APPENDIX 17
Memorandum submitted by the World Development
Movement
The World Development Movement (WDM) welcomes
this International Development Committee inquiry. WDM is an independent
research and advocacy organisation with 8,000 members, 20,000
supporters and 100 local groups across the UK. WDM is a democratic
membership organisation. WDM's aim is to ensure that the policies
of governments, international agencies and companies towards developing
countries promote fairness, opportunities for the poor and respect
for the rights of vulnerable and disadvantaged people.
Since its establishment in 1970, WDM has undertaken
research, lobbying and campaigning on a number of crucial issues
that underlie globalisation. On trade, WDM has campaigned for
phase out of EU's restrictions of the export of textiles and garments
from the poorest countries, access to the EU for commodity exports
and a fairer deal for developing countries at the Ministerial
Conference in Seattle. On investment, WDM has opposed to the Multilateral
Agreement on Investment (MAI) and proposed investment rules that
would aim to create a stronger link between foreign investment
and poverty reduction. On debt, WDM has campaigned since the mid
1980s for comprehensive debt cancellation and reform of the policies
of the IMF and World Bank to prioritise poverty reduction.
WDM submitted evidence to the White Paper in
the form of a paper titled "Making globalisation work
for people", with additional references on recent research,
and attended consultations with the Secretary of State and DFID
officials.
The focus of this submission is on policies
that are vital to meet the challenge of harnessing globalisation
to benefit the poor: international trade policy; international
investment and regulation of the global economy; and international
debt and the conditions imposed by the IMF and World Bank.
EXECUTIVE SUMMARY
1. WDM welcomes the inclusion of a number
of important policies and statements in the White Paper. In particular,
we congratulate the Secretary of State for International Development
for having changed government policy of tied aid. The unilateral
untying of all aid and promotion of local procurement is an important
step forward.
Other important policy changes include a commitment
to increase aid spending and measures to reclaim money illicitly
banked in London, a commitment to increase the aid budget and
a commitment to introduce a new Development Bill to ensure that
the development programme continues to be focused on the reduction
of poverty.
2. The White Paper also includes some important
changes to the overall positioning of government policy on a number
of issues. The clear statement by the Prime Minister in the Foreword
that the elimination of world poverty is in the UK's national
interest provides an important benchmark that can be used to clarify
priorities, particularly where there is a conflict between promoting
the commercial interest of British companies and promoting the
interests of the world's poor.
3. There is also evidence of change in the
Government's thinking on how poverty elimination can be achieved.
This is important, because there has been little disagreement
on the aims, in that globalisation must deliver real benefits
to the poor—disagreements have generally been over the policies
that will achieve this aim. The White Paper helpfully calls states
that:
— "development strategies must
be adapted to local circumstances and owned and nationally led
by developing and transition countries" (Para 8)
— "all developed country policies
towards the world's poorest countries should be consistent with
a commitment to sustainable development and poverty reduction."
(Para 43)
— "we will also urge the WTO to
commit itself to achieving the International Development Targets.
This would send a powerful signal of its commitment to poverty
reduction and acknowledge that trade is not an end in itself."
(Para 229).
This submission from WDM identifies ways in
which the British Government can implement those aspirations through
specific policy changes.
RECOMMENDATIONS:
4. The White Paper fails to clearly identify
the conditions required for pro-poor growth. This is a major weakness,
not only for this White Paper, but also for international institutions
(such as the IMF) that now have a mandate to promote poverty reduction.
The evidence of the past two decades shows a dramatic slowing
of growth, particularly in the poorest countries. This is giving
rise to widespread recognition that current policies are not working,
and new thinking is required if the International Development
Targets are to be achieved. As a result, there is little consensus
internationally on the types of policies that will achieve equitable
patterns of growth.
WDM recommends that the Government re-assess
the evidence of links between specific policies and poverty reduction,
through a participative process involving developing country governments
and civil society. The aim should be to build a shared understanding
of the types of policies that can promote pro-poor development.
5. WDM welcomes the recognition in the White
Paper that the diversity of countries should be respected in the
types of policies that the Government advises developing countries
to adopt.
WDM recommends that the Government ensures
that its policy advice to developing countries and its role in
international institutions, such as the IMF and WTO, recognises
the differing needs of developing countries and respects their
rights to democratically determine their own development path.
6. The Secretary of State for International
Development has played an inspiring role in encouraging governments
and the international community to adopt the International Development
Targets. However, the achievement of these targets involves a
wide range of actors, most centrally being the people of the developing
countries. The Globalisation White Paper should define targets
for the UK Government to achieve in support of the IDTs. The most
important of those are to address its own responsibilities for
policies that affect the poor.
