New Internationalist

So, what’s to be done?

Issue 388

Quick answer: plenty. For more, read on…

Enough problems! What about the solutions?

First, let’s junk the mythical formula that goes: freer trade = economic growth = less poverty. It’s a hugely popular one, trotted out with eager regularity by the IMF, World Bank, WTO and politicians of various persuasions.1

But the link does not stand up to scrutiny. In several countries in Latin America and sub-Saharan Africa, the contrary is the case. Peru, Haiti and Kenya, for example, have seen poverty and inequality deepen as they have opened their markets.

When scrutinized by leading US economists Dani Rodrik and Franciso Rodriguez nothing conclusive could be found linking market opening with economic growth and poverty reduction. In fact, they could not even find a link between market opening and economic growth.2

Kamal Malhotra, senior policy adviser on globalization at the United Nations Development Programme says: ‘The studies that say high trade equals high growth are flawed. The only connection is that countries tend to dismantle their trade barriers as they get richer.’3

Industrialized countries all developed behind high tariff barriers. When they had become rich, it was in their interests to lower tariff barriers in exchange for greater access to foreign markets.

This is at the heart of the matter. Today’s industrialized countries would never have been able to prosper had they been subjected to the same rules that they are now forcing upon poorer countries.

Up with autonomy

Developing countries must have the right to make their own democratic decisions about their economies. Each country needs to be able to do what’s best to tackle poverty. It may, for example, need to adopt policies to protect its agriculture or fisheries for reasons of food security and employment. It may need to place limitations on foreign investment. Or it may need to raise imports tariffs to help fund public services like health or education. All such measures are severely restricted under current free trade rules.

Nations must not have privatization and liberalization forced upon them, whether by WTO rules or as part of an IMF or World Bank package. Or, as sometimes happens, in response to threats from rich countries that they will withdraw aid.

Industrialized countries, too, should be able protect what their societies have decided is important. Perhaps they want to ban the import of goods made with forced or slave labour from Burma. Maybe they want to restrict imports that are especially polluting – such as certain types of oil from Brazil or Venezuela. Or they might have health reasons for restricting the import of beef pumped up with growth hormones. In such disputes, the WTO currently has the final word and the power to rule against such objections in the name of ‘free trade’ – as it did in all the above examples.

Get real

Time and again we hear from trade policy wonks, politicians and even some aid agencies, that what poor countries really need is access to rich-world markets. To get this access they need to be prepared to open their own markets. That’s reciprocity. The gains of a larger market share might be considerable for people in poor countries. Oxfam famously predicted in a 2002 report that if Africa, Asia and Latin America were to increase their share of world exports by just 1 per cent 128 million people would be lifted out of poverty.4

But others believe market access is ‘vastly oversold’. ‘It’s a kind of mythical beast,’ says Clare Melamed of Christian Aid. ‘The poorest countries do not have stacks of goods that they are just waiting to sell.’ In fact they often lack the capacity to produce on a large scale – especially if their local fledgling industries have collapsed thanks to cheaper imports and lack of capital.

One of the main selling points of free trade is that it boosts efficiency, because it encourages countries to concentrate their efforts in areas where they have the ‘comparative advantage’ or ‘edge’. Less efficient or competitive sectors are allowed to die.

As economist Joseph Stiglitz points out, this model assumes a ‘perfect’ market with full employment. Even rich industrialized countries may lack these conditions – for poorer countries it’s a fantasy.5

Say an ‘inefficient’ soap factory goes bust in Malawi because, thanks to liberalization, imported soap is cheaper than the home-produced variety. Now, according to the theory, Malawian soap workers can be redeployed to something more profitable. The only hitch: in poor countries with high unemployment there often isn’t anything else. Liberalization has replaced ‘inefficient jobs’ with no jobs. With little or no social security net in place, no wonder poverty and inequality deepen.

Mix it

The booming economies of Asia – China, India and the East Asian ‘Tigers’ – are often held up as examples of free trade working for developing countries. But Taiwan and South Korea protected their home markets, gave generous export subsidies and used various other distinctly non-free-trade policies. Only after two decades did Taiwan and Korea open their markets.

