of marketsupportive, constituency-broadening TRIPs refinements: facilitation measures for the distribution
market and standstill on controversial carry-over issues. The terms both spring from long WTO
experience, and I read the Doha Ministerial to have endorsed the spirit of each.
1. Facilitation. There has been little formalization of the technical and financial
assistance provision of the TRIPs Agreement (Part VII). New adopters of TRIPs regimens have
been loathe to pay their own administrative implementation costs, especially when short-term
forecasts have these countries together paying out up to $5 billion annually in royalties and fees
to IP-abundant countries.17 A market-supportive way to cover up-front administrative fixed costs
is to finance them by external loans from idea producers. The loans could then be serviced out of
transitional “facilitation fees” on cross-border royalties paid for host-country IP protection. Such
an arrangement facilitates and finances mutually beneficial technical assistance, and licensing
(distribution) as well. It is similar to the way many countries fund ports. It should be conceived
as “rent-reinvestment” rather than “rent-shifting.” It could be tactically implemented by
Copyright and Patent Offices and by public-private consortia, rather than by diplomatic agencies.
It would create natural forums for negotiating licensing and “follow-on innovation,” which aid in
both the production and distribution of technology and information. But it requires the WTO to
authorize and regularize user fees for the “technology turnpike,” essentially a temporary tariff
(possibly degressive) on imports of the services of IP. Like user fees in many countries, tariff
revenues would be earmarked for servicing the loans that financed the infrastructural
implementation of TRIPs in the importing country.
2. Standstill. The current TRIPs Agreement preserves a great deal of national discretion
(sovereignty). For example, there is national discretion on implementation definitions and
procedures (e.g., “working requirements”), publishing conventions for patents, exemptions (e.g.,
for plant breeding, health-related and other non-commercial research, environmental and species
preservation, non-commercial use), and treatment of parallel imports. Such discretion has
surprising market value (option value) in cultures and environments where the very idea of
property rights to technology is new. It allows experimentation with different standards and
regulatory competition among them, in essence “innovation” in the procedures of IP protection to
establish regulatory “best practice.” Considerations like these suggest the value of stabilizing
and regularizing such status-quo discretion, via a TRIPs standstill agreement, at least for a time,
rather than pushing ahead with deeper, tighter TRIPs commitments along the technology-
16
Maskus (2000b), pp. 225-226, and World Bank (2001), Ch. 5, seem to share this conviction. The two sub-markets
for innovation and dissemination are very different (see, for example, Stoneman (1992) and Geroski (2000)), and the
agents (constituents) involved are also very different, just as they are for electricity generation and distribution (U.S.
Economic Report of the President (1999), Ch. 5, pp. 211-218).
17
McCalman (1998).
7
production lines emphasized in the existing TRIPs Agreement. I think the Doha Ministerial
came close to agreeing.18
I have also argued in Richardson (2000b, 2001) that technology aspects of the WTO’s
current TRIMs (Trade-Related Investment Measures) Agreement might also benefit from a
standstill aimed at preserving national discretion (sovereignty). In particular, technology-transfer
performance requirements on inward investors were not banned by the Uruguay-Round TRIMs
Agreement. Preserving a country’s option to negotiate technology-transfer requirements for
inward investors -- a ban on any ban -- is arguably supportive of the market for distributing
technology. Unlike other performance requirements, these may “pay off” in host countries.19
Among other reasons, technology transfer performance requirements encourage commercial
negotiations over licensing, without necessarily dictating its terms. Without them, anticompetitive, anti-market “refusal to deal” can become entrenched. Many technologies are, in
essence, akin to “essential facilities” in the competition-policy protocols that govern
transportation and telecommunications markets. In such cases “negotiated compulsion” is a
familiar market-supportive tool of competition authorities20 (e.g., compulsory divestiture, ceaseand-desist orders, consent decrees over licensing) and of buyer-protection agencies (e.g.,
compulsory warranties, truth in advertising).
