Memorandum submitted by the World Development
Movement (WDM)
The World Development Movement welcomes this
EAC inquiry into a Sustainable Millennium Round. WDM is an independent
research and advocacy organisation. WDM has 8,000 members, 35,000
supporters and 100 local groups across the UK. WDM's aim is to
ensure that the policies of governments, international agencies
and companies towards the developing countries promote fairness,
opportunities for poor and vulnerable people and respect for their
environment.
Since its establishment in 1970, WDM has undertaken
research, lobbying and campaigning on international trade and
investment issues, including campaigning for phase out of EU's
restrictions of the export of textiles and garments from the poorest
countries and opposing a Multilateral Agreement on Investment
(MAI) in the OECD. WDM has developed detailed proposals on an
investment framework to promote sustainable development.
SUMMARY
1. The priority for a process to Review,
Repair and Reform
WDM supports a framework of fair and environmentally-sound
trade rules. However the current trade agreements and the WTO
are failing to provide this framework. WDM recommends the government
supports a process to "review, repair and reform" the
current trade agreements and the WTO. Any review to initiate this
process must include a wide ranging scope, to encompass indirect
linkages, and include governments and civil society, especially
from developing countries.
2. Changes in the EU's proposals for a new
Round
The EU's proposal for a new Round of trade negotiations
pursues narrowly-defined commercial interests, particularly through
the introduction of new issues, notably investment, government
procurement and competition. In the absence of strong environmental
regulation in developing countries, these agreements will increase
environmental damage. WDM recommends that the government withdraws
its support for these proposals.
3. Reform of existing trade agreements
Powerful trading nations have dominated trade
negotiations in the past, resulting in the marginalisation of
the poorest countries from the trade system. These have resulted
in social hardship and environmental damage. The EU should support
proposals tabled by developing countries to redress the inequities
and unsustainability of past agreements. In particular, reform
of anti-dumping provisions and the dispute settlement mechanism
are priorities for developing countries and to ensure the fair
application of trade rules.
4. Improved access for exports from the poorest
countries
The EU should fulfil its undertaking, made at
the 1996 Ministerial Conference, to offer bound duty free access
to imports from Least Developed Countries. This initiative is
welcome and should be a priority. Unrestricted access for the
small value of exports from the poorest countries will help LDCs
to diversify away from a narrow export base of natural resource-based
products. The EU should act on a unilateral basis if there is
no agreement from other industrialised countries.
5. Sequence Regulation before liberalisation
The Asian financial crisis has shown the dangers
of liberalisation being undertaken before adequate regulation
is put in place. Many of the most serious environmental problems
in developing countries result from inadequate regulation of business
and their social and environmental impact. Liberalisation under
a new trade Round would exacerbate the damage. WDM recommends
that a targeted review of developing countries' capacity to regulate
be undertaken before further trade liberalisation measures are
negotiated.
6. Develop a comprehensive regulatory framework
Business has globalised, but regulation has
not—international rules on the global economy are urgently
needed. However, the WTO has a mandate for trade liberalisation
and is not the appropriate forum to negotiate balanced rules on
non-trade issues. The priority should be enforceable rules to
ensure that developing countries have the flexibility and responsibility
to pursue poverty reduction and sustainable development; and enforceable
rules on international companies to protect the rights of workers,
consumers, and the environment.
A major problem is that the EU is pressing for
the liberalisation and deregulation, reducing the discretionary
powers of governments to adequately regulate business activities.
A new framework is urgently required.
WDM recommends that the government undertakes
research and consultation to define its objectives for a framework
of international rules, and initiates a process to build consensus
around such a framework, the mechanism for enforcement and, ultimately,
the appropriate forum for negotiation.
7. Reform of the negotiations process and
accountability
The negotiations process has been dominated
by the Quad countries (US, EU, Japan and Canada) with little ability
of developing countries to influence the negotiations. The emphasis
has been on deal-making behind closed doors on the basis of trade-offs
between commercial interests. This process must be reformed if
the aims of sustainable development are to be realised.
