Select Committee on Environmental Audit Minutes of Evidence


Memorandum submitted by Friends of the Earth

"It will come as no surprise to you if I say that there is not much excitement among developing countries in Geneva regarding the prospects of a new trade round. Indeed, there is hardly any excitement at all anywhere in the world about this perspective." Rubens Ricupero, Secretary General UN Conference on Trade and Development speaking at Columbia University (opening remark), New York, 23 July 1999.

1.  INTRODUCTION AND SUMMARY

  1.1  Friends of the Earth welcomes the opportunity to offer its views on the Millennium Round to the Environmental Audit Committee. Friends of the Earth is the UK's leading environmental public-pressure group and a member of Friends of the Earth International—the world's largest environmental network with almost a million supporters, and member groups in 61 countries. Our views on the Millennium Round reflect the concerns of our partner groups throughout the network—in both Northern and Southern countries—regarding the impact of a new round. This evidence was prepared by Ronnie Hall, Duncan McLaren and Tim Rice of the Sustainable Development Research Unit.

  1.2  Governments will meet at the World Trade Organisation (WTO) Ministerial Conference in Seattle in November. The European Union has been at the forefront of initiatives to launch a new, comprehensive round of trade negotiations and the European Council of Ministers has supported such an aim. The EU argues that eight rounds of trade talks have made a major contribution to global prosperity, development and rising living standards. But the global economy now faces lower growth which can be stimulated by further trade liberalisation and expansion. As the world's largest exporter, the EU's trade prospects could be improved through greater market access and stronger multilateral rules. Financial and economic crises—in particular in Asia—have also put the world economy under great pressure which the EU believes can best be relieved through further liberalisation. Thus the EU is seeking a multilateral agenda embraced within a new round. However, many developing countries are openly against the idea. Decisions on these issues will be taken at November's WTO Ministerial Conference.

  1.3  Friends of the Earth (FOE) is opposing the proposal for a new round. This is because FOE does not believe that such a "Millennium Round" could possibly promote either sustainable societies or development, for a number of reasons.

  1.4  Firstly, trade liberalisation has and is now being pursued as a goal in itself rather than a means to an end. This is wrong for two important reasons. Firstly, the theory is flawed, a fact recognised by a number of eminent economists but not yet acknowledged by governments. Secondly, the negative impacts of trade liberalisation are now becoming obvious and are being felt by the majority of the world's population. As a result civil unrest and opposition is becoming increasingly widespread (and it is not a result of lack of information). The WTO is the institutional embodiment of this theory. A proposal which aims to expand significantly its remit and power is therefore unacceptable (See Section 5).

  1.5 Secondly, the WTO, like the GATT before, has an extremely poor track record when it comes to the environment and social concerns. All disputes relating to the environment have been resolved in favour of trade interests, regardless of who the complaining parties have been. Apart from an increased level of consultation, the WTO has shown no regard whatsoever for its preambular reference to the "optimal use of the world's resources in accordance with the objective of sustainable development". The WTO's Committee on Trade and the Environment (CTE) has achieved nothing of any note. It would be highly inappropriate to continue to build on the WTO, when it has these major shortcomings (See Section 3).

  1.6  However, Friends of the Earth (FOE) understands that the European Union and Japan may wish to see as many issues as possible on the agenda, in order to obtain compensatory benefits for further reform of their agricultural systems. FOE does not feel this is a justifiable reason for promoting a round given the potential ramifications of the new issues so far mentioned, some of which are highly dubious (See Section 5).

  1.7  Thirdly, the Uruguay Round is not yet complete. Firstly, some developing countries have yet to fully implement their commitments. And industrialised countries have not yet met their commitments to helping developing countries (for example, compensation to Net Food Importing Developing Countries) or opening their own borders. As a result, developing countries are extremely reluctant to proceed with any new issues as recent developments in the WTO show. The EU should not exert undue influence on countries that do not wish to proceed. It is highly inappropriate to move forward while the Uruguay Round is incomplete and its impacts have not been assessed. Secondly, there is already an in-built agenda, also from the Uruguay Round, which includes agriculture, services and Trade-Related Intellectual Property Rights (TRIPs), which promises to be extremely controversial in itself. Even if governments confined themselves to the built-in agenda it is highly unlikely that any conclusions could be reached in the three years suggested. We do not foresee negotiations becoming easier to complete by adding further controversial issues.

  1.8 Fourthly, the negotiations will be heavily influenced by the political power balance in the WTO which has meant in general that trade has been liberalised where there are benefits to northern TNCs—such as in industrial products; and trade in other areas has been regulated in ways that benefit the same companies—such as in the TRIPs and Agricultural Agreements (ie, in agreements where deregulation would not be of benefit to them). We are concerned that the WTO continues to listen to companies but civil society appears to have less legitimacy (See Section 6).

1.9  Fifthly, the European Union's proposal to discuss a limited number of environmental issues in the WTO will not address the concerns of least developed countries and NGOs. Indeed, it seems unlikely that such an agenda would get past the negotiating table in Seattle in any substantive form. It is also a great shame that richer countries have refused to address any of the environmental concerns of poorer countries (for example, the Biosafety Protocol or the TRIPs Agreement), thus giving "environment" a bad name in the WTO. It is also possible that any further negotiations on environmental issues could worsen rather than strengthen the status of the environment (especially given the agenda of industry, for example on eco-labelling) It is also telling that the European Union is conducting a Sustainable Impact Assessment of the proposed Round, but has refused to support a review of the Uruguay Round outcomes. A review of the past is essential. How else can the real value or otherwise of developments to date be known (See Sections 3 and 5)?

  1.10  A key fact is that citizens from the North and South have all realised they are losing out. Although it may be a case of North versus South amongst governments this is not the perception amongst citizens.

2.  THEORY AND IMPACT OF TRADE LIBERALISATION

  2.1  Since the late 18th century, various economists, businessmen and politicians have argued against intervention in international trade. Protectionism, they say, stifles international trade and is uneconomic, inefficient and leads eventually to job losses; instead they argue for what they call "free trade" or "trade liberalisation". The theory on free trade was further developed by David Ricardo's theory of comparative advantage. This theory has more or less become gospel amongst many economists, and the WTO calls it ". . .arguably the single most powerful insight in economics.".1

Free Trade Theory is Incorrect

Comparative Advantage

  2.2  The theory of comparative advantage, which underpins trade liberalisation, is flawed. This fact is recognised by a number of eminent economists but not yet acknowledged by governments. According to the theory of comparative advantage, the most efficient and mutually beneficial form of production and exchange occurs when states specialise in goods in which they have the largest comparative advantage (or smallest disadvantage) and use the revenues from exports to purchase imports of goods in which they have less advantage. However, this line of argument assumes capital is immobile and will be invested in the most efficient form of domestic production. Insofar as capital is not immobile, the theory will not work in practice.

  2.3  In the 1990s, capital moves around the globe at the touch of a button. In 1997, some $400 billion was transferred internationally as direct investments and short-term (often speculative) capital now totals more than $2 trillion annually (the combination of international investment and short term capital flows in 1997 was equivalent to 38 per cent of gross domestic investment). The currency crisis that hit South East Asia in 1997 saw massive "capital flight", with the Malaysian stock market losing 40 per cent of its value (some M$250 billion) in just six months.

  2.4  Respected economists and writers Herman Daly and John Cobb have criticised academic economists and free market proponents for failing to re-examine comparative advantage theory saying: "They have suppressed recognition of the fact that the empirical cornerstone of the whole classical free trade argument, capital immobility, has crumbled into loose gravel".2 Capital mobility replaces comparative advantage with absolute advantage, in which some countries can lose out completely. Governmental officials supporting free trade have yet to grasp this fact of life.

Level Playing Fields

  2.5  One of the most oft-quoted phrases in the free trade lexicon is that it provides a "level playing field" for international trade. This is highly misleading. Level playing fields are only relevant in competition between equals—there is no point in Doncaster Rovers regularly competing on the same playing field as Manchester United. Yet small scale producers are expected to compete in the global economy along with the likes of Microsoft, Monsanto and Mitsubishi even though there are massive differences in wealth and power and assymetries in information which mean that consumers do not necessarily choose the best (or even cheapest) products. In other words, even the argument that consumers gain from the "level playing field" is flawed as a result of these assymetries which, according to contemporary (Nobel-prize winning) economic theory, tend to generate sub-optimal outcomes and require state intervention to correct.

Gross Domestic Product

  2.6  The "freeing of trade" has been accompanied by global economic growth (albeit unevenly distributed) as measured by Gross Domestic Product (GDP). However, GDP is seriously deficient as a measure of "social welfare" or "development" because it reflects peoples' income rather than their real quality of life. GDP counts the cost of health care, pollution clean-up and the renovation of habitats as positive contributions to the nation's wealth. This was recognised by the Environmental Audit Committee's report, The Greening Government Initiative which called for an alternate index; "We consider that a new single measure of welfare could play a very useful part in increasing awareness of the different elements that contribute to the well-being of society and to the achievement of sustainable development."3 Thus GDP can continue to rise, yet peoples' quality of life can deteriorate. This helps to explain the apparent contradiction of rising GDP in many countries and the sharp increase in criticism being levelled at the WTO.