But why the WTO for any of this? The most obvious reason is that the WTO has already
committed to incorporating new market-supportive regulations along these lines, not only in
TRIPs and TRIMs, but also in its Information Technology Agreements, in financial services and
18
The one exception to such discretionary forbearance, also an exception at Doha, is negotiations to create a
distribution-encouraging agreement disciplining parallel imports of public-health-related products and technologies,
as endorsed by Maskus (2000a, 2000b, pp. 229-230) (see also World Bank (2001), Ch. 5). The aim of such an
agreement would be to allow some international price discrimination in relevant pharmaceuticals and related
products, and to discipline the arbitrage that sometimes undermines it. The aim would be low prices in poor
countries with significant public health needs, offset by higher prices in richer countries. The aim would be to
expand markets to include users willing/able to pay only the marginal cost of public-health-related goods. The
“progressivity” of the implicit financial transfers is obvious. The likely positive (global) welfare effects of
permissible price discrimination are less obvious, but are presumptively significant from the analysis of Malueg and
Schwartz (1994).
19
Technology-transfer requirements need not be actually imposed to be a powerful negotiating tool, and they will not
be imposed if a valuable investor would go elsewhere because of them. Nor does a government itself have to
negotiate the precise terms of any technology-transfer requirement, but can empower its local constituents to do so
instead. Though Moran (1998, 2001) argues persuasively that investor performance requirements for local content
or joint ventures actually inhibit the global dissemination of technology, the research support he cites is much weaker
for his view that export and technology-transfer requirements also inhibit technology dissemination. I suspect that
well-designed export and technology-transfer performance requirements, in fact, often serve pro-competitively as
internal host-country antidotes to foreign investors negotiating exclusive, privileged, anti-competitive local market
power for themselves (e.g., exclusive rights to supply).
See Hausman and Sidak (2000) for a recent treatment of the related idea that mandated “unbundling” of the
different elements of a telecommunications network is pro-competitive. Process technologies especially can often be
unbundled from other productive inputs and sold separately (licensed out). See Jensen and Thursby (1996) for a
theoretical explanation of the way compulsory licensing in the context of global standard setting can enhance the
quality and quantity of trade.
20
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basic telecommunications, and maybe in coming e-commerce protocols. But most of the
regulations support idea and technology production. The time is ripe for a second phase,
undertaking technology commitments along the distribution-oriented lines sketched above. If
done wisely, the WTO will pull users of technology and ideas into the group of beneficiaries
from global integration and broaden its support base beyond the creative but elite innovator
community.
A less obvious reason for making the WTO the forum for IP-distribution agreements
relates to competition policy. Article 40 of the TRIPs Agreement explicitly recognizes that anticompetitive practices can be an unwelcome by-product of IP protection, and illustrates several
such practices. The TRIMs Agreement formally calls for competition policies to be taken into
account when the agreement is subjected to its first WTO review. The WTO is thus already
scheduled to consider its own texts in a competition-policy light. But the frontier of critical
thinking in competition policy is clearly the tension between protecting the incentives to innovate
and encouraging the distribution of its fruits to users. 21
4. Supporting the Market for Entrants in the WTO.
Given the WTO’s support of global markets for new ideas and technologies, it is not
unnatural to consider WTO support of global market access for new outputs of new rivals – new
entry in the language of competition policy. It is especially attractive to consider constituencybroadening versions of both kinds of market support – support that benefits users of new
ideas/technologies and that also benefits innovative firms, with new products and processes,
wanting to penetrate the markets of entrenched rivals. These kinds of support go together
naturally, because new entry is often the means by which new ideas reach the market. I will
maintain -- more controversially, in the next section – that it is a short further step for the WTO
to support “markets” for new labor institutions that embody new ideas, new processes, and new
rivalries, while simultaneously broadening its constituency to workers.
