Johan Saravanamuttu will join CIS in January as visiting Professor in ASEAN and International Studies. He is currently Dean of the School of Social Sciences at Universiti Sains Malaysia. Dr. Saravanamuttu's research and teaching focus upon issues of international politics, political economy and comparative politics with particular focus on ASEAN and the Asia Pacific region.
Maznah Mohamed will join CIS in February as a Senior Research Fellow. Dr.Mohamed is currently Associate Professor of Development Studies at the School of Social Sciences at Universiti Sains Malaysia. She has extensively researched women and work, as well as Malaysian educational policies and development.
Klaus Conrad will join CIS in September as visiting Professor in German and European Studies, and remain in residence until April 1997. He is currently Professor of Economics at the University of Manheim, Germany. While at CIS, Dr. Conrad will present a number of public lectures and teach both an undergraduate course in microeconomics and a seminar course on the international relations of the environment.
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After eight years at the helm of CIS I have decided to take accumulated leave and pursue research on telecom-munications and globalization. My immediate plans call for a three month stay at the Brookings Institution in Washington, D.C. From there I will spend a year at the London Business School, U.K.
I would like to take this opportunity to extend warm thanks to all those who helped make my time at CIS both enjoyable and productive. I would be pleased to meet with any friends of the Centre whose travel plans coincide with my stay either in Washington or London. Contact CIS at 923-6641 EXT 3350 for details.
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Building on Leonard Waverman's impressive legacy at CIS and bridging the Centre's exciting new future is the primary goal of my brief tenure as Acting Director. In his eight years at CIS, Len's accomplishments have brought us to the point where we now have a full strength program with first rank international eminence. Both in scholarly research and international networking, CIS is continually involved in a wide range of leading edge programs and projects.
Our three visiting professor-ships and the Centre's own staff are all involved in vital areas basic of research and policy application. Sylvia Ostry and Alan Alexandroff's work on China's Accession to the WTO, Al Berry's work on Development of the Americas, Len Waverman's continuing work in Telecommunications, Ed Safarian's research on the international aspects of economic growth and my own work on NAFTA , the Environment and the G7 are just a few examples of the wide scope of CIS' research interests.
In addition to its existing strengths, the Centre is embarking on a period of dynamic growth. Indicative of this expansion is the M.A. in International Relations which will be marking its first term this fall.
On a personal note, I would like to relate my own delight at being at the helm of CIS. As Len has attested, the Centre is a very supportive environment, both for one's personal morale and professional development in these challenging times.
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China and the World Trade Organization
The China Project is led by a Canadian team — Dr. Sylvia Ostry, the Project Chairman, and Dr. Alan Alexandroff, the Project Director, both of the Centre for International Studies.
Nature of Project
From a global perspective the aim of integrating China into the world economy by accession to the WTO is twofold: to provide more secure and predictable market access both for China and its trading partners and to provide support for the process of sustainable economic reform in China. To achieve these aims requires consensus on the nature and terms of accession, both among the WTO members -- especially China's chief trading partners (CTPs) -- as well as between the CTPs and China. This Project will focus on the major issues of concern which must be dealt with in order to achieve consensus and facilitate the accession discussions. The intent is twofold:
-highlight the main conflictual issues which require resolution if mutually agreed accession conditions are to be negotiated.
-undertake a policy dialogue with the Project members with a view to proposing feasible policy options for achieving mutual agreement.
The project has assembled a team of international members from Canada, the U.S., Europe, Japan, Singapore, Korea and Australia with expertise which spans all the relevant subject matter areas (trade policy; trade law; comparative legal systems; the Chinese economy; GATT/WTO negotiations).
The project team functions as an unofficial, independent, intermediary between the WTO and national governments with a view to establishing, through dialogue and analysis, a consensus on the broad norms and principles to govern accession..