  2.7  This is one reason why trade liberalisation as negotiated through the WTO contributes to unsustainable rates of resource use because the costs of excess resource use are not reflected in GDP.

Trade Liberalisation has had Serious and Widespread Negative Impacts

Inequality

  2.8  Trade liberalisation is associated with increasing inequality both between and within countries. United Nations Development Programme (UNDP) figures show that in 1960, the 20 per cent of the world's population living in the richest countries were 30 times richer than the poorest 20 per cent. By 1997, they were 74 times richer.4 According to UNDP: "The imbalances in economic growth, if allowed to continue, will produce a world gargantuan in its excesses and grotesque in its human and economic inequalities".5

  2.9  According to UNCTAD "The big story of the world economy since the early 1980s has been the unleashing of market forces . . . The "invisible hand" now operates globally and with fewer countervailing pressures from governments than for decades . . . Since the early 1980s the world economy has been characterised by rising inequality and slow growth".6

  2.10  Trade liberalisation directly benefits those already trading and enjoying economies of scale. There appears to be no evidence to support the "trickle down" theory that this wealth is then passed on to the rest of society. As Michael Jacobs concludes: "The theory that wealth would automatically `trickle down' from the rich to poor has been proved simply wrong: rather, it now appears that wealth can circulate and expand within geographical and economic class boundaries to the exclusion of those outside."7 Shockingly, 1.3 billion people are still obliged to manage on less than one dollar a day.8

  2.11  In the 1990s, the richest 20 per cent of the world's population has 95 per cent of all commercial lending, 94 per cent of all research and development, 86 per cent of world gross national product, 82 per cent of world trade, 81 per cent of all domestic investment; 81 per cent of all domestic savings and 68 per cent of all Foreign Direct Investment (FDI). In contrast, the poorest 20 per cent has only 1 per cent of world GDP and 1 per cent of FDI. 9,10

The Peace Myth

  2.12  The United States Trade Representative (USTR) Charlene Barshefsky (1998) stated that, "The GATT . . . [has] provided a `political' framework that helped instil peace and democracy . . . The past half century has made the world far more prosperous, secure and peaceful . . ." 11. This assertion, based on the belief that the Second World War was in part a result of protectionism in the 1930s, cannot be supported. Since the end of the War, the number of armed conflicts in progress world-wide rose from around five to a peak of 51 in 1992, dropping to 37 in 1995. In total it is conservatively estimated that upwards of 25 million people have been killed in wars since 1945. On top of this, it is estimated that the deaths of one and a half billion people have been indirectly caused by war since 1945. Contrary to the views of the USTR, the world has not become more secure and peaceful. If anything increasing inequality between and within countries has led to further insecurity.

Winners and Losers

  2.13  Trade liberalisation does not, as is often claimed, benefit all. The main winners from trade liberalisation so far have been developed countries (in particular the EU, the USA and Canada), transnational corporations, the already rich and wealthy, those with access to information and the owners of large farms. The main losers include developing countries, the poor, employees, subsistence and small farmers, women, and those without access to information.

  2.14  The negative impacts are widespread and varied. There is also a lack of information since there has been no comprehensive review of existing trade rules and agreements. However, here are a number of telling statistics:

    —  Between 1975 and 1997 (using 1987 US$), GDP per capita in industrialised countries increased by approximately 50 per cent. Conversely, per capita GDP for least developed countries fell by approximately 15 per cent. 12 Between 1970 and the mid 1990s, least developed countries (LDCs) suffered a cumulative decline of 50 per cent in their terms of trade (ie, the revenue from a given volume of exports purchases a smaller quantity of imports). 13 LDCs have only 0.3 per cent of world trade even though they have 10 per cent of the world's population. 14

    —  In the 1960s and 1970s, the Philippines became one of the top four timber exporters in the world. In the process, 90 per cent of its forests have been lost. The country is now a timber importer with 18 million impoverished forest dwellers, an external debt of nearly $40 billion in 1995 (up from $17 billion in 1980) and over one third of the population still living below the poverty line.

    —  Road transport is a major contributor to air pollution and climate change. Every year, nearly three million people die from air pollution globally. It has been estimated that truck transportation in North America is likely to increase seven fold between 1995 and 2005 as a result of the North American Free Trade Agreement (NAFTA) a rate of increase likely to far exceed any improvement in the pollution efficiency of truck engines. 15 It has been suggested that the proposed Trans European Network will lead to the social demise of 1,000 small villages throughout Europe. 16

    —  The FAO has estimated that the food import bill for low-income food deficit countries will be $9.8 million higher in 2000 compared to 12 years previously (an increase of 55 per cent) and of this increase, $3.6 billion will be a direct result of the last Uruguay Round of trade negotiations. 17 Since 1996, a further eight million people have joined the 826 million already facing starvation. 18

    —  Small farmers are being displaced (and at best taken on as small-holders in poor conditions, with unfair contracts and without compensation) as land is increasingly turned over to production for export. For example, land under soya production in Brazil has jumped from 200,000 to two million hectares in Brazil in the last 30 years. Similarly, Indonesia plans to increase land under palm oil development from 2.5 million hectares to seven million (and possibly even nine million) hectares. In the US, the average size of a farm tripled between 1935 and 1987 and small farms are now disappearing at a rate of 33,000 per year. 19

    —  Global consumption expenditure has increased on average 3 per cent annually since 1970, although this figure hides significant imbalances. Consumption in Africa is now 20 per cent lower than it was in 1980. Basic needs—such as adequate nutrition, literacy and information—are not being achieved. For example in Sub-Saharan Africa, between 1970 and 1995, per capita consumption of paper actually decreased from 2.2 to 1.6 kilograms per annum whilst calorie intake in 1995 was still below the daily minimum calories requirement of 2,300. 20

    —  In the Wassa Fiase area of Ghana, said to have the single largest concentration of mines in the African continent, people have reported being evicted from their homes and farmlands by soldiers making dawn raids to claim land for use as mining concessions. They are paid little or no compensation, yet this primarily agrarian community has lost its main source of food and income. Ghana's Economic Recovery Programme was launched in 1983 and has seen over US$2 billion foreign investment in the mining sector. In Indonesia, the operation of the Grasberg copper and gold mine has been described as representing one of the world's worst known cases of environmental degradation and human rights' abuses. Over 100,000 tonnes of ore tailings are dumped into rivers every day. Villagers have been forcibly resettled including 2,000 people in 1998 alone. 21

    —  UNEP has confirmed that tropical forests and marine fisheries have been seriously over-exploited and that globalisation is also leading to species invasion. The global marine catch has nearly doubled between 1975 and 1995. Over-fishing for export-led development now means that 60 per cent of the world's ocean fisheries are at or near the point at which yields start to decline. 22 Similarly, 56 million hectares of forest was lost globally between 1990 and 1995. Demand for wood continues to increase; the global production of wood products is now 36 per cent higher than in 1970. The recent analysis of the conservation status of 10,000 tree species (out of an estimated world total of 100,000) found that over half were globally threatened as defined by the International Union for the Conservation of Nature and Natural Resources (IUCN). 23 The increase in global trade of wood products has stimulated the invasion of alien species often with dramatic ecological impacts; the US has recently restricted imports of packing materials due to the high occurrences of the destructive Asian long thorned beetle. 24

    —  Trade sanctions, as authorised by the WTO Dispute Settlement Body, are hitting small businesses very hard throughout Europe. The sectors targeted have nothing to do with the original complaints (ie, bananas and hormone treated beef). For example, two companies in the UK—Beamglow and Arran Aromatics (manufacturing folding cartons and bath products respectively)—have been seriously affected by sanctions under the "banana wars". Turnover is down, jobs may well have to be lost and the situation is causing anxiety and uncertainty amongst employees.

  2.15  Friends of the Earth believes these trade-related impacts can only be aggravated by further liberalisation under the built-in agenda or especially by the inclusion of new issues and sectors in the WTO (see New Issues below).

Mergers and Acquisitions

  2.16  Trade liberalisation and an emphasis on export-led development has been accompanied by a marked trend towards concentration of business within larger producers. For example, in the food and non-food commodity sectors, it is now the case that: 25,26

    —  five corporations now market 60-90 per cent of all wheat, maize and rice (ie staples);

    —  five corporations control over 75 per cent of the cereal trade;

    —  three corporations control 80 per cent of the banana trade;

    —  three corporations control 83 per cent of the cocoa trade;

    —  three corporations control 85 per cent of the tea trade; and

    —  five corporations are responsible for 70 per cent of tobacco production.

  2.17  Contrary to the claimed benefits of trade liberalisation (see WTO preamble below), this trend can have a direct negative impact on employment. For example, after one merger, between BP and Amoco, 7,000 redundancies were announced. Moreover, in 1998 BP-Amoco axed a further 3,000 jobs because, despite the fact that it still made a massive $4.5 billion profit, this was a drop from $6.5 billion the previous year. In 1999, BP-Amoco acquired American oil company Arco resulting in a further 2,000 job losses.

  2.18  UNDP has attributed increases in inequality in OECD countries, which grew between the 1980s and early 1990s, particularly in the UK, Sweden and the US, to job losses, job insecurity and cross-border mergers and acquisitions. In the UK the number of families below the poverty line increased by 60 per cent in the 1980s. 27

  2.19  Friends of the Earth is concerned that the outcome of planned talks on investment and competition may be further mergers and acquisitions (see New Issues below).

