Memorandum submitted by the World Development
Movement
SUMMARY OF
KEY RECOMMENDATIONS
In its deliberations on agriculture and market
access, WDM urges the International Development Committee to:
— Recognise the continuing need to
examine the fundamental assumptions lying behind the pursuit of
further trade liberalisation in all countries. Mounting evidence
demonstrates the importance of strategic government intervention
in achieving development and the need for developing countries
to have flexibility in their use of trade policy instruments.
— Treat studies on "openness"
with caution and, in particular, look carefully at the definitions
used.
— Be cautious in using the results
of economic modelling to support particular policy conclusions.
The assumptions used in order to make models work are such an
abstraction from the real world as to make the resulting predictions
a highly inaccurate representation of the impacts of policy changes.
— The Committee should reiterate its
recommendation made in the previous trade inquiry in 2000 that
a review of the historical and case study evidence of trade liberalisation
be undertaken, and that the outcomes inform the EU's position
on negotiations.
— Take into account the "bargain"
that will be demanded of developing countries as part of the "single
undertaking". In return for modest agricultural reform in
Europe, developing countries will be required to give up their
ability to use the same kinds of trade and investment policies
that industrialised countries used to develop. WDM believes this
is not a fair or acceptable deal for the poor. The Committee should
recommend unilateral agricultural reform without demanding further
legally binding liberalisation commitments from the developing
world in areas like agriculture, services and industrial tariffs
or the development of new binding rules. In particular, the Committee
should recommend the UK does not press, at the Cancun Ministerial,
for negotiations to establish new rules on investment, transparency
in government procurement, competition policy and trade facilitation.
In its deliberations on Special and Differential
Treatment (S&DT), WDM urges the Committee to:
— Recommend moving beyond "traditional"
S&DT—ie setting arbitrary extended timetables for implementation.
S&DT should entail different rules for countries at different
stages of development. This is a key test of the "development
round" rhetoric. Further, developing countries should not
have to give "concessions" in order to achieve effective
S&DT.
— Conduct an inquiry into World Bank
and IMF policy conditionality in order to make recommendations
for UK input into Bank and Fund policy-making. The achievement
of S&DT in the World Trade Organisation is being undermined
by conditions imposed on developing countries by the IMF and World
Bank in return for debt relief and new loans. Developing countries
have effectively been forced to unilaterally and extensively liberalise
trade. These policies have demonstrably failed to deliver development.
In its deliberations on developing country capacity,
WDM urges the Committee to:
— Recommend reforms are undertaken
along the lines of those proposed in the "Like Minded Group"
paper submitted to the WTO in April 2002. Ensuring developing
countries can effectively participate in trade negotiations is
not just a case of providing money for "capacity building".
It also requires action to, for example, reduce the number of
meetings, open up the "green room" process and keep
the negotiating agenda manageable.
— Recommend the UK does not press,
at the Cancun Ministerial, for negotiations to establish new rules
on the issues of investment, transparency in government procurement,
competition and trade facilitation. Adding these issues to an
already overloaded agenda will further undermine the ability of
developing countries to effectively engage in the talks.
— Call for abolition of so-called "mini-ministerials"
and press for alternative forms of decision-making that allow
all WTO members to be involved. "Mini-ministerials"
are not a transparent and inclusive way to forge agreement on
trade policy.
In considering the decisions to be taken at
the Cancun Ministerial Conference, WDM urges the Committee to:
— Recommend the UK does not press,
at the Cancun Ministerial, for negotiations to establish new rules
on investment, government procurement[1]
and competition regulations. Applying the WTO's "core principle"
of non-discrimination to these issues is not appropriate for achieving
poverty reduction. There is no sound evidence to suggest that
establishing new rules on investment will increase investment
flows to developing countries. Instead, the UK should press for
reform of the TRIMS Agreement to provide more flexibility for
developing countries.
"The WTO can best be understood...as the
product of intense lobbying by specific exporter groups in the
United States or Europe or of specific compromises between such
groups and other domestic groups. The differential treatment of
manufactures and agriculture, or of clothing and other goods within
manufacturing, the anti-dumping regime, and the intellectual property
rights (IPR) regime, to pick some of the major anomalies, are
all results of this political process. Understanding this is essential
as it underscores the fact that there is very little in the structure
of multilateral trade negotiations to ensure that their outcomes
are consistent with development goals, let alone that they be
designed to further development." (Prof. Dani Rodrik, 2001).
1. INTRODUCTION
The World Development Movement (WDM) welcomes
the International Development Committee (IDC) Inquiry into "Trade
and Development: Aspects of the Doha Agenda". WDM is an organisation
campaigning to tackle the root causes of poverty and has been
working on trade and development issues for many years. Over this
time, WDM has built considerable expertise on trade agreements
and their implications for pro-poor development policy, and is
grateful for the opportunity to present its views to the IDC.
