21. Memorandum submitted by the Bretton
Woods Project (BWP)
ABOUT THE
BRETTON WOODS
PROJECT
1. The Bretton Woods Project was established
by a network of UK-based NGOs in 1995 to take forward their work
of monitoring and advocating for change at the World Bank and
IMF. The Project maintains contacts with a wide range of civil
society groups interested in the Bank and Fund and produces newsletters
and briefings on current issues.
BACKGROUND
2. This submission focuses on the role of
the WB and IMF in trade and development. While the inquiry will
necessarily dedicate a significant amount of its time to examining
the work of the UK government both at home and abroad and the
WTO at the international level, it is imperative that the central
role played by the Bretton Woods Institutionsand the role
of DFID in influencing themnot be overlooked. Following
the 1994 Coherence agreement[24],
the World Bank and IMF have intensified their interactions with
the WTO aiming at achieving "policy coherence". Under
this trend, the issues related to the integration of developing
countries into the WTO have a much higher profile in World Bank/IMF
activities. This trend was re-affirmed in Article 5 of the Doha
Ministerial Declaration which urged continued "work with
the Bretton Woods Institutions for greater coherence in global
economic policy-making".
3. The Bretton Woods Institutions have a
number of facilities at their disposal to exert influence on trade
policy in borrower countries.
Trade-related loan conditionalities:
countries are forced to implement Bank or Fund-prescribed
trade policy measures as part of policy, sectoral or project loans.
Country performance assessments:
yearly ratings of the policy and institutional environment
in a country that guide decisions on whether to increase or decrease
funding. The more dependent a country is on funds from these institutions,
the higher the incentive it has to get a "good" rating.
Research, training and trade-related
technical assistance: influence is exerted through the role
of the institutions as providers of knowledge and funds for capacity
building.
SUBSTANTIVE AREAS
Trade liberalisation
4. Most developing countries have reduced
their barriers to trade unilaterally under structural adjustment
programmesnot as part of accession to the WTO[25].
Many of these reductions were then locked-in under WTO rules.
Besides risks that unilateral liberalisation may pose for national
development, many developing countries have voiced concerns that
this forced liberalisation has undermined their negotiating position
in WTO negotiations. The World Bank, as made evident in recent
comments from both the International Trade Director[26]
and the Chief Economist[27],
continues to advocate the controversial position of unilateral
trade liberalisation for developing countries. This issue was
raised in the IDC examination of witnesses on the Autumn Meetings
of the World Bank and IMF (para 43); the Secretary of State for
International Development replied that "it is not the policy
of many developing countries . . . to just open unilaterally",
displaying a worrying lack of understanding concerning the ways
in which the international financial institutions impose liberalisation.
While it may not be developing countries' desired policy, it is
most decidedly the reality.
5. While the Bretton Woods Project applauds
DFID and World Bank efforts to support arguments for greater access
for developing countries in industrialised country markets, the
failure to produce any concrete results on this count must be
noted. Research is needed to determine under what circumstances
increased market access (entailing dedicating increased resources
to export promotion) is effective in reducing poverty.
Services trade and GATS
6. Privatisation, including the privatisation
of essential public services, has been a common feature of IFI-led
structural adjustment programmes that continues to be implemented
under the joint WB-IMF Poverty Reduction Strategy Papers. A recent
example which has met with enormous opposition is the Bank-backed
plan to privatise water in Ghana[28].
This pursuit of services privatisation raises a number of worrying
issues:
Developing countries that privatise
basic services might be unable to exempt these services from GATS
disciplines effectively rendering the decision irreversible. This
would violate Article 7 of the Doha Ministerial Agenda which affirms
the right of members to "regulate, and to introduce new regulations
on, the supply of services";
Negotiations on services liberalization
without proper impact assessment could harm the most vulnerable.
Analysts have already pointed out the lack of assessments on the
impact of services liberalization under GATS as a critical imbalance
in the agreement that industrial countries have been reluctant
to address (Raghavan 2001);
Developing countries should be given
credit in ongoing negotiations for their unilateral liberalization,
often imposed via loan conditionality as discussed in paragraph
4 above. No formula has yet to be agreed upon; and
Liberalisation of financial services
could lock-in capital account liberalisation and permanently disable
member countries' ability to introduce capital controls.
Trade and investment
7. The Bank's Private Sector Development
(PSD) strategy puts heavy emphasis on investment climate reforms
including elements such as property rights and security of contract,
infrastructure, competition, regulatory frameworks, financial
sector reform and openness to trade. These activities advance
an agenda on multilateral investment rules that closely mirrors
the failed Multilateral Agreement on Investment. The MAI was fiercely
opposed by most developing countries for advancing an investors'
charter of rights without taking into due consideration development
needs.
8. Constraints to the autonomy of developing
countries to design development-friendly investment policiesintroduced
via PSD loansmight get irreversibly locked-in in WTO negotiations.
