Trading thoughts on the WTO

The WTO has been the focus of much of the campaigning against globalisation. Mike Moore and John Madelely put forward their contrasting views on the organisation’s role in advancing development and the possibility of a new trade round, while Adrian Wood argues the case for a development round.

Trading thoughts on the WTO spreadThe WTO and developing countries. Mike Moore.

As governments around the world prepare for the 4th World Trade Organisation Ministerial Conference in Qatar in November, this issue of Developments is a timely opportunity to remind policy-makers of how a new round of trade negotiations can play a crucial role in helping to alleviate poverty.

UK Secretary of State for International Development Clare Short has rightly emphasised that changes need to be made in international arrangements for trade and investment to meet the challenge of poverty reduction. Poor countries need to grow their way out of poverty, and trade is a key engine for growth. But currently, developing countries’ exports face many obstacles in rich countries. For example, the 49 least developed countries (LDCs), representing 10.5% of the world population, have less than 1% of world exports. History shows that open markets can play an important role in lifting millions of people out of abject poverty.

The WTO has made significant progress on market access for LDCs. Thirty WTO member countries have made offers. Norway and New Zealand have dropped all barriers to LDC exports. They join a number of other countries that already provide open markets. The average non-weighted tariff applied by major industrial countries to LDCs’ exports has fallen from 10.6% in 1997 to 6.9% today. In the last 12 months, Canada, the United States, the EU and Japan have all taken significant actions to address access for LDCs.

Poor countries are caught in a vicious circle: they need foreign investment but can offer little to attract such investment. In order to break out of this circle, LDCs need to export. But their exports face formidable barriers. Agricultural tariffs still average over 40%, and some rise above 300%. And then there are many non-tariff barriers: quotas, technical regulations, and health and safety standards.

The best way to improve market access for LDCs is through a new WTO round of trade negotiations. One study by the Tinbergen Institute estimates that developing countries would gain $155 billion a year from further trade liberalisation. That is over three times the $43 billion they get annually in overseas aid. OECD agricultural subsidies in dollar terms are two-thirds of Africa’s total GDP.

There are risks in not launching a round. The world economy is looking vulnerable. In 2001, the volume of world merchandise trade is expected to grow by 7%, a marked reduction from the estimated 12% in 2000. The US economy, motor for the world economy, is stuttering, a situation made worse by September’s terrorist attacks. A recession in America could export trouble to the rest of the world. An upsurge in protectionism could make things much worse. The virtuous circle of trade liberalisation and economic growth could all too easily become a vicious spiral of protectionism and stagnation. The risk is that a global recession will jeopardise any chances of economic growth in developing countries.

Failure to launch a new round this year could also weaken the multilateral trading system itself. A global rules-based system based on non-discrimination could give way to a patchwork of discriminatory regional blocs. Everyone would lose from this. But the biggest losers would be the poor and the weak.

Trade liberalisation is only one ingredient in the cocktail of policies required for development. A new WTO round will do little for a nation that is torn apart by war or that spends its scarce revenues on weapons. Nor will it be much use with a crippling debt or without good governance. Nor will it help those poor countries that have no domestic capacity or infrastructure to take advantage of new market access opportunities. Trade liberalisation must therefore go hand-in-hand with other reforms.

Under the Integrated Framework for Trade-Related Technical Assistance programme, operated jointly by the IMF, ITC, UNCTAD, UNDP, World Bank and WTO, a pilot scheme has started in Cambodia, Madagascar and Mauritania to improve capacity-building. It is a practical, project-driven example of international cooperation, based on coherence between agencies in global economic policy-making. It will help LDCs mainstream trade into their national development plans and strategies for poverty reduction. It will also ensure that trade-related technical assistance and capacity-building are delivered within a coherent policy framework rather than on a stand-alone basis.

No new round can begin or conclude unless poorer countries are convinced there will be resources dedicated to capacity-building to ensure their national interests can be pursued during and after this process.