3.  THE WTO'S TRACK RECORD

  3.1  The specific impact of GATT rules and the World Trade Organisation itself is difficult to assess, partly because there has been no comprehensive assessment of impacts of the Uruguay Round agreements to-date; and partly because the WTO is such a new organisation. However, a depressingly predictable picture is beginning to emerge, particularly as a wide range of measures promoting the protection of the environment and the promotion of development are successfully challenged in disputes at the WTO.

Impact of the Uruguay Round

  3.2  One key fact about the impact of the Uruguay Round is certain. WTO members knew that the Least Developed Countries and Net Food Importing Developing Countries (NFIDCs) would face problems because of the WTO's Agreement on Agriculture (because of higher food import bills, price instabilities and reduced availability of food aid). The FAO calculated that the food import bill for low-income food deficit countries would be $9.8 billion higher in 2000 compared to 12 years previously (an increase of 55 per cent) and of this increase, $3.6 billion would be a direct result as a result of the Uruguay Round. 28 More recent studies have confirmed the deteriorating position for NFIDCs; between 1993-94 and 1997-98, the cost of cereal imports increased by 47 per cent. 29 At the conclusion of the Round, governments agreed to compensate affected countries but this promise has never been fulfilled.

The WTO's Track Record

  3.3  The first paragraph of the Agreement Establishing the World Trade Organisation, agreed at the conclusion of the Uruguay Round, lists those societal objectives that the WTO should take into account: "Recognising that their relations in the field of trade and economic endeavour should be conducted with a view to raising standards of living, ensuring full employment and a large and steadily growing volume of real income and effective demand, and expanding the production of and trade in goods and services, while allowing for the optimal use of the world's resources in accordance with the objective of sustainable development, seeking both to protect and preserve the environment and to enhance the means for doing so in a manner consistent with their respective needs and concerns at different levels of economic development".30

  3.4  The WTO has not successfully delivered on these objectives. For many sectors of society standards of living are going down (see examples above). Friends of the Earth is not aware of any subsequent activities of the WTO that have led to the protection and preservation of the environment. On the contrary, a series of disputes demonstrate the extremely negative impact that WTO rules have had so far on health, development and the environment. All such disputes have been settled in favour of trade concerns (and thus it would seem that the UK Government is wrong to claim that the WTO's Dispute Settlement Body can come to an "impartial judgement".31 Recent and current examples include:

Asbestos (health)

  3.5  Canada has challenged a French law banning the manufacture, import and sale of asbestos, arguing that the French ban cannot be justified on health grounds and is harmful to Canada's economic interests (Canada is the world's leading asbestos exporter). The EU says there is no safe exposure level for chrysotile asbestos, which it plans to ban across the EU in January 2005. But Canada's asbestos industry claims that the product can be used safely if recommended control and management practices are followed. The WTO's decision is due in spring 2000. 32

  3.6  The relevance of this particular case may hinge on the fact that the governments involved seem to be arguing about the validity of various research reports. Presumably, this means that the WTO's dispute panel could find themselves in the position of examining and evaluating scientific research with a view to making decisions that have a direct bearing on appropriate health protection measures in specific countries.

Bananas (development)

  3.7  In 1997 the United States successfully challenged the European Union's preferential treatment of banana imports from African, Caribbean and Pacific (ACP) countries, arguing that the EU's preferential quota system was incompatible with WTO rules since it discriminated against Latin American banana producers. In April 1999, the WTO authorised $191.4 million dollars worth of sanctions against various EU businesses, including batteries, bath products and folding cartons. The cashmere industry in the Scottish Borders had been on a previous US list of sectors to be targeted for sanctions but was omitted due to some astute lobbying by the British Government.

  3.8  Meanwhile, the European Commission has been attempting to develop a banana import system that would satisfy the challenging countries (and WTO rules), yet still benefit the 200,000 Caribbean farmers whose livelihoods are at stake. However, this seems to be a losing battle, as it increasingly seems that a tariff-only system will be put in place, which Caribbean farmers believe will not keep their fruit competitive in the European market. 33

  3.9  It cannot be left unsaid that in 1998, Carl Lindner of Chiquita Brand Fruit, producers of bananas in Latin America, gave US$0.5 million to the US Democrats. Within days, the US challenged the EU's banana import regime. 34 This is widely considered to have influenced the US's decision to take the issue to the WTO.

Beef-hormones (health)

  3.10  The EU's 11-year old ban on imports of beef produced using a range of growth-promoting hormones has also been successfully challenged in the WTO by the United States and Canada, on the basis that the EU does not have the scientific evidence required to support the ban. As a result, the US has been authorised to apply sanctions of US$116.8 million a year and Canada CDN $11.3 million sanctions a year.

  3.11  Typically, sanctions are targeted to exert maximum pressure on selected governments. In this case, tariff levels are expected by some to force affected products out of the market and have caused consternation in affected countries like Denmark and Germany (pork and other meat exports), France (mustard, cheese, truffles and other gourmet products) and Italy (canned tomatoes and fruit juice). The UK, on the other hand, has managed to avoid sanctions since it has voiced its opposition to the European hormone-beef import ban and is therefore not seen as a target.

  3.12  Reactions to this dispute demonstrate how highly charged world trade disputes are becoming. In France, farmers have responded furiously to sanctions, particularly those applied to Roquefort cheese production, and demonstrations have involved damage to a half-constructed MacDonalds restaurant and the imprisonment of several protesters. Moreover, the leader of the French farmers, Jose« Bove«, was released after a number of weeks to a chorus of sympathetic comments from French Ministers, including the Prime Minister Lionel Jospin, who is reported to have commented that "Mr Bove«'s cause is just". The agriculture minister, Jean Glavany, who has invited Mr Bove« to attend the Seattle meeting, reportedly said: "Today, for the first time, we are in step with public opinion. There's a national consensus about bad food. People realise we need a different international logic than the economic, social and environmental dumping of modern agriculture. We have to change the WTO so that it respects people's cultural choices, does not destroy the world's peasantry and guarantees fair trade for all." 35

  3.13 This dispute has caused anger on the other side of the Atlantic too. Angry gourmet food lovers in the US are lobbying Congress and Hilary Clinton to get supplies of their favourite foods, including Roquefort cheese, back on the shelves. 36

  3.14  Hormone-treated beef makes cattle grow and fatten faster and thus has contributed to the over-production of beef in the US. Although the European Union has stood its ground for some time now, there are rumours that the Commission is now preparing to concede that it may have to lift the ban on one or more of the hormones in question, since it seems that the scientific studies it has been relying on are not appropriate and it will not be able to provide the information required by the WTO. 37

Electroscrap Law (environment and health)

  3.15 A Brussels law firm, Hunton and Williams, has advised the US electronics industry that proposals by the EC's environment directorate (DGXI) for an EU law banning the use of lead and mercury in electrical and electronic equipment would break international trade rules and would be "an invitation to further trade disputes", since proper disposal would negate the hazards presented by these metals. It remains to be seen whether this will stop the Commission in its tracks, as did a previous study concerning an EC proposal to require a minimum of 5 per cent recycled plastic in electrical and electronic equipment. 38

Shrimp-turtle (environment)

  3.16  Seven species of sea turtles are currently recognised. All seven species are included on the Convention on the International Trade in Endangered Species (CITES) Appendix I and all appear in the International Union for the Conservation of Nature (IUCN) Red Data List of threatened species. According to research published by the US Government, and by the IUCN, the main threat to the survival of these species is the incidental mortality in nets used by shrimp trawlers in the open sea. The USA thus enacted legislation to require domestic shrimping fleets to use turtle excluder devices (TEDs), inexpensive, effective devices that allow turtles, but not shrimp, to escape from nets. The law also required other shrimp-producing countries to show a regulatory programme and incidental mortality rate comparable to that of the USA as a condition for market access for imports of shrimp into the US.

  3.17  Malaysia, Thailand, Pakistan and India were unhappy with the US legislation and, after failed negotiations during 1996, in early 1997, all four lodged complaints with the WTO. The US argued that the embargo should be exempted under Article XX allowing, amongst other things, measures for the protection of animal life and natural resources. The WTO Dispute Panel ruled that the measure at issue is not within the scope of measures permitted under Article XX. The US appealed this decision, and also modified the law so as to allow in shipments of shrimp from non-approved countries if those shipments were certified as being caught in a manner that did not threaten turtles.

  3.18  The Appellate Body of the WTO ruled that the measure, as modified, was not incompatible with Article XX of the WTA because it related to the conservation of an exhaustible natural resource. It did, however rule that the way in which the measure had been implemented was discriminatory. For example, some countries in the Caribbean had received a longer period to phase in the requirements than had some Asian countries.

  3.19 The original Panel decision interpreted Article XX very narrowly, maintaining that the US's measure itself was "arbitrary" and "unjustifiable". The Panel in essence created a new standard by finding that the extraterritorial scope of the US law threatened the trading system. It maintained that when a Member invokes Article XX it still, ". . . must not frustrate or defeat the purposes and objectives of the General Agreement and the WTO Agreement or its legal obligations under the substantive rules of GATT by abusing the exception contained in Article XX." The Appellate Body on the other hand gave tentative approval to the law in its modified, "shipment by shipment" form. The Appellate body did second guess the way that the law was applied. In response, the US government has changed some of the procedures of the law.