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ASEAN's agenda for regional cooperation is being considerably expanded as it faces the dawn of a new millennium. This comes from the generally expected expansion of ASEAN to include all the states of Southeast Asia by the turn of this century if not earlier, although Myanmar's current domestic political situation has led the regional association to reconsider the timing (albeit not the desirability) of Myanmar's entry. Economic "integration" - a taboo word in the past - is being pursued through the ASEAN Free Trade Area (AFTA) which is being accelerated. ASEAN's success as a regional association is reflected in the region-wide interest in ASEAN membership, in the widening circle of extra-regional states that seek formal dialogue partnerships with it, and in the willingness of other Asia-Pacific powers to treat ASEAN as the hub of security dialogues and cooperation through the ASEAN Regional Forum (ARF). ASEAN is also acting as the main facilitator to inter-regional cooperation between Asia and Europe through the Asia-Europe Meeting (ASEM).
So far, ASEAN's success as a regional association has rested on seven pillars of resilience. These are firstly, its adherence to the norms of seemly behaviour which it has "aseanised" in its treaty of Amity and Cooperation; secondly, its ability to accommodate a diversity of political systems given that regional unity is not obtained at the expense of regional diversity or national distinctiveness; thirdly, its adoption of a "working culture" based on consultation and consensus; fourthly, its forte in conflict avoidance ; fifthly, the general pragmatism of its political elites ; sixthly, the remarkable ability to forge common fronts and negotiating positions vis-à-vis the "outside world" and finally, its adaptability to change in its environment.
As ASEAN approaches the 21st Century, its resilience will be tested by several new pressures. To be sure economic concerns will be featured high on the ASEAN agenda. But the relevance of Economic ASEAN will be challenged by mega-regional forces from above as represented by APEC (of which ASEAN is a part) and by sub-regional forces from below, as represented by "growth triangles, quadrilaterals and hexagons" straddling natural economic territories - a phenomenon that is evolving outside the formal ASEAN organization. While the decision to accelerate the ASEAN Free Trade Area (AFTA) reflected a desire to enhance regional economic integration and competitiveness, the addition of new members such as Vietnam and eventually Cambodia, Laos and Myanmar will result in a multi-track ASEAN while injecting even greater diversity in the levels of regional economic development. Developed regional states will need to pay greater attention to the developmental needs of the "slow trackers" if they were to avoid the entrenchment of a new regional economic divide in Southeast Asia.
The realization of "ASEAN 10" by century's end will transform the geo-strategic environment of ASEAN which will have three landward neighbours of China - the engagement of which will test both ASEAN's adaptability and cohesiveness. The initiation of the ARF, with ASEAN purporting to be at the "driving seat" of Asia-Pacific wide security dialogues will be equally challenging . Can ASEAN keep control of the pace and direction of the embryonic ARF while applying its working culture and modalities to address Asia-Pacific security concerns?
Expanding membership also creates new pressures for adjustment in its traditional modus operandus - both old and new members will need to adjust to one another and ASEAN may no longer be the cozy "old boys' club" that it used to be. Also, with impending leadership transitions, the influence of the founding generation will have finally disappeared. More than ever, ASEAN cooperation will have to be deepened even as ASEAN is being widened. And as ASEAN extends the arena of engagement with the "outside world" it will come under increasing pressure to address, confront and engage in debate with the "West" on issues of human rights and democracy - issues of increasing saliency in the post-cold war world. Finally, the socio-cultural diversity that comes with an expanded ASEAN will highlight the need to deepen an ASEAN consciousness and identification to reinforce the relevance of the regional association to its peoples.
The pressures of change facing ASEAN will in turn generate at least five tensions in the regional association. The first tension relates to the inherent contradiction between widening and deepening of ASEAN and centres on the regional identity, regional uniqueness and cohesion. ASEAN's role as a hub to Asia-Pacific cooperative security assumes a blurring of conceptual distinction between Northeast and Southeast Asia; but the need for collective clout, points to the political utility of the ASEAN brand-name and a Southeast Asian uniqueness. Secondly, there is the tension between deep engagement of and distancing from the major external powers . The third tension is that which exists between the traditional pull of sovereignty and the demand for flexibility and even political innovation in the management of new forms of interdependence as manifested in the "growth triangle" phenomenon which in many cases, involves sensitive adjacent territories of neighbouring states. A fourth tension is that between ASEAN's traditional obsession with Order (which serves to underline a statist approach towards politically correct relationships of non-interference in the internal affairs of neighbouring governments) and the demands of Justice (which focuses on economic equity and the aspirations for political empowerment on the part of peoples). And finally, there is the tension between vision and mission on the one hand and capacity and resources on the other as ASEAN's action programmes and activities proliferate.