China had four decades of hefty state investment in health, education and industry before beginning to open its markets, and even then only very slowly. India, another booming economy, still has one of the most protected markets in the world. Mauritius adopted a twin-track approach to reform, with strong elements of protectionism.

Dani Rodrik contrasts two poor countries. The first has experienced growth rates of eight per cent and has significantly reduced poverty. The second has stagnated and seen a decline in the welfare of its people.

The first country is Vietnam, which reformed its economy gradually and had a mixed twin-track approach, with strong protectionist elements. The second is Haiti, which in 1994-95 undertook the comprehensive trade liberalization favoured by the World Bank, IMF and WTO.

Sort out the WTO

‘As it stands, the WTO is fundamentally unable to deliver trade justice,’ says John Hilary of War on Want. What’s needed, he says, is ‘a root-and-branch reform that would no longer put trade liberalization at the heart of its agenda’. Although the WTO has agreed that trade deals should be biased in favour of the poor, it does not enforce this.

Clearly, the WTO must become much more transparent and democratic (see See ‘Junk the WTO!’, this issue.). The dispute mechanism needs to be changed entirely and made affordable for poorer countries. In instances where the WTO itself is in dispute with another party – such as the EU in the current row over genetically modified organisms – the case must be judged not by a handful of WTO trade officials but by an independent body.

The value of world exports and imports now equals more than $13 trillion – equal to 42 per cent of the world’s combined gross domestic market.8

The unchecked power of the WTO reaches into all areas. Its rulings can contravene international and multilateral agreements, such as those governing human rights or the environment. ‘The rights of trade always trump the right of the environment,’ says Greg Buckman, economic adviser to the Australian Greens.6

Some civil society groups want core labour standards and environmental codes to be included in WTO agreements. But this might just further expand its already bloated mandate.

Besides, the WTO’s track record is not encouraging.

A more radical proposal is that the body be slimmed right down so that it deals only with trade. It would provide an interface between different national systems and not try to determine policies. Other bodies, with far greater expertise in specific areas – like the International Labour Organization – either exist already or will have to be established. Another proposal – which could be complementary – is that the WTO (or its replacement) be brought within the United Nations system, where its power can be counterbalanced by other organizations and some more coherent and open attempt can be made to reconcile conflicting interests.

Few who say ‘junk the WTO’ mean ‘junk’ the very idea of multilateral trade rules. This is partly because ‘bilateral’ deals made outside the WTO are frequently worse still. The deals the US and Europe make directly with individual poorer countries often go even further in undermining their autonomy than agreements arrived at through the WTO.

Martin Khor of the Third World Network says defending WTO negotiations on this basis is ‘like saying “yes, I’ll have skin cancer because it’s better than lung cancer”.’

For many in the trade justice movement the jury is out on whether an organization so deeply committed to free trade and so closely aligned to corporate power can be reformed. This particular leopard would have to change much more than its spots.

Between equals

The high-point of the recent trade summit in Hong Kong was the unity – if only temporary – of 110 developing countries, determined to resist the more excessive demands of richer nations.

‘Developing countries have organized to defend their interests within the WTO,’ says Walden Bello, ‘but I think they realize that they cannot have a positive agenda for development and justice in the WTO, which is why they are looking outside the WTO.’

Some are looking towards regional and South-South trade groupings.

Yash Tandon of the South Centre is emphatic – and pragmatic: ‘We need to be regionalist first and globalist second. Globalization is not our project but the project of corporate capital. We may need to de-link from the global system until we are able to forge a strong unity and then re-link with other terms of entry.’7

Regional agreements between equals have a greater potential for fairness.

Support for people and for planet

More than two-thirds of people in developing countries live by agriculture. And yet the rich countries still control 64 per cent of world agriculture.

Although they have offered to cut export subsidies – and perhaps, thereby, some of their incontinent dumping habits – the EU and the US have been busy switching ‘boxes’ or classifications (see See ‘The Great Tradomino’, this issue) to avoid any real reduction in the amount they shell out to their farmers and agribusiness.