WDM recognises that it is difficult for one
committee inquiry to examine the full range of trade and development
issues and the need, therefore, to focus the inquiry on particular
aspects of the trade debate. WDM will, as far as possible follow
the Committee's suggested outline of topics. However, given the
timing of this inquiry (ie nine months before the WTO Ministerial
Conference in Cancun), WDM feels that it is important also to
comment on issues most relevant to decisions that will be taken
in Cancun—in particular, whether or not to begin negotiations
to establish new WTO rules on investment, competition, transparency
in government procurement and trade facilitation.
WDM will therefore structure its submission
broadly along the lines proposed but with additional comments
on these so-called "Singapore issues".
2. AGRICULTURAL
REFORM AND
MARKET ACCESS
2.1 Introduction
WDM believes that agricultural trade can play
a useful role in improving the livelihoods of the poor in the
developing world. Reform of the Common Agricultural Policy (CAP)
is a high priority (for both domestic and development reasons)
and should continue to be pursued by the UK Government.
In particular, there is no justification for
paying European agricultural producers subsidies to export. These
subsidies should be abolished. Similarly, the practice of tariff
escalation has no justification in the industrialised world and
should be abandoned.
However, while there is broad and steadily growing
support for such agricultural reform (at least in the UK), there
continues to be debate over the degree to which developing countries
themselves should commit to binding liberalisation (both in agriculture
and in other sectors) and how this issue should be treated in
the negotiations. WDM would therefore like to examine this issue—which
is intimately linked with the agriculture and market access negotiations—in
more depth.
2.2 The evidence on developing country liberalisation
"In the last forty years, those developing
countries which have managed to be more open and trade more in
the world economy have seen faster growth rates than those which
have remained closed". (Speech by Gordon Brown at the Commonwealth
Finance Ministers Meeting, September 2002).
The implication in the above quote is that successful
developing countries are those that liberalise their economies.
In other words, developing countries need to reduce their own
barriers to trade in order to reduce poverty. However, closer
examination of the evidence suggests the opposite.
During the period 1996 to 2000, four of the
top five fastest growing developing countries (Equatorial Guinea,
China, Mozambique, and the Dominican Republic) were classed as
having trade restrictive policies by the Wall Street Journal (no
data was available on the fifth, the Maldives). 1 Similarly, in
Mauritius, between 1975 and 1999, annual per capita growth averaged
4.2% and income inequality fell, yet, during the 1990s, the IMF
ranked Mauritius as one of the most protected economies in the
world. 2
In contrast, according to the IMF's "Trade
Restrictiveness Index" 16 sub-Saharan African countries have
lower trade barriers than the EU, yet are struggling to improve
living conditions for their people.
For example, in 1992, in return for IMF loans,
the Zambian Government agreed to undertake an economic restructuring
programme. 3 Between 1992 and 1997 maximum tariff levels were
cut from 100% to 25% and all quantitative restrictions on imports
and exports were abolished. 4 In 1995, the IMF praised the Zambian
Government for making "great strides. . . notably in freeing
markets and by eliminating government intervention and control."
5Yet, during this period, formal sector employment in manufacturing
fell by 40% and manufacturing declined as a proportion of GDP.
6 Between 1990 and 1999, Zambia's annual per capita growth rate
was minus 2.4%.7 Between 1990 and 2000, imports of goods and services
increased from 37 to 46% and exports fell from 36 to 31%,8 worsening
the country's trade deficit.
More recently, provision of debt relief has
been made conditional on Zambia implementing these free market
policies. 9
"It is a cruel irony that to get any debt
relief at all, the IMF and World Bank are forcing us to follow
unsuitable trade policies, which are driving us further into poverty.
At the same time, rich countries are pushing for international
trade rules which are making these policies effectively irreversible."
Francis Ng'ambi, Chair of the Malawi Economic Justice Network
Incredibly, despite the massive failure of liberalisation
in Zambia, the WTO Secretariat concludes in its recent "Trade
Policy Review" that, "Continued structural reforms,
including privatization, and further tariff rationalization would
contribute to better resource allocation. Such efforts will improve
Zambia's ability to attract investment." 10
It is hard to see how the WTO can come to this
conclusion based on an examination of the evidence. Also, it is
not as if this case is a "one-off"—Zambia is not
alone in its experience of the failure of liberalisation. In reviewing
development successes and failures, the United Nations Conference
on Trade and Development (UNCTAD) states, "A few [developing]
countries have seen sharp increases in their shares in world manufacturing
value added which matched or exceeded increases in their shares
in world manufacturing trade. This group includes some East Asian
NIEs which had already achieved considerable progress in industrialization
before the recent shift to export drive in the developing world.