It can be said in conclusion that there is nothing pre-ordained about the future survivability of ASEAN - regional associations have come and gone. But to the extent that ASEAN succeeds in being relevant to the economic, political and security needs of its governments and peoples as well as the wider international community, its survival well into the 21st Century is assured.
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In the 1990's trade is very much at the centre of foreign policy and the WTO, the first post cold war international organization, is central to global economic development and the maintenance of peace. I will give my perspective on the importance of this new institution for Canada. It is timely to do so now, nearly two years after its creation and on the eve of the first regular Ministerial meeting of the organization which International Trade Minister Eggleton will be attending in Singapore in December.
It has become almost trite to talk about globalization and the rapid pace of technological change that affects the daily lives of citizens of the planet. However, it is essential to recognise these realities in order to manage Canada's foreign policy on the eve of the 21st century. Indeed one third of all the goods and services produced every year by Canadians are exported to just one country, the United States. Obviously our prosperity as a people and our power as a nation is inextricably linked with our continued capacity to keep foreign markets open in a predictable fashion.
Nor are we the only ones to be dependent on the global market place. In the last four decades world trade increased 15-fold reaching over 6000 billion US dollars in 1995. In the same period global production has increased by only 6 times. The contribution of trade to global growth has been enormous. More and more countries are finding both their current prosperity and their future economic hopes dependent on the global market place. Investment too has become a powerful force integrating the world economy. In the last decade annual global investment flows have increased from some US $60 billion to some US $300 billion. Indeed production of goods and services by foreign affiliates of multinational corporations now exceeds the total value of world trade or goods and services. This shows that investment has outpaced trade in delivering product across borders to consumers.
These trends to globalization have been pushed by technological change but they have been greatly facilitated and accelerated by policy changes of a revolutionary character. It is astonishing for those of us who grew up in the 50's and 60's to witness the spread of market-oriented reforms around the globe. The failure of communism to deliver justice and prosperity and its subsequent collapse is part of this. Of at least equal importance, I believe, is the change in economic development theory in the developing world. Here too the market has moved to the fore and theories of import substitution have been largely abandoned. These countries now account for some 25% of world trade. These developments make national economies and the well-being of ordinary people much more dependent on events outside national borders. It is a world which needs predictable international rules and strong institutions to enforce them. Globalization is a reality. Governments need to decide how to react to it. For a country like Canada of only 30 million, there can only be one answer. We need the protection and security of a rules-based system, not the rough and tumble of a global jungle where only the powerful survive.
What is the WTO and why is it relevant in this context? The WTO is the successor to the GATT, the provisional agreement which governed world trade for nearly 50 years from 1947 until the WTO came into force on January 1, 1995. The GATT, of course, was what had been salvaged from the more ambitious project to create an international trade organisation through the Havana Charter. It dealt primarily with the liberalisation of tariffs. The GATT was an extremely useful agreement but by the time the Uruguay Round was launched in 1986 it was clear that it was under stress. Its related agreements, the Tokyo Round Codes, lacked a unified structure and did not deal with many of the issues which had become relevant to traders. Its dispute settlement system increasingly lacked credibility. Furthermore, it lacked the institutional stature to assist governments with the effective management of international trade. The Uruguay Round of trade negotiations was the largest and most ambitious ever undertaken. The scope and importance of its outcome owed much to the global economic changes which were occurring.
