Nothing to Gain, Everything to Lose

Mar 09

The negotiations leading up to the World Trade
Organization (WTO) Ministerial in Hong Kong are apparently getting
nowhere. The draft ministerial reports on the state of negotiations in
agriculture, non-agricultural market access, and services are out, and
while all try to put a positive spin that there is a movement toward
"convergence" there is very little of that. A close examination of the
document shows that there is agreement only, on at the most, 10 per
cent on key negotiating points and divergence, indeed, wide divergence
on 90 per cent. When the draft ministerial declaration does come out,
it is likely to be what the WTO secretariat calls a "heavily bracketed"
document like the draft declaration for the Seattle ministerial.

Defensive Warfare

Since the "July Framework" was rammed through at the
General Council meeting in late July 2004, the developing countries
have been engaged in what might be characterized as defensive warfare
at the WTO. In the three key negotiating areas, services,
non-agricultural market access (NAMA), and agriculture, they have had
to defend their markets from aggressive efforts to further liberalize
them by the developed countries led by the United States and the
European Union. In two of these, NAMA and services, owing to their much
higher tariff levels than developed countries in manufacturing and
industry and preferential treatment for local service providers, they
had everything to lose and little to gain by liberalizing. In
agriculture, they were also on the defensive but at least they could
relieve pressures for further liberalization of their markets by
mounting a counterattack on the massive agricultural subsidies that
have enabled European Union and United States agricultural interests to
dominate and distort global markets.

In the three sectoral negotiations, the most
immediately threat, from the point of view of developing countries, is
the services negotiations. Here, there has been a strong move on the
part of the developed countries to replace the flexible request-offer
approach with one that has a mandatory element. Let me explain briefly:
the negotiating practice in the General Agreement on Trade in Services
(GATS) is that a government is free to request another to open up
several service sectors but the requested government is also free to
offer only those it is willing to open up or even not to make any
offers at all. In the current negotiations, "complementary approaches"
such as "benchmarking" and "numerical targets" have been introduced to
force developing countries to "improve the quality" of their offers,
meaning they must agree to open up more services than they have so far
put on the table in the current negotiations.

In the current draft ministerial text issued by the
chair of the Council on Trade in Services, while the more threatening
approaches of "benchmarking" and "numerical targets" are not mentioned,
at least explicitly, the text endorses a complementary approach whereby
one government or a group of governments may make a specific request to
another government or group of governments to open up one or several
service sectors and the latter would have to "enter into plurilateral
negotiations to considers such requests." As developing countries have
rightly perceived, mandatory negotiations is the first step on the
slippery slope to mandatory liberalization.

In NAMA, there has been wide divergence, and the
Chairman's Progress Report on the negotiations issued 22 November,
2005, reflects this. Neither a formula for liberalizing
non-agricultural tariffs nor the differential coefficients for
developed and developing countries to plug into such a formula (that
would take into account the underdeveloped status of the industrial and
manufacturing sectors of the developing countries) has been agreed. One
disturbing note in the text, however, is its implying that members have
agreed on a "Swiss Formula" for cutting tariffs, that is one that would
require higher proportional cuts from higher tariffs rather than a
"Uruguay Round" formula that would mandate an average tariff cut but
leave a member with the flexibility to spread that average cut
discriminately across the tariff lines, with tariff cuts for sensitive
products being less than for others. Since many developing countries
maintain higher tariffs on many manufactured and other non-agricultural
imports than developed countries, they would be the main losers
whichever Swiss formula is adopted. And this is the reason why,
contrary to the impression left by the text, many are resisting a Swiss
or any Swiss-type formula.

As we have noted, in services and NAMA, it has been
largely defensive warfare for developing countries, with few handles
for an offensive strategy except perhaps for mode 4 in services, which
has to do with the movement of "natural persons" that provide services,
like highly skilled professionals. But even with mode 4, the position
of the developed country governments that they have hardly any
"flexibility" for political reasons (read anti-immigrant sentiment) has
severely limited the possible gains in this area.

EU and US Intransigence in Agriculture

In the agricultural negotiations, however, it has
been a different story. Despite the advantage given to them by the
terms of the July Framework, differences in offers of subsidy reduction
among the developed countries and the ability of the developing
countries to keep the focus on developed country subsidies and market
protection have put the EU and the US on the defensive.

