CHAPTER 6: MANAGEMENT OF THE INTERNATIONAL
TRADING SYSTEM |
The GATT and the WTO
185. Although membership of the World Trade Organisation
(WTO) does not extend to every country,
in effect, it governs the international trading system. Following
the Uruguay Trade Round (1986-94), the WTO was created on 1 January
1995. It succeeded the General Agreement on Tariffs and Trade
(GATT) which had been agreed in 1947 as part of the Bretton Woods
186. The stated purpose of the WTO is:
to help trade flow as freely as possible
- so long as there are no undesirable side-effects. That partly
means removing obstacles. It also means ensuring that individuals,
companies and governments know what the trade rules are around
the world, and giving them the confidence that there will be no
sudden changes of policy. In other words, the rules have to be
'transparent' and predictable".
The underlying principles of the WTO are that "the
trading system should be:
- without discriminationa country should
not discriminate between its trading partners
; and it
should not discriminate between its own and foreign products,
services or nationals
- freerwith barriers coming down through
- predictableforeign companies, investors
and governments should be confident that trade barriers (including
tariffs, non-tariff barriers and other measures) should not be
- more competitiveby discouraging 'unfair'
practices such as export subsidies and dumping products at below
cost to gain market share;
- more beneficial for less developed countriesby
giving them more time to adjust, greater flexibility and special
187. GATT dealt only with trade in goods and, at
first, focused on lowering tariffs on imported goods. After 1947,
there were a further seven trade rounds under GATT.
These extended to negotiations on anti-dumping and non-tariff
measures as well as tariff reduction. The Uruguay Trade Round,
as well as establishing the WTO, also brought a number of controversial
new areas within the multilateral trading arrangement. These included:
trade in services, intellectual property, agriculture and textiles.
In November 2001, at the fourth WTO Ministerial Conference in
Doha, Qatar, a new round of trade negotiations - described as
the Doha Development Agenda - was launched. They include earlier
negotiations on agriculture and services which were begun in early
2000. A completion date of 1 January 2005 has been set. Progress
will be reviewed at a fifth Ministerial Conference in Cancun,
Mexico, in September 2003. The Ministerial declaration adopted
in Doha on 14 November 2001 gave prominence to the need to promote
economic development and the alleviation of poverty in developing
countries. Whilst asserting the objective of trade liberalisation
and the abolition of protectionism, the declaration stated that
the new round would be "
committed to addressing the
marginalisation of least-developed countries in international
trade and to improving their effective participation in the multilateral
188. The WTO administers trade agreements between
members and offers a binding disputes mechanism.
189. During the course of this inquiry, the Committee
visited the WTO in Geneva. Mike Moore, then Director-General of
the WTO, told us that the "simple duty" of the WTO was
"to facilitate negotiations between members and then, where
members disagree, supply to them something unique in the international
architecture, that is, a binding disputes mechanism". He
described the disputes mechanism as "the jewel in our crown"
(Ev II, Q 1102). Pascal Lamy, European Union Commissioner for
Trade, distinguished between the legislative part of the WTO -
the part that is involved in the formulation of agreements - and
the dispute settlement mechanism (DSM). Whereas he praised the
efficiency of the DSM, the process for the formulation of agreements
was, he suggested, "cumbersome and UN-like" (Ev II,
Q 1908). Professor Greenaway thought that the DSM represented
one of the key functions of the WTO: "Trade related disputes
inevitably arise. To avoid them triggering unilateral action and
possible trade wars, effective dispute resolution mechanisms are
essential, especially for small counties and developing countries."
(Ev I, p 99).
190. Mark Curtis, Head of Global Advocacy Team at
Christian Aid, although critical of the WTO, supported a rules-based
system of international trade - but cautioned that "the key
is what the rules are and who sets them" (Ev I, Q 900). Dr
Noreena Hertz took a similar view (Ev II, Q 1667).
Governance of the WTO
191. The WTO is an ostensibly democratic organisation
based on the principle of one country, one vote and underpinned
by a consensual decision-making process.