  3.20  It is important that the law's original purpose not be overlooked in the legal minutia of this case. The best way to protect migratory species like sea turtles is an international agreement. Unfortunately, the governments involved have not reached an agreement. Where there are not internationally agreed rules, the question becomes whether governments can take action to protect species in the global commons. In this case, the US law did change the behaviour of some shrimping fleets, and did save turtles, without imposing large costs on developing countries. Although there was a mixed decision in the case, it does underscore that it is problematic for a trade institution like the WTO to have the final say on the appropriateness of democratically enacted conservation measures.

Venezuelan gasoline (environment)

  3.21  It is somehow fitting that the very first dispute case decided by a WTO panel was over a challenge to an environmental law. US legislation attempting to reduce air pollution in its worst affected cities become the first casualty of the WTO's new enforcement powers.

  3.22  In 1994 the US environmental protection agency (EPA) issued regulations under the Clean Air Act requiring a 15 per cent increase in the cleanliness of gasoline sold in cities with air pollution problems. Due to difficulties in getting reliable data on some gasoline refineries, the regulations divided producers into two categories. Producers for which there was adequate data had to make the 15 per cent improvement from their gasoline's actual quality in 1990. Newly established US refiners and foreign refiners (for whom it was difficult for EPA to verify data) had to make the 15 per cent improvement from a baseline of the average US gasoline quality in 1990.

  3.23  Foreign producers unsuccessfully lobbied against this rule in the US. When it was adopted, Venezuela, supported by Brazil, challenged the rule in the WTO. They argued that it violated the national treatment requirement of the GATT by treating foreign producers less favourably than most US producers. The Dispute Panel and the Appellate Body both agreed with Venezuela, ruling that the regulation was incompatible with the GATT.

  3.24  As a result the US changed the regulation to give foreign refiners an option of using either the US 1990 average or an individual baseline. While establishing this new rule, the US EPA acknowledged that it "creates a potential for adverse environmental impact." 39 This is because foreign producers will only choose the individual baseline if it allows them to ship dirtier gasoline into the US than they would have been allowed under the average baseline. The principle of national treatment may have been upheld, but real people's health is negatively impacted as a result.

The WTO and Other Multilateral Trade Agreement

  3.25  In spite of claims that no multilateral environmental agreements have ever been challenged in the WTO, it is also the case the WTO rules have had a marked effect on some international agreements and ongoing negotiations designed to protect the environment and promote development.

The Biosafety Protocol

  3.26  In February 1998, representatives from 174 countries gathered in Colombia to finalise a Biosafety Protocol that would regulate the transfer and handling of genetically modified organisms (GMOs). But as a result of the efforts of what was known as the "Miami" group of countries (the United States, Canada, Argentina, Uruguay, Australia and Chile) the talks collapsed. This was in spite of the fact that the United States is not a signatory to the umbrella Convention on Biological Diversity and was only attending the talks as an observer.

  3.27  The Miami Group of countries export genetically-modified crops and their aim was to make sure that trade was not disrupted by any Protocol. The Miami Group wanted the Protocol to apply only to GMOs that are deliberately released into the environment, such as seeds for planting. Thus they argue that all commodities (over 90 per cent of world trade in GMOs) should be excluded (since they are to be eaten and not released into the environment). They also strongly opposed plans to label GM crops. The Miami group clashed with the European Union over whether WTO rules should take precedence over the rules of a Protocol. Since the European Union and G77 group of developing countries refused to accept the Miami Group's proposals the talks became deadlocked.

  3.28  The head of the U.S. delegation to Colombia confirmed that one of his main objectives was "to avoid undue interference with world trade because this is as much a trade agreement as an environmental agreement." 40

  3.29  An official with Mexico's Pulsar Group, one of the world's leading seed producers, was critical of developments pointing out that the talks had "been converted into negotiations over international trade, not about safeguarding biodiversity." 41 Negotiators met again in Vienna, from 15-19 September, to try to restart the talks. Although the governments re-confirmed their political will to conclude a Protocol no major break-though was reported. 42

The Lome« Convention

  3.30  The Lome« Convention is an agreement established in 1975 between the European Community and African, Caribbean and Pacific (ACP) countries, to promote the economic, cultural and social development in ACP countries, many of which are former European colonies. There have been a number of revisions to the Convention, the last in 1995.

  3.31  However, negotiations now underway to agree "Lome« V" are proving much more controversial. The problem is that the WTO has ruled that the favourable trade terms the EU affords ACP countries are not in line with international trade rules. Whilst the existing Lome« IV Convention has been permitted to continue by virtue of annual waivers granted by the WTO, there are now moves afoot to ensure any successor agreement conforms to the rules.

  3.32  One option that has been proposed by the European Commission is the establishment of reciprocal free-trade areas to be phased in over five years beginning in 2000. Thus development preferences will be entirely replaced by trade agreements. 43

4.  THE BUILT IN AGENDA

  4.1  There are a number of WTO reviews and negotiations due in 1999 and subsequent years that will take place whether or not there is a Millennium Round that brings new issues into the WTO. This built-in agenda was never intended to be part of a new round. In fact, governments signed up to these commitments as part of the last Uruguay Round of trade negotiations.

  4.2  The "built-in" agenda includes further trade liberalisation negotiations in agriculture and services; and reviews of:

    —  the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPs);

    —  the Agreement on Trade-Related Investment Measures (TRIMs);

    —  the Agreement on Technical Barriers to Trade (TBT); and

    —  the Dispute Settlement Understanding (DSU).

  4.3  The SPS Agreement includes a provision for governments to examine the Agreement after five years and thus is included in this section.

  4.4  This agenda promises to be extremely controversial in itself. Even if governments confined themselves to the built-in agenda it is highly unlikely that any conclusions could be reached in the three years suggested.

Agriculture

  4.5  There is no doubt that agriculture, food and food security will be the main foci of the forthcoming negotiations, whether or not other issues are brought in to create a comprehensive round. The Cairns group of countries (which consists of Australia, Canada, New Zealand and a number of developing countries including Brazil, Malaysia and Thailand) is targeting European and Japanese agricultural subsidies. A second key focus is the insistence—particularly from the US—that biotechnology be included for the first time. 44 It now appears that the US will seek to address biotechnology within the existing framework of the AOA (and not as a separate agreement, or as part of a set of provisions in the SPS Agreement) (see below). 45

  4.6  These are issues of significant concern for people living in all parts of the world. People in the "South" are losing their access to land, fisheries and other natural and genetic resources, primarily as a result of the WTO's Agreements on Agriculture and Aspects of Trade-Related Intellectual Property Rights (see TRIPs below). People in the "North" are also deeply concerned about the quality of food produced and traded by agribusiness (affected by the workings of the SPS Agreement); and about the health their own rural communities (also affected by the AOA).

  4.7  However, by proposing a Millennium Round, the EU appears to believe it can benefit its service sector in return for limited further concessions on the highly sensitive issue of agriculture and further reform of the Common Agricultural Policy. In other words, the more issues that are on the table for negotiation the more possibilities there are for alternative concessions in other sectors. If this is an accurate assessment of the EU's strategy, FOE believes it is unacceptable given (a) the abysmal track record of the WTO, as described in this evidence and (b) the fact that the EU cannot maintain current levels of subsidies for financial reasons as the various accession countries join the Union.

  4.8  However, in this context, it is interesting to note that the UK Government clearly supports "further fundamental reform of the EU's Common Agricultural Policy (CAP)". 46 From FOE's perspective, the question is not whether, but how production subsidies should be reduced. In our view an orderly transition to sustainable agriculture systems would involve lower production subsidies but would also require targeted support for rural communities and sustainable agricultural practices, which would not necessarily survive a WTO challenge.

The Agreement on Agriculture (AOA)

  4.9  The aim of the Agreement on Agriculture (AOA), first negotiated during the Uruguay Round, is to reduce agricultural support and protection to correct and prevent distortions in world agricultural markets. It is a very complex agreement, but covers three main areas: market access, domestic production subsidies and subsidised exports.

  4.10  From the beginning the AOA was slanted in favour of large farms and developed countries. The "reference years" chosen for the calculation of cuts in domestic production and export subsidies were such that the EU and the USA were not required to make many changes to their existing regimes. However, developing countries with little or no existing subsidies were prohibited from providing new subsidies above a maximum level. Overall, this allowed the industrialised world to maintain high export/production subsidies while preventing the developing world from implementing their own.

  4.11  The AOA also requires WTO members to convert all non-tariff barriers to imports into "equivalent" tariffs (commonly known as "tariffication") and then to reduce these tariffs. Since the industrialised countries had much greater non-tariff barriers and were able to convert these into prohibitively high tariffs, they act as a highly effective barrier to many imports from developing countries. The developing world, on the other hand, had fewer non-tariff barriers and thus implemented fewer tariffs.

  4.12  Agriculture is the only sector of world trade where dumping is accepted in the rules. Other parts of the WTA contain "anti-dumping" provisions. This omission of agriculture from anti-dumping provisions has a major impact on the developing world. It means countries have no recourse to the WTO dispute settlement mechanism when cheap, subsidised food is dumped on their markets, disadvantaging domestic farmers and food production.