None of the countries which have rapidly liberalized trade and
investment in the past two decades is in this group." 11
Historical evidence demonstrates conclusively
that most, if not all, of todays industrialised and newly industrialised
countries used a wide variety of what would now be considered
"trade distorting" policy interventions during their
development process. 12 This has led some to critically re-evaluate
the timing, scope and reversibility of developing country liberalisation.
For example, the 1999 Trade and Development Report calls for the
concept of infant industries to be extended beyond the earliest
stages of production, to include more advanced protection and
support for industries entering international markets. 13
That said, the prevailing orthodoxy in the industrialised
world continues to be that strategic industrial policy and government
intervention in the economy are not the best policies for developing
countries to adopt. Many developing country governments are advised
that such policies would not be in their best interests. Even
if this belief had some justification—and the evidence suggests
otherwise—there is still a big step between saying that
these policies are ill-advised and enacting international agreements
that would prohibit governments from using these policies. Yet
this is increasingly occurring under bilateral investment treaties
and international agreements (eg existing WTO agreements on intellectual
property rights, investment, services and subsidies), even though
there has been little rigorous examination of the implications,
particularly in terms of constraints on poverty reduction.
Prohibiting the use of certain trade and investment
policies through legally binding rules denies current and future
developing country governments the opportunity for an iterative
policy process. One of the lessons from the experience of the
most successful economies in the last century (eg Japan and the
East Asian economies) has been the importance of learning. "When
a policy works, pursue it: when it fails, change it. That a government
makes mistakes is inevitable. That it does not learn from those
mistakes means that it needs to find ways to learn. Government
learning, not government minimising is the object." 14
WDM believes the weight of evidence demands
a rethink of the prevailing orthodoxy in the industrialised world.
This continues to be just as important in the agriculture and
market access debate as the need to press for reform of the CAP.
It is therefore important that, when examining and making recommendations
on these issues, the Committee recognises the need for developing
country flexibility in using trade-affecting government intervention.
It is also worth considering why there continues
to be such a discrepancy between the conclusions of those advocating
rapid developing country liberalisation and binding rules, and
those advocating caution and flexibility. WDM believes part of
the explanation lies in the use of different forms of evidence.
Those who favour greater flexibility in the use of trade policy
instruments tend to cite case studies and historical evidence.
Those who favour liberalisation for developing as well as industrialised
countries, tend to cite aggregate statistical analyses looking
at "openness and growth" or the results of economic
models attempting to predict the outcome of tariff and non-tariff
barrier cuts. The next section examines the reasons why the latter
evidence should be treated with a great deal of caution.
For further information, WDM urges the Committee
to read and take note of Harvard University Professor Dani Rodrik's
short report and recommendations for the UNDP entitled "The
Global Governance of Trade As If Development Really Mattered".
The Committee should recognise the continuing
need to examine the fundamental assumptions lying behind the pursuit
of further trade liberalisation in all countries. Mounting evidence
demonstrates the importance of strategic government intervention
in achieving development and the need for developing countries
to have flexibility in their use of trade policy instruments.
2.3 Statistical analysis and economic modelling
The quote at the start of section 2.2 uses the
concept of "open" and "closed" economies,
equating "openness" with low trade barriers. This is
a natural inference to make, yet openness in the academic literature
is mostly used to describe how much a country trades. This is
measured by the contribution that imports and exports make to
GDP and does not directly relate to government trade policy. It
is therefore misleading to conclude that a study correlating "openness"
with growth is evidence in favour of developing country trade
liberalisation. It is quite possible to be "open" (ie
trade a lot) whilst maintaining tariff and non-tariff barriers
to trade.
According to UNCTAD, Least Developed Countries
(LDCs) are more open to trade than developed nations. Trade as
a share of GDP in the 49 LDCs is 42.9%, compared with 40.2% in
the high-income OECD countries. 15 Increasing "openness"
(ie exports and imports) is clearly not a precondition for being
a rich country.
In Sub-Saharan Africa (SSA), trade is even more
important to their economies. In 1990, trade as a share of GDP
in SSA was 53%. In 2000, both imports and exports had increased
so that trade accounted for a massive 65% of GDP. 16 Africa doesn't
seem to be suffering from a lack of "openness" or "integration
into the world economy". However, during the period 1990-2000,
while trade was seemingly booming, per capita income growth was
minus 0.3%.17 Increasing "openness" is clearly not a
precondition for increasing growth and reducing poverty.
In contrast to studies on "openness",
a study examining trade policies (rather than trade outcomes)
concludes, "Cross national comparison of the literature reveals
no systematic relationship between a country's average level of
tariff and non-tariff restrictions and its subsequent economic
growth rate. If anything, the evidence for the 1990s indicates
a positive (but statistically insignificant) relationship between
tariffs and economic growth." 18 (original author's emphasis)
It is therefore critical for effective policy
formulation that this confusion over "openness" be recognised
and evidence of the impact of policies be examined.