8. Improved openness and accountability
While WDM welcomes the opportunity to meet with
government officials and Ministers at the UK and EU levels, there
is little sign that NGOs have been listened to in these consultations.
Greater integration of policy across UK and EU departments is
required if development and environment issues are to be integrated
into the core of proposals, rather than as unsubstantiated aims
for inclusion in public statements and preambular language. In
view of the importance of these negotiations, there should be
greatly strengthened Parliamentary scrutiny in the UK and EU Parliaments.
THE CURRENT
IMPASSE IN
THE WTO
Conflict between the commercial interests of
industrialised countries is likely to shape negotiations over
a future agenda in Seattle for trade negotiations. The outcome
is likely to be the result of political bargaining and trade-offs
that have little to do with considerations of sustainable development
or poverty reduction.
Developing countries have had little power or
influence over trade negotiations in the past. They are increasingly
frustrated over the inequity of past agreements and the lack of
benefits from the Uruguay Round. Proposals from the poorer developing
countries concentrate on reform of the WTO agreements that are
creating problems.
Seattle discussions are likely to see a stronger
assertion of the rights of developing countries to play a role
in shaping the agenda—their stronger role was evident in
the clash between the industrialised and developing countries
over the new Director-General of the WTO. The result was a face
saving compromise to allow each of the candidates a three year
term.
The need for repair of current agreements
This pursuit of commercial interests was evident
in the Uruguay Round. It is widely recognised that the agreement
on Trade Related Intellectual Property Rights (TRIPS) undermines
traditional societies, local conservation of natural resources
and the Convention on Biological Diversity. The TRIPS agreement
has undermined the diversity of seeds, traditional uses of natural
resources and adequate sharing of the benefits from the use of
natural resources and traditional knowledge. These practices have
led to "bio-piracy" and an undermining of incentives
for local conservation. The sustainable management of natural
resources must be supported by benefits for local communities
and the national government where resources are located.
Examples of problems include patenting of the
natural insecticide properties of the Neem tree, used for generations
by Indian farmers. There are now some seventy patents on various
properties of Neem. Recent attempts to patent Basmati rice and
curry demonstrate the need for reform.
Developing countries also complain that their
efforts to comply with Uruguay Round agreements are not matched
by the industrialised countries. There has been little reduction
in protection on the textile trade and agriculture, despite the
agreements signed. The EU and other industrialised countries have
also increased their use of anti-dumping cases to restrict imports
from developing countries.
Despite promises of economic benefits at the
time the Uruguay Round agreements were signed, most developing
countries claim they have realised few such benefits. This was
confirmed in a recent World Bank study, which found that some
developing countries would need to spend a year's development
budget on implementation of the Uruguay Round agreements, and
would realise few benefits.
It is not surprising that developing countries
do not trust the motives of the EU and others, even when their
proposals are couched in the language of sustainable development
and are purported to be to the benefit of developing countries.
Without such trust, a proactive agenda to pursue a "greening"
of trade will fail. Even modest reforms to avoid the most blatant
conflicts between WTO rules and Multilateral Environmental Agreements
(MEAs) are likely to fail.
Commercial interests
The EU for pursuing an agenda based on narrow
commercial considerations, particularly in pursuing new issues
for negotiation such as investment, government procurement and
competition policy. The approach to these agreements is evident:
— the proposed investment agreement
has the aims of investment liberalisation and investor protection,
unchanged from the failed Multilateral Agreement on Investment
(MAI)—the agreement would confer sweeping new rights on
investors (who are dominated by large multinationals from the
industrialised countries) without any enforceable responsibilities.
Even the inadequate provisions on labour and the environment that
were belatedly added to draft MAI are unlikely to be part of a
WTO agreement;
— the proposal on competition policy
includes only domestic policies, aimed primarily at the developing
countries that favour their national and local industries, aiming
to build their ability to be able to compete internationally.