Mike Moore suggested that this arrangement, although a source
of strength, could, at times, be difficult to manage: "It
is like having a parliament of 144 members with no parties, no
whips, no speakers and no limit to speaking time." (Ev II,
Q 1102). The Department for International Development praised
the system: "The Government
believes that the WTO
provides the best forum in which to achieve democracy in international
trade negotiations"; this was because "rich and poor
countries have an equal say, with access to all meetings. Since
developing countries make up two-thirds of the 144 members of
the WTO, they are in strong position for negotiations. Moreover,
decisions are only made through consensus - if any country objects
agreements will not be reached." (Ev II, p para 11). Lord
Desai was similarly supportive: "The WTO system is right
now the fairest global economic institution that I know of because
it is built on one country, one vote"; he conceded, however,
that, as regards the dispute settlement mechanism, there was "an
asymmetric power" because the rich countries could afford
more lawyers than the poor (Ev II, Q 1732).
192. A number of witnesses, however, were critical
of the governance arrangements of the WTO. They alleged that the
WTO was biased We detected two main elements in the complaint:
- that the WTO is dominated by the major economies
(especially the United States)
and also, through the governments of those economies, by transnational
- that, as a consequence, developing countries
(in particular, those who are unable to fund representation in
Geneva) are marginalised.
193. Dr Caroline Lucas MEP challenged the notion
that consensus voting was "necessarily the most democratic
way of doing things": "if the consensus situation was
working well, if it really was truly democratic, then one would
expect the interests of the developing countries to be far stronger
than they are." (Ev II, Q 1393). And the Department for International
Development told us:
"There are grave concerns among developing countries
about the way in which the WTO works
It is a system which
in the past has tended to be dominated by a small number of large
rich countries and still, I think, developing countries feel that
they do not have a weight in its decision making process that
is anything like proportionate to their numbers of people. Many
developing countries are marginalised from involvement with the
WTO, for example, because the smaller and poorer ones do not have
any representatives at all in Geneva." (Ev I, Q. 10).
194. Donald McKinnon expressed particular concern
about how some developing countries could not be represented in
Geneva since, he said, "it is a fact that if you want to
have some influence in Geneva you have to go there occasionally"
(Ev I, Q 820).
195. The World Bank, in Globalization, Growth,
and Poverty, also commented on this issue - both in terms
of the ability of some developing countries to maintain a presence
in Geneva and to measure up against the greater strength of the
richer countries. It suggested however (like Professor Greenaway
in paragraph 189 above) that the imbalance "
be even worse if there was no WTO, because then small countries
like Bangladesh would have to negotiate one-to-one with the United
States without a multilateral set of rules."
Clare Short made a similar point: "If we lost the WTO the
biggest losers would be the developing countries because bilateral
and regional agreements would be made and they would be marginalised
and not consulted about the change." (Ev II, Q 2027).
196. The most striking allegation concerning the
influence of TNCs in WTO decision-making is in relation to their
role in the formulation of the Trade-related Intellectual Property
agreement (TRIPS) (in particular that of the pharmaceutical industry)
and of the General Agreement on Trade in Service (GATS). (We consider
these in more detail below.) Matthew Taylor MP, Liberal Democrat
Treasury spokesperson, commented more generally on the power of
TNCs to influence the global trading system. They were, he suggested,
"better informed and have a better chance to influence than
the democratic representatives" of both developing and developed
countries (Ev II, Q 1370). This was not a criticism of TNCs, he
said - "they are doing exactly what you expect them to do"
(Ev II, Q 1371) - but of the absence of transparency at the level
of international decision-making.
197. We put the criticisms about WTO governance to
Mike Moore. He agreed that until the Uruguay Round the WTO had
been "a rich man's club" which reflected its OECD membership
(Ev II, Q 1120). He also agreed that despite improvements since
the Uruguay Round, the fact that member countries vary in size
so their ability to exercise influence would vary. He acknowledged
the practical implication of the cost of maintaining a permanent
representation at the WTO: "we have 28 or 29 members not
represented in Geneva. You have little Caribbean, little Pacific
nations who, if they opened a post here, would be spending more
money in Geneva than they would be on education or health."