Examining the kind of evidence being used is
also important. As already mentioned, there is a need for developing
country flexibility in trade policy. This is perhaps even more
important in agriculture given the complexity of agricultural
production and trade and its social and environmental impacts.
However, a heterogeneous approach to agricultural trade policy
and market access is being undermined by the proliferation of
studies based on highly generalised scenarios which tend to draw
"liberalisation benefits all" conclusions.
In particular, WDM would like to draw the Committee's
attention to the increasing use of Computable General Equilibrium
(CGE) modelling as a tool to inform policy development. CGE models
are an attempt to create a model of how economies work and interact
within each other so that variables—such as tariffs—can
be altered to predict the economic outcome.
Although these models tend to produce figures
that are useful for pithy, publicly digestible messages, they
are by no means an accurate representation of the likely real
world outcomes of a particular policy change. For example, according
to the World Bank, services liberalisation in developing countries
will result in benefits of $900 billion dollars by 201519. Such
figures tend to be used as incontrovertible proof of the need
for liberalisation by all countries whatever their circumstances.
However, in the same document the World Bank admits that "the
quantification of services sectors' trade barriers and other forms
of protection is still more art than science" 20leading the
Center for Economic Policy and Research to conclude, "At
this point, the projections of gains from the liberalization of
services must be viewed as highly speculative. It would be foolhardy
for any nation to conduct policy based on theory and evidence
that is so poorly developed." 21
More generally, CGE modelling (including modelling
of goods trade) should be treated with a high degree of circumspection
for the following three reasons.
(a) Questionable assumptions
The assumptions on which these models are based
render their results highly inaccurate. In order for CGE models
to work, they have to hold various factors constant, and make
a range of assumptions to avoid dealing with the chaos of real
economies. The standard assumptions used in models produced by,
for example, the World Bank[2]
and UNCTAD[3]
include:
— Perfectly competitive markets: this
involves, for example, everyone having access to perfect information,
producers having no influence over prices and cost-free entry
into markets.
— Consumers all having exactly the
same tastes.
— Perfect substitution of capital:
in other words, a set of ploughs can be effortlessly converted
into a textile mill which can effortlessly be turned into a tomato
canning factory which can effortlessly be converted into an office
producing computer software.
— No "supply side constraints"
(eg perfectly functioning transport infrastructure).
— Full use of factors of production
(eg land, labour and capital are all fully employed).
These assumptions are a major abstraction from
real world conditions. Markets are far from being "perfectly
competitive"; consumers do not all have the same tastes and
so do not allocate their income in the same way; changing the
way capital is used does incur costs; developing countries often
face major "supply side constraints"; and factors of
production are rarely, if ever, fully employed. Assuming away
these facts of life means the estimates produced by CGE models
are likely to be significantly inflated. At best, therefore a
CGE model can provide an indication of the direction of benefits
(ie positive or negative). But to trust the figures as some sort
of accepted truth—and more importantly to base policy on
them—is highly irresponsible.
The prevalence of such models has also led to
a tendency for theory to become more powerful than reality. Thus,
if free market policies fail, governments are blamed for not correcting
the various market imperfections, rather than the economists being
blamed for not taking into account market imperfections in their
policy prescriptions.
(b) Ignoring complexity
CGE models are an attempt to aggregate broad
economic impacts across countries, groups of countries or even
the whole world. They largely do not take into account different
circumstances and complexities within countries.
Case studies, on the other hand, can develop
a more detailed picture of what can work in different circumstances.
However, the message from case studies is often not so easy to
digest. Case studies often show that the world is extremely complex
and what works in one circumstance may not work in another.
The rise of CGE modelling as a tool to help
define policy is of concern because it tends to ignore complexity
which leads to simplistic policy solutions—such as all developing
countries should liberalise their economies as soon as possible.
(c) Predicting the future, rather than learning
from the past
The "end of history"—as proclaimed
by Francis Fukuyama—was supposedly the final and lasting
triumph of western style capitalism. However, the real triumph
seems to have been convincing people that the industrialised world
developed through free markets and "free trade".
The reality is quite the opposite. The development
history of the industrialised world is characterised by a process
of economic advancement based on active industrial policy—including
the selective use of tariffs, subsidies, industrial espionage,
state trading enterprises and weak intellectual property laws—all
aimed at boosting the competitiveness of domestic businesses.