WDM recommends that the Government prepares
a full list of those policies of the UK Government, the EU and
those international institutions within which the Government has
influence to identify those that inhibit poverty reduction. Many
of these policies, such as tariff escalation, protectionism in
agriculture and fisheries and anti-dumping, are included in the
White Paper. The Government should prepare targets and timetables
to reform those policies so to ensure the Government can play
its part in supporting poverty reduction.
7. WDM welcomes the initiative to remove
barriers on exports from the Least Developed Countries and the
recognition that further reform of certain EU trade policies is
important for poverty reduction. In order to take action on
such policies, WDM calls on the government to elevate the political
priority of removing barriers to exports from developing countries,
and press for them to be instituted prior to any negotiations
that would require liberalisation of trade by developing countries.
8. WDM welcomes the government's commitment
to urge the WTO to adopt the International Development Targets.
WDM recommends that this be implemented through
pressing WTO members to re-negotiate existing trade agreements
in order to create poverty reduction as an over-arching objective.
The enforceable provisions of each of the trade agreements should
be subordinated to their conformance with this aim.
9. WDM is concerned that there is little
attention paid to the General Agreement on Trade in Services (GATS)
in the White Paper, considering its potential impact on the delivery
of vital services to the poor.
WDM recommends that the UK Government ensures
that there is a comprehensive and independent assessment of the
impacts of past liberalisation of service sectors on the poor
and assessment of the likely impact of GATS commitments before
undertaking further negotiations. Further, the structure of the
GATS should be reviewed and GATS reformed to accord priority to
poverty reduction over liberalisation.
10. The White Paper includes reforms in
WTO decision-making and calls for extensive capacity building
to enable developing countries to fully participate in trade negotiations.
This follows previous commitments from the Government to press
for fundamental reform of the WTO.
WDM recommends that the Government presses
for such reforms be undertaken as soon as possible, and that they
should proceed the initiation of a new Round—otherwise the
imbalance of power in the WTO will further disadvantage the poor
in new agreements.
11. The White Paper continues to call for
an investment agreement in the WTO. This is opposed by many developing
country governments and civil society organisations.
WDM recommends that the Government work with
UNCTAD, other international institutions, developing country governments
and civil society organisations to build consensus on the aims
for an international agreement on investment and a broader framework
for the regulation of international business. This consensus-building
should replace the EU's political lobbying to have investment
negotiated in the WTO.
12. WDM welcomes the Government's leading
role in replacing aid and debt conditionality to an approach that
supports country-led poverty reduction strategies.
WDM recommends that developing countries
are enabled, encouraged and supported in developing their own
Poverty Reduction Strategy Plans (PRSPs), with strong involvement
from civil society groups and Parliamentarians. WDM urges the
Government to ensure that the IMF demonstrates far greater flexibility
in assessing what constitutes pro-poor macro-economic stability.
WHAT ARE
PRO-POOR
POLICIES?
13. Perhaps the weakest point in the White
Paper is an inadequate analysis of three vital starting points:
— What government policies have worked
in the past to reduce poverty and to what extent are the policies
achieving poverty reduction?
— What different types of policies
might be appropriate to the wide range of economic, social, environmental
and cultural circumstances of developing countries?
— What is the impact on Third World
poverty of the policies over which the Government has responsibility,
including policies of the UK Government, EU and international
institutions?
Answers to these three questions should form
the heart of the White Paper.
CHANGE IS
REQUIRED
14. The crisis of poverty experienced by
the world's poor is included in the White Paper (especially Chapter
1). But a crucial aspect of the problem has not been sufficiently
highlighted. The policies of the recent past are not working -
a change in policy direction is urgently required.
Most regions of the world are suffering from
increasing poverty. Not only are the numbers of people living
on less than $1 per day rising in South Asia, Latin America and
sub-Saharan Africa, but the numbers of people living on less than
$2 per day has risen from 2.55 billion to 2.8 billion since 1990.
Increasing poverty on this scale does not result from a few countries
failing to follow IMF programmes, as is sometimes claimed—it
results from inequities in the structure of the global economy.
15. The only areas of the world that have
significantly reduced poverty over the past decade are China and
East Asia. These countries have been noteworthy for not following
the prescriptions set out by aid donors and the IMF in the past.
They have consistently pursued policies of building their domestic
capabilities until they have been able to compete in international
markets, and then liberalising according to their own schedule
and priorities.
This is a vital point. The White Paper fails
to adequately analyse experience from the past to understand the
policies that have been successful in promoting poverty reduction
and those that have failed.