  4.13  Developing countries have "special and differential treatment" whereby they can provide various subsidies to farmers—such as for investment or to low-income producers—but they cannot exceed 1992 levels. Such subsidies are never likely to reach the $19,000 per annum that the EU and US still pay each of their farmers (on average). 47

  4.14  Furthermore, trade liberalisation under the AOA does very little to encourage food production in developing countries for their own domestic consumption. Indeed, the disciplines on import controls and domestic support hamper any moves in this direction.

  4.15  Not all subsidies are prohibited. The AOA allows forms of direct payments that are not linked to production, or prices that are not deemed to be trade distorting. These are commonly known as the "Green Box" (ie measures such as environmental payments, rural infrastructure or insurance schemes) and the "Blue Box" (headage and acreage payments rather than production). Whilst reducing the direct incentives for over-production, on balance the support system continues to favour large farms at the expense of the small because many payments are related to the size of farm. Large farms tend to be more intensive producers, benefiting from new and higher yielding crop varieties and agro-chemicals, further damaging the environment.

  4.16  Under the Common Agricultural Policy, the EU has one of the most heavily protected markets and subsidised production systems in the world. Recent, very limited reforms to the CAP means that the EU will need to maintain a number of key provisions in the AOA, particularly a "successful defence of the `Blue box'".48 Not surprisingly, the EU will also be negotiating for a renewal after 2003 of the peace clause (which calls upon WTO members to exercise due restraint and not to challenge support measures of others if they are kept below 1992 levels) and the special safeguard provisions (which allows domestic markets to be protected against large rises in import volumes or a sharp fall in world prices but the provisions can only be applied to products that have been subject to tariffication).

Services

  4.17  The General Agreement on Trade in Services (GATS) is intended to secure the progressive removal of measures which discriminate against foreign service suppliers through rounds of negotiations.

  4.18  As far as the next round of services negotiations (known as GATS 2000) is concerned, it is not yet clear which industrial sectors governments will decide to include. However, there has been a suggestion from the United States that all service sectors should be considered. 49

  4.19  Leon Brittan, the previous EC Commissioner, also appears to be promoting liberalisation of a wide range of service sectors, including "in politically difficult . . . sectors". If such a broad approach is adopted it could have extensive (although so far unknown) environmental and developmental implications, with areas such as health, education, the film industry, broadcasting, tourism, and energy and water services up for liberalisation.

  4.20  This is in sharp contrast to the official EU position outlined in "Frontier-free Europe" (July 1999) which is that "WTO rules must still allow countries to pursue their domestic policies in areas such as public health and the environment".50 Commission officials have also told Friends of the Earth that they do not support liberalisation in areas such as public health and education services. Whether this is negotiable in view of their intent to defend the Common Agricultural Policy is not clear.

  4.21  Health provision certainly seems to be a key area of interest for the US's Coalition for Service Industries who are lobbying for the "the maximum liberalisation of services in the shortest time" and focuses on the "entire spectrum of geriatric services". This may well have implications for health care provision in the UK. 51

  4.22  Furthermore, France has asserted its commitment to maintaining protection for the French film industry. Since France withdrew from the OECD's negotiations to establish a Multilateral Agreement on Investment causing the negotiations to collapse, for just this reason, this is likely to be a key factor in the EU's negotiating position.

Intellectual Property Rights (IPRs)

  4.23  Traditionally, trade liberalisation has been associated with deregulation. However, the opposite is the case with intellectual property rights (IPRs) protection. The TRIPs Agreement lays down a set of rules stipulating how governments must regulate to protect various aspects of intellectual property including patents, copyrights, designs and trade marks and affects a diverse array of sectors including pharmaceuticals, computer programming and transgenic crops. Few would argue that some form of regulation is needed to facilitate fair trade, such as allowing inventors to benefit from their inventions, to clamp down on counterfeit goods or permitting musicians to benefit from their compositions. However, the standards have been derived from industrialised countries legislation which is far tighter than most developing country legislation, bringing with it conflicts of interests and needs.

  4.24  Proponents of the TRIPs Agreement claim that it will promote technology transfer as knowledge-based companies invest in developing world resources. This is not being borne out in reality. Instead of promoting a freer flow of ideas and technology, strong IPR laws allow companies to have greater control and maintain a tighter grip over knowledge. As the Third World Network concludes; "TRIPs is. . .not a step towards "free trade". It is the reverse: it restricts rather than promotes technology flow, giving a boost to monopoly practices instead of curbing them." 52

  4.25  The TRIPs Agreement impacts on peoples' ownership of and access to food and seeds and has the potential to significantly reduce genetic diversity. It permits northern TNCs to claim traditional plant varieties or plant uses as "inventions" that must be respected the world over. TRIPs and the use of patents expropriates knowledge from farmers and indigenous peoples in developing countries who, in many cases, have been cultivators, researchers and protectors of plants for thousands of years, commonly referred to as "biopiracy". Biopiracy is not the result of the absence of IPR systems in the developing world but a direct consequence of the imposition of western style IPR systems (based on the US patent regime) through the TRIPs Agreement.

  4.26  Under WTO enforced patent law, Monsanto has the right to take farmers to court if they collect and use seeds from its patented plant varieties. In the USA, Monsanto has opened more than 475 such "seed piracy" cases nation wide. Monsanto's "terminator gene" technology that makes plants sterile would have helped the company to enforce its patent rights. However, even if Monsanto keeps its voluntary pledge not to commercialise this technology, the promotion of patented varieties, backed by legal action, could pose a significant threat to food security in the developing world. Approximately 1.4 billion people around the world depend on farm-saved seed for their food security.

  4.27  However, the US now wants TRIPs off the Seattle Agenda despite being "built-in" for review under the previous Uruguay Round. The US—who want to extend the TRIPs Agreement to include full life-form patenting—is now concerned that the review might lead to a backsliding of current commitments and an extension of the phase-in period for developing countries. 53 Several developing countries are now suggesting that TRIPS take into account the effect of other international treaties—such as the Biodiversity Treaty and that IPR disciplines cover "indigenous knowledge". Other developing countries also want to consider an expansion of "geographical indications"—normally applied to wine and distilled spirits—to cover such items as handicrafts and textile designs.

  4.28  The TRIPs Agreement was one of the most fiercely contested issues in the Uruguay Round. Despite the many concerns from developing countries, the Agreement—reached largely between a few industrialised countries—was presented as part of the overall "Uruguay Round package" that the developing world had to sign up to. It will be interesting to see if the US manages to avoid the built-in agenda negotiations in direct opposition to other countries.

Technical Barriers to Trade Agreement (TBT)

  4.29  The Technical Barriers to Trade or TBT agreement covers any procedures or standards that might be deemed to interfere with international trade. This includes packaging, marking and labelling standards, and thus eco-labels. This agreement is also up for review this year. The UK Government remarks that "technical barriers remain a major impediment to international trade." 54

  4.30  The Confederation of British Industry urges WTO members to establish that TBT rules apply to eco-labelling and to clarify the extent to which private eco-labelling rules should be covered by the agreement (which would bring well-established initiatives such as the Forest Stewardship Council scheme under the remit of the WTO). 55 Similarly, in the run up to Seattle, the International Chamber of Commerce has lobbied against eco-labelling requirements, arguing that they hinder free trade.

  4.31  Friends of the Earth is concerned about the implications of both the review, the UK Government's statement and the views of industry for eco-labels, the labelling of organic and food free of genetically-modified organisms, and fairly traded products. For example, the US opposes, with Canada (a Cairns Group member) the labelling of GM foods, arguing that they are substantially equivalent to traditional foodstuffs (ie, "like products"). The EU, Japan, Australia and New Zealand all have GM labelling requirements and a legal case under the Religious Freedoms Act is pending in the US which might require some labelling there. The Centre for International Environment Law has reported that labelling of food containing GMOs should be compatible with WTO rules because they are "unlike" their non-GMO counterparts but this view might be contested by industry. WTO tests for likeness include consumer taste and habits, physical characteristics and the products' properties, nature and qualities. 56

Sanitary and Phytosanitary Agreement (SPS)

  4.32  The SPS deals with food safety and standards and permits the WTO to determine what international and potentially even domestic measures are necessary to protect human, animal or plant life or health. Members are "encouraged" to use international standards where they exist, although they are allowed to maintain higher domestic standards if there is "scientific justification" or as a consequence of an "appropriate risk assessment".

  4.33  The SPS has already been invoked by the WTO when ruling on food issues, most notably the EU ban on the imports of hormone-treated beef due to consumer and health concerns (see disputes, above). The SPS requires that appropriate risk assessment, involving an analysis of the available scientific evidence, must be undertaken before action (ie a import ban) can be taken. If the risks are unknown, and thus little or no scientific evidence exists, the precautionary principle—which the EU argued in the beef-hormone case—cannot be used despite the fact that the principle is now widely recognised in international law. The WTO Appellate Body ruled that the precautionary principle cannot be used to override the risk assessment clauses in the SPS Agreement. Therefore, at best a limited precautionary approach can be adopted within the scope of the SPS; "provisional measures" can be adopted where information is not sufficient provided that the additional scientific evidence for a more objective risk assessment is obtained in a reasonable period of time (Article 5.7).