(Ev II, Q 1120). The WTO had, however, attempted to respond to
this uneven representation by funding poorer countries to attend
meetings in Geneva twice a year.
198. Donald McKinnon told us that the Commonwealth
was also working within the WTO to assist developing countries
(Ev I, Q 820) and Clare Short referred to a number of measures
that were being taken to help poorer countries exercise greater
influence in the WTO:
not all countries are represented in
Geneva because it is expensive to be there. We are working with
others to make sure that there is a sort of back-up system of
briefing for all countries. Countries need to get briefings back
at home in their trade and industry as well as having a representative
in Geneva because otherwise you get people in Geneva who know
a lot but they never talk to home. You have to build up the competence
of both ends." (Ev II, Q 2026).
199. We recognise that member countries of the
WTO vary in size and economic power. They vary, therefore, in
their capacity to influence decisions in the WTO and, more fundamentally,
to maintain a presence at the WTO. It would be naïve to believe
that an organisation like the WTO would not be dominated by a
small number of rich countries. The important question, which
applies to the International Monetary Fund and the World Bank
as well, is whether this domination is excessive. We believe that
it is in all three institutions, but the evidence we received
placed most emphasis on the WTO. We urge the Government, with
its European Union partners, to consider, first, how to improve
the balance of power in the WTO and, secondly, how to ensure that
decisions are more transparent. We acknowledge the commitment
of the Government, contained in the White Paper on globalisation
by the Department for International Development, in respect of
Developed country protectionism:
agriculture and textiles
200. A notable example of how the trading system
seems to be operating against the developing countries is developed
country protectionism (through tariffs, subsidies and non-tariff
with respect to agricultural products and textiles. George Soros,
for example, referred to the "imbalance" in WTO agreements
which was due, to some extent, to the incapacity of developing
countries "to fight for their cause" (Ev II, Q 1940).
He cited, in particular, trade in agricultural products and textiles.
Professor Stiglitz, when asked to explain why the WTO was the
target for the anti-globalisation movement, said:
"After the last round of trade negotiations,
the Uruguay Round, there was a calculation done by the World Bank
that says sub-Saharan Africa
was actually worse off.
It is because of terms of trade effects that they were forced
to open up their markets, but the market for goods on which they
had a comparative advantage, low grade textiles, agricultural
goods, were not being opened up." (Ev I, Q 735).
201. Dr Supachai Panitchpakdi similarly commented
on the belief of developing countries that the Uruguay round had
developing countries have these grievances
that, while they were looking for more benefits - market access
for agriculture, reductions in interventions and subsidies, a
faster phasing out of textiles - as a result of the Uruguay Round
they did not get that in the end, but they had to bear the burden
" (Ev I, Q 563).
202. UNCTAD refer to the way in which "market-driven
globalisation" was deepening the "biases and asymmetries
in the world economy". Evidence of "the lop-sided pattern
of trade liberalisation" included developed country tariffs
in those sectors where developing countries had an advantage:
namely, agriculture, low-technology and resource-based industries
and high-technology products which involve unskilled labour in
the production of components (Ev I, p 363). In a paper prepared
by the Australian Department of Foreign Affairs and Trade, based
on the position of the Cairns Group of Agricultural Fair Traders,
it is suggested that: "No sector is as heavily distorted
and protected as agriculture, and no sector is as important to
the livelihood of most developing countries
behaviour [by rich countries] has marginalised the ability of
many developing countries to participate fully in the global economy
and to access many of the benefits of globalisation." (Ev
II, p 287).