The proposal ignores the calls from developing country governments
and NGOs for rules on multinationals to avoid unfair and restrictive
business practices such as tax avoidance, international cartels
and predatory pricing; and
— the proposal on government procurement
goes beyond transparency in government procurement to open up
access for EU based multinationals. The choice of the WTO as a
forum for government procurement demonstrates that the aim is
to link trade with government procurement.
The US charges that the introduction of these
new issues is intended to deflect attention from the need to reform
the EU's system of trade-distorting agricultural support. Meanwhile
other countries are pursuing their own commercial interests. The
US, for example, has tabled proposals for negotiations on electronic
commerce, biotechnology and forests, reflecting the interests
of powerful industry lobbies in these sectors.
Concerns over the mercantilist approach adopted
by the major trading blocs have been echoed by eminent commentators.
At a seminar in July 1999, Arthur Dunkel, formerly head of GATT
asked "Who is in the driving seat on trade policy—governments
or business? He continued by saying, whatever the answer, there
is collusion between them.
Review, Repair, Reform
Despite the call for the inclusion of the environment,
and a "Development Round", it is clear that these agreements
would primarily benefit the interests of EU's multinational companies.
It is not surprising that developing countries do not trust the
EU to promote the broader interests of the Government's stated
policies on sustainable development and international development.
WDM recommends that the British Government withdraw
its support from the inclusion of these new issues in the EU's
proposals for the Ministerial Conference. The government should
prioritise a thorough review of existing agreements; changes to
these agreements to reflect the importance of sustainable development
and poverty eradication; and reform of the WTO's core agreements
and decision-making processes.
IMPACTS ON
DEVELOPING COUNTRIES
The share of the Least Developed Countries (LDCs)
in international trade has halved over the past 20 years. Despite
having 10 per cent of world population, LDCs now account for only
0.3 per cent of world trade. A major reason has been a two-thirds
drop in prices for primary commodities over the past 30 years.
This is not directly related to WTO rules, but reflects the failure
of international trade agreements to stabilise commodity prices
and prevent the domination of commodity supply chains by a few
multinational companies. A handful of companies account for most
of world trade in each major commodity.
It is well recognised that the poor in the rural
areas will manage their environment sustainable where they have
the opportunity to do so. However widespread poverty and collapsing
commodity prices have meant the farmers have extensified production
with widespread loss of forests, and other natural resources.
The recent Global Environmental Outlook 2000
report by the UN Environment Programme also identified unregulated
commercial activity as a major cause of environmental damage.
For example, it estimates that 40 per cent of the world's remaining
old growth forests are threatened by commercial logging.
Few developing countries have adequate regulatory
systems for the sustainable use of natural resources or the capacity
to implement them. The recent report from the WTO on Trade and
the Environment stated: "Where there are market failures
trade liberalisation could potentially exacerbate the consequences
of poor environmental policies. For example, demand from the world
market may encourage unsustainable logging, when no proper management
scheme is in place. Indeed, such concerns are often voiced by
the environmental community who opposes further trade liberalisation
until proper environmental policies have been put in place."
The capacity of developing country governments
to put in place adequate regulation has been eroded through the
combination of a heavy burden of international debt servicing
and the stringent restraints on government spending by the IMF
and World Bank under Structural Adjustment Programmes. A programme
of capacity building to develop the regulations and the means
for enforcement will take time, well beyond the projected three
year period for negotiations under a new trade Round.
Further, the ability of developing countries
to implement environmentally sound and pro-poor patterns of development
are increasingly constrained by trade rules that prohibit governments
from using many of the policies that OECD countries and Newly
Industrialised Countries used during their development.
It is likely that a trade liberalisation and
the addition of new areas of non-trade issues such as investment
will precede the ability of developing countries to put in place
a framework for the sustainable use of natural resources and protection
of the environment. A major programme of capacity building should
precede the introduction of new issues and further negotiations
on trade liberalisation in the developing world.
THE CASE
FOR WTO REFORM
The need for reform can be illustrated by a
number of the existing and impending cases under the WTO Dispute
Settlement Mechanism.
Bananas
The banana dispute has been widely discussed.
However, there has been little analysis of the essential dilemma.
