New Internationalist

The poor are stepping up to the trade war

February 1990

The rich world is trying to ditch the poor while world trade binds us closer together. David Ransom explains the conflict.

Punta del Este is an enchanted enclave of fantastic wealth, much of it of doubtful origin. For two months after Christmas every year the doings of the rich and famous fill the media with events few local people will ever witness themselves. For though Punta del Este lies at the heart of Uruguay, it is foreign territory to the people of that country. They live in a land wrecked by the progressive collapse of its foreign trade in wool and meat over the past 30 years. A uniquely gentle, progressive society, where nothing much ever happened, fell to tyranny, torture and impoverishment as a result.

I visited relatives in Uruguay in 1987, as unaware as anyone else that, the year before, the functionaries of world trade had repaired to Punta del Este, there to launch the 'Uruguay Round' of the world's most important trade negotiating body, the General Agreement on Tariffs and Trade (GATT). No doubt the intention was commendable - the notorious 'Rich Man's Club' that is GATT had finally made it to the Third World. But by the time the Uruguay Round of negotiating is completed at the end of this year, all the signs are that it will have addressed itself no more closely to the real challenges facing world trade than those visiting functionaries had to the fate of the Uruguayan people in 1986.

How to get a handle on trade? How to rescue it from the doldrums of public interest in which it has languished for so long? Try this. Try thinking of the global economy as an organism. Its brain and nervous system, exercising the power of decision, are capital and finance. The muscle is our labour. Trade is its bloodstream, sustaining its life, supplying its limbs with energy - but carrying infection too if the organism becomes diseased.

Two of the features of this global organism stand out. The first is its astonishing growth. This growth has for the past 200 years nourished itself on a suitably mundane food - industrial manufacturing. The centre of this manufacturing has shifted constantly, from Britain to the United States to Japan and West Germany, but its tentacles have spread, since the last World War, to places like Hong Kong, South Korea, Taiwan and Singapore. Now Thailand, Malaysia, Morocco and tiny Mauritius are joining in. Giants like Brazil and Mexico have been trying for some time to get in on the act. By the end of this century, India, Pakistan and China may be with them too, hitching up one-third of the world's population. And, increasingly, what links these places together within a single, 'global' market, is world trade.

The second feature of the organism is an aspect of the first. For although industrial manufacturing and world trade generate enormous wealth, they also devastate large sections of the populations over whom they hold influence - from the urban slums of nineteenth century Britain to the pervasive poverty within and around the industrial cities of today. Here, as elsewhere, they prey upon those whom they exclude.

GLOSSARY
GATT - General Agreement on Tariffs and Trade.

GNP/GDP - Gross National Product/Gross Domestic Product. GNP measures the total income, whether at home or abroad, of residents of a particular country. GDP excludes income from abroad.

GSP - Generalized system of Preferences. Instituted by GATT in 1968, giving some Third World goods preferential treatment.

ICA - International Commodity Agreement. Agreements among producers to limit production and force up prices. Most have now collapsed.

LOME CONVENTION - Originally signed 1975, renewed 1979 and 1984, due for renewal 1989/90. This regulates the trade access to European Community of 60 African, Caribbean and Pacific (ACP) countries, mostly former colonies.

MFA - Multi-Fibre Arrangement. Established in 1974 to protect rich countries from Third World competition in textiles by limiting imports. Due for renewal in 1991.

MFN - 'Most Favoured Nation' Each member of GATT must treat other members as well as its most favoured trading partner.

NICs - Newly Industrializing Countries such as Taiwan and Singapore.

TRIPs - 'Trade-related aspects of Intellectual Property protection', e.g. computer and pharmaceutical technology, counterfeit goods. A current pre-occupation of GATT.

TRIMs - 'Trade-related Investment Measures', or how investment policies and aid are sometimes secretly used to promote national trading interests.

UNCTAD - United Nations Conference on Trade and Development.

According to the World Bank, 'some 60 low- and middle-income economies have suffered declining real GNP per capita in constant prices'.¹ Translated, this means that half the countries in the world are getting poorer. They are scarcely participating in the global economy. They have escaped the political, but as yet not the economic, bonds of the traumatic colonial era, when the sense of the world as one place first began to grow. What characterizes these colonial bonds is reliance upon the export of primary commodities (the things that go to make other things).

