WTO hijacked by big corporations, South the victims

by Martin Khor

Penang 29 July -- The professed basic objective of the World Trade Organisation is to remove distortions to free trade by lowering trade barriers and ending discriminatory treatment in international trade relations; but, ironically, the WTO and the multilateral trading system it represents are in danger of being hijacked and distorted by narrow but powerful commercial and sectarian interests, and the developing countries risk being victims of this trend.

This major concern was voiced in various ways by distinguished members of what is known as the "trade community", including present and past leaders of international organisations, trade diplomats, lawyers and experts, at a seminar last week in New York. Organised by Prof. Jagdish Bhagwati and sponsored by the Columbia University Law School, the seminar focused on the Seattle Ministerial meeting of the WTO and the proposed new round of trade negotiations.

A remarkable feature of the seminar was the proliferation of warnings, direct or subtle, about the present direction of the WTO system that came from such prominent trade experts as former Director General of GATT Arthur Dunkel, OECD Secretary General Stanley Johnston, UNCTAD Secretary General Rubens Ricupero, as well as Bhagwati himself, an economics professor at Columbia and a leading free trade advocate.

Many of the experts were worried about how governments of the dominant trading countries were being overly influenced by the narrow commercial interests of their large corporations, which are now in the driving seat of defining trade policy.

They were also concerned about the reactions of civil society to this type of corporate-led globalisation. Labour unions, environmental groups and NGOs were seen as clamouring to get their social and environmental issues into the WTO system and its dispute settlement system, on the ground that if the companies can get their agenda in, so too should civil society.

Several participants feared that if most of the proposed new issues entered the WTO through the Seattle Ministerial Conference, the developing countries, with little negotiating power, would be the victims and would further question the benefits to them of the trading system.

At a luncheon talk, the OECD chief, Stanley Johnston, warned about how narrow interests in industrialised countries were pushing developing countries to liberalise before they could adjust.

He said there were varying capacities among developing countries to reap the benefits of liberalisation and even to negotiate in a new Round. He recognised that there were different interests and stakes in a new Round, between the developed, developing and least developed countries.

At the OECD, he said, there is discussion of an ambitious and balanced Round. He noted, however, that there was a distinction between vested interests and national interests in the making of trade policies. In the industrialised countries, Johnston said, policies are sometimes being driven by narrow commercial interests, rather than national interests.

As a result, he added, developing countries are being pushed to open up their economies before they can adjust. "The liberalisation of trade and investment must be on a sustainable basis, and this depends on the capacity of countries to absorb and reap the benefits of liberalisation." He urged countries to "rise above vested interests" in trade negotiations.

Johnston also said that the developing countries were worried that the new issues being proposed by the industrial countries would "displace" the issues that they (the developing countries) were raising about the problems of implementing their existing WTO commitments. The discussions on implementation problems may not go ahead as they should.

The OECD chief added that integration of developing countries into the trade system should be the priority, and therefore developed countries should be worried about the effects of their policies on the developing countries.

Calling for a "Development Round", he said this would be in the enlightened self-interest of the North.

Noting that trade and investment liberalisation was not enough, Johnston said complementary policies were needed in developing countries. To reap the full benefits, liberalisation must be accompanied by macroeconomic policies, capacity building, good governance, improved skills and education.

He emphasised again that trade negotiators must shake off the influence of vested interests if they are to act in the best interests, and that this is a critical point.

"Too many sectors of society are being left behind," he concluded. "Public policy has a role to play to offset this. We don't want a world divided by ideology or poverty."

In a dinner speech, Arthur Dunkel dwelt on a similar theme. The former GATT chief (who was director general during much of the Uruguay Round) recounted how he had recently chaired an International Chamber of Commerce meeting on the views of business on the new Round. He was struck that the views of the business leaders reflected the same views as their governments in trade negotiations.

This led him to the question, "who is driving the process in trade policy -- governments or the business community?" Whatever the answer, said Dunkel, (the perception) that there is collusion between governments and business is the explanation behind the aggressive stance taken by NGOs against the WTO.

Dunkel added that these groups say they have no other way to bring their views forward, and the prominence they enjoy in the media reflects the growing public fear that decisions in the WTO intrude into the lives of citizens, but that citizens have not found a way to influence the WTO decisions.

Dunkel recalled that during the 1998 WTO Ministerial Conference in Geneva, he had listened to the response of local people to the NGO demonstrations against the MAI and the WTO. To his surprise, the people in the pubs combined the feelings of anger (that their city had come under seige) and sympathy.

"To my surprise I found sympathy," he said. "For what? For the people who dare to challenge globalisation personified by the WTO which has become the scapegoat for each problem of our society."

This, he said, testified to the failure of the political system to carry messages to reconcile the advantages and disadvantages of globalisation. This message had to be addressed through explanation and education.

Dunkel also dwelt at length on the problems facing the more than 30 countries negotiating entry into the WTO. He said that for all of them, this accession process is a challenge.

But what do these countries see is happening in the WTO, Dunkel asked. Firstly, they see resistance to a new Round since developing countries are still to digest their Uruguay Round obligations. Secondly, they see that a number of countries are pointing to lack of benefits from the implementation of the Uruguay Round.

At the same time, he said, they see developed countries making use of legal cover to cater to protectionist lobbies, for example in textiles and agriculture. "What an irony!" remarked Dunkel. They also see some developed countries involved in disputes that make the headlines.