An equitable, liberal and open rules-based multilateral trading system is, therefore, the key contribution by the WTO in support of the collective efforts to achieve sustainable development. Hence, it is crucial that the forthcoming WTO Ministerial Conference in Qatar successfully launches a new round, with development at its core.

Mike Moore is the Director-General of the WTO. For more information on the WTO, visit www.wto.org

Trade - what kind of organisation? John Madeley.

The credibility of the World Trade Organisation is at stake – and it goes much deeper than whether a new round is launched in Qatar.

There is a case for an international trade organisation that sets the rules and protects the weakest players in the most crucial aspects of trade. The WTO is not such a body.

“The WTO is an international organisation that mediates trade disputes, seeks to reduce barriers between countries and embodies the agreements,” WTO Director-General Mike Moore told a meeting in Seattle at the time of the WTO’s Third Ministerial in 1999.

Precisely. The WTO is a one-horse organisation that is only concerned with trade liberalisation and resulting disputes. But world trade issues, especially those that affect the poor in developing countries, range over a wider range of issues than trade liberalisation alone. And the WTO has no role in some of the most fundamental of them.

Firstly, there’s trade in primary commodities, such as coffee, cocoa, tea and sugar. Many developing countries earn most of their foreign exchange from the export of such commodities. But the price of almost all of them is touching record low levels. The world price of coffee for example, a crop grown by around ten million poor farmers, slumped from 125 cents/lb in December 1999 to under 50 cents/lb in August 2001. Smallholder coffee growers now face destitution.

And a coffee-growing country like Uganda finds that the amount of debt relief it has been granted is more than wiped out by the fall in world coffee prices.

The WTO is irrelevant to problems like these. An international trade organisation might be expected to put forward ideas for helping people and countries who are affected. Several years ago a Commonwealth Secretariat paper suggested such an idea – a tax on primary products. It’s an idea that needs debating. But it won’t be debated in the WTO.

Secondly, the WTO is based on the assumption that it is countries who trade. But in today’s global economy it is companies, not countries, that trade. Over two-thirds of all world trade is between transnational corporations, according to the UN Conference on Trade and Development. Trade disputes are between companies as well as countries.

The dispute between the European Union and the United States over bananas, for example, was effectively a dispute between the EU and a leading banana company, Chiquita Brands International. It was the company that complained it was losing market share and it was the company who won.

The WTO has no mandate to regulate the major trading players, the transnational corporations. There is however a close connection between the two. The negotiations that led to the WTO’s Trade-Related Intellectual Property Rights (TRIPs) agreement is an example. The agreement was strongly opposed by developing countries; it grants patent holders the right to protect their intellectual property in WTO member countries. It was the corporations that wanted the agreement and who were powerful enough to get it – and to set the rules of an organisation that is powerless to regulate them.

In his book, Fast Food Nation, Eric Schlosser says that whereas the 20th century was dominated by a struggle against totalitarian systems of state power, “so the 21st will be marked by a struggle to curtail excessive corporate power”. We need an international trade organisation that is part of that struggle.

But what about the horse the WTO does ride, trade liberalisation? Will the further pursuit of such liberalisation really help the poor? There is mounting evidence suggesting that liberalisation has damaged some of the world’s most vulnerable people, small-farmers in developing countries. A UN Food and Agriculture Organisation study found, for example, that liberalisation under the WTO has led to an increase in food imports into developing countries but not to an increase in their exports. This is forcing small farmers out of business. “A common reported concern was with a general trend towards the concentration of farms, in a wide cross-section of countries which has marginalised small producers and added to unemployment and poverty,” it says.

It would help developing countries if Western countries allowed improved market access for their products. But the poor would be unlikely to benefit. For they would compete against corporations who have considerably greater market power. You could put a village green tennis player on the centre court with Pete Sampras at Wimbledon and both would have access to the Championship trophy. Access, in itself, means nothing.

In theory the WTO is a “one-member-country, one-vote” democracy; in practice there has never been a vote in its six-year existence. Developing country members could vote to change the rules to make the WTO a trade organisation that is capable of grappling with the most pressing trade issues that affect the world’s poor. Or it might be better to start afresh.