Everyone knows perfectly well that dependence on primary commodities is not good for your economic health. The natural resources of your country disappear with the minimum possible benefit to you. Once commodities reach world markets, they are subject to wild price fluctuations and speculation, making it impossible to plan. And, over time, the value of primary commodities just keeps on falling, relative to other prices. If you want to make a real profit you need to be in the business of manufacturing, of converting raw materials into marketable finished goods.

All this has been known for a very long time, and certainly since the Great Depression of the 1930s. When recession hit the world economy again in the early 1980s, commodity prices plummeted once more. Countries that still depended upon them for their economic life found the only, readily available alternative was to borrow to make up the difference. So, to a greater extent than is generally recognized, the commodity crisis led to the 'Third World Debt Crisis'.

The debt crisis may eventually be overcome. But, unless something radical happens soon, the problem with commodities will remain. So the commodity-dependent Third World countries struggle on, slowly dying, infected rather than nourished by the arteries of world trade.

But if the global economy is indeed a single organism, this decay of almost half its form threatens the life of the whole. It is a cancer. And it is driving people in despair to destroy the very planet on which they, like the rest of us, depend.

What is new, and truly alarming, about the current situation is that one half of the world is trying to cast off the other, like a reptile shedding its skin. The poor have come to seem dispensable to the rich. As one commentator put it, after the almost manically 'up-beat' annual gathering of the World Bank and International Monetary Fund in Washington last autumn: the big industrial nations have convinced themselves that they have done all that they can'.2

What, then, has GATT got to say on such topics? Pick up its latest Annual Report and you find expressions of regret but absolutely no practical proposals to meet the real challenges facing world trade. You get TRIPs and TRIMs (see the Glossary below), but no suggestions whatever, not even of the most reactionary kind as to why this glistening 'engine of growth' has so patently failed to couple itself up to the needs of more than half the globe. Even the ice-cream trade between Canada and the US can generate more heat at GATT than the prospect of another decade as disastrous for the Third World as the last one.

GATT was founded in January 1948. The original intention had been to set up an International Trading Organization as a specialist agency of the United Nations. But the dominant industrial nations, flushed with victory in the War, decided to keep the rich pickings of trade to themselves. Only 23 countries, those 'responsible for most of the world's trade', many of them with colonies still in tow, signed the original agreement.3

It was a very clever fix. The basic principle was that each 'contracting' country had to offer all the other contracting countries the same terms as the 'Most Favoured Nation' among its trading partners. This would prevent a return to the disastrous 'dog-eat-dog' protectionism of the 1930s that brought mutual ruination to the rich and led to war. By and large it has succeeded in this aim, and we should be grateful for that at least.

But it was a strictly business deal, a bargain that's been kept unchanged ever since. As Mr Arthur Sunkel, Director-General of GATT, recently told a gathering at the Wharton Business School in the US: 'GATT's future will depend mainly upon whether its activities benefit, as they have until now, the business community, who are the actual users of the trading system. This is the link between GATT and the "real world".'4 The real world of the peasant or the shanty town remains way out of sight, out of mind.

Nor must you go away thinking that GATT's stance against protectionism, its advocacy of free trade, is born of principle. On the contrary, its industrialized member countries operate tariff and quota systems that discriminate against imports of cheap manufactures from the Third World. So long as only countries outside the 'club' suffer, that's OK by GATT.

A clean-up for world trade is long overdue.
Photo: Claude Sauvageot

The net effect on the poor is to discourage them from trade in manufactured goods. They are encouraged instead to produce those primary commodities, like coffee or mineral ores, for which there is either no substitute or no competition in rich countries. In other words, this system seeks to maintain the old colonial order, in which the poor produced primary commodities and bought manufactured goods in return. It is precisely the reverse of what is really required.

So blatant was this fix that the United Nations decided to establish its own Conference on Trade and Development (UNCTAD) in 1962. By 1968 it had convinced GATT to introduce a Generalized System of Preferences giving better treatment to at least some of the Third World's manufactured goods. But even today this System covers just 11 per cent of total imports by the rich from the poor.5

UNCTAD spent the better part of the 1970s and 1980s trying to establish a Common Fund for Commodities. The idea was to create a fund to stabilize commodity prices. Because neither consumers nor producers like speculation and price instability, this seemed like the most obvious area of common interest between rich and poor. But no. The Common Fund only came into being in 1989: too small and poorly supported to stand much chance of influencing commodity markets at all; too late to avoid the catastrophic collapse of commodity prices in the early 1980s.

