US, EC set out issues for next round on table

At informal meetings preceding the General Council special session, WTO members have put forward their "wish lists" of negotiating issues for the 3rd Ministerial. Underlying the positions of many delegations, however, including those from the Third World, is the view that economic liberalization is necessarily beneficial. Lacking any coherent strategy at the WTO, developing countries could be swamped by the liberalization tide and end up acceding to the industrialized countries' demands for further market opening.

By Chakravarthi Raghavan

GENEVA: Trade ambassadors at the World Trade Organization, who have been meeting at informal sessions of the General Council to prepare for the 3rd Ministerial Conference in Seattle (USA), completed in the first week of February the first round of discussions and flagging of issues in terms of the mandate set for them by the Geneva Ministerial Conference last year.

They were to meet at a formal General Council meeting on 25 February to agree on a further programme or schedule of work, with some of the majors pushing for a fast pace to complete the work by summer.

The Geneva Ministerial Declaration, in para 9, gave a mandate to the General Council for a preparatory process under four indents:

  • issues relating to implementation of existing agreements and decisions; negotiations mandated at Marrakesh; and future work already provided for under other agreements and decisions of Marrakesh;

  • recommendations on possible future work on basis of work programmes indicated at Singapore;

  • recommendations on follow-up to the High-Level meet on LDCs; and

  • recommendations arising from consideration of other matters proposed and agreed to by Members concerning their multilateral trade relations.

Issues under the first three had been discussed at earlier informal meetings. But in the last round of these informals (29 January and 2 February) - sandwiched between the manoeuvres to select a Director-General and the "banana fight" - a number of negotiating issues and "wish lists" were put forward by individual as well as groups and sub-groups of delegations, some of them conflicting if not contradictory.

The investment and competition issues (figuring on the Singapore mandated study programmes) as well as issues that the US and the EC have been trying to bring onto the WTO negotiating agenda - labour standards and trade actions for purported environmental protection - figured at this latest round of discussions.

On investment and competition, two WTO working groups are studying the issues and their mandates have been extended, but there are pressures (especially from the EC) for reports from them by July, so that the question whether to take up negotiations or not could be brought up at the 3rd Ministerial, and the issues possibly included in the new round of negotiations.

Package deal

The EC has been promoting the concept of a "comprehensive round of negotiations" with old and new issues. Several of the Cairns Group members, particularly those from Latin America, have "bought" the EC view that for the EC to make concessions on agriculture, it would need to have such new issues on the agenda and a package to emerge.

This prospect of a "package" and a favourable outcome that will include trade concerns and help the export opportunities of developing countries had been held out repeatedly to developing countries in the several GATT rounds of the past, including the Uruguay Round too. But this has resulted at best in marginal advances, not any substantial accords or benefits.

The end of the century may well mark an attempt to repeat this history.

The US - which initially was opposed to a new round with many issues, but wanted to focus on mandated further negotiations on agriculture and services - now seems willing to agree to a comprehensive new round in order to bring labour and environment standards into the WTO (and arm itself with one more discretionary trade-restricting policy instrument). But it has also been indicating that there will be no waiting for all the negotiating issues to be resolved.

The labour issue is being brought up for some tentative forward steps, like a working group on child labour, to present it in moralistic tones that would make it difficult for developing countries to oppose and block, particularly when the next Ministerial will be held in the west coast of the United States, and US labour and environment groups will mount some pressure lobbying.

The US' need for getting market opening, and its flexing of muscles domestically by wielding threats of the "301 family" of US trade laws, are being presented as necessary to prevent domestic protectionism from rearing its head because of the burgeoning US trade deficits (expected to be $300 billion in 1999).

Paeans to liberalization

And "liberalization" is being pushed on developing countries as being "good" for their economic growth and development.

While the financial crisis, which has spread from region to region, appears to have made developing-country finance ministries and many mainstream, even establishment, economists begin to rethink their postulates, it does not appear to have percolated to their Geneva trade delegations.

And even in finance ministries, thinking still seems to be dominated by the ideological theories that "liberalization" is good under any conditions and that similarly foreign investments are good for developing countries under any conditions, and will bring about "economic efficiency" and development.

Also cherished in finance ministries of developing countries is the view that FDI flows are different from other types of capital flows (short-term flows, portfolio investments, bank loans and funds raised by bonds) - even though there is now a considerable body of literature, even in Fund-Bank staff papers, on how, in a (financial market) world of over-the- counter (OTC) derivatives, the distinctions between various types of capital flows are at best fuzzy and often non- existent.

But whatever the new questions and doubts elsewhere, trade ministries and their officials here have swallowed lock, stock and barrel the Heckscher-Ohlin and Samuelson theories of trade and welfare for all. The former postulates that the relative proportion of factors of production in every country determines the export and import trade patterns. The Samuelson theory predicts that free trade would equalize real factor prices among different countries, and if there be free trade, wages in developed and developing countries would eventually converge and there will be prosperity and welfare for everyone.