16. The evidence that the White Paper quotes
in Paras 28-30 and 218 is primarily based on a selective use of
statistical correlations that aim to demonstrate a relationship
between economic liberalisation and economic growth, and between
economic growth and poverty reduction. This evidence is contested.
Some studies show evidence of a weak link, others show no relationship,
while still others (including World Bank analysis) show that costs
of liberalisation fall most heavily on the poor. Most are based
on inadequate and unreliable statistics and are inconclusive.
Despite numerous studies that have attempted to show that greater
openness to trade and investment is good for growth, a synthesis
of the research undertaken for DFID shows that there is no systematic
relationship between openness and growth.[13]
17. To the contrary, there is increasing
evidence that points to a dramatic slowdown of growth and poverty
reduction in the period that the IMF policies of liberalisation
have dominated decision-making in most developing countries. Growth
rates over the past 18 years, a period marked by adherence to
IMF prescriptions of opening trade and reducing government involvement
in the economy, are significantly worse than the previous 20 years,
from 1960-1980.
Analysis of IMF data by the Center for Economic
and Policy Research[14]
shows that per capita income growth of Latin America and the Caribbean
countries fell from 75 per cent in the period 1960-1980 to 6 per
cent in the period 1980-1998; sub-Saharan Africa fell from growth
36 per cent to a decline of 15 per cent; even South Asia fell
from 80 per cent to 60 per cent.
The data shows that, of the survey of 89 developing
countries for which there was consistent data, 77 countries experienced
a fall in growth rates and only 14 experienced a rise. This is
one of the reasons that there has been an increasingly difficult
search for "success stories". Even the latest country
quoted as an example, Uganda, still has per capita income 30 per
cent lower than it was in 1983.
18. Disappointingly, the White Paper repeats
the conventional wisdom about poor performance in the previous
era of more extensive government intervention, ascribing the success
to China and East Asia to their openness to the global economy
(Paras 31 and 219-221). However, the governments of East Asian
economies restricted trade and investment in key sectors and intervened
heavily to build internationally competitive domestic industries.
China is still one of the most heavily regulated economies in
the world. The real lessons are that good government policy can
make a difference in making markets work for the benefit of the
economy and for the benefit of the poor.
Instead, the White Paper consistently insists
that developing countries need to drop their remaining restrictions
and open up to the global economy. This misses the point. Most
of the poorest developing countries are already heavily dependent
on trade. For example, exports from Africa are around 30 per cent
of their GDP, while the comparable figure for OECD countries is
19 per cent. It is the terms of trade and the composition of exports
that are critical to successful trade.
Similarly, the level of foreign investment as
a proportion of gross capital formation in many of the poorer
developing countries exceeds that of the OECD countries (this
is acknowledged in Para 151), and significantly exceeds that of
South Korea during its growth phase. Again, the problem is not
that developing countries are closed to foreign investment—far
from it. According to UNCTAD, 94% of the regulatory changes in
developing countries over the 1990s have been in the direction
of greater liberalisation of rules on foreign investment. Most
spend excessive amounts of public funds, which they can ill afford,
to subsidise foreign investment.
The challenge is to attract more investment
that can create the conditions for a virtuous cycle of growth
and development. This means investment that has strong links into
the domestic economy and which creates jobs, opportunities for
local suppliers and builds skills and capabilities for all. Governments
have an important role in promoting these forms of investment
and restricting the types of investment that risk creating instability
or excessive costs.
19. Therefore, the problem is a lack of
attractive business opportunities, not that developing countries
are closed and need to liberalise even more in order to trade
more and attract foreign investment. This is an assumption behind
current policies, as outlined in Para 186 (on investment) and
Para 247 (on trade). WDM considers that liberalisation should
not be pursued by the Government as an aim in itself. The White
Paper's policies of persuading or pressuring all developing countries
to open up to foreign exports and investment needs to be reviewed,
to recognise the specific circumstances and needs of different
developing countries at different levels of development.
PROMOTING DEMOCRATICALLY-DEFINED
PRO-POOR
POLICIES
20. Just as there is little evidence of
a relationship between liberalisation and growth, there is also
considerable uncertainty over the determinants of pro-poor patterns
of development. For example, the widely quoted World Bank study
authored by Dollar and Kraay[15]
(cited in Paras 27-34) attempted to analyse the determinants of
pro-poor growth. They were unable to derive any statistically
significant relationships that can guide policy-makers.
21. The implication for British government
policy in the face of uncertainty over the evidence should be
to introduce greater flexibility into the policy prescriptions
that the developing countries are called on to adopt. Yet the
White Paper makes a number of wide-ranging recommendations on
the types of economic policies that should apply to a wide range
of countries with different histories, cultures, environments,
economic capabilities, governance and potentials. Those policies
increasingly constrain the abilities of governments to pursue
democratically defined paths of development.