Not all rich countries use agricultural subsidies. Both Australia and Aotearoa/New Zealand have managed without for the past 20 years. But in rich-world countries there are other ways to support rural communities. Rather than paying farmers to overproduce sugar or cotton, why not subsidize them to generate alternative energy from wind-power or bio-mass? Or provide subsidies for a rapidly growing domestic market for organic produce?

What’s crucial is that the link between the subsidy and export is broken, because that’s what allows farmers to export under the cost of production, which leads to dumping on markets in the South.

Unlikely as it may seem, farmers in the North and those in the South can share a common agenda. Francois Dufour, a French dairy farmer and member of the international La Via Campesina peasant network says: ’We have seen that liberalization only helps the multinationals. We have seen a massive destruction of the peasant way of life. We are not with those Europeans who say they want to keep subsidies that contribute to this destruction.’

Halt GATS, halt NAMA

The fastest growing area of global trade is in services. Markets in water, electricity, telecommunication, banking and healthcare are being prised open by rich-world corporations, operating through the WTO. But opposition is mounting, especially within the international trade union movement.

Many civil society groups are calling for a halt to further negotiations on GATS (General Agreement on Trade in Services). They fear that they will just lead to more massive job losses, especially among public sector workers in the South, while privatization of essential services prices them beyond the reach of poor people.

Developing countries are under intense pressure to slash import duties and open up markets under Non-Agricultural Market Access (NAMA). Their own fisheries, forestry and mining resources would also be up for grabs. These are of particular interest to corporations from Canada, Australia, New Zealand/Aoteraoa and Scandinavia as well as the usual suspects – the US and the EU.

Transnationals would compete with local fishers to buy rights and quotas. It’s not hard to guess who would win such a contest. The livelihoods of millions of people are at risk in countries like India, Philippines, Bangladesh, Senegal – as are dwindling global fish-stocks.

Challenge corporate power

Occasionally, transnational corporations are shamed or pressured by consumer groups into cleaning up their act. Often they have been found exploiting illegally cheap labour and lax safety or environmental regulations in poor countries. But consumer action can never be enough on its own – stronger laws are needed to hold corporations to account for their activities overseas and to take responsibility when they do damage.

In Britain some progress is being made with company law reform. But everywhere reform depends on having political representatives who are bold and honest enough to take corporations to task – instead of working at their behest.

Transnationals are, after all, the prime beneficiaries of today’s unfair trading system. They control 70 per cent of global trade, and are profiting hugely at the expense of the world’s people and environment.

‘Governments have given corporations that power,’ says Caroline Lucas, a Green Party Member of the European Parliament. ‘They cannot throw their hands up and say there is nothing they can do about it. They are failing in their duty as legislators.’

Limits to trade

We live in trade-crazed times; times of hyper-trade, with an ever-increasing volume of goods transported around the world. ‘What for?’ you may ask, as you notice the humble onions in your shopping basket have travelled 11,000 miles to get there.

Meanwhile, oil supplies are dwindling and global warming is beating at the door. The environment can’t carry on subsidizing trade like this.

The folly of it is all too familiar. My local supermarket sells New Zealand apples, even during the height of the British apple growing season. One kilo of carbon dioxide is released into the atmosphere to get just one kilo of these apples to the shop shelf – more than 20 times what would have been released had the apples been sourced locally.

Currently global freight accounts for around an eighth of the world’s oil use. Yet pollution from this source is exempt from the Kyoto Protocol on greenhouse gas emissions.

It’s absurd that aviation fuel remains untaxed. But there could be other taxes to encourage more local and less long distance trade. For example, there might be a transport tax that increased pro rata the longer the distance travelled.

Greg Buckman predicts: ‘Trade in a post-oil global economy will be a lot more expensive and by necessity a lot more selective than it is today. In this scenario local production may look very attractive.’

Blueprint?

So – at the end of this magazine’s journey, we return to the question we started with. Trade justice, very nice; but what would it look like?

At the outset I didn’t expect – but I did half-hope – that somewhere, out there, there might be a blueprint.