The significance of the Uruguay Round result is worth underlining. All the results of the negotiation were accepted as a single undertaking. This was important for two main reasons. First of all it meant all parties accepted all parts of the agreement including those matters which had been the subject of separate codes in the Tokyo Round. In the earlier GATT system parties joined the various codes on an à la carte basis creating confusion and fragmentation. There would be, in the new WTO, one class of membership. Developing countries accepted all the rules and special and differential treatment was confined mainly to transitional measures. It is important we now build on this new partnership to strengthen the co-operation between developed and developing countries. This will help consolidate multilateral co-operation and establish a solid basis for future challenges. Second the single undertaking allowed the establishment of a unified and greatly improved dispute settlement system. No longer were certain disputes to languish in the governing bodies of the Tokyo Round Codes. Under the new integrated system any dispute would be taken to the Dispute Settlement Body of the WTO.
The Uruguay Round led to the substantial reform of matters already addressed by the GATT, to the extension of disciplines into new areas, and to the significant strengthening of the institution. In the first category, I will mention four achievements.
First was the reform of the rules governing agricultural trade. The existing situation in this area was so bad that many observers concluded there were not really any multilateral rules at all in this area. The negotiations succeeded in agreeing on one set of rules to which all parties subscribed. All the waivers, special protocols, variable levies, and various quantitative measures were eliminated and replaced by import duties all of which were bound against increase. Of course some of these duties are quite high. In addition agreement was reached for the first time on real limits to agricultural support programs which distorted trade. Again the level of payments was often very high but a start had been made. Finally agreement was reached to continue the reform process in new negotiations to begin in 1999.
The second major achievement was the agreement to eliminate, over a ten year period, the special measures of protection applied to trade in textile and clothing products. These measures had been applied only to the trade of developing countries and were seen by them as iniquitous. They also made it difficult to persuade these countries to accept more discipline on their behaviour.
The third achievement was a tariff reduction package that lowered duties by some 40% on average and resulted in a much larger percentage of duties being legally bound against increase. Particularly significant was that the percentage of duties in developing country markets that were bound went from 14% to 59%. At the conclusion of the Round the GATT Secretariat estimated the global annual income gains from the tariff negotiations to be in the order of $235 billion by 2005. For Canada the OECD estimated the gains to be in the order of $6 billion annually by 2002, even with free trade with the USA.
The fourth major achievement was the Agreement on Subsidies and Countervailing Measures. This agreement contains the first internationally agreed definition of what constitutes a subsidy, an objective long sought by Canadian negotiators to assist in managing problems in this area with the USA. The agreement could have gone further, but represented important progress. The agreement also for the first time provided an operational remedy to deal with the import substitution effects of domestic subsidies thus allowing Canada a way of addressing American subsidies that hurt Canadian interests. So far this agreement has not really been tested but it clearly has important potential.
Regarding new areas the Round resulted in an agreement on trade in services and the incorporation of intellectual property disciplines in the single undertaking. It also began to deal with investment issues particularly in the Services Agreement but also through clarification and codification of the rules on trade related investment measures. With these developments the multilateral system showed it could evolve to respond to new developments and challenges in the international business environment. At the conclusion of the Round, Ministers also decided to establish a Committee on Trade and Environment with a broad agenda and a mandate to report back at the first regular Ministerial meeting.
Regarding strengthening of the institution, the improved dispute settlement system is of major importance. But equally so, is the transformation of the old GATT into a full international organisation with a mandate to discuss issues such as the trade policies of its Members and to respond to new negotiating challenges in the future. Indeed a forward-looking work program was agreed at the end of the Round which incorporates much of the work needed to prepare for a new round. It contains, inter alia, the commitment to hold new negotiations in agriculture, and one for new negotiations in services by the year 2000. That goes beyond the commitment to conclude the ongoing negotiations in telecommunication services, and to those set to resume in financial services next year. The new WTO also called for greater coherence in the management of the international economic system. Agreements to provide for more effective co-operation between the IMF and the World Bank and the WTO are nearing completion. It is important to note that at the G-7 Summit in Lyon the Director General of the WTO joined his counterparts from the IMF, the Bank and the UN to meet with the Heads of Government.
