True dollarization, which they have not done, would mean not simply making the peso convertible to a dollar on a one-to-one basis, but eliminating completely the peso so that the Argentine people and businesses use the dollar as currency. And that makes no sense at all for an economy whose main trading partners are Brazil and Europe. It means that if the dollar strengthens relative to the euro, Argentina is in trouble. If the Brazilian real devalues relative to the dollar, Argentina is in trouble, too. So, it doesn't make sense for them, and that was why the debate to which you have referred ended as it did.

TNI: What, then, was the rationale for those proposals in the first place? Just to control inflation, or was there some other rationale?

CH: It is more than just inflation control. Ecuador also has adopted the dollar. Ecuador was under terrible financial stress and, by doing that, I think it offered them a new beginning, a new chapter in their economic story.

TNI: Agreed, but how do you get out of it once you no longer need the confidence that dollarization brings? How does Ecuador in future avoid the mess that the Argentines got themselves into?

MF: If a country has literally adopted the dollar, it is a problem. But it's a limited problem; sovereign nations need only a printing press to introduce a new currency. So Ecuador could in principle bring back its own currency at some time in the future.

The Russian Front

TNI: Let's talk about Russia for a minute or two. China is in the WTO, but Russia still isn't, and one of the items on the agenda of U.S.-Russian policy today is a cluster of economic issues: from the importation of chicken parts to declaring Russia a market economy to the rescinding of the Jackson-Vanik amendment. Also, when I was in Russia recently, I was struck by the contradiction between the Russians telling us, on the one hand, that they want more American and other foreign direct investment, especially in their energy sector, and, on the other, their inability to establish legal and business structures, not to mention a debt market, that would make more investment possible. When this contradiction is raised, many Russians point to the Duma and, as often as not, throw up their hands and shake their heads. You said earlier that China is headed in the right direction; is Russia as well?

CH: We should be encouraged by the reforms that President Putin has put in place. Both Europe and the United States have now designated Russia as a market economy. The benefit of doing this is that it puts pressure on a government to move in the right direction, and that's important because the cycle you mentioned is absolutely true: business people go to climates that are predictable and hospitable, and the more they go there and create a constituency, the more predictable and hospitable the climates tend to become.

You laugh when you describe Russians who are frustrated with the Duma, their legislative branch. But how often do many of us wish that our Congress would pass laws that we think are needed with alacrity and with intelligence?

Reforming the WTO

TNI: Yes, well said. Let's move on to a functional issue. We have discussed the implications of China's joining the WTO, and U.S.-European Union conflict in that arena as well. We know that off to the side of those matters there have been pressures brought to bear concerning the operation of the WTO itself. The anti-globalization crowd, but others as well, have raised the question of the WTO's decision-making transparency. Is there a need for reform of the WTO's modus operandi, and if so, at which sort of model should we be looking? Some have suggested, for example, that the WTO might function a bit like the U.S. Supreme Court, accepting representations from friends of the court, but still conducting its deliberations in private.

CH: Let me start with the value of the WTO. I think that the Dispute Settlement System is the jewel of the trading regime. If we didn't have a mechanism for resolving our disputes, we would be plunged into the economic version of the law of the jungle. Every complaint we register about a trading partner withdrawing trade benefits and raising tariffs because they have won a case before the WTO casts a negative light on the institution. But we need to understand that if we didn't have the WTO, our trading partners could do that and much more to harm American commercial interests. So, it's a huge benefit to us, as it is.

Can any institution be improved? Absolutely. And, of course, that includes the World Trade Organization. You speak of transparency. This is a legitimate issue, but it would not be wise to permit wholesale the presentation of amicus briefs. That would bog things down and allow an excessive politicization of the proceedings. But we could and should have rules governing the filing of briefs from those that have a demonstrated interest. These could help the WTO make its determinations. If the WTO's proceedings were open to everyone, regardless of pertinent interest, the organization simply could not function. The Supreme Court of the United States does not permit outsiders to sit in on its Friday afternoon deliberations. So, yes, there can and should be more transparency, but we should be very, very happy that we have the WTO. We should also remember that the United States is the most frequent user of the WTO and the most frequent winner--and although there are some high-visibility decisions that have disappointed us, we would be very, very much worse off without the WTO dispute settlement mechanism.

TNI: Somebody once told me that just the travel budget of the World Bank exceeds the entire budget of the WTO.

CH: Yes, that's right. The WTO is grossly under-funded for what it contributes.

TNI: How much of a budget boost might be required to have the WTO run at an optimal level?

CH: Well, any institution as underfunded as the WTO would be helped by any increase. But it's not the absolute amount that is so important, and it's not only about travel vouchers for its staff. One of the problems for the developing world is that many of these countries lack the technical capacity to deal with some trade issues--either to frame them during negotiations or to deal with differences that arise with their trading partners. It would be extremely helpful to the global economy if the WTO were to have a capacity to provide such assistance to the poorest nations.

The Doha Round, Development and the Virtuous Circle

TNI: Let's talk about trade policy more generally. I read recently of various estimates of how another round of trade liberalization--it's called the Doha round, is it not?...

CH: ...sometimes the Doha round, sometimes the Development round or the Millennium round....

TNI: Right. That there are so many names probably points to how inchoate it all is at this point. Anyway, there are figures being bandied about concerning how much of an increase in global GDP we might see from new advances in trade liberalization, especially liberalization that would affect the developing world's ability to export foodstuffs and textiles and shoes and things like that? Are these just guesses? What estimates are credible?

CH: Well, those figures aren't just guesses. There are several groups--one in Australia, for example--that have analyzed the economic effects of the Uruguay Round (the last, eighth round of talks), and other groups are making projections now. The benefits are in the billions of dollars. Of course, to get good estimates we have to specify what we are liberalizing. But your reference to the developing world is to the point. The developing world is badly hurt, and the least developed nations are the worst hurt, by the trade restrictions imposed on them by the industrialized countries. Certainly, in agriculture and in textiles, particularly at the lower end, we have very high protections in our country, as do the Europeans, the Japanese and the Koreans. This is heavily detrimental to the world economy as a whole.

You see particular examples of this harm done to Latin America today, and our national interests as well as theirs are adversely affected. We don't want Latin American countries to send us cocaine, but we won't buy their roses or their orange juice or their agricultural products or their textiles. By insisting on the maintenance of such restrictions, we force their farmers into the production of illicit items that cause us great harm.

We need to do a better job of informing the world and our own public as to the benefits of trade. It is true that when we remove our trade barriers to low-wage countries, the least-developed countries, they do sell us more products. But it is also true that with the currency they earn, they buy more from us. This creates a virtuous circle that benefits our economy tremendously. But this is not readily understood. All that seems to be recognized is that when we lower our barriers, these countries sell more to us, which affects our balance of trade and threatens some American jobs, and we forget the enormous benefits we receive.