  4.34  In addition, the TBT (see above) requires that internationally accepted standards must be used where they exist. The Codex Alimentarius Commission (a body set up by the FAO and WHO and sets international standards for food) had controversially already adopted standards accepting residue hormone levels in meat thus further undermining the EU position. Like all institutions associated with the WTO, the influence in Codex of TNCs is strong. Food safety issues and concerns are being marginalised in the interest of free trade. The beef-hormones case is being seen as a "dry-run" for a potential dispute over genetically modified organisms (GMOs) where the same issues of scientific uncertainty, corporate interest and public taste would once again arise.

  4.35  Whilst the US has affirmed five basic principles behinds its policy on biotechnology—an arm's length regulatory process, consumer acceptance; fairness to farmers; corporate citizenship; and fair and open trade—it is clear that its (unofficial) position is that it will not let other nations hide behind unfounded scientific claims to block further commerce in agriculture. Central to this position is the SPS Agreement. US Industry lobby groups are also firmly behind this position. The US believes that biotechnology and the SPS will be the most difficult stumbling blocks in the next round. The US (with Canada) opposed at the recent G8 the setting up of a Global High Scientific Council for Food Safety arguing that food safety should be negotiated within the WTO. It now appears likely that the US will not seek to address biotechnology within the SPS Agreement; they are keen to preserve the "science-based focus" of the Agreement and thus limit further application of the precautionary principle. 57

  4.36  The UK government points out that "The extent to which the SPS Agreement might feature in a new Round is not yet clear, but at present we see no need to amend it." This could be one of the surprises in store for Seattle, given volatile transatlantic disputes centring on the interpretation of the "provisional measures". For example, FOE and other NGOs have been advised that there is a good, clear legal basis for a moratorium on the trade in GM seeds under Article 5.7 of the SPS Agreement.

Trade-Related Investment Measures (TRIMS)

  4.37  Efforts to include investment in the WTO began even before the WTO was established. During the Uruguay Round negotiations some countries advocated expanding the traditional GATT focus on trade in goods to cover investment. This was done in a small way in the Agreement on Trade-Related Investment Measures (TRIMs). The TRIMs agreement is a WTO agreement that bars countries from imposing several kinds of performance requirements (conditions) on foreign investors. Under TRIMs, governments can not require corporations to export a minimum percentage of finished products, or to use a minimum percentage of domestically-produced components.

  4.38  TRIMs obligations start applying to developing countries in 1999-2000. Already, countries such as India and the Philippines have sought additional waivers, arguing that domestic content requirements are important development tools.

  4.39  The TRIMs agreement is due for review as part of the built-in agenda. Friends of the Earth is concerned that this review could be used to introduce an agreement similar to the Multilateral Agreement on Investment into the WTO by a less obvious route, particularly if investment per se is rejected as a "new issue" (see below). We note with interest that the UK Department of Trade and Industry (DTI) has commented: "We do not see the current TRIMs review as a vehicle for work on non-trade related performance requirements" but still hopes "to achieve some modest expansion".58 We are curious to know what this might entail.

5.  THE PROPOSED NEW ISSUES

Reasons for a Round

  5.1  Although developing countries have a range of views it generally seems to be the case that they are opposed to bringing new issues into the WTO. During the G77 meeting in Marrakech in September, the Chairman of the G77, Mr Clement Rohee, Foreign Minister of Guyana, said that the WTO's Seattle Conference should focus on a process of what he called the Three Rs, or "review, repair and reform" of the WTO: "For most developing countries the globalisation process of rapid trade, financial and investment liberalisation has not fully lived up to its promise despite the adoption of profound structural reforms and macroeconomic measures. Attempts to respond to the demands of the western-driven market-based globalisation process, on the basis of individual capacities, have only served to atomise the developing world whilst making countries ever more vulnerable to pressures from the most powerful players in the international order, whether these be states or TNCs. The current global agenda is almost bereft of the concerns of the South." 59

  5.2  Given these strong objections and bearing in mind the wide-ranging concerns outlined above, it seems reasonable to question both the motives behind the Millennium Round proposal and the potential impact of proposed new issues.

  5.3  Friends of the Earth's understanding is that the European Union and Japan are concerned about the impact of WTO agriculture negotiations that will take place anyway. However, both would benefit from the liberalisation of services, since both have large service sectors. It is possible that in order to avoid having to make major concessions in agriculture in order to gain in the field of services, they have come up with the idea of introducing as many new issues as possible into a new, comprehensive Millennium Round. This device could help to deflect attention from agriculture and might allow them to make concessions in alternative areas. Or it might permit the EU to wring some concessions out of the US in return for changes in agriculture and possibly public services (see Services, above).

  5.4  A similar theory has been suggested by Mr S Narayanan, Indian Ambassador to the WTO, who has suggested that selling the benefits of the proposed investment agreement might be the only way EU governments could "sell" any support cuts in agriculture to their strong agricultural lobbies. He pointed out that: "This kind of argument is not fair from our point of view".60 FOE concurs with this. It is entirely inappropriate to add new issues to a system that is failing people and their environment so badly, whatever the strategic reasons.

  5.5  This kind of strategic thinking could be the reason why the UK Government support for a Round is based on nothing more than estimated increases in world income. 61 Since no review of the existing system has been undertaken it is impossible to know whether this view is justified or not. In conjunction with developing country opposition to new issues, it also casts doubt upon the Government's call, at the 1999 Labour Party conference, for a "comprehensive trade round that fully takes into account the trading interests of poorer countries". In particular, the evidence of increased inequality, outlined above, suggests that for the Millenniun Round to be a "development round", as advocated by Clare Short, would require dramatic changes in its agenda and mechanisms. Whilst FOE is broadly sympathetic to the concept of a "development round", we remain highly sceptical of the capacity of the WTO to negotiate or implement such a concept.

  5.6   The US on the other hand has different conditions to deal with. In order to finalise a deal in the WTO the US Government requires "fast-track" authority from Congress (which means Congress can only vote "yes" or "no" to the final package and is unable to unravel the agreement). However, "fast-track" has been increasingly difficult for the US Government to acquire in recent years and would require an additional effort on their part. Furthermore, the US is not as vulnerable as the EU and Japan in terms of potential commitments it might be required to make during a round. It would be much easier for the US Government to deal with issues on a sector-by-sector basis and the US has been predictably lukewarm about the prospects of a Round. But it still wants several new issues to be negotiated.

Proposed New Issues

  5.7  The current potential list of new issues comes primarily from the European Union. There are a number of additional issues, such as forestry, labour and biotechnology, that might be added by the United States.

Investment

  5.8  Investment is an especially contentious issue after the demise of the Multilateral Agreement on Investment. Investment negotiations are likely to focus on stripping away the controls that countries place on inward investment (like joint venture requirements) and on the use of natural resources (such as forests and minerals), rather than confirming and supporting the kind of latitude needed to pursue a range of goals (eg environmental, social or developmental).

  5.9  The financial crisis of the past two years provides clear evidence that sustainable development is impossible in a climate of boom and bust economic instability. Economic liberalisation and speculative investment flows set the stage for crises in which poverty has increased and government spending on social welfare programmes and environmental protection has been slashed. In this context it is disturbing that some Northern governments are seeking to negotiate an investment liberalisation agreement in the WTO. Such an agreement could further interfere with the development of regional economies; reduce the responsibilities of investors at the local level; and further reduce the South's bargaining power to obtain developmental benefits from inward investment.

  5.10  Furthermore, deregulating foreign investment is not necessarily the key to attracting foreign direct investment (FDI). China, for example, attracted a staggering 40 per cent of all FDI inflows to developing countries in 1996. China is not renowned for its deregulatory approach to investment. FDI is much more likely to be attracted to countries with a large market, basic infrastructure and good skills base. Deregulating investment is a side issue as far as attracting investment is concerned.

  5.11  Rubens Ricupero, Secretary General of UNCTAD recently commented that "so far there is no empirical evidence to suggest that developing countries are necessarily better off in terms of attracting and retaining quality FDI within the confines of multilaterally agreed disciplines in investment . . . What is evident . . . is that the existence of investment rules will do little to tackle the problem of distribution of the potential gains from trade and FDI. Investment tends to concentrate where capital is already present. Thus, imbalances between and within countries—imbalances that have been sharply exacerbated as a result of globalisation and liberalisation—will not be affected by the absence of investment barriers, as some of its proponents have suggested." 62 FOE would go further to suggest that inequalities in FDI might even increase under a multilateral agreement.

  5.12  Trade flows are valued at around $7 trillion annually, whilst foreign investment generates $9.5 trillion in annual sales by overseas affiliates of multinational corporations. Thus an agreement on investment would have the affect of substantially increasing the power of the WTO, cementing its transformation from a body dealing mainly with trade to an institution with oversight of many economic, social and environmental decisions. Friends of the Earth believes this would be highly inappropriate given the WTO's track record in terms on the environment and development. Investment should not be addressed as a new issue.

  5.13  Investment plans at the WTO have been influenced by the fate of a parallel investment process at the Organisation for Economic Cooperation and Development (OECD), a grouping of 29 of the world's industrialized nations. In 1995 the OECD started negotiating an investment liberalisation agreement called the MAI. MAI supporters, especially the US, believed that the OECD could produce a stronger investment agreement (in terms of protecting corporations) than was possible at the WTO. MAI negotiations ceased in 1998 due to disagreements between governments and pressure from civil society groups. The end of the MAI gave proponents of investment negotiations at the WTO, such as the European Union, Japan, and Canada, new energy.

