House of Commons - International Development

Select Committee on International Development Written Evidence

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 Institutions—and the role of DFID in influencing them—not 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:

Country performance assessments:

Research, training and trade-related technical assistance:

SUBSTANTIVE AREAS

Trade liberalisation

4. Most developing countries have reduced their barriers to trade unilaterally under structural adjustment programmes—not 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 policies—introduced via PSD loans—might 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 process—from 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