22. For example, the White Paper advocates
in Para 164 that developing countries remove any restrictions
on their capital account. In the past, the IMF has required such
changes as part of Structural Adjustment Programmes and has proposed
that it become a requirement for all members of the IMF under
its Articles. However, the financial crisis in 1997-98 demonstrated
the danger of such a policy, especially given the lack of controls
on the activities of international speculators. The World Bank
and IMF have recently accepted that well-designed capital controls,
adopted by countries such as Malaysia and Chile, can be beneficial.
The recommendation in the White Paper needs
to extend beyond recognising that developing countries should
be allowed to sequence domestic regulation before capital account
liberalisation (Para 162), to support developing countries that
choose to introduce capital controls to deal with the inherent
instability of a largely unregulated international financial system.
23. As WDM's input to the White Paper pointed
out, the policies that are being advocated by the British Government
increasingly restrict the policy options available to developing
countries. Policies on trade, investment, financial flows, state
involvement in the economy and domestic regulation have the effect
of preventing developing countries from pursuing policies that
have been used by OECD countries during their development.
Such policies that promoted the development
of domestic industries, diversified the economy and assisted the
transition to higher skill production have also been used by most
of the successful developing economies of the past century, including
the East Asian economies. These are the countries that have been
able to couple economic growth with a relatively equitable pattern
of income distribution.
24. Yet these policies are being prohibited
under international agreements on finance, investment and trade,
and through the conditions applied by the World Bank and IMF.
In Chapters 2, 4 and 5 of the White Paper, the Government has
committed to continue its current policies that aim to ensure
that such policies cannot be used by developing countries.
It is particularly hard to justify a denial
of such policies to developing countries while many of those policies
are still being used by the industrialised countries themselves,
for example trade barriers and subsidies are extensively used
in the EU Common Agriculture Policy. These policies are justified
by the European Commission on the basis of "externalities"—benefits
from such a policy that justify intervention, for example, to
support small farmers. The strongest justification for developing
countries to use such interventionist policies is to prioritise
poverty reduction over liberalisation. Yet this is not allowed
under WTO agreements and other international policies.
25. The influence of the British Government
over developing country policies should not be underestimated.
Strong conditionality is exercised through the British aid programme,
its governance over the IMF and World Bank and its powerful voice
in the WTO. The policies that the British Government tries to
persuade developing countries to adopt are crucial in the policy-making
process of many developing countries.
26. A high standard of evidence should be
required before the British Government restricts developing countries
from adopting specific policies. This is particularly the case
where the reason that countries have used such policies in the
past has been to encourage broad-based development (such as providing
support for domestic industries to diversify their economy away
from dependence on primary commodities or to nurture "infant"
industries). The history of development economics is littered
with deterministic theories about how countries develop—most
have subsequently been proven to have been ineffective or even
harmful. It is usually the poor that have suffered from the application
of such ideologies.
27. This is one of those eras when there
is mounting evidence that the policies pursued over the past 20
years have not worked and have, in many cases, harmed the poor.
It is time for the Government to retreat from an assumption that
they know what is best for developing countries and acknowledge
that they neither have the knowledge nor the right to exercise
such a heavy influence over the economic decisions that are taken
in democratic countries.
TAKING RESPONSIBILITY
FOR POVERTY
REDUCTION
28. As the Secretary of State for Trade
and Industry, Stephen Byers, said in Seattle, expressing concern
about the way in which the developing countries were treated:
"The WTO will not be able to continue in its present form.
There has to be fundamental and radical change in order for it
to meet the needs and aspirations of all 134 of its members."
This should have set a major challenge for British
Government policy to be addressed in the White Paper. One of the
most fundamental of the changes referred to by Stephen Byers to
the need to make trade rules fairer to developing countries. This
is an example of the policies over which the UK government has
considerable influence. The starting point for the White Paper
should have been a systematic analysis of the ways in which British
Government policy affects poverty abroad.
29. The White Paper could then have set
targets, not only on the ultimate outcomes in terms of poverty
reduction (as in Figures 1.1 and 1.2), but most importantly in
the policies over which it has influence and responsibility. A
tangible outcome of the White Paper should have been a clear analysis
of those policies that inhibit poverty reduction, and timetables
and targets for policy reform.
This may have included policies such as the
EU Common Agricultural Policy, the EU Common Fisheries Policy,
continued high tariffs on textiles and clothing, tariff escalation
and anti-dumping (listed in Para 231, 245 and 246). These targets
are important for achievement of the International Development
Targets, within the power of the EU to deliver and are heavily
influenced by policies and priorities of the British Government.