  5.14  Currently, the strongest proponents of WTO investment negotiations include the European Union, Japan, Canada, Switzerland, Hong Kong, and Korea. Switzerland has proposed broad negotiations that could lead to an agreement like the MAI. The other governments that have proposed negotiations have suggested less ambitious objectives. Less ambitious in the sense that they would be "bottom up" (countries commit some sectors for liberalisation) rather than "top down" like the MAI (where liberalisation covers all sectors except where a government takes a specific reservation.) Most current proposals would also exclude investor-state dispute resolution.

  5.15  However, investment negotiations are opposed by a number of developing countries, including India, Egypt, and many African countries. In the middle are many Latin American and Asian Countries, which may be willing to negotiate on investment but have not prioritized it. The US is so far undecided. The US may prefer to negotiate limited rules on transparency, and to expand the TRIMs agreement to outlaw more kinds of performance requirements. However, the US could agree to broader negotiations on investment as part of a deal over the negotiating agenda.

  5.16  Given the European Union and the UK's support to date for investment as a new issue, FOE is very interested to note the following remark from the Department of Trade and Industry: "The main question is whether this constitutes a high priority for action at a multilateral level, given the large and growing network of bilateral agreements touching on this matter that already exist." 63 We hope this is an indication that the UK will reject investment as a new issue.

Competition

  5.17  The process of trade liberalisation so far, has facilitated what is, in our view, "unfair competition", pitting local producers against TNCs in areas where the capacity to pay for advertisers, marketers, lawyers, lobbyists and other such services determines success. In other words, liberalisation has facilitated the extension of monopolistic economic environments. Thus rules to rein in the power of monopolistic TNCs, and ensure truly fair competition would, in theory, be desirable.

  5.18  However, Friends of the Earth is concerned that any new negotiations on competition will actually focus on "fair" market access for foreign firms, rather than beginning to control the current spate of mergers and acquisitions which has led to some of the problems identified above. In other words, competition could simply be another means of introducing investment-related issues into the WTO, with consequences that would be likely to benefit rich Northern TNCs rather than the poor South.

Government Procurement

  5.19  Government procurement is particularly significant for some of the poorest developing countries, where the government is the main economic agent (a significant proportion of GDP is being handled via government contracts). Developing countries are suspicious of any discussions that could lead to deregulation and the prohibition of their right to control government procurement. However, the industrialised countries are keen to gain market access for industry in the developing world by forcing government procurement decisions to be "non-discriminatory" and subject to the WTO's binding dispute resolution system.

  5.20  Government procurement could also be an issue of concern for local authorities in the UK. Whilst it is difficult to predict the precise nature of investment liberalisation or government procurement negotiations, should they go ahead, there is certainly a possibility that any such negotiations could eventually undermine local or national government mechanisms to protect local economies and the environment, including procurement conditions, which remain, despite requirements for compulsory competitive tendering in many functions. At worst, there could be a risk of local authorities being drawn into international legal disputes and massive compensation payments, which would undoubtedly see off all but the bravest of legislators.

Trade Facilitation

  5.21  Trade facilitation negotiations are intended to dismantle the bureaucratic hurdles importers have to jump. Whilst this sounds reasonable, from the environmental perspective, such negotiations could be significant if they focus on removing "bureaucratic" health and environmental regulations enforced at borders. The UK Government has stated that "It is not about removing justifiable controls." 64 FOE hopes this is indeed the case but recognises that there have been previous disagreements over justifiable controls in other areas—such as food standards (see above).

Electronic Commerce

  5.22  Electronic commerce negotiations will focus on duty-free market access for products sold via the Internet, favouring the high-tech industrial North but disadvantaging importing countries (who won't be able to raise revenue/protective taxes on the back of such duty-free imports which would therefore be likely to displace dutiable imports, reducing government revenues). This could widen the gap between the rich North and poor South even further, both in terms of gains to industry and benefits for citizens. The average Bangladeshi citizen would have to spend eight years' income to afford a computer. 65

Labour

  5.23  Current negotiations to include labour as an issue seem to be in disarray at present. Labour's champion, the United States has largely backed off, and rather than advocating discussions on labour rights and standards at Seattle, is now pressing for increased co-operation between the WTO and the International Labour Organisation. This would enable the US to avoid a battle with developing countries over the inclusion of what they see as a protectionist "social clause" in the WTO yet give the impression of listening to their trades unions.

Forests

  5.24  Forests are under severe pressures world wide. Just over one fifth of the world's original forests remains in large, relatively undisturbed ecosystems. 66 These large boreal and tropical forests, along with remaining forest lands in other countries, are vital sites of biological diversity. Many indigenous peoples also depend on intact forests for their traditional livelihoods. Trade-related activities such as logging, mining, and large-scale energy and infrastructure projects are the leading threats to these frontier forests. Many of these projects are effectively subsidised by export credit agencies in the North in the interests of Northern-based TNCs' exports of machinery, technology and in some cases, arms. 67

  5.25  Trade and investment liberalisation in the forest sector can also increase deforestation. For example, current US proposals on eliminating tariffs on wood and paper products in the WTO have been predicted, by industry, to increase consumption by 3-4 per cent. 68 Trade rules can also interfere with forest protection policies such as preferences for local ownership; labelling of sustainably cut timber; and controls on the introduction of invasive species that threaten forests.

  5.26  It has been reported that, in order to demonstrate a "win" to the US Congress before the vote on whether to give the President "fast-track" rights for WTO negotiations, the US administration is seeking a pre-Seattle settlement on forest products liberalisation. The US Government is therefore in the process of pushing sectoral negotiations to reduce tariffs on forest-products to zero and discuss non-tariff barriers like certification.

  5.27  This is a potential threat to schemes like the Forest Stewardship Council (FSC) if discussions on non-tariff barriers encompass eco-labelling (a long-standing target of the US forest products industry). There is also the likelihood that the eradication of tariffs may lead to increased wood consumption and the prohibition of new government tariff schemes to promote more sustainable forest management.

  5.28  The inclusion of forests in a new and comprehensive round would be a serious problem for environmental groups, since it is much harder to persuade governments to drop an issue if they are under pressure to conclude an entire round of trade negotiations without rocking the boat.

Biotechnology

  5.29  It seems fairly certain that trade in biotechnology will be on the WTO's agenda. It now appears that the US will attempt to deal with the issue in the context of agricultural negotiations. This is dealt with in more detail under the Built-in Agenda (see Section 4).

Environment

  5.30  The European Union is proposing that the WTO discuss a limited number of environmental issues in the WTO. The EU's proposal covers multilateral environmental agreements; the relevance of processing and production methods; eco-labelling; and the precautionary principle. However, there seems to be no intention to review the fundamental conflicts outlined in this paper; and no guarantee that negotiations would improve the status of the "environment". On the contrary, any WTO negotiations on environmental issues could be used to reinforce the effective primacy of global trade rules.

  5.31  It remains to be seen whether the EU's environmental proposal survives the negotiating table in Seattle. It could simply be used by the EU as a negotiating "chip" to be discarded when convenient. It will also face staunch opposition from a number of developing countries who have little faith in the motives of Northern governments. It is notable that richer countries have refused to address or give way on many environmental issues of concern to poorer countries (in particular in relation to intellectual property rights and trade in genetically modified organisms and products).

  5.32  Southern and Eastern African governments have the following view on trade and environment: "Trade and environment should be discussed in the context of sustainable development. African countries are as concerned as others about the environment but insist that the issues be tackled with due balance to environmental protection and trade promotion for sustainable development. African countries are against the use of trade measures, especially unilateral measures, for narrow protectionist purposes. We are also against attempts to prevent multilaterally agreed environment measures to deal with genuine environmental problems such as the trade in hazardous wastes and products, and measures to promote biosafety, through the fallacious claim that such legitimate measures are against WTO rules. Furthermore, developed countries must meet their commitments on financial aid and technology transfer to African countries to enable more environmentally sound development, including for exports products." 69


  5.33  We also note that, although the European Commission has initiated a Sustainable Impact Assessment (SIA) of the proposed Round, it appears to have no intention of agreeing to a review of the current state of affairs in relation to the WTO. FOE can only conclude that the SIA is a public relations exercise.

6.  THE UNDUE INFLUENCE OF TNCS

  6.1  Whilst member governments make up the composition of the WTO, TNCs play a very influential role in what is negotiated and decided. Arthur Dunkel—former GATT chief—is reported to have raised concerns that the views of the business leaders in the ICC were remarkably similar to the same views of their governments in trade negotiations. This led him to question, "Who is driving the process in trade policy—governments or the business community?" 70

  6.2  At the international level are two very important lobby groups; the International Chamber of Commerce (ICC) and the Transatlantic Business Dialogue (TABD). The ICC calls itself the world business organisation for promoting trade and investment; it was one of the main proponents of the MAI; it has over 7,000 members including all the largest TNCs; it has access to high-level decision makers and influence within the WTO (Arthur Dunkel, the former Director General of the GATT is also the chair of the ICC Commission on International Trade and Investment, is a registered WTO dispute panellist and on the Board of Nestle). In the run up to Seattle, ICC members have met with for example the German Chancellor, pushing for the new issues proposed by the Commission (investment, government procurement, trade facilitation) and making sure that multilateral environmental agreements and eco-labelling do not hinder free trade.