Baseline competition policies are one of the best examples of market-supportive
regulations that conform to the fundamental purposes of the WTO and that enhance its
legitimacy. Multilateral trade negotiations and competition policies usually have very similar
objectives. An important aim of both is more open, contestable, non-discriminatory market
organization of economic activity. Contestability denotes the right to compete for market access
by exporters, foreign investors, and small and new home suppliers alike. These groups are the
beneficiaries and constituents of the WTO’s potential incorporation of competition-policy
baselines that answer fundamental questions about the social conditions of competition. Who
may compete with whom? Or displace them, or absorb them? Under what contingencies? With
what kinds of government support? Using what processes, technology, contractual practices,
employment relations? The development of baseline competition policies a century ago in the
21
Admittedly, perspective and practice on how competition policies need to be different, if at all, for technologyintensive activities, is still being worked out. Gilbert and Shapiro (1997), U.S. Economic Report of the President
(1999), Ch. 5, and Shapiro (2001).
9
United States helped quell the strong opposition to “robber-baron” capitalism that threatened
American national market integration.
In previous writings, Edward M. Graham and I22 recommended that first-generation
initiatives include only the gradual commitment of all WTO members to implementing narrow
competition policies concerning cartel practices and anti-competitive horizontal restrictions, and
to creating guidelines for merger and acquisition. In our approach these baseline policies
involved no cross-territorial rules and minimal imposition on sovereignty. They were notified to
the WTO, which also oversaw a process of consultations, 23 and maybe conciliation, but initially
not formal dispute settlement. To emphasize the modest, though market-supportive goals of these
proposals, we endorsed a plurilateral approach within the WTO.24
Graham’s and my initial proposals met significant skepticism, especially among
American commentators, though less so among Europeans.25 More recently, however, antitrust
officials around the world have endorsed cautious moves in the direction we recommended,
albeit with no focus on the WTO. Specifically, they have embraced both a Global Competition
Initiative recommended by an expert panel (ICPAC (2000)) that would begin a process of
cooperation on competition policies, and a narrower International Competition Network of
competition-policy officials from both developing and developed countries to discuss bestpractice procedures and substance.26
22
See Richardson (1998a,b; 1999), Graham and Richardson (1999), and the series of papers brought together in
Graham and Richardson (1997a,b).
23
We envisioned obligations undertaken by competition-policy authorities (perhaps in concert with trade-policy
authorities) to investigate, if requested after consultations, behavior in their jurisdictions that spills over anticompetitively to others (perhaps subject to some threshold of injury), and to mediate conflicts that remain, perhaps
along lines outlined in EPG (1995), pp. 12-15 and Annex. Not all behavior would be eligible. Only that which
impedes horizontal contestability, as defined for both trade and investment, would be covered. Investment coverage
would include mergers and acquisitions with effects on the value of other WTO commitments. The procedural effort
would itself be nurtured sequentially. It would begin with a process of positive comity, advancing to (mandatory)
consultation, even among countries with little formal competition policy. It would ultimately involve a commitment
to informational mediation or conciliation, as nations take on more organized competition-policy commitments. It
would explicitly not involve dispute settlement procedures. Only in a second phase did we imagine a commitment to
negotiate a Trade-Related Antitrust Measures (TRAMs) Agreement, focused on first-phase baseline practices, and to
bring normal dispute settlement to bear, and only contingent on successful experience in the first phase..
24
Additional plurilateral agreements under the WTO must be approved by consensus, but at least one informed
commentator (Jackson (2000), pp. 343-344) thinks that sufficiently attractive WTO plurilaterals could be “normally
accepted,” i.e., accepted without explicit objection.
25
See Tarullo (2000) for a recent and extensive American skepticism. See Lloyd (1998), Llyod and Vautier (1999),
and Meiklejohn (1999) for less skeptical weighing of pros and cons. See Brittan (1997) and Van Miert (1998) for
early European enthusiasm. See Mattoo (2000) and Maskus and Lahouel (2001) for sympathetic treatments from the
perspective of developing countries. Other recent and valuable discussions of the issues include Evenett, Lehmann,
and Steil (2000), Janow and Shapiro (2001), and the five Annual Reports of the Working Group on the Interaction
Between Trade and Competition Policy (downloadable from www.wto.org under WT/WGTCP/number of report).