203. The World Bank, in Globalization, Growth,
and Poverty, shed some light on the background to the problem
of protectionism in the textiles market:
"Unfortunately, the rules on textiles and clothing
were written in a way that allowed industrial countries to greatly
delay the abolition of their quotas. Instead of specifying the
progressive abolition of quotas, the rules specified the progressive
integration of textiles and clothing under GATT disciplines. Industrial
countries were allowed to choose the products to be integrated;
almost without exception, they chose to begin by integrating the
products in which developing countries do not have a comparative
advantage. Developing countries that thought roughly half of their
exports of textiles and clothing would be integrated by 2002 found
that almost all would remain restricted until December 31, 2005
- creating concerns about potential backsliding in the industrial
204. Strikingly, Clare Short referred to there being
"a lot of hypocrisy in the rhetoric of countries like our
own" and other OECD countries, which encouraged developing
countries to engage in openness but practiced protectionism themselves
(Ev II, Q 2026).
205. Again, we put the complaint about protectionism
to Mike Moore. He acknowledged the implications of the textiles
agreement ("which was back loaded so that the greatest openings
will come by 2005") but was frank about political realities:
"it was the best deal you could get at the time", it
was "as much as the negotiators could get." (Ev II,
Q 1135). Given the level of agricultural support in the European
we also raised this issue with Commissioner Pascal Lamy. He was
optimistic about the future. It was recognised, he said, within
the EU that support for EU agriculture should be "more trade-friendly
and more development-friendly than it used to be";
the reforms of the Common Agricultural Policy had exceeded commitments
undertaken at the Uruguay Round and he expected that the Doha
Round would see further progress in giving developing countries
more market access (Ev II, QQ 1914-16).
Mike Moore took a similar line: "There is a billion dollars
a day being spent by rich countries to make food dearer. Subsidies
are a crazy mechanism but when they make food dearer they are
even more stupid. However, in the Doha Ministerial Declaration
for the first time the phrase 'phase out' is there." (Ev
II, Q 1135).
206. Earlier this year, the Farm Security and Rural
Investment Act 2002 was passed in the United States,
significantly increasing the farm subsidy package to US farmers.
Commissioner Lamy acknowledged that the US Farm Act struck a discordant
note (because, he said, it ran contrary to the general strategy
of de-coupling farm support from production) but suggested that
it was "one more incentive to increase disciplines in the
WTO"(Ev II, Q 1914). Professor Krugman was clear in his view
that the US Farm Act was inconsistent with "the rhetoric"
of the United States which remained "strongly pro-free trade"
(Ev II, Q 1889). Like Professor Krugman, Paul Volcker, former
Chairman of the Federal Reserve, suggested that the incentive
behind the US protectionism was political: "Farmers have
a lot of direct political support
the typical voter is
not upset apparently about providing more support for farmers."
(Ev II, Q 1759).
207. The deleterious effect of the US and EU agricultural
policies on developing countries and the confusion - as far as
the economics is concerned - underlying them were clearly illustrated
by Niall FitzGerald of Unilever plc. He gave sub-Saharan Africa
as an example: "If there was free access to the OECD economies
for agricultural products in sub-Saharan Africa, it would have
a value somewhere between $22 billion and $25 billion. All of
the aid that goes to sub-Saharan Africa is $14 billion so already
the economic equation is ridiculous." (Ev II, Q 1562). Nicholas
Stern offered a further illustration: "The total subsidies
for agriculture in rich countries are around $350 billion a year,
a number which is about seven times total aid and is about equal
to the GDP of sub-Saharan Africa. They are colossal and a very
serious problem." (Ev II, Q 1822).
208. We consider that developed countries' protectionism
(mainly in the United States and the European Union) with regard
to agricultural and textile products in particular is wholly objectionable
and unjustifiable. In coming to this view we are particularly
struck by the evidence of Clare Short (in paragraph 204) and Mike
Moore (in paragraph 205) which we believe should inform future
debate on the subject. Developed country protectionism places
an unfair burden on developing countries and is in stark contrast
to the protestations of the leaders of rich nations that they
are committed to helping the world's poor. We urge the Government,
within the EU and the WTO, to take stronger steps to ensure that
it is brought to an end.
209. A number of witnesses were critical of some
WTO agreements. We received a significant amount of evidence in
particular about the TRIPS agreement and GATS.