I did not find it – not in the sense of a single alternative system to mirror ‘free trade’, anyway. Which is all to the good. One major reason why the current system is so disastrous is because it is just one system. It is based on an outrageous assumption of uniformity which fails to take account of the world we actually live in. There is not one single answer – there are many proposals and processes.

However, I think it’s a mistake to see trade justice as something that can be achieved solely by technical means. It is a moral issue too. It’s about applying basic principles of equity that don’t take unfair advantage of people but treat others as we would like to be treated ourselves. Many of us try to apply such principles in our daily lives and in our relationships with others. The relationships that make up global trade are in essence no different.

There are differences of opinion within the so-called ‘trade justice’ movement – some of them quite sharp. The most extreme is between those who think that we just need to make free trade more fair (or less unfair) by making certain adjustments to it. At the other end are hardcore ‘localizers’ who would like trade pared down to a bare minimum and the multilateral, rules-based system dispensed with entirely.

In spite of this, there is much more that unites than divides. Thankfully, the call for trade justice is becoming too urgent, too imperative, for the masters and mistresses of the universe to dismiss with any ease.

  1. Jeffrey Sachs and Andrew Warner, ‘Economic Reform and the Process of Global Integration’, Brookings Papers on Economic Activity, 1995; David Dollar and Aaart Kraay, Trade, Growth and Poverty, World Bank 2001.
  2. Dani Rodrik, The Global Governance of Trade – as if development really mattered, UNDP, October 2001.
  3. Trade and Development seminar, Hong Kong, December 2005.
  4. Kevin Watkins, Rigged Rules and Double Standards: Trade Globalization and the Fight Against Poverty, Oxfam, 2002.
  5. Joseph Stiglitz and Andrew Charlton, Fair Trade for All, OUP, 2005.
  6. Greg Buckman, Global Trade, Past Mistakes, Future Choice, Zed 2005.
  7. ‘Articulating Southern Perspectives on Trade and Development’, workshop, Hong Kong, December 2005.
  8. UNDP, Human Development Report, Oxford University Press, 2002.

Trade talks update

Since the Hong Kong summit, there have been several smaller, closed meetings to try and further the Doha Round. What Pascal Lamy, Director General of the World Trade Organization, described as a ‘modest’ outcome was actually far worse for developing countries than at first appeared. Developing countries were arm-twisted and bribed into making damaging concessions to open their markets – sometimes with the promise of aid or debt cancellation. The unity of 110 developing countries began to crumble as India and Brazil were picked off by the rich-world countries to be included in exclusive talks.

The much-trumpeted EU and US offers to get rid of trade-distorting farm export subsidies reappeared as bargaining chips for access to developing-world markets for services and industrial goods. At the end of February, groups of WTO members began to circulate collective requests to countries to open their markets to foreign service providers under GATS. These requests have, as usual, been kept confidential.

Meanwhile, talks – involving the rich countries, India and Brazil – on opening agricultural and industrial markets were deadlocked. On one side of the stand-off were India and Brazil – on the other, the EU and the US.

In mid-March, top officials from the US, the EU, Japan, Brazil, India and Australia, gathered in London to try and get things moving. The poorer countries, which would be most affected by any decisions, were not included. No significant progress was made.

Campaigners are now calling for the talks to be stopped. ‘They have lost all legitimacy as a development round. There is nothing worth salvaging,’ says John Hilary of War on Want. Under the deals being discussed poor countries would lose $63 billion in revenue from tariff cuts alone, while the rich world would gain $96 billion, according to Action Aid.

For the negotiators, time is running out. Deals on agriculture and industrial goods have a 30 April deadline. The Doha Round itself needs to end in 2006.

Meanwhile, bilateral agreements continue apace, offering an alternative that is no alternative at all in terms of trade justice. El Salvador has just signed a free-trade pact with the US under the Central American Free Trade Agreement (CAFTA). Critics say the US made ‘unreasonable’ demands in securing it.

The EU is currently negotiating Economic Partnership Agreements with 77 African, Caribbean and Pacific nations. Business analysts Pricewaterhouse Coopers concluded that in west Africa these deals would make it harder for poor countries to develop their own industries, and their exports might decline.

Funny kind of ‘development through trade’.

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