Intransigence in the developed countries'
negotiating positions helped sink the Cancún ministerial in 2003. It
has now become the main sticking point in the lead-up to Hong Kong.
Although the EU is a bad boy – as the US tried very hard to get other
governments to believe at the recent Asia Pacific Economic Cooperation
(APEC) summit in Busan, Korea – it is not the only one. The US's much
publicized offer to cut its overall subsidization of agriculture by 60
per cent was all smoke and mirrors. It was a cut from allowable levels
of support, not from actual, current levels. It would not only have
allowed the current level of government support to continue but
provided space for it to rise!

Moreover, the US proposal would leave the system of
subsidization virtually untouched, if not expanded. There were no
concrete commitments to cut food aid, which is really a dumping
mechanism; reduce export credits, which are really a form of export
subsidy; or to significantly trim the "green box" subsidies. And,
indeed, the US continues to press for the expansion of its "blue box"
to accommodate the new round of subsidies for farming interests
legislated by the Bush administration under the 2002 US Farm Bill.
These two "boxes", which were institutionalized during the Uruguay
Round, exempt—for specious reasons-various kinds of dumping-promoting
subsidies from elimination or significant reduction.

Why are the US and the EU finding it so hard to make
serious offers? Because the Agreement on Agriculture (AOA) was never
meant to promote fair trade in agriculture but to regulate the
monopolistic competition between the US and the EU to dump their goods
in third country markets while making cosmetic cuts in domestic support
to legitimize the process. The main aim was to open up and regulate
dumping in developing country agricultural markets, never to end
developed country subsidies. So even if the US and EU were now to make
"better" offers than those they have tabled, it is very unlikely that
these would make any but the slightest dent on their systems of massive
subsidization.

Kabuki?

So with no movement in agriculture, are we caught in
a stalemate leading up to Hong Kong? I wish this were so. But what many
fear, in fact, is that the EU-US competition on who can make a better
offer is nothing but a finely choreographed kabuki play that will end
with them coming up with a compromise formula at the last minute. The
parallel some draw is with the agricultural negotiations in the last
phase of the Uruguay Round when the US and EU went to the brink, from
which they drew back at the last minute by coming up with the current
Agreement on Agriculture, which they then tossed to other countries.
Take it or leave it, they said, but if you refuse it, you'll be
responsible for scuttling the round.

A similar scenario can unfold, warns economist C.P. Chandrasekhar:

"It is precisely [the same] act that is being
replayed. Expectations that the EU would move a little further from its
second offer are high. However, this would ensure that its agricultural
interests would be well looked after and still further demand that
developing countries make major concessions in non-agricultural market
access (NAMA) and services. If they resist the latter demand, the
burden of wrecking the round would be shifted at the last moment onto
the shoulders of developing countries."

And the danger, he notes is that "in the scramble to
get as much as they can without being forced to shoulder that
responsibility, countries like India and Brazil would make large
concessions that hurt not just their own producers but those in Africa
and elsewhere." Indeed, many are worried that the Brazilians could sell
the store with a commitment from the EU on an explicit schedule to
phase out export subsidies and the Indians for a commitment from the US
to marginally increase HB1 work visas for Indian high-tech specialists.

There is, in fact, now talk of stretching the
deal-making process beyond Hong Kong to ensure that there will be an
agreement and a triumphant conclusion to the so-called Doha Round. As
Celine Chevariat of Oxfam describes it, what influential actors are
talking about is a "one-third of an agreement in HK and four month
postponement for final conclusion of modalities" in another ministerial
before the middle of 2006. In my view, the "one third" agreed in Hong
Kong could well be a services agreement that endorses the
"plurilateral" approach, with the two thirds, mainly agriculture and
NAMA, concluded later in the second ministerial.

Indeed, even if the only outcome of Hong Kong or a
"Hong Kong Plus" process is an agreement based on the current services
draft, that would already be a big win for the trading powers and a big
setback for the developing countries. Aileen Kwa of Focus on the Global
South warns that the plurilateral approach legitimized by a services
agreement could be easily turned into formal sectoral negotiations with
a strong momentum for liberalization that could begin immediately after
Hong Kong, much like the negotiations on telecommunications and
financial services were quickly formalized into sectoral negotiations
after talks on a plurilateral basis in these sectors were endorsed in
1997.