The WTO dispute settlement system is the major success story of the first two years of the new organisation. Effective dispute settlement is of course essential to business confidence. The new system has a number of significant improvements which make it far better than the old GATT system but two stand out in particular. First the single undertaking means that all disputes, regardless of subject matter, benefit from these new rules. Second, the ability of governments to block adoption of panel reports has been removed. This de facto right of veto did much to erode confidence in the old system particularly for the Tokyo Round Codes where the tendency to block was even more common than in the old GATT Council. To get around this problem a WTO Appellate Body was created. It is composed of 7 eminent persons most of them jurists. Parties in a dispute may appeal a panel finding to the Appellate Body but once it rules its finding on the matter becomes binding on the Parties regarding the matter subject to the complaint.
How well is the new dispute settlement system working? Very well it would seem. In the WTO's first 20 months there were 53 separate requests for consultations under the Dispute Settlement System on 37 matters. (Often more than one Member has asked for consultations on the same issue.)
Of the 37 matters it appears that 11 have been or will be settled out of court. In three cases the panels have delivered reports and in two of these cases the finding was appealed. Both times the Appellate Body upheld the panel finding but provided some amendments or clarification to the legal reasoning of the panel. So far all observers seem to be agreed that the Appellate Body reports have been of a very high calibre. Very important was the fact that the USA which lost the first case which went to the Appellate Body, announced that it would bring its practices into conformity with its WTO obligations.
Some other observations reinforce the view that the system is working well. It is being used by a wide range of Members big and small, developed and developing. The first dispute saw Singapore taking on Malaysia. Costa Rica has taken the USA to a panel. But the Quad members, the USA, the EU, Japan and Canada are the most frequent litigants. The healthy number of "out of court" settlements also shows the system is working and is partly attributable to the fact that adoption of reports can no longer be blocked. Canada has reached such settlements in three cases. In all of which we were the complainant. These cases involved the shelf-life of bottled water in Korea, the right to use the term "St. Jacques" on Canadian scallop products in France, and problems regarding the implementation of the EU's Uruguay Round wheat concessions.
In short, the system is working and has clearly broken ground not just in the WTO but more broadly in international law. An important real world test is being met as the business community takes the new system more and more seriously. Businessmen now realise that the dispute settlement system offers a practical and timely means of addressing real world problems.
The reason I have gone on at some length on the nature of the WTO is related to my next point, the challenge of regionalism. At the same time as we have seen this major strengthening of the multilateral system we have seen an unprecedented growth in regionalism. Since the entry into force of the GATT in 1947, 145 regional trade agreements were notified to the GATT or the WTO. While in the period 1986-1991 only 5 agreements were notified to the GATT, the equivalent number for the period 1992-1996 is 60. Of these 145 agreements, around 80 are currently in force. Thus some 75% of the operational regional agreements have entered into force in he last 4 years. Regionalism first took hold in earnest in Europe but has since spread to virtually all parts of the world. There is no Member of the WTO which is not either party to a regional agreement or part of a regional initiative like APEC.
It is undeniable that regional agreements have made a positive contribution to the liberalisation of world trade. Indeed much of what has been accomplished at the multilateral level has found inspiration from regional initiatives. But we need to guard against abuse. I would like to make two points. First we need to ensure that regional initiatives do not distract us from the need to work on global rules and global liberalisation. Regionalism is constructive but businessmen would rather operate in a world where there is one set of rules rather than many. Second we need to be just as ambitious in the WTO as we are at the regional level. At the level of Heads of Government, we are committed to free trade in APEC and in the FTAA and the Prime Minister has proposed free trade with Europe. We should be prepared to endorse the same ultimate objective in the WTO. To do otherwise would be the equivalent of saying we are prepared to open our markets to the goods and services of all countries except those of Africa, South Asia and Eastern Europe.
History has shown how economic exclusion can lead to political friction and war. Let us make sure that we use the WTO to ensure that all nations are able to negotiate equal treatment for their products on the global market place in a fair manner. That requires not only a careful approach towards regionalism but also devoting the necessary energy to negotiating the accession of the 30 countries now seeking to join the WTO. These include such important actors as China, Russia, Saudi Arabia, Taiwan, the Ukraine, and Vietnam. If that task could be completed it would bring the WTO's membership to over 150 and close to effective universality. Of course this task also requires a willingness on the part of acceding countries to assume the real obligations of membership.