Around 9 per cent of the EU market is supplied from the Caribbean
in a production system can be characterised by overwhelmingly
small producers using few pesticides, with relatively low (but
increasing) environmental impact. By contract, over two-thirds
of EU bananas are produced on plantations of up to 5,000 hectares
with heavy use of pesticides by workers that have been systematically
denied their rights including the right to form unions (cited
for violations of conventions by the International Labour Organisation).
Workers in Costa Rica have previously been exposed to dangerous
pesticides that have left many workers sterile.
This points out the inherent contradiction in
trade policy. A simple comparison of monetary costs shows the
advantages of large-scale production in Latin America and the
disadvantage of relatively high transport costs from the Caribbean
islands. However this ignores the costs that are externalised
onto workers and the environment. WTO rules ignore such issues.
Costs are also influenced by industry structures.
This year, the banana multinationals simultaneously reduced wages
and benefits for workers in Costa Rica. However, there are no
competition laws operating nationally or internationally, and
multinationals are free to operate cartels or restrictive business
practices. Rather than proposing rules on international business,
the EU has proposed an agreement that would be limited to domestic
competition policy. The aim appears to be to stop developing countries
from supporting their local and national business and improved
access to those markets for EU companies.
Genetically Modified Crops
The EU is now requiring labelling for GM content
of foods. The US and Canada have complained to the WTO and a trade
dispute is likely. In addition, the main mechanism used to restrict
commercial plantings of GM crops in the UK have been through the
use of voluntary agreements with multinationals.
However, few developing countries have such
power to force voluntary agreements. It is likely that their governments
would be challenged under the WTO if they imposed restrictions
on commercialisation of crops for social or environmental reasons.
The implications are potentially severe for developing countries,
and the estimated 1.4 billion people that depend on small farmers
for their livelihood and food. Even a temporary ban on GM crops
while countries develop adequate regulation would be contrary
to WTO rules. Meanwhile, few developing countries currently have
the capacity to develop a sophisticated regulatory regime or to
consistently enforce it.
An international agreement, the Biosafety Protocol
(under the Convention on Biological Diversity) would potentially
give the right for developing countries to impose trade restrictions.
However, proposals by the US and a few grain exporters (the "Miami
Group") would have subordinated the Biosafety Protocol to
WTO rules. This proposal contributed to the failure of negotiations
in Cartegena in February this year.
These two cases demonstrate the need for reform
of WTO rules. The conflict in these cases is not, as is often
characterised, between environment and development, but between
unsustainable patterns of production and a more sustainable system.
Further cases of the WTO overriding national laws to protect the
environment have clearly demonstrated the elevation of unrestricted
trade over environmental objectives. There is considerable uncertainty
over other trade and environment issues including:
— potential conflict between trade
rules and Multilateral Environment Agreements
— the ability of government, including
local government, to specify in procurement contract the use of
fair trade products, sustainably produced timber or GM free food.
These are measures that are being used or under consideration
by UK local authorities
— the ability of countries to ban a
new technology or other forms of trade on the basis of the precautionary
principle
Reform of WTO rules is long overdue. It should
not be acceptable for vital decisions that effect the environment
and the lives of millions of vulnerable people to be subject to
narrow legal interpretations of a trade agreement written in 1947.
WDM is not, at this stage, proposing a set of
reforms. There are a series of important reforms that must be
considered, including changes to existing WTO agreements and an
end to the most trade distorting and environmentally damaging
subsidies, such as those on fisheries, agriculture and energy.
A thorough process of review must be initiated by governments,
centrally involving civil society from developing countries, for
proposals to have any legitimacy and result in reform.
The full involvement of developing countries
in an open review is essential. With limited resources available
for trade analysis and negotiations, it is impossible for most
developing countries to simultaneously negotiate on a series of
far-reaching and complex issues, while adequately engaging in
a review process. Over 30 developing countries have no permanent
representation in Geneva, while the US delegation typically numbers
over 250, including experts from industry.