A focus on these targets would provide confidence that the Government
is fully committed to coherence in government policy (as stated
in the Prime Minister's Foreword) and playing its part in making
progress towards poverty reduction. Most importantly, these are
targets for which the Government should be accountable.
30. In summary, the White Paper has failed
to address fundamental challenges in three key areas. WDM recommends:
— The Government should re-assess the
evidence on poverty reduction, through a participative process
involving developing country governments and civil society, to
derive clear lessons on policies to promote pro-poor development
— The Government should ensure that
its policy advice to developing countries, and its role in international
institutions, such as the IMF and WTO, recognises the differing
needs of developing countries and respects their rights to democratically
determine their own development paths
— The UK Government provides a comprehensive
listing of those policies that currently inhibit poverty reduction
(many of which are listed in the White Paper) and prepares targets
and timetables to make those policies supportive of poverty reduction.
31. In addition to these recommendations,
WDM considers that there is a need for re-examination of the White
Paper's recommendations in three specific areas:
— The policies that developing countries
should adopt on trade and the British Government position on international
trade negotiations
— The international rules that should
be developed to regulate foreign investment and operations of
international companies
— World Bank and IMF conditions for
lending or acceptance of Poverty Reduction Strategy Papers
These issues are addressed in the following
sections.
FUNDAMENTALLY REFORMING
INTERNATIONAL TRADE
WDM agrees with the position of the Government
in the White Paper that strong multilateral rules and a dispute
settlement mechanism are needed to prevent bullying of developing
countries by the major industrialised countries (particularly
the so-called Quad of USA, EU, Japan and Canada that have exercised
a dominant role in the past). Trade, if it is on fair terms, can
play an important part in the development process. The problem
with current trade rules is threefold:
— The rules are not fair to developing
countries
— The aim is generally defined as removal
of all barriers to trade (and increasingly to investment as well)
as an end in itself
— The process of trade negotiation
and dispute settlement is weighted towards the interests of the
most powerful trading blocs
MAKING TRADE
RULES FAIRER
32. It is now widely acknowledged that current
trade agreements and those under negotiation (particularly the
General Agreement on Trade in Services—GATS) are unfair
towards developing countries. WDM's submission to the White Paper
and the IDC report After Seattle called for substantive
changes to the British Government's trade policy to address these
problems.
The incoherence of policy positions is shown
by the section on Realising Export Potential in the White Paper
(Paras 219-225). The example of East Asian countries is used to
make the link between their promotion of exports and a dramatic
reduction in poverty. Yet many of the policies used by those countries,
such as protecting infant industries, requiring foreign investors
to form joint ventures or use local suppliers, and targeting support
for export industries, are now prohibited for use by developing
countries.
Further, efforts by developing countries to
diversify through additional processing of primary products is
prevented through tariff escalation and other trade barriers imposed
by the EU and other industrialised countries. Exporters of manufactured
goods from developing countries already face tariffs four times
higher than those applying to exports from industrialised countries,
they face trade distortions from agriculture and fisheries policies,
and non-tariff barriers from policies such as anti-dumping. Rather
than exhorting developing countries to export more (as in Paras
219-225), the first priority of the British Government should
be to change the policies that inhibit them from doing so.
33. However, the White Paper repeats the
formulation that the only way to achieve reforms is for the developing
countries to agree a new Round that would require them to undertake
further liberalisation. Recent meetings of developing country
trade Ministers (particularly the African Trade Ministers' meeting
in Libreville) have demonstrated that this argument is not acceptable.
Developing countries have strengthened their position that it
is up to industrialised countries to redress the imbalances first,
since they maintain some of the highest barriers.
In calling for "flexibility" from
Ministers of EU Member States, the EU Trade Commissioner, Pascal
Lamy, made it clear that developing countries do not consider
the current EU position to be sufficiently in the interests of
development. It is disappointing that the White Paper did not
show the flexibility called for, particularly in its continued
insistence on negotiations on new issues that are primarily in
the interests of the EU, such as investment.
34. A change in policy is required. WDM
welcomes the EU's proposal on "Everything But Arms"
(Para 244), provided that real assistance is provided to Caribbean
countries and other developing countries affected, and the Government's
support for capacity building (Para 239). But far more fundamental
changes are required to reduce trade barriers applying to all
developing countries.
35. WDM calls for the British Government
to move beyond the White Paper commitments, to elevate the political
priority of removing barriers to exports from developing countries,
and press for them to be instituted prior to any negotiations
that would require liberalisation of trade by developing countries.
Implementing this recommendation would be the
single most important thing that the Government could do to simultaneously
meet the International Development Targets and restore confidence
in the WTO.