22 Many of the same policies were used by the newly industrialising
countries during their phases of economic development and by the
most successful developing countries of recent years (eg China,
India, Mauritius). 23, 24, 25
Despite this evidence, such historical economic
analysis seems to play little or no part in decision-making. Governments
have reinvented development as a process that can only be achieved
through free market reforms and trade liberalisation. This is
supported with the results of CGE models that attempt to predict
the future by assuming that economic textbooks are a decent proxy
for reality. The more these models are used without explaining
their limitations, the more they become accepted as gospel truth,
and the harder it is to have a sensible trade debate.
WDM believes that if we are to move forward
on the trade debate, we have to develop a much more critical and
balanced view of the evidence. While modelling can have a place,
we need to be aware of—and publicise—its limitations.
We need to use case studies and more qualitative evidence, and
we need to look at the past to see what has worked and what has
not. As the IDC recommended in 2000, "Several things must
happen before a new Round can be launched which has any chance
of success: First, a review of the implementation and impact of
the Uruguay Round agreements must be initiated. Without this,
we fail to see how the WTO can make any claim to have learned
from experiences to date and apply those lessons to the new Round."
26Suffice to say, this historical analysis has not been conducted,
including in the Sustainability Impact Assessments commissioned
by the European Commission. Nor have the lessons learnt from case
studies on the impact of agricultural liberalisation undertaken
by the FAO27 and others28 been incorporated into the EU's negotiating
positions.
It is particularly important for the Committee
to address the issue of developing country liberalisation, and
the flaws in the evidence used to support it, because the purported
"benefits" of such policies will be used as a fundamental
justification for why developing countries should enthusiastically
embrace opening their own markets (in various different ways)
in return for some degree of agricultural reform in the North.
The next section briefly examines the nature of this "bargain".
WDM urges the Committee to treat studies on
"openness" with caution and, in particular, look carefully
at the definitions used. WDM also urges the Committee to be cautious
in using the results of economic modelling to support particular
policy conclusions. The assumptions used in order to make models
work are such an abstraction from the real world as to make the
resulting predictions a highly inaccurate representation of the
impacts of policy changes. The Committee should reiterate its
recommendation that a review of the historical and case study
evidence of trade liberalisation be undertaken, and that the outcomes
inform the EU's position on negotiations.
2.4 The grand bargain
The single undertaking—which is a fundamental
aspect of the negotiations—means that "nothing is agreed
until everything is agreed". The European Union was perhaps
the most vociferous proponent of this negotiating approach as
it allows maximum opportunity for trade-offs between different
issues on the negotiating table.
The question is, what will developing countries
be required to "give up" in order to gain agricultural
reform in Europe, the USA, Canada and Japan? Cuts in developing
country agricultural tariffs and subsidies? New rules on investment,
competition policy and government procurement? Further commitments
under the GATS? Further cuts in industrial tariffs? Little substantial
special and differential treatment? No changes to anti dumping
rules?
WDM believes that the EU should implement its
previously agreed commitments to reform the CAP without extracting
further concessions from developing countries in return. This
should be the starting point for a "development round".
Yet, if the Uruguay Round experience is anything to go by, the
industrialised world will use promises of agricultural reform
as a way to gain acceptance for new rules aimed at restricting
developing country policy flexibility.
It is likely that the European Union enlargement
process would force the EU into some sort of reform process regardless
of what happens in the WTO. In fact, perhaps the worst-case scenario
for some European Governments and the European Commission is to
be forced by enlargement and internal pressure into CAP reform
without extracting market access out of the developing world (whether
in agriculture, services, industrial products, new investment,
competition and government procurement rules etc.). This perhaps
explains the EU's eagerness to conclude a round of negotiations
as quickly as possible and to maximise the possibility for trade
offs through the process of the "single undertaking".
Yet such trade-offs are part of a steady erosion
of the development policy options open to poor countries. As one
Harvard economist concludes, "The exchange of reduced policy
autonomy in the South for improved market access in the North
is a bad bargain where development is concerned." 29As already
outlined, few if any countries have achieved development without
the use of strategic government intervention across a range of
policy areas including tariffs, subsidies, investment regulation,
weak intellectual property laws and discriminatory government
procurement. The EU's approach to the negotiations is forcing
developing countries into a corner and, despite the Doha "Development
Round" rhetoric, is likely to harm their long-term development
prospects.
WDM urges the Committee to take into account
the "bargain" that will be demanded of developing countries
as part of the "single undertaking". In return for modest
agricultural reform in Europe, developing countries will be required
to give up their ability to use the same kinds of trade and investment
policies that industrialised countries used to develop. WDM believes
this is not a fair or acceptable deal for the poor. The Committee
should recommend unilateral agricultural reform without demanding
further legally binding liberalisation commitments from the developing
world in areas like agriculture, services and industrial tariffs
or the development of new binding rules. In particular, the Committee
should recommend the UK does not press, at the Cancun Ministerial,
for negotiations to establish new rules on investment, transparency
in government procurement, competition policy and trade facilitation.