The Global Competition Initiative would be institutionally free-standing, a “forum” focused initially on procedural
cooperation and merger review, involving the WTO, but not focused on it. It would also involve the OECD,
26
10
But why should the WTO be the focus of such initiatives, albeit with continued existence
of these new competition-policy bodies? An important reason is that WTO-sponsored
liberalization in key services sectors, basic telecommunications, and information technology
(where newer and smaller suppliers are numerous) will be the principal proving ground for how
broadly contestable global markets really are. A second reason is that baseline competitionpolicy commitments by large, new, members of the WTO, especially China and Russia, will
solidify the organization. Without such commitments, all the more traditional WTO conventions
“at the border” will be seriously undermined by private practices “behind” it; both countries are
still implementing internal, inter-regional freedom of trade. A third reason is that the adoption of
baseline competition policies in all WTO members helps to ease each member’s transition
toward more open borders. Enhancing internal contestability helps rationalize a country’s
internal market structure, allowing the fittest firms to prosper, absorbing weaker firms, and
thereby finding it easier to cope with additional pressures from freer trade and investment.27 A
fourth reason is that baseline competition policies can protect an economy from the worst abuses
of other policies that support markets – specifically from abuses of policies that protect
technological property rights and rights of workers to associate and to be represented by an agent,
policies to which we turn next.
5. Supporting the Market for Agency in the WTO.
WTO agreement on narrow market-supportive labor regulations is the most radical -- and
the most speculative -- aspect of my thesis. But I claim it is still natural. It would encompass
only one of the familiar core labor principles, specifically freedom of association and collective
bargaining. It belongs in the WTO because it is basically a proposal for liberalization of trade in
services — worker agency services -- the market services of “agency” that worker organizations
and labor unions ideally provide.28 It therefore falls sensibly and naturally under the rubric of the
General Agreement on Trade in Services (GATS). Under my proposal, the International Labor
Organization would remain the forum for discussion of and commitment to the many important
broader labor-market principles, beyond this one.
In Elliott and Richardson (2002), a colleague and I evaluate, then endorse, open trade in
worker agency services. We see it as entirely conformable to the WTO’s endorsement of open
UNCTAD, the World Bank, governments, and practitioners and commentators in an advisory capacity. See, for
detail, Janow (2000). The International Competition Network, involving competition-policy authorities only, is
already in operation: see www.internationalcompetitionnetwork.org.
27
See Broadman (1999, 2001) for documentation of this in the Russian case.
Agency in this sense is merely representation; agents represent “principals,” in the familiar technical language –
workers in this case. For a more detailed exposition of such agency in labor markets, see Stiglitz (2000), Part II.
Pencavel (1991) is the most comprehensive treatment I know of labor unions as agents for their worker/principals,
though he restricts his attention only to their wage, hours, and employment effects. See also Freeman and Medoff
(1986), Freeman and Kleiner (1990), and Kochan (2000).
28
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trade in other services. We maintain that all workers should enjoy the (property) right to be
represented by an agent. Not that all should exercise that right. Not that most will. On the
contrary, the right to be represented is an option, a non-coercive aspect of free choice, but with
one important condition, a quid pro quo. The important condition is group obligation – a social
contract with other workers represented by that agent. Such legally enforceable group
obligations are not exotic or strange; they are familiar features of all market systems and
polities.29
We understand such worker agency services to encompass a wide range. They include:
collective representation and bargaining over wages, benefits, and working conditions; workplace
safety monitoring; grievance and dispute settlement; training, apprenticeship, and employee
assistance; financial counsel and management of other benefits (e.g., pensions, child care). We
emphasize the market-supportive character of these services. They alleviate market failures
associated with collective action problems, workplace public goods,30 imperfect information, and
relationship-specific assets.31 They discipline practices that border on coercion (recall that the
market system pre-supposes voluntarism). They create countervailing market power to any anticompetitive market power of firms.
When entry and accessibility are present, that is, when alternative local and global
suppliers can contest the right to represent workers as agents, they perfect the market for such
services. They enhance their quality and variety, they encourage innovation in worker agency
services, they lower their cost.