Marginalized by GATT, UNCTAD has been undermined and discredited. It spends $36 million on its offices and staff, and just $1 million on 'programmes to promote and expand world trade.6 I recall how in 1972 UNCTAD gathered in Santiago, Chile, where I was a student at the time. Natty little machines zipped up and down the streets of the city centre painting new white lines in honour of the visiting dignitaries. A protest demonstration outside the specially constructed, earthquake-proof conference centre resulted in tear gas being sucked into the air-conditioning system and the functionaries of world trade making a rare, unscheduled and inarticulate appearance on the streets of Santiago. Nothing much is remembered of what the conference was about. The conference centre itself became a landmark of a sort - as the government seat of the Pinochet dictatorship.

In the absence of any meaningful intervention by the UN, there is no-one working to promote a genuine, global approach to critical questions of world trade. What makes the situation so intolerable is that the way forward has been known and clear to everyone who has cared to look at it for decades.

A genuinely global approach to world trade would, first and foremost, seek to enhance the ability of poor countries to develop their manufacturing industry, selling on world markets. This would involve the kind of initial protection always required for 'infant industries'. Every single country that has ever launched itself successfully into industrial manufacturing has always had to do so, initially, behind some kind of protectionism - Japan preserves this approach to the present day. Yet GATT requires of the increasing number of poor countries seeking membership in desperation, that they disavow all forms of protectionism.

Once manufacturing had been made easier for the Third World, it would be possible to return to the issue of primary commodities. Not many people, and certainly not those of us who like coffee but could never grow it in our own back gardens, would seriously suggest that Central America, or Africa, must stop producing coffee altogether. Apart from anything else, that would be to revert to the sort of prescriptive arrogance that has so bedevilled development.

But the total dependence of many countries on primary commodity exports has to be reduced - and if the leap to manufacturing were made easier, this could at last happen. The cut-throat competition between commodity producers could be halted and perhaps even reversed. And an effective Common Fund for commodities might then become a practical possibility.

Sensible trade arrangements would feed into, rather than subvert, the more vigorous economic aid that is still essential for the poorest. Perhaps then the rich would finally get out of the habit, born in the nineteenth century, of giving with one hand and taking away with the other, transforming one half of the world into a gigantic object of charity in the eyes of the other.

But who would be launching this Trade-Related Action Programme (in a world obsessed with acronyms, why not a TRAP to join the TRIPs and TRIMs)? The truth is that both GATT and UNCTAD are a compromised part of the post-War settlement and have proved unequal to the task. They have failed to mobilize the internationalist potential of world trade and left it as a monument to inequality and inhumanity. They have to go.

Now that the end of the Cold War is in sight, and even the most 'cautious' of the protagonists on the world stage are talking of tearing up the script and starting again, the time may finally be right for a United Nations International Trading Organization. That in itself would take us a step closer to the United Nations we really deserve, one that would be a political match for the power of the global economic organism. The end of the East-West divide could also be a unique opportunity to bridge the North-South chasm.

This is not a fail-safe route out of the disgusting poverty that wrecks the lives of so many of us. But nor is it an invention of idealism - it is to some extent already working. Let us not forget that immediately after the last World War, the two most successful economies of today, Japan and West Germany, were among the most devastated places on earth. Both have become prosperous by manufacturing for world markets. So too have the Newly Industrializing Countries - and one of those, South Korea, was also destroyed by a terrible war no more than 30 years ago.

South Korea and Taiwan were probably helped along the way by strategic US aid in the 1950s. Hong Kong, Singapore and Taiwan again perhaps had a kick start from rich people fleeing revolutionary China with their capital. This shows aid and investment can change things. But the real lesson of the Four Little Tigers is that there are chinks and openings in the Great Wall of world trade waiting to be exploited. Poverty can be overcome.

The poor are stepping up. The means for them to do so are available, but the functionaries of world trade and rulers of rich nations do their best to hold them out of reach. When you become aware of this, the present state of affairs seems all the more intolerable. That is why it is in the interests of the powerful that you ignore world trade, that your eyes continue to glaze over at the mere mention of the words. Trade wars are for real but, invisible as it may be, knowledge could be the weapon that decides their outcome.

1 World Development Report 1989, World Bank.
2
Financial Times. UK, 27.10.89.
3
What it is. What it does, GATT, 1989.
4 GATT Press communiqué. 19.10.89.
5
History of UNCTAD 1964-84, UNCTAD, Geneva, 1956.
6
Lords of Poverty. Graham Hancock, 1989.

This special report appeared in the the poor step up - trade wars issue of New Internationalist. You can buy this magazine or, to get stories like this one through your door every month, subscribe.

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