3. SPECIAL AND
DIFFERENTIAL TREATMENT
Special and Differential Treatment (S&DT),
if properly conceived and implemented, could play an important
role in making trade rules fairer for developing countries. Unfortunately,
as currently formulated, S&DT tends only to be couched in
terms of longer implementation timetables, voluntary technical
assistance and vague references to technology transfer. Whilst
provisions relating to technical assistance and technology transfer
could be strengthened (eg making implementation conditional on
receiving technical assistance) a more fundamental change needs
to take place, differentiating the rules that are appropriate
for countries at different stages of development.
Currently, the general presumption is that all
WTO members sign up to the same rules but that some countries
(eg LDCs and developing countries) are given arbitrary "grace
periods" (normally 10 or five years) in which to implement
them. Examples of such rules include the Agreement on Trade-Related
Intellectual Property Rights (TRIPS) and the Agreement on Trade-Related
Investment Measures (TRIMS). The assumption is that the same rules
are appropriate for all countries but that some countries need
more time to develop the appropriate institutions and policies.
However, historical evidence overwhelmingly points to the fact
that different countries, at different stages of development require
different approaches to trade and investment policy and institution
building. 30
Effective S&DT therefore requires a rethink.
S&DT in trade rules should move beyond setting arbitrary extended
timetables for implementation. S&DT should entail different
rules for countries at different stages of development.
It is also important for the Committee to recognise
that developing countries have to bargain for S&DT. In order
to achieve fair and logical differentiation in the trade system,
they have to use up valuable political capital. Once again, they
have to give potentially "non-development friendly"
concessions to industrialised countries in order to achieve some
"development friendly" outcomes. It is virtually impossible
for anyone to fully understand the overall cost/benefit outcome
resulting from trade-offs between such different policy areas
as tariff reform, subsidy reform, rule changes, GATS commitments
etc, which calls into question the wisdom of the EU's "single
undertaking" negotiating approach.
For example, how is it reasonably possible for
a developing country negotiator to assess the long-term costs
and benefits of more effective S&DT rules in exchange for
less radical agricultural tariff and subsidy reform? The result
of this process could therefore be a final agreement containing
some development friendly aspects but an overall outcome that
is a bad deal for development. In general, WDM questions the logic
and benefits of such a "trade-off" process and, in particular,
believes that treating countries differently should be such a
fundamental aspect of the trade system, its incorporation into
trade rules should not be the subject of such bargaining. In a
so-called "development round", the issues of S&DT
and implementation should be agreed prior to negotiations on new
commitments to be undertaken by developing countries.
A final, and critical point to make on S&DT
is that, even if developing countries are able to negotiate more
effective S&DT, this is being undermined by the unilateral
trade liberalisation policies imposed on them through IMF and
World Bank debt and loan conditionality. The example of Zambia
used earlier in this submission is a case in point. Such developing
countries have effectively been forced to unilaterally and extensively
liberalise trade and, despite the fact that these policies have
demonstrably failed to deliver development, are coming under continued
pressure to do more. It is wholly inappropriate for the International
Financial Institutions to be undermining any hard-won flexibility
developing countries may achieve in the WTO. WDM urges the Committee
to investigate such conditionality, and the UK's role in defining
it, to inform UK Government policy.
Special and Differential Treatment (S&DT)
in trade rules should move beyond setting arbitrary extended timetables
for implementation. S&DT should entail different rules for
countries at different stages of development. This is a key test
of the "development round" rhetoric. Further, developing
countries should not have to give "concessions" in order
to achieve effective S&DT.
The achievement of S&DT in the WTO is being
undermined by conditions imposed on developing countries by the
IMF and World Bank in return for debt relief and new loans. Developing
countries have effectively been forced to unilaterally and extensively
liberalise trade. These policies have demonstrably failed to deliver
development. WDM urges the Committee to conduct an inquiry into
World Bank and IMF policy conditionality in order to make recommendations
for UK governance over Bank and Fund policy-making.
4. THE CAPACITIES
OF DEVELOPING
COUNTRIES
Representation of developing countries in the
WTO is not just a question of the number of developing country
members. It is equally a question of the degree to which those
countries can actively participate in the negotiations. Unfortunately,
despite the steady increase in the former, the latter is still
sadly lacking. It is well known that many developing countries
still lack the capacity to take part effectively in WTO negotiations.
For example, in Qatar, WDM analysis revealed there were 502 EU
delegates, while many developing countries had only one or two
representatives.
While WDM broadly welcomes the UK Government's
financial contribution to building the capacity of developing
country delegations in Geneva and building trade policy capacity
in developing country capitals, this is a long and slow process.