We foresee the same sort of gains from open trade in worker agency services as exist for
other agency services. Open trade in distribution services provides enhanced agency for
producers. Open trade in accounting and legal services provides enhanced agency for users of
information about firms (e.g., investors in them). Open trade in brokerage and underwriting
provides enhanced agency for borrowers, entrepreneurs, and innovators. Open trade enhances
options non-coercively,32 including the default option of being one’s own agent.
29
Such obligation is no more coercive than laws that constrain individual voters, whether they voted for the laws or
not, or by-laws that constrain individual members of a firm or other social unit.
30
Workplace public goods are defined by Pencavel (1991, p. 6) as the unwritten rules and conventions that are too
costly to write down in detail, and that benefit workers (and often employers) in a non-excludable, non-rival way.
Relationship-specific assets are essentially what a firm’s incumbent workers provide. In general, they are defined
in the context of contractual relationships that add extra economic value to the intrinsic value of assets that
contracting agents bring to the relationship. The relationship-specific value of these assets is the extra value that the
contract adds. But once negotiated, contracts are usually costly to break. In that case there is an incentive for each
agent, through opportunistic behavior, to tilt the distribution of the extra value in their favor. This is called the
“hold-up” problem. Such opportunism, almost always present in contracts covering relation-specific assets, is more
than a distributional question. It causes inefficiency, specifically under-investment in all relation-specific assets,
including the employment relationship. On the general issues, see, for example Besanko, Dranove, and Shanley
(1996), pp. 110-121. On their application to employment relationships, see Stiglitz (2000), pp. 16 passim.
31
32
Especially if baseline competition policies are in place and applicable (perhaps applicable in special ways) to
worker agency.
12
Implementation of a market-supportive worker-agency agreement at the WTO would
necessarily proceed modestly and procedurally, because this is a radical idea in many dimensions.
But given the structure of the GATS, it could begin quite innocuously. A charter group of WTO
members could explicitly include worker agency services (along with suitable definitions and
mutual recognition arrangements under Article VII of the GATS) among the other sectors with
“specific (binding) commitments” that they were prepared to make. The commitments would
cover only freedom of association and the right to collective bargaining, and would presumably
designate activities (e.g., movement of personnel, “commercial” presence) and/or economic
sectors in which national treatment would be offered to foreign labor unions and other workeragency organizations. There would be no initial need for any plurilateral agreement on traderelated worker-agency services, though that might be the natural outcome of ongoing negotiation
and favorable initial experience in “trading” such services. There would be no need for any
specific WTO working group on core labor rights, though presumably the standard reporting of
the Services Council and the Trade Policy Review Mechanism would provide monitoring of the
particular commitments made. Only in the distant future might one imagine widely crosssectoral rights of establishment and national treatment for foreign worker-agency organizations
(subject to a limited number of negotiated exceptions).
In the early stages of any such experiment, national discretion (sovereignty) would be
virtually unaffected. Only those countries committed to implementing baseline freedom of
association and collective-bargaining would need to notify these commitments to the WTO under
the GATS. Mechanisms might even be initially negotiated for committing “provisionally,” in a
non-binding way, without dispute settlement or sanctions, yet with (non-binding) consultations,
conciliation, and forms of mediation.33
Our focus on just the most market-supportive core labor right -- freedom of association
and collective bargaining -- leaves a great deal of scope for both distinctive national laborrelations law and for ILO initiatives on broader labor rights. Countries would maintain
considerable sovereign flexibility, even with binding GATS worker-agency commitments. Their
sovereign ability would be unimpaired, for example, to regulate the locus of collective bargaining
(plant, firm, industry, country) and to determine conditions for strikes (sectoral restrictions,
arbitration/mediation rules, worker-replacement strictures, etc.).
Our vision inevitably involves more than the traditional amount of competition among
traditional unions and rival worker-agency institutions, including innovative new entrants. It
opens labor relations to cross-border competition, too. But our vision does not disparage
traditional worker solidarity. In fact, it emphasizes the fact that some unions serve their
combined membership better than others (with fewer internal inefficiencies or political
diversions, and less corruption). It also emphasizes global worker solidarity -- similar workers
33
Mechanisms could be similar to those featured above in the first phase of market-supportive competition-policy
commitments.