The key issue is whether reform of WTO rules
will be accorded priority by governments. The EU's proposals to
pursue agreements for commercial self-interest makes it extremely
unlikely that reform will be a priority. Developing countries
are justifiably concerned over the use of trade measures for protectionism
by strong lobbies in the EU and the USA. Any environmental reforms
would extend the potential for the abuse of trade rules, as has
occurred with the use of anti-dumping measures to protect domestic
industry in the industrialised countries. Joseph Stiglitz, the
World Bank Chief economist observed at a World Bank/WTO conference
in September 1999 that the abuse of anti-dumping measures by industrialised
countries was "thinly disguised protectionism."
The re-establishment of trust between the industrialised
and developing countries will be needed before developing countries
agree to consider reforms on environmental grounds, even those
that would potentially be in their own interests.
INVESTMENT PROPOSALS
IN THE
WTO
WDM welcomed the call by the (then) Minister
for Trade, Brian Wilson, to abandon negotiations on the Multilateral
Agreement on Investment (MAI) and to "start afresh"
on "a blank sheet of paper". Subsequently WDM has met
a number of times with officials and Ministers and has submitted
research on investment proposals that would promote sustainable
development; provide flexibility for the poorest countries; and
balance the rights and responsibilities of foreign investors.
We do not believe there has been any attempt
by the government to engage with the serious shortcomings in the
MAI proposals, as pointed out by NGOs, academics, developing country
governments or the Environment Audit Committee.
We have repeatedly offered to work with the
DTI officials on an analysis of why the MAI was an unacceptable
agreement. This offer has not been taken up and the government
has repeatedly referred to the failure of the MAI as a failure
to "sell" the agreements. In the view of most of the
MAI's critics, such an interpretation trivialises the very real
concerns raised. Concerns were primarily over the substance of
the draft agreement, rather than the process of negotiations.
Problem Definition
The EU's proposal for investment negotiations
in the WTO, reflected in the UK paper "International Investment:
Next Steps", contains the same objectives as the MAI: liberalisation
of investment and investor protection.
Yet it is not clear what problem such an agreement
is trying to solve. The link between liberalisation and more investment
is not established. According to the World Investment Report 1999
from UNCTAD, there is no demonstrable relationship between liberalisation
and a greater level of investment. UNCTAD cites the case of China,
which receives over 40 per cent of the investment into developing
countries, yet has one of the world's most restrictive regimes
on foreign investment.
The deregulatory approach embodied in the objectives
for an investment agreement is demonstrated by the viewpoint that
any laws or policies that restrict foreign investment or place
conditions on foreign investors are distorting measures that should
be removed. This ignores many of the concerns that were raised
during the MAI negotiations. Governments impose some restrictions
on foreign investment for good reasons including:
— Colombia's restrictions on foreign
investment in the processing of toxic waste
— restrictions used by many countries
on foreign investment in inshore fisheries, on the basis that
it would threaten the livelihoods of fishing communities
— restrictions placed on the purchase
of smallholder agricultural land by foreign companies
Nor is the problem that governments are being
tough on foreign investors—according to the World Investment
Report 1999, 94 per cent of the regulatory changes last year were
favourable to foreign investors. Nor is the problem that governments
are discriminating against foreign investors—rather, they
are offered incentives, infrastructure, tax holidays and derogations
from labour standards.
An investment agreement with the aims of poverty
reduction and sustainable development would look very different.
It would address the real problems—mergers and acquisitions
which now account for 85 per cent of foreign investment; wasteful
subsidies for foreign investment; tax avoidance through transfer
pricing and tax havens; international cartels and restrictive
business practices; pressure from footloose companies to lower
social and environmental standards; enclaves of foreign investment
that contribute little to the local economy; and the abuse of
power by companies that are larger than host governments.
Such an agreement would recognise that the aim
is not deregulation, but a balance of rights and responsibilities
in order to reduce poverty and protect the environment. And it
would not be in the WTO, whose main aim is to liberalise trade.
New thinking is required.