Effective capacity building takes decades but the negotiations
are happening now. Other actions can and must be taken immediately
to address the imbalances in the WTO. For example, as the IDC
recommended in 2000, "We consider that the sizes of negotiating
teams at the WTO needs further examination to make such negotiations
more equitable (paragraph 55)." 31This could take the form
of a limit placed on the size of delegations attending Ministerial
Conferences. This would be a small step towards meeting the challenge
that then Secretary of State for Trade, Stephen Byers outlined
following Seattle, "There has to be fundamental and radical
change in order for [the WTO] to meet the needs and aspirations
of all 134 of its members."
Also, capacity needs to be reflected in the
negotiating schedule and workload. Negotiations need to be realistically
tailored to the ability of countries to participate. In 2001,
there were an estimated 45-50 important meetings per week on trade
negotiations. The last year will have likely seen an increase
to reflect the agenda of nine negotiations agreed in Doha and
at least nine other issues being discussed for review and/or potential
future negotiations in Working Groups or Committees. This is too
much for most delegations and means they cannot fully represent
their interests, let alone undertake the necessary research, inter-departmental
analysis and consultation with civil society in their countries
that would facilitate the development of an informed negotiating
position.
This implies first that there should be a more
realistic timetable for negotiations, rather than the impossible
aim of three years, which will ensure little opportunity for smaller
and poorer countries to participate. As the IDC recommended in
2000, "the new Round should be conducted, at an appropriate
pace." 32
Second, it argues for limitation of negotiations
to the agreed issues, with no start to an ambitious set of negotiations
on the hugely complex and massive agenda represented by the "Singapore
issues" (investment, competition policy, transparency in
government procurement, trade facilitation). By next year, the
capacity building efforts of the UK Government will not have made
a significant difference. Adding these issues to the negotiating
agenda will therefore, in reality, reduce the ability of developing
countries to participate effectively. Yet, despite knowing that
this will adversely affect developing country participation, the
UK Government is intent on pushing to expand the agenda at the
Cancun Ministerial Conference.
Effective developing country participation also
requires changes to the way negotiations are conducted, both in
Geneva, and at Ministerial Conferences. Past experience demonstrates
that developing country interests continue to be sidelined due
to untransparent processes.i For example, a recent report by Focus
on the Global South details how developing country proposals were
omitted from negotiating texts submitted to the Doha Ministerial
Conference; how, in Doha, developing countries were excluded from
meetings; and how the Conference was extended without agreement
from the full membership meaning some delegates, who were unable
to re-schedule flights, missed the final stages of the meeting.
34
As the IDC recommended in 2000, "There
are some key reforms which must be implemented immediately, and
before consideration is given to holding another Ministerial Meeting.
These include: drastically improving the preparatory process leading
up to the Ministerial; improving the Green Room meeting arrangements;
and establishing clear rules of procedure to be agreed by all
members (paragraph 105)." 35More specifically on the Green
Room process, the Committee stated, "The key issue is that
countries must be able to choose for themselves who will represent
them, and those countries not party to discussion must have opportunities
to lobby and have full access to information about proceedings
in the meetings, including the possibility of observing meetings
directly (paragraph 99)." 36
The Doha experience clearly showed that no such
reforms had been made. In an attempt to deal with these problems,
the Like Minded Group[4]
of developing countries submitted a paper to the WTO General Council
in April 2002, proposing a series of reforms to negotiating procedures
both in Geneva and at Ministerial conferences37. This paper was
either ignored or dismissed by industrialised country WTO members.
Also worth noting is the proliferation of so-called
"mini-ministerials" where a small group of WTO members
attempt to forge an agreement, which then effectively becomes
a "take-it-or-leave-it" deal for the rest of the membership.
One such meeting took place in Sydney in November 2002 and two
more are planned before the full WTO Ministerial Conference in
Cancun. This is not a transparent and inclusive way to forge agreement
on trade policy. WDM urges the Committee to call for abolition
of "mini-ministerials" and press for alternative forms
of decision-making that allow all WTO members to be involved.
WDM urges the Committee to read and take note
of the recent report "Power Politics in the WTO" by
Focus on the Global South, based on testimonies of developing
country delegates, detailing the lack of transparency in WTO negotiating
procedures and, if possible, meet the author (Aileen Kwa) in Geneva.
Ensuring developing countries can effectively
participate in trade negotiations is not simply a case of providing
money for "capacity building". It also requires action
to, for example, reduce the number of meetings, open up the "green
room" process and keep the negotiating agenda manageable.
The Committee should recommend reforms are undertaken along the
lines of those proposed in the "Like Minded Group" paper
submitted to the WTO in April 2002.
Adding the issues of investment, transparency
in government procurement, competition and trade facilitation
to an already overloaded agenda will further undermine the ability
of developing countries to effectively engage in the talks. The
Committee should recommend the UK does not press, at the Cancun
Ministerial, for negotiations to establish new rules on these
issues.