Some would still question how relevant the WTO is to real, core Canadian interests particularly given our heavy reliance on the US market and the fact that we have NAFTA to manage our affairs in that quarter. I will point out why the WTO is important, not only for our relations with the rest of the world, but also with the USA.
With the rest of the world, the WTO is the basic legal framework protecting the interests of Canadian traders. These relationships should become more important as we take advantage of NAFTA. Being competitive in the North American market place should make our goods and services competitive everywhere. The US market is the most competitive in the world; we compete there not just with American goods and services but with those from all over the globe. But to be competitive we also need rules, terms of access, which ensure Canadians are not disadvantaged. We do not have the leverage or power to negotiate this bilaterally. We need the WTO. Furthermore the WTO offers a dynamic environment in which we can gradually negotiate improvements in the terms of access to markets of interest and negotiate multilateral rules in such important new areas as investment.
But do we need the WTO in our relationship with the USA? I believe the answer is unequivocally yes. First it is vital to anchor the USA to a system of global rules; it provides a much surer environment for managing our relations and keeping NAFTA healthy. It is also vital for our security interests that the US maintain an active and constructive leadership role in global commerce. If they fail in this task, it risks destabilising the world.
Going beyond that aspect the WTO is the international trade agreement for some important parts of our bilateral relationship. The international rules applicable between Canada and the USA governing antidumping duties, and subsidies and countervailing duties are found in the WTO not in NAFTA. NAFTA does contain the very valuable dispute settlement provisions in this area but they are designed to replace recourse to domestic courts for appeals of final determinations; what is at issue in NAFTA is the interpretation of domestic not international law. Many aspects of our bilateral agricultural trade relations are also governed by the WTO. These include the rules on support levels and export subsidies and the tariffs which protect the supply management system. In basic telecommunications we are now engaged in negotiations in the WTO on this key sector. If successful this would establish new disciplines which would, inter alia, govern Canada-US relations in this field. The NAFTA does not cover basic telecommunications. From an American perspective they have complained to the WTO about Canadian policy on split run editions of magazines. The cultural exemption kept them away from the NAFTA. So while NAFTA is vital to managing our relationship with the US, the WTO is still important and has a significant role to play in our bilateral relations with the USA.
Some would still question whether Canada matters; can we have any influence in the WTO? The answer is yes again. We are number four in the WTO by trade ranking. We rank well behind the US, the EU and Japan but we still account for about 4% of the total trade of WTO members, counting intra-EU- trade. Arguably we have more influence in trade than perhaps just about anywhere else. An we can make up for our lack of size with hard work and intellectual input. We do this not because we are nice but because it is in our interest to do so. There are several key parts of the WTO agreements which reflect more than a little Canadian input.
We can play a leadership role in part because some of the other players find it hard to do so for various reasons. When the US Administration shows leadership in trade, it is sometimes accused at home of being a boy scout. the EU provides valuable leadership on some matters but has difficulty at times with its board of directors. Japan often finds the process of domestic consultation difficult. As a practical matter the other Quad members normally welcome initiatives from Canada. They often find it easier to react rather than to initiate. And from a Canadian perspective, clearly there are worse ways to start a negotiation than from your own draft. Other members are often also responsive to our initiatives, perhaps because we are not seen as threatening. I think more importantly they respect our experience in dealing with the major players an know that we, like they, want strong rules to protect the small against the powerful.
From what I have said I think you will agree that the WTO provides a hospitable environment to pursue a range of key Canadian objectives in the economic area. These Canadian economic objectives are very much integral to our broader foreign policy interests as well.
I hope I have not disappointed you by appearing to say little about the Ministerial meeting in Singapore in December. This meeting is a regular meeting, the first in a series of regular biennial Ministerial meeting. These meetings will ensure Ministers remain involved with the WTO. They will ensure greater political accountability and direction for the institution. Much of the December meeting in Singapore will be about taking stock of how the organisation is working, and reviewing the implementation of the biggest trade agreement in history. We very much want to use it to further the cause of trade liberalisation, to begin to nudge the WTO into new areas, and to ensure adequate attention is given to preparing for the challenges that lie ahead in the WTO work program. The implementation is going well with only a normal serving of difficulties.