MAKING POVERTY
REDUCTION THE
AIM OF
TRADE POLICY
36. WDM welcomes the White Paper's commitment
to "urge the WTO to commit itself, with the rest of the international
community to achieving the International Development Targets"
(Para 229). This is an important step towards ensuring that the
priority of poverty reduction is elevated above WTO principles
of trade liberalisation.
However, in order to be implemented, this commitment
needs to be built into existing and planned trade agreements.
This requires a major change to the concept of Special and Differential
Treatment to ensure that poverty reduction is elevated above liberalisation
principles such as National Treatment or progressive liberalisation.
37. More broadly, developing countries are
currently precluded from enacting policies or laws that support
their domestic industries by requiring them to treat imports (and,
in the case of GATS, foreign investment) "at least as well"
as domestic industries. Creating a priority for poverty reduction
would allow developing countries greater flexibility to pursue
policies to reduce poverty, even if they discriminated in favour
of domestic business. This may be required in order to provide
government assistance for diversification of their economies away
from dependence on commodities, or to provide temporary support
for domestic industries until they are able to compete internationally.
38. WDM recommends that the White Paper's
commitment to urging the WTO to adopt the International Development
Targets be actioned through the British Government pressing for
re-negotiation of existing trade agreements to create poverty
reduction as an over-arching objective. Provisions of each of
the trade agreements would be subordinated to their conformance
with this aim.
This recommendation would represent a fundamental
change to British trade policy and to existing trade law, but
it is required if the Government's commitment to prioritising
poverty reduction is to be implemented.
REFORMING THE
GENERAL AGREEMENT
ON TRADE
IN SERVICES
(GATS)
39. An urgent priority is for the Government
to reform the existing GATS so that the aim of the agreement is
not to promote progressive liberalisation of service industries,
but to promote poverty reduction through trade in services.
40. GATS covers issues that are vitally
important to developing countries. As the introduction to GATS
states: "The agreement on trade in services reached in the
Uruguay Round is perhaps the most important single development
in the multilateral trading system since the GATT itself came
into effect in 1948."[16]
GATS covers all forms of services, a range of some 160 services
sectors.
41. Given its importance, it is surprising
that the White Paper is virtually silent on GATS. There has been
little public or Parliamentary debate on impacts that GATS is
likely to have on developing countries (and on the UK or other
industrialised countries). Despite repeated calls from developing
countries, there has been no assessment of the impact of past
liberalisation of services on developing countries or assessment
of the likely impact of GATS on specific service sectors in future.
42. WDM has concerns over four key aspects
of GATS:
— GATS covers the delivery of services
that are vital for poverty reduction, and which are accorded importance
in the White Paper (such as Chapter 3 calling for increased investment
in health, education, skills and people). Services that are exclusively
supplied "in the exercise of governmental authority"
are excluded from GATS, but services provided on a commercial
basis or in competition with one or more service suppliers are
included.
— An outcome of the conditions imposed
by the IMF under Structural Adjustment Programmes is that many
services in developing countries have been privatised or are provided
by the public sector in competition with the private sector. GATS
would therefore apply to these sectors. They include public services
to which access by the poor is vital, such as health, education
and water supply. A potential problem with GATS is that many of
these vital services cannot be delivered to poor communities at
a profit.
— GATS will prevent developing countries
from promoting their industries or protecting their delivery of
services in those sectors in which it makes commitments to liberalise.
It is generally believed that developing countries voluntarily
enter into such commitments. However, in the reality of international
negotiations, these decisions may not be made with sufficient
information, understanding and voluntary consent:
— Developing countries may not be fully
aware of the implications of their commitments due to the pace
of negotiations and the complexity of the agreement. Already,
the WTO secretariat has found more than 1,400 errors in country
commitments, many of them made by industrialised countries that
have extensive research and negotiating resources. The lack of
capacity of developing countries to negotiate trade agreements
that are in their long term interest is highlighted in the White
Paper (Para 239).
— Developing countries may commit to liberalisation
of service sectors, even if it is perceived not to be in their
interest, in order to gain benefits from other trade agreements
(the GATS negotiations are closely linked to the agriculture negotiations).
The EU's draft negotiating position is calling for developing
countries to liberalise key sectors of vital interest to the poor,
such as water supply. Further, the GATS agreement itself includes
the commitment to progressively liberalise (Article XIX of GATS).
— Developing countries may make decisions
in the short term to commit to liberalisation of sectors without
the ability or capacity to predict the outcome. Many developing
countries are undergoing major changes in the structure of their
economies, and it is difficult to assess the implications in terms
of their future needs and the dynamic competitive advantage for
new service industries. Sectors that may not currently be important
for employment or vital for poverty reduction, may become so in
ten years time. The lack of capacity of developing countries to
undertake research on the likely impact on their specific circumstances
is exacerbated by the lack of any assessment undertaken by the
WTO secretariat of other international agencies (such as UNCTAD).