In short, to sum up the state of play in the WTO,
developing countries have everything to lose and nothing to gain with a
new WTO deal, whether that deal is concluded in Hong Kong or a more
protracted, extended "Hong Kong Plus" process.

The Bigger Problem

But the problem lies not only with the current
negotiating process that has been imprisoned within the so-called July
Framework. The problem is more fundamental: the WTO's structure, rules,
and processes are systematically biased against the interests of
developing countries. It has taken developing countries 10 years to
learn them, but there are four reasons why the WTO, to borrow the title
of the Focus on the Global South video, is really bad for the global
South:

First, trade liberalization is the raison d'etre of
the WTO and it is increasingly evident that greater economic
liberalization has had exactly the opposite results to those predicted
by free traders.

After 20 years of structural adjustment and other
radical pro-market policies in the developing countries, there are more
poor people in the world today than in 1985. There is much more
inequality both within and among countries. The areas of the world that
adopted pro-market policies most wholeheartedly—Latin America and the
Caribbean, sub-Saharan Africa, and Central and Eastern Europe—saw their
numbers of poor people increase significantly. Indeed, massively in the
case of the former poster boy of neoliberalism, Argentina, where 53 per
cent tumbled below the poverty line, with 25 per cent defined
"indigent", following the economic collapse of 2002.

A reduction in poverty was mainly registered in East
Asia, where integration into the global market was managed by strong
states like China and South Korea that, in most instances, applied an
anti-free trade formula protectionism at home and mercantilism abroad.
But even in this region, there were countertrends, as in Thailand and
Indonesia, where International Monetary Fund (IMF)-supported capital
account liberalization provoked the massive Asian financial crisis that
drove more than one million Thais and more than 21 million Indonesians
below the poverty line in the space of a few weeks in the summer of
1997.

Second, the rhetoric of the WTO may be free trade, but its key agreements promote
corporate monopoly.

If negotiations in agriculture have ground to a
halt, it is because, as we have detailed above, the AoA was never meant
to liberalize global agricultural trade, but to allow the EU and US to
manage their monopolistic competition to dump highly subsidized goods
on third country markets while conceding cosmetic cuts in subsidies to
gain legitimacy for the arrangement.

Like the AoA, there is nothing faintly connected to
free trade in the WTO's centerpiece accord, the Trade Related
Intellectual Property Rights Agreement (TRIPs), which is meant to give
US and other high tech corporations monopoly over technological
innovations through the imposition globally of draconian patent laws
patterned after those of the United States. Indeed, so brazenly
monopolistic in intent is TRIPs that the free-trade partisan Jagdish
Bhagwati has questioned its inclusion in the WTO. This is not to say
that we prefer corporate free trade to monopolized trade (for free
trade is also profoundly subversive of developing country interests),
but to make the point that this fundamental contradiction between
ideological principle and corporate interest that runs like a fissure
through the WTO has been a central reason for its loss of legitimacy
among developing countries.

Third, the WTO is anti-development.

Stampeded into signing on the dotted line in 1994,
it took some time for the developing countries to realize that the
TRIPs agreement practically guaranteed that the traditional route to
industrialization, industrialization-by-imitation, is a thing of the
past; and that the Trade Related Investment Measures (TRIMs) Agreement,
by outlawing development tools such as local content policy, made it
well nigh impossible to use trade policy as an instrument of
industrialization. For most developing countries, the "Doha Development
Round" is a malicious misnomer since it marginalizes the negotiating
areas of greatest concern to the developing countries: reconciling
trade and development, implementation of trade liberalization
commitments made during the Uruguay Round, and special and differential
treatment for developing countries.

Fourth, global trade does not need the WTO.

The indispensability of the WTO to the expansion of
global trade is one of those lies that, as the Nazi propagandist
Goebbels put it, takes on the status of truth when repeated often
enough. A corollary to this is the claim that global trade would fall
into anarchy were the WTO to cease to exist.