And Samuelson's theory assumes, among others, that trade is between two countries, that there are only two goods and two production factors, with different distribution in the two countries, that there is perfect mobility of goods (with no tariffs, trade controls or transport costs) and that there exists perfect competition in domestic economies.

The Heckscher-Ohlin and Samuelson theories remain theories, and are at best an approximation to half-truths in the experience of some developed countries. But under the neo- liberal theories, including the "liberalization" and "globalization" ideology, with its extreme manifestations of total liberalization of trade in goods and services and of capital flows, they have become self-evident truths needing no proof from empirical studies and "facts" to back them up.

However, Mr Jose Serra, a Brazilian economist who has held economic positions in the Brazilian government and is now Health Minister, in an article (November 1998) in the Sao Paulo journal Folha de Sao Paulo, points out that the concrete experiences of the 1990s have clearly falsified the premises of this thesis.

"The first, that abundance, liberalization and deregulation of capital movements would continuously increase investment and growth rates in emerging countries, have not been confirmed so far. No mechanism exists to ensure that freely moving external capital will be allocated to new and better, from a sustainable development point of view, investment projects."

"The second premise," Serra noted, "was that portfolio diversification worldwide would produce stability, as there always will be some markets expanding and others falling, and increasing information and transparency in all economies would help to guide investment activity while making it less risky. But in practice this stabilization did not materialize, as investors in emerging countries act as herds of gazelles. It is sufficient for one of them to be scared by the appearance of a (predator) feline to provoke a generalized stampede."

Interestingly, at a private consultation meeting convened by the UNCTAD Secretary-General in the first week of February on "Globalization and Sustainable Development", several academic experts suggested that there is no evidence that FDI promotes development, and consequently research, backed by empirical studies in various developing countries, would need to be undertaken for any such conclusion to be drawn.

Within the WTO

Many of the views and positions taken by delegations at the WTO preparatory process meetings appear to be heavily coloured by the neo-liberal dogma and false premises. All WTO meetings, formal and informal ones, are held in private, and while some minutes are drawn up by the secretariat, there is no way that the public of various countries (and, for that matter, even governments and their various sections) can figure out whether their delegates were present at all times, what views they expressed and which ones they dissented to, or whether they had made some general statements that could be interpreted as supporting "consensus" ala WTO - "those present not formally objecting", but with no record or quorum count to know who were actually present.

Various presentations inside the WTO process, as well as pronouncements by high personalities, suggest that the "new round", if launched, is going to once again involve demands on developing countries to "open up" their markets and "liberalize" their imports of goods and services, and "disarm" themselves of domestic policy instruments, so as to facilitate the investment strategies of transnational corporations.

These public pronouncements include those of US President Bill Clinton in his State of the Union address, US Trade Representative Charlene Barshefsky before Congress as well as at the Davos symposium and elsewhere, as well as other US establishment figures and the EC Trade Commissioner Sir Leon Brittan.

The US unilateralist trade moves and retaliation threats against trade partners - whether on the banana and beef-hormone disputes with the EC or others - and even more, the announcement that the "Super 301" provisions of the US trade law would be reinstituted by executive order, and the justifications advanced by officials and the US media point to the prospect that the threat of protectionist pressures and actions at home by Congress is going to be used to get trade concessions from others.

A former negotiator and veteran trade observer from India, Bhagirath Lal Das, in a communication recently noted the hectic pace of formal and informal meetings and wondered whether the trade ambassadors, particularly those of developing countries, have the time to read up and focus on the substantive questions raised by the same old issues, dressed up as new and brought up by the major industrialized countries.

According to some participants at these informal meetings, developing countries have been mostly reacting to proposals of others - and often it is difficult to make out whether it is on the basis of considered policies of capitals or on-the-spot reactions of negotiators here.

And if the developing countries went into the Uruguay Round unprepared and disunited, they now seem to be in a worse position - with little evidence that a coherent policy and strategy is being evolved in national capitals, even of the major developing countries.

While the interface and links between the traditional "trade" policies and sectors, and macroeconomic (monetary and financial) policies and sectors are preoccupying academics and policy-makers, in most developing countries policy formulation still appears to be compartmentalized, with turf battles among competing ministries.

High gear

The WTO machinery itself is cranking into high gear to present the trade agendas of Washington and Brussels as beneficial to the developing world, and especially to the non-governmental environmental and development groups, through a process of "co- option" and "gradual opening up" to civil society, through briefings and publication of panel rulings, and perhaps the opportunity to present amicus curiae briefs.

However, at a meeting between the WTO head and some NGOs in the first week of February, two prominent NGO representatives from Africa and Asia made clear that they would not be impressed by such tokenisms, but demanded "transparent" and "democratic" decision-making processes at the WTO, so that the public in each country would know some months in advance what was sought to be negotiated so that they could influence their own governments, find out whether the government representatives were in fact present to make the views clearly known and take a stand, and make them "accountable" in their own countries. (Third World Economics No. 204, 1-15 March 1999)

The above article was originally published by the South-North Development Monitor (SUNS) of which Chakravarthi Raghavan is the Chief Editor.