This would violate the spirit of Article 22 of the Doha Agreement
which highlights the "special development, trade and financial
needs of developing countries" in regards to trade and investment.
Trade capacity building
9. We welcome the UK government's increased
support for trade-related capacity building. DFID has been the
most important donor to follow-up the Doha call for increased
capacity building support, doubling its funding to £30m between
2001 and 2004. This includes £6m to a World Bank research
programme on WTO negotiations and £1.3m for expansion of
the Integrated Framework (a multi-agency initiative to provide
trade-related capacity building to the least developed countries).
10. The IF will act as a litmus test in
Cancun of industrialised countries' commitment to capacity building.
The prognosis at this stage must be that it is too early to tell;
the IF has only reached the diagnostic phase of its work plan,
and virtually no capacity building has actually taken place on
the ground. Delays at the WTO Secretariat for approval of the
terms of reference for a review of the IF (drawn up by DFID staff)
must not be used as an excuse not to hold an open tendering process
and conduct an independent and inclusive review.
11. The Bank's increasing role in the IF
should be checked. With its size, reach and resources, the Bank's
dominant role in coordinating capacity building may result in
an intellectual straitjacket being thrown over the entire trade
policy processfrom the choice of research areas and how
that research is conducted through to the shape of trade-related
institutions and the training of trade negotiators themselves.
The Least Developed Countries called for an increase in budgetary
resources for UNCTAD, not the World Bank, to carry out trade-related
technical assistance and capacity building.[29]
A joint civil society statement prepared by some 20 NGOs working
on trade issues reinforced the point that governments should have
the flexibility to choose the agency and the form of assistance
that they feel to be most appropriate[30]
12. The Bank's lead role in mainstreaming
trade into PRSPs via the Integrated Framework threatens to lock
the trade liberalisation agenda into national development plans
of the most vulnerable countries. We support calls from both the
UK government and the World Bank to integrate trade strategies
into PRSPs; however, any such integration must first examine the
poverty impact of proposed reforms, and allow for a diversity
of trade strategies which take into account development needs.
RECOMMENDATIONS
13. The Bretton Woods Project calls on the
UK government to pressure the World Bank and IMF to:
Stop imposing trade-related conditionality
as an element of lending programmes;
Cease investment climate reforms
which threaten policy instruments which should be available to
developing countries;
Ensure that PRSPs examine the poverty
impacts of existing and proposed trade policies;
Support developing countries to allow
them to direct the trade capacity building agenda themselves.
This should include support for the participation of both the
private sector and civil society groups in monitoring and the
implementation of capacity building exercises;
Guarantee that an open tendering
process is held in the selection of consultants for the review
of the Integrated Framework.
14. The Bretton Woods Project supports the
calls of other civil society organisations for the UK government
to:
Abandon negotiations on investment
and other so-called "new issues"; and
Suspend GATS negotiations pending
comprehensive and independent assessment of the impact of services
trade liberalisation in developing countries.
CONCLUDING REMARKS
15. The Bretton Woods Project welcomes the
interest of the International Development Committee in these issues
and is ready to provide further information, analysis or contacts
in writing or in person at any time.
RELATED RECENT
PUBLICATIONS FROM
THE BRETTON
WOODS PROJECT
Cornering the Market: The World Bank and trade
capacity building,
http://www.brettonwoodsproject.org/topic/knowledgebank/k30cornering.htm
Bank on trade: will the real World Bank please
stand up? http://www.brettonwoodsproject.org/topic/knowledgebank/k3104trade.html
Bretton Woods Update,
http://www.brettonwoodsproject.org/update/index.html,
bi-monthly online and in print.
BWP
c/o Action Aid.
January 2003
24 "With a view to achieving greater coherence
in global economic policy-making, the WTO shall co-operate, as
appropriate, with the International Monetary Fund and with the
International Bank for Reconstruction and Development and its
affiliated agencies." (Art. III 5 of the 1994 Agreement Establishing
the WTO). Back
25
For instance, a 1997 review found that half IMF programs targeted
quantifiable reductions of trade restrictiveness under their loan
conditions. Between 1981-94 the World Bank made 238 loans supporting
trade liberalization in 75 different countries. Back
26
www.brettonwoodsproject.org/topic/knowledgebank/k3104trade.html Back
27
Making Trade Work for Poor People, Nicholas Stern, Chief
Economist, The World Bank, speech delivered at National Council
of Applied Economic Research, New Delhi, 28 November 2002, p 49. Back
28
www.brettonwoodsproject.org/topic/privatesector/p23waterpriv.html Back
29
Zanzibar Declaration: Meeting of the Ministers Responsible for
Trade of the Least Developed Countries. 6 August 2001, para 24.
www.un.org/esa/ffd/themes/ldc-4.htm Back
30
www.brettonwoodsproject.org/topic/knowledgebank/k27tradestat.html Back
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