Let us set the record straight: global trade did not
need the WTO to expand eighty six fold, from $124 billion in 1948 to
$10,772 billion in 1997! That expansion took place took place under the
old GATT (General Agreement on Tariffs and Trade), complemented by the
United Nations Conference on Trade and Development (UNCTAD). The
flexible GATT-cum-UNCTAD framework permitted the development-oriented
trade policies that enabled Latin American countries to industrialize
from 1950 to 1970 as well the state-led protectionist/mercantilist
strategies that Newly Industrializing Countries (NICs) of East Asia
used to rapidly transform their economies between 1965 and 1995. In
other words, the GATT-cum-UNCTAD multilateral framework allowed
developing countries a significant amount of "policy space" — a
phenomenon reflected in Robert Pollin's finding that, excluding the
special case of China from the equation, the overall growth rate of
developing countries in the era of development (1961-80) was 5.5 per
cent, compared to 2.6 per cent (1981-2000) in the neoliberal era.

So why, if it was functioning reasonably well, was
the GATT-cum-UNCTAD framework superseded? The reason the WTO was
established and its continuing raison d'etre has been to serve the
interests of the transnational corporations (TNCs) that today dominate
the global economy and are constantly seeking to open up markets. To be
more specific, it was the US and its corporations that pushed the
creation of the WTO. With its corporations becoming more dependent on
the global economy by the 1970s, the US led the effort to replace GATT
with an organization with a more formidable trade dispute-settlement
mechanism to tear down protectionist policies; forged an agricultural
trade agreement with the EU that would manage their dumping in
developing country markets; pushed an agreement that would open up the
services of developing countries to TNC exploitation; lobbied for a
TRIMs agreement that would outlaw developing countries' use of trade
policy to industrialize; and rammed through a TRIPs agreement that
would consolidate the US advantage in cutting-edge, knowledge-intensive
industries.

Pushed by their own globalizing corporations, the EU
and Japan went along with the US agenda, while the developing countries
were largely bystanders, preferring as they did the relatively
development friendly framework of GATTS cum UNCTAD.

Yes, the WTO is indispensable…to TNCs. For
developing countries, it has been – to borrow an image from Max Weber –
an iron cage that has robbed them of development space. For them, the
last ten years has been a harrowing experience of being constantly on
the defensive as the WTO process inexorably subordinated development to
corporate trade. To defend their interests, they were forced to
establish blocs such as the G20, G33, and G90, which contributed
mightily to the derailment of the WTO ministerial in Cancún. If the
current negotiations are stalemated, it is because the developing
country blocs have successfully blocked the US's and EU's asymmetrical
negotiating strategy of conceding cosmetic cuts on their massive
agricultural subsidies while demanding damaging concessions from
developing countries in terms of greater market access to their
agricultural, non-agricultural, and service sectors.

Making a virtue out of necessity, partisans of the
WTO have now seized on the emergence of these groupings to argue that
that they enable countries to negotiate on more equitable terms under
the WTO umbrella. The reality is that the deep anti-development bias of
the WTO allows developing countries very limited space to defend their
interests. Certainly, it is not a framework within which they can
pursue a positive development agenda. Indeed, the one good thing to
emerge from their experience of defensive trench warfare at the WTO is
that the developing countries have begun to realize that they need to
come together to create altogether different institutions of global
trade governance from the WTO—institutions that subordinate trade to
development.

The Sixth Ministerial of the WTO may well collapse
in Hong Kong. This will, however, be a positive development. Contrary
to the self-serving doomsday scenarios painted by its corporate
supporters, there is life after the WTO. Its demise would create not
anarchy but policy space for development.

Dracula and the Developing World. The Final Act?

Let me conclude by borrowing an image from one of my
favorite authors, Bam Stoker. The WTO is like his immortal character
Dracula. Every time you think you've killed him, he resurrects.
Following the collapse of the Third Ministerial in Seattle in 1999, the
WTO came back to life with its successful ministerial in Doha, Qatar,
in November 1991. The Doha triumph, however, was followed by the
unraveling of the Fifth Ministerial in Cancún in September 2003. Cancún
was followed by the institutional coup of the WTO General Council in
July 2004, which rammed through the draconian July Framework. Thus the
stakes in Hong Kong are high. Hong Kong may consolidate the WTO as the
engine of global trade liberalization. Or it may prove to be stake that
is driven through the heart of this profoundly anti-people organization
and finishes it off. Permanently.

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