— Given the potential for developing countries
to enter into commitments that are not in their long term interests,
GATS makes it extremely difficult to reverse these commitments.
Once commitments have been made to liberalise, the threat of action
under GATS makes privatisation effectively irreversible and limits
the ability of governments to introduce new regulations that might
adversely affect imports of services or foreign investors.
— GATS is not just a "bottom-up"
agreement. There are provisions in GATS for which new rules are
being negotiated. These will apply to all service sectors, whether
or not commitments have been made to liberalise them. Of most
concern is Part IV of Article VI on Domestic Regulation, that
constrains regulations to be "no more burdensome than necessary
to ensure the quality of the service." Current GATS negotiations
are defining criteria on how this test would apply, but it may
threaten mechanisms such as cross-subsidisation between richer
and poorer consumers that are important for ensuring universal
access to basic services.
43. WDM recommends that the UK Government
ensures that there is a comprehensive and independent assessment
of the impact of past liberalisation of service sectors on the
poor, and assessment of the likely impact of GATS commitments
before undertaking further negotiations. Further, the structure
of the GATS should be reviewed and reformed to accord priority
to poverty reduction over liberalisation.
INSTITUTIONAL REFORM
OF THE
WTO
44. Much has been written on the need for
reform of the WTO, its negotiating process and the dispute settlement
mechanism. The IDC's Tenth Report examined many of those issues.
It is disappointing that the White Paper did not include the key
recommendations.
The IDC recommended, in Paragraph 41, that several
things must happen before a new Round can be launched which has
any chance of success, notably a review of the implementation
and impact of Uruguay Round agreements; an immediate and significant
increase in technical assistance to developing countries; and
adequate preparation for a new Round. These pre-conditions for
the launch of a new Round were not included in the White Paper.
45. WDM has joined with other UK NGOs to
set out a reform agenda in a number of different areas[17].
We reiterate our recommendation that these reforms be undertaken
as soon as possible, and that they should proceed the initiation
of a new Round—otherwise the imbalance of power in the WTO
will further disadvantage the poor in new agreements.
INTERNATIONAL RULES
ON FOREIGN
INVESTMENT AND
MULTINATIONALS
46. WDM welcomes the recognition that foreign
investment needs to be seen in the context of the overall investment
needs for a developing country. In Para 154, it is recognised
that ". . . a small proportion of external flows are invested
directly in the micro and small enterprise sector, which are the
main source of new jobs and incomes for the poor". Para 156
then sets out a challenge to maximise the benefits of increased
foreign investment by "creating strong links to the domestic
economy." However, some of the policies listed in Box 7 are
the measures that would have been prohibited under the draft Multilateral
Agreement on Investment (MAI). This change in policy by the Government
is welcome, as is the recognition in Para 184 that the OECD was
the wrong forum to negotiate such an agreement.
47. However, the proposals by the Government
on an investment agreement in the World Trade Organisation repeat
many of the failings of the MAI. In particular, neither the White
Paper nor the investment proposals from the EU clearly define
the problem that such an agreement would address. From WDM's analysis,
the problem is not insufficient liberalisation of foreign investment,
but rather the lack of sound international regulation of investment
and the operation of multinational companies.
48. WDM's input to the White Paper argued
that the contribution of foreign investment towards poverty reduction
varies greatly according to the type of investment and the conditions
negotiated for investment. This is particularly the case in privatisation,
mergers and acquisitions, investments in extractive resources
and with regard to short term capital flows. Governments should
have the powers to be able to maximise the benefits of foreign
investment while minimising the potential costs.
The framework for an investment agreement put
forward by the Government in Paras 186 and 187 prioritises the
rights of foreign investors over the need to retain policy flexibility
to benefit the poor. For example, Para 187 suggests that support
for domestic businesses would only be allowed if it were also
offered to foreign investors. This means that government policies
to support domestic industries, used by all OECD countries and
most of the East Asian countries during their development would
be effectively prohibited under such an investment agreement.
Further, the agreement would not include measures
to ensure that foreign investors are regulated with regard to
abuses of power, such as ensuring that international companies
are not allowed to avoid taxation, operate monopolies, undertake
predatory pricing or use other restrictive business practices
at the international level.
Proposals in Para 190, under a Competition Policy
agreement focus on domestic measures (primarily for the benefit
of foreign investors) rather than urgently-needed regulation at
the international level. In order for there to be a balance between
the interests of foreign investors and the needs of the host society
and host communities, such an agreement should not be negotiated
within the WTO, given the WTO's mandate for deregulation, rather
than regulation.