Dunkel said the countries seeking accession are being asked to subscribe to the highest standards of the system across the board. Otherwise they cannot enter the WTO.

He recounted how one country seeking accession had listed all the deviations practised by all WTO members and compared this to the equivalent exceptions to the protocols.

"I wonder how prospective members will be able to get the consent of their constituencies for the concessions being asked from them," he said, adding that the conditions would require drastic changes in their macroeconomic frameworks.

Dunkel proposed that the WTO members should review their approach to acceding countries, saying that there should be a more "tailor-made approach" towards each country.

As for the Seattle Conference, Dunkel said, the priorities should be: (a) a review of the procedures of the accession process to assure the universal character of the WTO is achieved; (b) emphasise issues that benefit developing countries; (c) examine steps to improve transparency and understanding of policies; and (d) reverse the erosion of the Uruguay Round commitments. These, he said, were pre-requisites of the multilateral system.

In his view, looking at the proposals being put forward in Geneva, negotiators may fall into the trap of overloading the next Round, since subjects not related to the system are being taken on board just to get a consensus.

He recalled that an enormous amount of time had been spent on the modalities of the agriculture, services and TRIPS agreements, and suggested that future negotiations should start in these areas, as well as with tariff issues. He said some issues of the Uruguay Round also need to be reviewed, such as the dispute settlement understanding and anti-dumping.

On investment, he was of the view that although trade liberalisation and FDI flows may be complementary, "we are still suffering from the MAI syndrome and need time for the dust to settle first."

Environment and labour standards need to be approached horizontally, in each area of competence of the WTO.

But, he warned, the WTO should not be overloaded. Members must distinguish between issues that were "ripe for negotiations" (for example where the modalities had been worked out) and subjects that could come under further discussion.

What was then realistic for Seattle was the built-in agenda and tariffs, concluded Dunkel.

The credibility of the new Round depends on a reassessment of the behaviour of governments since the end of the Uruguay Round as this had been far from perfect. A review should thus be made in a number of sectors, such as the DSU and anti-dumping.

In a luncheon address on another day of the seminar, UNCTAD Secretary-General Rubens Ricupero said there is not much excitement among developing countries in Geneva for a new Round. In fact, there is hardly any excitement anywhere in the world for a new Round, except in the "trade community."

Developing countries are facing serious challenges, including economic crisis, the revival of protectionism, and the gap between the promise and reality of liberalisation.

The Asian and now global crisis had hit the most advanced and integrated countries, raising doubts whether development reduces the vulnerability of economies to external risks. The current account balance in these countries had been achieved by the worst means, through depression of economic activity and cuts in imports of up to one third in the affected five Asian developing countries and by 10 percent in Japan. The same pattern was now taking place in Brazil and Latin America. Are they prepared for trade negotiations in the midst of such crisis, asked Ricupero.

Developing countries, he added, had tried to integrate into the world economy.

"But the love affair of developing countries with world trade is like the chronicle of unreciprocated love."

Many developing countries are now more committed to the trade system than developed countries, where the choice of unilateralism existed. "But whatever the theoretical benefits of trade liberalisation, the empirical record is otherwise."

Ricupero said the expansion of imports was not matched by exports for many developing countries, saying this was especially true of Brazil and other Latin American countries.

The average trade deficits (of developing countries) in the 1990s was higher than those in the 1970s by 3 percentage points of GDP. This was very striking in view of the structural reforms in the past decade in developing countries.

Ricupero said that since the mid-1980s the developing countries had undertaken rapid trade liberalisation due to structural adjustment conditionality and the emergence of trade laws.

There was an asymmetry in the pace of trade liberalisation between developing and developed countries. For example, Latin American exports to Europe grew only 29% in the 1990s but European exports to Latin America rose 164 percent.

Keeping in mind these facts, said Ricupero, the majority of diplomats from the South looked at the Millennium comet with resigned fatalism and not enthusiasm.

Developing countries are stressing that the Uruguay Round and its implementation did too little for developing country exports. The new WTO rules (for example in TRIPS) are for the North's advantage but issues of the South such as special and differential treatment is not treated as priority. And the countries of the South also lacked the resources to use the WTO and its dispute settlement mechanism for their own interests.

Ricupero suggested a positive agenda for developing countries which would place all issues of the WTO in terms of development priority.

In concrete terms, he said, developing countries expect in future trade negotiations more market access, as there were still significant barriers in the North to exports (both industrial and agricultural) from the South; removal of high tariff protection in the North, which is needed to give credibility to the trade system; duty free access for LDC products; and action against abuse of anti-dumping measures especially in relation to export products of developing countries.

Ricupero added that in agriculture exports of the developing countries were being hindered by export subsidies and tariffs in the North.

Could developing succeed in their quest?

Posing this question, Ricupero answered: "when all is said and done, negotiations take place in the real world of power relations where there is the use of market power. Some developing country diplomats think this is a losing battle. I am aware of the pitfalls of the exercise. We could then have a Round where developing countries cannot have the exports to pay for their imports."

Ricupero said in order for this not to happen, there should be a Development Round where the real focus is on the industrial countries opening up their markets to the products of developing countries. (SUNS4488)

The above article first appeared in the South-North Development Monitor (SUNS) . Martin Khor is the Director of Third World Network.

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