  6.3  The TABD involves over 100 corporate leaders advising both the highest levels of the EU and US administration on trade policy and on the companies' positions regarding the WTO negotiations. Their priorities for WTO mirror the EU position, namely a comprehensive round including new issues such as investment. TABD conferences bring together corporate leaders, the WTO Director-General and the Commission's Commissioner for Trade. The EU and US co-chairs to the TABD participated at the US-EU Summit in May 1997. The structure of the TABD is broken down into "issue groups" (for example, in the chair for the EU and US on the agriculture and biotechnology issue group are representatives from Unilever and Monsanto respectively). The TABD and the European Commission have recently made the dialogue between the two even more formal; for each TABD issue group, there is a designated high-level person in the European Commission to act as a contact point, no doubt to discuss trade policy and negotiations.

  6.4  In the US, the private sector plays a pivotal role in trade negotiations through the mechanism of advisory committees. According to the USTR, this process has been extremely successful during the Uruguay Round and the Asia-Pacific Economic Co-operation (APEC) initiatives. The primary objectives of the private sector advisory system are:

    —  to consult with the US government on negotiation of trade agreements;

    —  to assist in monitoring compliance with the agreements; and

    —  to provide input and advice on the development of US trade policy.

  6.5  At one level is the Advisory Committee on Trade Policy and Negotiations (ACTPN), appointed by the President. The committee has 45 members from representative elements of the US economy with international trade interests. Its mandate is to provide overall policy guidance on trade issues. This committee has the ear of the President; around 19 members belong to TNCs such as Monsanto, Eastman Kodak and IBM. At the next level are the policy advisory committees to the USTR in the specific areas of industry, agriculture, labour, defence, services, investment, environment and intergovernmental affairs. There are also sectoral advisory committees—so-called Industry Sector Advisory Committees (ISAC) for Trade Policy Matters, which are composed of experts from their respective fields. All these committees advise the highest positions in the USTR including Carlene Barshefsky.

  6.6  In the US, corporate lobby groups are also very influential. For example, BIO representing the biotechnology industry; or the Intellectual Property Committee which brought together 13 major US corporations (including Monsanto, DuPont and General Motors) and was instrumental in getting TRIPs onto the GATT agenda. Transatlantic Business Dialogue (TABD) is also influential (see below). Many corporate lobby groups sit on the advisory committees.

  6.7   In the EU, the process is no less formal. Many play an important role but a number appear to have greater influence on trade talks with the Commission:

    —  The Investment Network (IN) is comprised of such companies as Fiat, ICI, Daimler, Carlsberg, British Petroleum, Rhone-Poulenc and some other 50 corporations which was established to identify the priorities for these corporations in any WTO investment agreement. The Network had its first meeting with the Commission in late 1998 to establish "consultation and partnership with European business interests over investment issues".71

    —  The European Services Network (like the IN) was established on the encouragement of the European Commission "to advise EU negotiators on the key barriers and countries on which they should focus on in these negotiations [on the General Agreement on Trade in Services]". The impetus behind the ESN was clearly the pivotal role that companies played in another network—the Financial Leaders Group (FLG)—which assisted and worked closely with the Commission on the Agreement on Financial Services. Not surprisingly, the (co)-Chairman of the FLG and the ESN is the same person—Andrew Buxton, Head of UK based Barclays Bank. Clearly, their influence and power over trade talks within the Commission is considerable; Leon Brittan confirmed at the first meeting of the ESN in January 1999: "You [the ESN] are the driving force of the consultation system which we have established; my door is open for any matters of concern".72

    —  The European Roundtable of Industrialists (ERT) has pushed for investment liberalisation for a long time. Its members include the largest TNCs in Europe—including BP Amoco, Renault, Philips, BT, Unilever, Rhone-Poulenc, Fiat, ICI, Royal Dutch Shell, Bayer and Carlsberg. Its main objective has been to get investment into the WTO. To this end, the ERT has established a working group on foreign economic relations. At its head is Peter Sutherland, former GATT Director General and now chairman of BP Amoco. The ERT has already indicated its willingness to work with the Commission and is sending a delegation to Seattle to assist the Commission in the preparation of investment in the WTO. 73

  6.8  Other influential lobby groups in the EU include the Union of Industrial and Employers Confederations of Europe (UNICE) which has regular meetings and contacts with the Commission.

  6.9  Again, formal links exist in Japan between companies and government officials. This is conducted through Keidanren (the Japan Federation of Economic Organisations representing the business Community). They have various Committees such as Trade and Investment (in 1998, the chair was the CEO of Mitsubishi), the Committee on Environment and Safety (chaired by the Chairman of Nissan) and Comprehensive Strategy (chaired by the Chairman of Toyota).

  6.10  Specific companies are also involved in lobbying:

    —  Robert Shapiro, chairman of Monsanto is the chair of the President's Advisory Committee for Trade Policy and Negotiations (ACTPN) which gives recommendations on US Trade Policy. The US Trade Representative for much of the Uruguay Round, Mickey Kantor, is now a Board member of Monsanto. He will be serving as trade counsel for the US wheat industry at the Ministerial Conference in Seattle. Monsanto staff have constantly exchanged positions within US regulatory bodies; the FDA official responsible for US labelling policy was Michael R Taylor who, before moving to the FDA, was a partner in the law firm that represented Monsanto in the approval for Posilac, the Bovine Growth Hormone. He has since moved back to work for Monsanto.

    —  Some of the world's largest companies—including Microsoft, Boeing, Bank of America, Ford Motor, General Motors, Hewlett Packard, Procter and Gamble and Weyerhauser—are paying hundreds of thousands of dollars for privileged access to key ministerial and other negotiators at the Seattle Ministerial Conference. This is being organised by the Seattle Host Organisation co-chaired by Bill Gates. The companies' sponsorship will enable them to "become part of a process to develop substantive business input to the WTO through a series of business programs". In addition, they will be able to attend receptions and dinners for heads of states, ministers and delegates with preferential seating. 74

  6.11  Friends of the Earth is particularly concerned with the involvement of industry, the way they drive the agenda, the fact that their voices are loud enough to be heard, yet for some reason civil society groups appear to have less legitimacy. The WTO is for trade, therefore listens to traders, however fair they try to be about it. There is an imbalance.

7.  STOP THE ROUND

  7.1  Many Friends of the Earth International member groups have signed onto the "Statementfrom members of International Civil Society Opposing a Millennium Round or a New Round ofComprehensive Trade Negotiations". This statement has now been signed by 1,114 organisations fromover 87 countries (the full text and an updated list of signatures can be found at http://www.foe.co.uk/camps/sdru/stopround.html).

  7.2  This statement states that "we oppose any further liberalisation negotiations, especially those which will bring new areas under the WTO regime, such as investment, competition policy and government procurement. We commit ourselves to campaign to reject any such proposals. We call for a moratorium on any new issues or further negotiations that expand the scope and power of the WTO. During this moratorium there should be a comprehensive and in-depth review and assessment of the existing agreements. Effective steps should then be taken to change the agreements. Such a review should address the WTO's impact on marginalised communities, development, democracy, environment, health, human rights, labour rights and the rights of women and children."

  7.3  FOE believes that it is entirely feasible to stop the Round. As detailed above many developing country governments are extremely unhappy about the prospect of bringing new issues into play. The French environment minister has also made no secret of her concern and her support for a review of the existing agreements: "There are in my opinion two absolutely necessary conditions to the success of the future multilateral trade negotiations. First is to ensure the transparency of the negotiations (parliament should be consulted at an early stage of the negotiations). The second absolutely necessary condition to the commitment of the future round of negotiations, is that a serious, exhaustive and critical assessment of the agreements signed in Marrakech be drawn up." 75

  7.4  We also note increasing civil unrest. Protests at the Geneva Ministerial in 1998; at the G8 Economic Summit in Cologne in June; in London in the summer of 1999; and in France in response to the US sanctions on French exports of gourmet foods all demonstrate the absolute frustration that ordinary people are beginning to feel. This frustration is likely to trigger further protests in Seattle in November.

8.  CONCLUSIONS

  8.1  In conclusion, Friends of the Earth would like to suggest that the Environmental Audit Committee might wish to raise the following questions in conducting this inquiry:

    —  Does the UK Government support a review of the Uruguay Round and how would it rectify the findings of the review? If it does not support such a review, what was the rationale behind such a decision?

    —  How does the UK Government plan to make the Millennium Round a "development round"? What difficulties does it foresee promoting this view to the European Union and the WTO?

    —  How does the UK intend to evaluate the success of any round in development terms?

    —  What is the UK Government's position on services, particularly in respect to the National Health Service and education? Can the Government confirm that they will oppose any moves to negotiate the status of public services in the Millennium Round?

    —  What is the UK's position on environmental issues, not just regarding the relationship of trade with existing Multilateral Environmental Agreements but also the environmental aspects of World Trade Agreements (ie the TRIPs) and the Biosafety Protocol?

    —  What is the UK's position on agricultural subsidies and their strategy for these subsidies within a Millennium Round?

    —  What meetings have the UK Government and UK negotiators had with industry and industry lobby groups regarding a new round and what were the outcomes?

September 1999

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