13
world-wide can collectively and globally modulate the competition among themselves in the
same way that nationally unionized workers in a single plant or firm do.34
But why the WTO? The most important reason is that our proposed arrangements for
trade in worker agency services are market supportive, market-opening, and indistinguishable
from GATS protocols for other services. They open trade in labor agency services to new
entrants -- specifically to new kinds of labor unions and to traditional unions who are rethinking
their objectives and roles under the heading “new unionism,” to developing-country unions who
might be the most natural agents for future movements of natural persons cerified under Mode 4
of the GATS, to new sorts of employee and professional associations, and even to contract-labor
and temporary-labor firms.35 Moreover, many familiar issues in labor relations, such as contract
compliance and certification/de-certification, have natural analogs in competition policy.36 We
envision that a WTO competition-policy agreement could be tailored to protect open and
transparent competition among agents that represent workers, globally.
Critics, of course, will have much to say skeptically about the detail of this proposal.37
They might find instructive, however, some of the detailed historical lessons from the American
experience in forming nation-wide trade unions from regional counterparts as corresponding
product markets became national a century ago.38 Critics may have even more to say about the
apparent fundamental weakness of the proposal. “Unions just aren’t like that.” This paper’s
answer is, “Maybe some are not, but they could be and should be.” Labor unions admittedly
depart from market-supportive ideals, but so do firms. Mundane political objectives of labor
unions can often conflict with market objectives (wages, benefits, working conditions), but
mundane political objectives of firms similarly compete with their market objectives.39 Labor
unions can be undemocratic, but so can firms (e.g., in voting vs. non-voting shares and in rights
of minority shareholders). Labor unions can be corrupt, but so can firms.
For an account of labor agents’ potential constructive role in modulating globalization, deregulation, and reform,
see Freeman (1993), Section III and Stiglitz (2000), Part III.
34
35
For example, it is natural to contemplate temporary-worker and contract-worker locals of traditional unions, whose
members want such jobs because of age, health, training experience, family commitment, or personal preferences. It
is also natural to contemplate transferable membership across different types of locals and different regions. See
Ulman (1966), Ch. 4-6.
36
And in technology policy, too, perhaps. For example, agent (union) certification might be time-limited, then
renewable, like a patent.
37
Rollo and Winters (2001), for one recent example, is a thorough and critical dismissal of the WTO-suitability of
broad environmental and labor standard; see also Brown (2001) recently on the unsuitability of labor standards.
38
39
See Ulman (1966).
See Pencavel (1998), pp. 30-40. For example, firms, like unions, can divert enormous resources from market
activities to support political parties, candidates, and regulatory agencies whose decisions will guarantee the firms
political access and political security.
14
6. Why It Might Work Naturally at the WTO.
My discussion above has explicitly and implicitly included many of the WTO’s historic
principles and procedures that make narrow new issues “natural” for incorporation in future
multilateral negotiations: fundamental commitments to openness, transparency, reciprocity, and
nondiscrimination; instrumental commitments to notification, policy documentation,
consultation, dispute resolution, standstill, mutual recognition, plurilateralism, accession.
All this notwithstanding, there would be innumerable uncertainties and details to be
worked out if these narrow market-supportive issues were to be integrated into the WTO. The
uncertainty alone tempts long-time WTO supporters to “just say no to any more new issues.” Yet
the intellectual-property and services issues are already on the table, including the labor-marketcentered Mode 4 of the GATS (movement of natural persons). These cannot be avoided, and
may be insoluble without minimal competition-policy commitments that are conformable to
WTO practice.
One neglected feature of the WTO and the GATT encourages me not to say no, and
instead to favor tackling the market-supportive sub-set of the new issues directly and in an
integrated, constituency-broadening way. That feature is that the “organization” has always been
malleable and incremental, almost experimental, moving from border taxes to non-tariff-barrier
codes to standards and investment measures and single undertakings in gradual, precedentrespecting ways, measuring progress in decades, not years. It is this historic rules-oriented
flexibility and incrementalism that makes me optimistic about details I cannot see. It is not
clever constitutionalism that has made the organization successful, it is patient pragmeytism.