John Madeley is a journalist and broadcaster on development issues. For more details of studies on trade liberalisation and food security, see: www.forumsyd.org and www.cidse.org

A 'development round' - what would it really mean? Adrian Wood.

"I believe that the best hope for the developing world lies in a new round of global, multilateral trade agreements. And this time it must be a true ‘development round’… I urge that all governments put their weight behind the launch of a new multilateral round of trade negotiations, with all due dispatch."

Kofi Annan, Secretary General of the United Nations
LDCIII Conference, Brussels, 14 May 2001

Along with Kofi Annan, and a wide range of developing country leaders, the UK Government has argued that we must grasp the opportunity of the Doha WTO Ministerial, and launch a new broad based development round. But what would this really involve, and how would it deliver real benefits to developing countries?

For a development round to succeed, significant movement is required on two key areas. First, progress with the agreements needed to build a fairer trading system. And second, reform of the WTO to ensure that developing country voices are heard during negotiations, and that its rules are rigorous, but flexible and realistic, too.

So what issues should a development round address? The first is market access. A new trade round should lead to significant improvements in market access and liberalisation by all members.

A key aim for a new round should be significant improvements in agricultural market access by all members, along with large reductions in agricultural export support. Developing countries would also benefit from real improvements across a range of sectors including industrial tariffs, textiles and clothing, fisheries, and non-agricultural subsidies.

The UK is also calling for greater generosity in the trading opportunities that rich WTO members offer to the very poorest countries. This would build on the EU’s Everything But Arms agreement, which gives tariff free access for all Least Developed Country (LDC) exports – except arms. All developed countries should provide duty and quota free access for products from all LDCs.

Second, a development round needs to lead to improvements in the rules negotiated during the Uruguay Round. A development round would provide the right forum for taking a close look at the problems developing countries have faced in implementing these agreements. And for serious negotiations to improve them and make sure that their developmental impacts are fully considered. For example, many developing countries are concerned that the TRIPs agreement restricts their ability to deal with national health emergencies.

Third, a development round should consider broadening the coverage of issues in the WTO. The UK believes that inclusion of new subjects such as investment, competition policy, trade facilitation and transparent government procurement could encourage better governance, and more investment, in developing countries – both critical steps for poverty reduction.

Finally, while a development round needs to address these important new issues, the UK believes that we also need to ensure that there is no hardening on product or process standards such that they can be misused for protectionist purposes. Developing country governments have real and justifiable concerns about the potential misuse of environment and labour standards.

As well as making progress with rules and agreements, a development round could spur the reform and evolution of the WTO to strengthen the multilateral system and make agreements more applicable to all countries. The UK is calling for the WTO to commit itself to the International Development Targets.

A development round would provide the opportunity to make readjustments to ensure that trade rules take better account of the differences between countries. Rules need to be rigorous and based on agreed universal principles. But they also need to be flexible and acknowledge the differences between countries in their stage of development and ability to implement the agreements.

A new round should not repeat the mistakes of the past. The negotiation process must be well managed and inclusive for all countries. For example, developing countries should be represented on informal working groups and the pace of the negotiations must be kept manageable for smaller delegations.

Progress on a meaningful development round is not only essential; it is also achievable. Two-thirds of the WTO’s 142 members are developing countries. Negotiations cannot start without their approval. Moveover, the negotiations cannot be concluded unless developing countries are satisfied with the outcome. The alternative, failing to launch a round, will undermine the multilateral rules based system, which would be a loss for developing countries.

The negotiations will not be easy. However, developed countries have a crucial responsibility to ensure that the views and interests of developing countries are given due weight in the negotiations. And if developing countries use their influence effectively and constructively they stand to make significant gains from a new round.

Adrian Wood is DFID’s Chief Economist.

Image: Page spread © Panos Pictures

Poor countries need to grow their way out of poverty, and trade is a key engine for growth.