The EU's approach aims to achieve an agreement
that would look similar to the MAI. Although the starting position
is more modest, the proposal includes a "ratchet" mechanism
that would lead to a progressively more comprehensive agreement.
Governments would be bound by a "standstill" clause
that would ensure the only changes were in the direction of liberalisation.
This should not be regarded as a "progressive"
agreement. In most cases progressive policy-making in the public
interest is achieved through regulations, marked-based policies
and fiscal measures enacted to further environmental aims and
the public interest. But the standstill agreement sets a standard
of progression through deregulation, prohibiting new measures
that would impose restrictions on foreign investors. This would
prevent governments and local authorities from enacting measures
to address the very real problems that arise from foreign investment.
These problems were highlighted in WDM's previous submission to
the Environment Audit Committee and reflected in the EAC's report.
The government's proposals include statements
on the importance of sustainable development, but there is little
indication that these would be adequate safeguards in an agreement
which has the primary aims of liberalisation and investor protection.
— The addition of a "right to
regulate" in the proposals calls into question what are legitimate
grounds for regulation. As has been evident from the inability
of the WTO to protect consumers (such as in the beef hormone dispute),
conserve the environment (shrimp-turtle battle) and support small
farmers (as in the banana dispute) it is likely that the rights
of investors would be placed above the environment, public health
and poverty reduction.
— The reference to parallel programmes
aimed to strengthen the capacity of countries to regulate, underestimates
the difficulties faced by all governments to develop an adequate
regulatory regime over new technologies, such as genetic engineering.
Current programmes underway through the British aid programme
and UN agencies' work are inadequate to meet the challenge in
most developing countries. The task is likely to take decades
as pointed out by the Director-General of UNCTAD. Rubens Ricupero,
speaking at the High Level Symposium Trade and Development in
Geneva in March 1999.
— These efforts are undermined by policy
incoherence, particularly the IMF mandated, policies of structural
adjustment that have severely reduced the capacity of governments
to regulate. Analysis of the financial crisis experienced by Asian
economies, Brazil, Russia and others, liberalisation of capital
flows without a strong regulatory regime and the means for enforcement
will result in severe social, environmental and economic costs.
The UK pressed for inclusion of a clause into the MAI on not lowering
labour and environmental standards. The formulation of this clause
(which was restricted to an investment, rather than investment
generally) meant that it would have been ineffective. Even this
clause is likely to be dropped from the EU's investment proposals.
A FRESH START
There is now deep mistrust amongst civil society
over the aims of the government in pursuing an investment agreement.
These concerns are echoed by a broad range of civil society in
the UK, including trade unions, local authorities, churches, women's
groups, academics, small business and ethical businesses. Even
eminent free trade economists like Professor Jagdish Bagwati,
formerly adviser to the Secretary General of GATT, have argued
that non-trade issues such as investment should not be included
in the WTO. It appears that the UK government is pursuing the
interests of a few multinational companies above all other objectives.
There are alternatives. WDM has proposed a balanced
agreement that includes rights for developing countries to pursue
sustainable development and a mechanism to enforce internationally
agreed standards on the environment, labour and human rights.
International rules are needed to address the real problems that
arise from an unregulated global economy. However, the approach
adopted by the government embodies a deregulatory approach restricting
government powers and giving new rights to international corporations.
An alternative approach would recognise that
the WTO is not an appropriate forum for negotiation of all agreements
on the international economy. It is no longer acceptable to pursue
enforceable agreements for liberalisation, while marginalising
the interests of developing countries, consumers, workers and
the environment. A framework for enforcement of these interests
is urgently needed. WDM recommends that the government withdraws
its proposals for investment in the WTO and:
— Convenes a thorough and inclusive
process of review to identify the problems with international
investment that need to be addressed.
— Initiates discussion within the UN
Commission on Sustainable Development (UNCSD) and the UN Conference
on Trade and Development (UNCTAD) to involve other countries in
this analysis.
— Proposes a process within the UN
to agree the objectives for a framework of rules on international
investment and a process to take any negotiations forward.
World Development Movement
October 1999
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