Let me offer a few observations on the future work program of the WTO and some of the new subjects being proposed for it. As I noted earlier there is already an ambitious work program that was agreed at the end of the Uruguay Round. An effort will be made to add some precision and impetus to it. As for new issues such as investment, competition policy and greater transparency in government procurement they are not really all that new and there is a general recognition that they will be taken up at some point. However, some heated discussions lie ahead on whether now is the right time to start. There is also the issue of trade and labour standards which is the most controversial issue under discussion in the preparations for Singapore. Most developing countries are concerned that this could be the first step in denying them the comparative advantage of their low wage rates. Some of them ask whether there is any limit to what might be considered trade-related. Efforts by supporters to point out that the WTO already has social goals and that some discussion of these matters might assist some governments n resisting protectionist pressures do not make a dint.
Whatever is done or said about future work in Singapore it is clear we are headed towards a major new set of negotiations at the end of this decade. We need to begin preparing for that domestically. In those preparations the Government will be seeking the advice and support of the provinces and the private sector. Internationally we need to devote high quality resources to ensuring that once again in the long tradition of Canadian trade negotiators we help shape the outcome in a way which advances Canadian interests and also contributes to a more secure and prosperous world.
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Preventive measures to protect the earth's atmosphere and the associated policies required are at the centre of international conventions concerning the environment. A large number of states have already decided or are beginning to formulate policies designed to drastically reduce energy-related carbon dioxide (CO2) and sulphur dioxide (SO2) emissions. The greenhouse gas CO2 results from the combustion of fossil carbon, so that a reduction of CO2 emissions can only be achieved by reducing the use of fossil energy carriers. These sources of energy, however, are the backbone of current energy supplies. Since a reduction of CO2, SO2 OR NOX emissions can be achieved by technical measures, the use of economic instruments such as taxes and marketable permits was, and still is, taken into consideration to achieve predefined emission goals. In a research project financed by the JOULE-II program of the EU (five European partners) we have attempted to quantify the economic effects of the introduction of a tax on CO2 emissions in the European Union (EU). For this purpose we used linked country models of the applied general equilibrium type for eleven EU member countries. This method enabled us to measure the change in competitiveness for domestic industries, the impact on growth, employment and inflation in member countries, the cost effectiveness of a co-ordinated environmental policy and the costs and benefits of a co-operative approach to adhere to an EU target of emissions of air pollutants. The data consisted of national social accounting matrices, an extension of the social account by an input-output table, and of an environmental data base.
We quantified the economic impact, for the EU, of a proposed CO2 tax designed to reduce carbon dioxide emissions by 10 percent. This goal would have to be achieved within one year based on the present energy intensity and energy mix. By historical European standards, unemployment is high in the EU. Many economists believe that both the unemployment problem and global warming can be solved by a CO2 tax where tax revenues are used to reduce employers' contribution to social insurance. In this way, it is argued, a "double dividend" would show up for both the environment and the labour market. In one simulation we assumed that each country implemented a CO2 tax to limit CO2 emissions by 10%. As an alternative to this non-coordinated approach we calculated a uniform CO2 tax for the EU in order to limit CO2 emissions by 10% (a coordinated policy). We measured the anticipated effect on the labour market, on economic performance and on trade flows under the non-coordinated CO2 policy and compared the results with the coordinated CO2 policy. Moreover, this approach also allowed us to address the question of who would gain and who would lose under either policy.
At present, solving the problem of high unemployment in the EU has gained priority over the concern for global warming. The double dividend policy, however, is to be considered as a measure to solve both problems at the same time. The simulations described in our more extensive research paper point in this direction, at least in the short run. Although production declined in all countries under our simulation, the substitution effect dominated the negative output effect and employment increased. The advantage of a coordinated CO2 policy, in terms of efficiency gains, showed up in a lower decline in gross domestic production, investment, exports and imports. These effects, however, turned out to be very small, but the reason for that somewhat disappointing outcome is that the difference in the CO2 tax rate between the two policies is only 1.7 ECU per ton of CO2 (i.e., 23.5 ECU under the non-coordinated policy and 21.8 ECU under the coordinated one). Since the share of energy in GDP averages only about 4% in the EU, it is not surprising that the impact on the economy of the more cost effective policy is small.