WDM urges the Committee to call for abolition
of so-called "mini-ministerials" and press for alternative
forms of decision-making that allow all WTO members to be involved.
"Mini-ministerials" are not a transparent and inclusive
way to forge agreement on trade policy.
5. NEGOTIATIONS
ON THE
"SINGAPORE ISSUES"
As well as undermining developing country participation
in negotiations, addition of the so-called "Singapore issues"
to the agenda has little justification on development grounds.
The argument most used to support the development
of binding rules, particularly on investment, is that companies
will be more likely to invest in developing countries once these
rules are in place. The argument follows that, given it is in
developing countries" best interests to negotiate these rules,
the EU's pursuit of this agenda is therefore consistent with the
concept of a "development round".
However, there seems to be little or no evidence
to support this argument. For example, a recent study suggests
that there is no significant link between making binding investment
commitments in bilateral agreements and attracting more foreign
direct investment (FDI). 38 There is no similar study based on
multilateral investment rules such as the GATS but as the World
Bank points out in relation to investment in goods, "the
absence of a body of multilateral disciplines has hardly deterred
cross border investment activity." 39In fact, the evidence
suggests that the main factors determining where companies invest
in the developing world are the size of the economy and, for the
poorest countries, natural resource endowments, not the level
of government intervention or the degree and nature of multilateral
commitments. 40
In contrast to the desire for binding rules
to curtail "discrimination", the evidence suggests that,
in cases where governments can benefit from foreign investment,
the use of strategic policies can strengthen the links between
foreign investors and the domestic economy, creating short and
long term benefits. 41 Once again, a look at past case history
demonstrates that most governments have used a range of "discriminatory"
investment regulations (eg limitations on foreign acquisition
of domestic companies) to further their domestic economic development.
Rather than seeking to develop further constraints on developing
country investment policy flexibility, the UK Government should
be seeking an effective review and reform of the existing TRIMS
Agreement.
Similar arguments exist on competition policy
and government procurement. The use of competition regulation
and government procurement to encourage competitive domestic businesses
is a potentially useful part of the development policy armoury.
Again, industrialised nations created competition authorities
only relatively late in their development process 42 and most
are likely to have used discriminatory government procurement
policies for development purposes. WDM therefore does not believe
that applying WTO "non-discrimination" rules to these
policy areas is either necessary or beneficial for achieving development.
If one thing is clear, it is that policy-makers
do not have the final answers to the problem of under-development
and poverty in all countries. WDM considers that it would be dangerous
for governments to negotiate agreements that preclude democratically
elected governments (as most WTO member states are) from using
strategic trade policies that could make a major contribution
to poverty reduction.
Many developing countries seem to be of a similar
opinion. Groups of developing countries, such as the LDCs and
the Africa Group, have consistently opposed starting negotiations
on the "Singapore issues" through, for example, submitting
papers in the run up to the Doha ministerial. The fact that these
proposals from over 90 developing countries were ignored is testament
to the untransparent procedures and exercise of political muscle
that characterise the WTO negotiating process.
Applying the WTO's "core principle"
of non-discrimination to investment, government procurement[5]
and competition regulations is not appropriate for achieving poverty
reduction. There is no sound evidence to suggest that establishing
new rules on investment will increase investment flows to developing
countries. The Committee should recommend the UK does not press,
at the Cancun Ministerial, for negotiations to establish new rules
on the "Singapore issues". Instead, the UK should press
for reform of the TRIMS Agreement to provide more flexibility
for developing countries.
World Development Movement
January 2003
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1 Although the EU's stated aim for the current negotiations
is for an agreement on "transparency in government procurement",
previous public statements by the EU and UK clearly show that
this is a first step towards the ultimate objective of applying
"non-discrimination" rules to government procurement. Back
2
See, for example: Ianchovichina, E, Mattoo, A & Olarreaga,
M. (2001). Unrestricted Market Access for Sub-Saharan Africa:
How Much is it Worth and Who Pays? Policy Research Working Paper
2595. Washington. D.C. World Bank. Back
3
See for example: Bora, B, Cernat, L & Turrini, A. (2002).
Duty and Quota Free Access for LDCs: Further Evidence from CGE
Modelling. Geneva. UNCTAD. Back
4
Cuba, Dominican Republic, Egypt, Honduras, India, Indonesia, Jamaica,
Kenya, Malaysia, Mauritius, Pakistan, Sri Lanka, Tanzania, Uganda,
and Zimbabwe. Back
5
Although the EU's stated aim for the current negotiations is for
an agreement on "transparency in government procurement",
previous public statements by the EU and UK clearly show that
this is a first step towards the ultimate objective of applying
"non-discrimination" rules to government procurement. Back
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