49. WDM therefore recommends that the Government
work with UNCTAD, other international institutions, developing
country governments and civil society organisations to build consensus
on the aims for an international agreement on investment and a
broader framework for the regulation of international business.
This consensus-building should replace the EU's pressure to have
investment negotiated in the WTO.
WDM has made detailed proposals on these issues
in its input to the White Paper process.
COMPREHENSIVE DEBT
RELIEF AND
POVERTY REDUCTION
50. WDM welcomes the important role that
the government has played in achieving progress on debt so far.
However, we are concerned that the reduction in the costs of debt
servicing are not sufficient to meet the challenges of poverty
reduction for Heavily Indebted Poor Countries (HIPCs). The formula
for calculating sustainability of debt should start with the country's
need for investments that are needed to reduce poverty, including
health care, education, infrastructure and other government services,
and then calculate the available funds for debt servicing based
on the country's ability to pay.
51. Debt write-off needs to be applied to
other indebted poor countries than those included in HIPC. Countries
such as Haiti, Nigeria and Bangladesh urgently need the opportunity
to prioritise poverty reduction, and will only be able to do so
if there is a reduction in their debt service payments.
52. WDM also welcomes the British Government's
role in pressing for the introduction of Poverty Reduction Strategy
Papers (PRSPs). We support the statement in Para 308 that the
process of developing PRSPs should put developing countries in
the lead, devising and driving forward their own development strategies.
However, the IMF has retained an effective right of veto over
a poverty reduction strategy (as confirmed most recently in a
statement by Masood Ahmed, the IMF's Director of Poverty Reduction
in the Financial Times, 12 January 2001).
53. A major problem has been that the IMF
has used its power to insist on policies that have little to do
with poverty reduction. Over the past year, for example, delays
have occurred in debt write-off due to privatisation of electricity
(Honduras), cotton (Mali), copper mines (Zambia), financial sector
(Tanzania) and telecommunications (Nicaragua). In many of these
countries, privatisation has been bitterly opposed by significant
numbers of people. WDM's report "States of Unrest" documented
over 50 protests in developing countries against IMF conditions,
involving over one million people. These conditions were imposed
despite a statement by the IMF's Managing Director, Horst Kohler,
that privatisation should not be seen as an ideology.[18]
54. A major problem is that the IMF has
a deterministic view of the "right" policies that countries
should adopt and the power of veto should the PRSP process suggest
alternatives. An increasing number of critics, including the World
Bank former Chief Economist, Joseph Stiglitz, dispute the competence
of the IMF to determine the most appropriate policies to achieve
poverty reduction.[19]
While noting that " . . over-prescriptive aid conditionality
has a poor record in persuading governments to reform their policies"
(Para 309), the White Paper fails to identify the need for the
IMF to step back from applying over-prescriptive powers of veto
over PRSPs.
55. At the core of the problem is, as identified
above, a lack of understanding about what constitutes a pro-poor
strategy. It is clear that the IMF's record of determining policy
through Structural Adjustment Programmes has failed to restore
sustained rates growth to most developing countries. The problem
is not only with the process of conditionality, it is also in
the types of policies that have been prescribed with remarkable
uniformity across most developing countries.
56. WDM recommends that developing countries
are enabled, encouraged and supported in developing their own
PRSPs, with strong involvement from civil society groups and Parliamentarians.
WDM urges the Government to ensure that the IMF demonstrates far
greater flexibility in assessing what constitutes pro-poor macro-economic
stability.
World Development Movement
January 2001
13 See the DFID commissioned paper "A Review
of the Empirical Evidence on Trade, Trade Policy and Poverty"
A McKay, L Winters and A Mamo Kadir, CREDIT, 1999. Back
14
M Weisbrot, R Naiman and J Kim "The Emperor has no Growth:
Declining Economic Growth Rates in the Era of Globalisation",
Center for Economic and Polcy Research, Washington DC, September
2000. Back
15
D Dollar and A Kraay "Growth is Good for the Poor"
World Bank, March 2000. Back
16
WTO Secretariat "An Introduction to the GATS"
WTO, October 1999. Back
17
"Recommendations for ways forward on institutional reform
of the World Trade Organisation", a discussion paper
compiled by ActionAid, CAFOD, Consumers International, FIELD,
Oxfam, RSPB and WDM, 2000. Back
18
Horst Kohler statement at a meeting with NGOs on 11th September
2000. Back
19
Joseph Stiglitz in The New Republic, 17-24 April 2000. Back
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