Another measure of efficiency is labour productivity. The change in output minus the change in labour input is -0.75 under the coordinated policy and -0.80 under the non-coordinated policy (i.e. labour productivity declines more under the non-coordinated policy). However, all the efficiency arguments are outweighed by the welfare effect of greater employment, a higher real wage rate and more consumption.
The outcome of our analysis is crucially dependent on how we model the labour market. Different labour market specifications might imply that the negative output effect dominates the substitution effect. We therefore have modelled a wage rule which takes into account a decline in labour productivity. If the employed workers accept a moderate decline in real wages, employment in Germany, for example, would increase by more than 4% within 10 years. The cost or trade-off that this policy imposes, however, is less material well-being (i.e., less consumption of goods).
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Students who have gained admission to the University of Toronto's M.A. programmes in Anthropology, Economics, Geography, History, Philosophy, Political Science, Sociology, or Religion can apply to be one of the twenty applicants admitted to the inaugural class of the M.A. in International Relations.
The University of Toronto's unmatched resources in International Relations and interdiscplinary studies provide both the motivation, and the basis for this unique programme to be offered. The small class size will ensure that students receive an enriching and valuable learning experience that will prepare them for careers in business, government, international organizations, non-governmental organizations or further research in International Relations or related disciplines.
For more information on this programme visit the M.A. in International Relations' own web site.
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Representatives of central banks, financial ministries, regulatory agencies and financial institutions worldwide met in Toronto on May 16 and 17 to discuss these and other related issues at: Monetary and Financial Integration in an Expanding (N)AFTA: Organization and Consequences. This conference, organized by CIS and the Indiana University Department of Economics, featured participants from all three NAFTA countries, Chile, the International Monetary Fund, the World Bank, the European Commission and the Bank for International Settlement.
The conference opened on May 16, by addressing the macro and microeconomic issues associated with financial integration among trade partners. Not only was attention given to conditions in the Americas, but leading economists from Europe, including Elena Flores (Principal Administrator, Directorate for Monetary Affairs, European Community), discussed current issues among European Community countries. During that day's afternoon session, the focus shifted to the emerging legal and regulatory framework of the banking sector in the Americas. A panel of private and public sector officials discussed how banking and finance systems were evolving in each country. Some of the keynote presenters included Gerald P. O'Driscoll Jr. (Director of Policy Analysis, Citicorp/Citibank), Daniel E. Nolle (Senior Financial Economist, Office of the U.S. Comptroller of Currency), and Alejandro Alarcon (General Manager, Association de Bancos e Instituciones Financieras de Chile).
The second day of the conference featured four sessions. Grant Reuber (President, Canada Deposit Insurance Corporation) chaired a panel of economists and analysts from central banks in North America, Deutsche Bundesbank, and the World Bank. This panel discussed the design of payment and settlement systems and the management of systematic risk; the speakers presented papers that examined trends in cross-border payments, cashless transactions and the risks associated with them. The second session addressed the issues of international coordination of supervision, and regulation of financial institutions. Papers were presented by Michael Martinson (U.S. Federal Reserve), Javier Gavito Mohar (National Banking and Securities Commission), George Kaufman (Loyola University, Chicago), and John Pattison (Senior Vice President, Canadian Imperial Bank of Commerce). The last two sessions' panels discussed the regional and global aspects of financial development, and financial reforms and agreements for NAFTA countries.
Several of the papers presented at the two-day conference are now part of a publishing program that was initiated by the conference's chief organizer: George M. von Furstenberg (Department of Economics, Indiana University). A number of the papers that examined the control of systematic risks in the financial sector, and the improvement of payment and settlement systems will be published in a special issue (Fall, 1996) of The North American Journal of Economics and Finance. Several of the other papers presented at the conference are compiled and form part of a two volume publication edited by George M. von Furstenberg,(see Recent CIS Publications for more information).
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