The model of the WTO that I have in mind is meant to remain somewhat amorphous, somewhat
elusive, somewhat experimental.
Finally, WTO member governments right now may see grave risk and insufficient reward
from incorporating any of the narrow new issues I have recommended. But I believe that is
largely because large groups of their own citizen-voters see only grave risk and little reward for
themselves in the traditional WTO agenda.40 There’s an equilibrium of torpor there, but it’s not
the only equilibrium. My particular new sub-issues are not just market-supportive; they broaden
the constituency of those with stakes in the WTO system. With such issues on the table, WTO
member governments might soon find that open trade policy attracted new and supportive voter
voices and coalitions. This vision is spelled out in greater detail in the next section.
7. Where The Local Political Support Lies.
In democracies, no good idea is ever adopted without political support. Where would
local political support come from for the provocation of this paper, that the WTO should embrace
a narrow sub-set of new issues to enhance global markets and buttress its own global legitimacy?
At first, the answer seems to vary with a member country’s standard of living.
40
This is borne out in the surveys cited in note 5 above.
15
Where would the local political support come from in richer countries?
Not from the usual suspects. That would be looking for love in all the wrong places. The
traditional private-sector trade community is lukewarm toward information dissemination,
skeptical about global competition policies, and downright opposed to the global adoption of any
core labor rights. At least for the moment ....
But educators and farmers and hospitals and public-health agencies ought to recognize
the value of baseline policies that facilitate distribution of technology.
But small business ought to recognize the value of baseline competition-policy protection
in home and foreign markets.
But workers and their unions ought to recognize the value of multilateral support for the
global association and bargaining rights that put them on the same footing as corporate owners of
tangible and intellectual property rights.
And if socially-oriented agencies, small businesses, workers, and unions are not seeing
any significant gains for them from further globalization of the traditional kind, can anyone really
blame them for thinking that multilateral liberalization serves only the profit-minded, capitalist
owners of big business?
And where would the local political support come from in poorer countries?
Not from corrupt elites. They will realize that their power is undermined by open markets
— open markets that are sought by competition policy and that are enhanced by worker-oriented
competition among unions and other labor agents. They will realize that their power is also
undermined by the security of all kinds of property rights, including those to develop and fairly
apply innovation and those to represent workers collectively.
But honest firms, and honest unions, and honest technology users, no matter how poor,
are all potential gainers from these initiatives.
So perhaps the answer to where the local political support lies does not vary across
standards of living after all. Perhaps it can be summarized very crisply. Everywhere it comes
from the margin — the margin of persons and groups on the outer edge of gains from the
narrow, naked globalization of commerce alone.
If, by contrast, the market system — as I have described it — is what is on the WTO’s
negotiating table, are there not gains for large masses? And extra enhancement of global
markets, too, as long as regulations are what I have called market-supportive? So that even
commercial interests end up gaining, too, after all?
Surely there’s more promise in positive WTO-based momentum on these new issues than
the trickle-down of rising commercial tides, either within a country or among them!
16
8. Conclusion.
I am persuaded that the WTO’s incorporation of a narrow sub-set of market-supportive
new issues would unleash large mutual gains to a broad constituency of businesses, worker
groups, and others, and clear the way for more legitimate and more sweeping global market
integration in the new millennium.
Others agree in part. But my proposal for sequentially embodying market-supportive new
issues in the coming WTO negotiations is importantly different from two others. One is the
stance of real politique -- concede new issues to buy off the opponents of further global
integration -- “feed the trade sharks” as one commentator put it.41 The second is the populist
stance of stakeholder economics, that somehow everyone has a civil or human right to voice or
ownership in market institutions -- therefore new constituencies have a natural democratic right
to be at the commercial negotiating table with their new issues.
My problem with the first stance is that it is too crass, and yields too quickly to the nearzero-sum practice of tossing lesser bones to rival dogs. My problem with the second stance is its
fundamental mis-understanding of both the limits of real democracy and the way that it has made
itself prosperous by ceding conditional and exclusionary -- apparently un-democratic -- property
rights to social market institutions.
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