The agreement on Trade-related Intellectual Property
210. TRIPS was introduced during the Uruguay Round
211. The agreement has been subject to a great deal
of criticism. Two fundamental charges are laid against it:
- that it is the product of corporate lobbying
and is likely to act in the corporate interest and to the detriment
of developing countries (the principal complaint being in relation
to developing countries' access to medicines); and,
- that it is burdensome to developing countries
which need to establish an enforcement infrastructure necessary
to enable compliance.
212. A number of witnesses complained that TRIPS
had been inspired by corporate interests against the interests
of developing countries. Christian Aid, in Trade for Life:
Making Trade Work for the Poor, describes TRIPS as "a
case of massive corporate protectionism that enables TNCs to secure
monopoly rights over knowledge and natural resources, and that
transfers wealth from South to North."
Christian Aid alleged that TRIPS poses two major threats to developing
countries: first, that by allowing companies of one country to
patent the natural resources of another, TRIPS enables transnational
corporations to expropriate indigenous resources of developing
secondly, TRIPS is likely to make it more costly and complex for
developing countries to access new or existing science and technology.
According to the WTO's Trading into the Future, TRIPS is "an attempt to narrow the gap in the way that [intellectual property rights] are protected around the world, and to bring them under common international rules". The agreement deals with the following broad issues:
· how basic principles of the trading system and other international intellectual property agreements should be applied;
· how to give adequate protection to intellectual property rights
· how countries should enforce those rights adequately in their own territories
· how to settle disputes on intellectual property between members of the WTO
· special transitional arrangements during the period when the new system is being introduced.
The agreement covers copyright and related rights, trademarks, geographical indications, industrial designs, patents, layout-designs of integrated circuits and undisclosed information including trade secrets.
213. We asked Professor Joseph Stiglitz, a former
Chairman of the United States Council of Economic Advisers, about
the influence of transnational corporations in the globalised
economy. He gave TRIPS as an example of the extent of their influence:
"Both the Council of Economic Advisers and the
Office of Science and Technology and Policy in the White House
felt that the intellectual property agreement, TRIPS, that was
part of the 1994 agreement was not balanced. We worried, for instance,
at the Council of Economic Advisers about what it would do to
access to life-savings drugs, such as for AIDS, if it were implemented
and our worries turned out to be fully realised, but we could
not overcome the influence of the pharmaceutical companies and
the movie companies that were dictating US economic policy in
that area, and that had to do a lot with the structure of governance
of the international arena." (Ev I, Q 721).
ACTING AGAINST DEVELOPING COUNTRY INTERESTS:
ACCESS TO MEDICINES
214. TRIPS has caused most concern in relation to
developing country access to medicines. The recent Report of the
Commission on Intellectual Property Rights
describes the context of this debate:
"The impact of intellectual property rules and
practices on the health of poor people in developing countries
has generated substantial controversy in recent years. Although
this predated TRIPS, and featured prominently in the TRIPS negotiations,
impetus has been added by the coming into force of TRIPS, and
the dramatic rise in the incidence of HIV/AIDS, particularly in
The report, after noting the role of the pharmaceutical
industry in bringing about the global extension of intellectual
property rights under TRIPS, suggests that, as regards developing
countries, "a major concern was how the adoption of intellectual
property regimes would affect their efforts to improve public
health, and economic and technological development more generally,
particularly if the effect of introducing patent protection was
to increase the price and decrease the choice of sources of pharmaceuticals."
The report quotes an Oxfam Briefing Paper to demonstrate the core
complaint of NGOs: the "essential flaw" of TRIPS, according
to Oxfam, was "
to oblige all countries, rich and poor,
to grant at least 20 years' patent protection for new medicines,
thereby delaying production of the inexpensive generic substitute
upon which developing-country health services and poor people
215. The track record of the pharmaceutical industry
in addressing specifically developing country health problems
provides little or any reassurance that their interests and those
of developing countries coincide. The following statistics taken
from the Commission's report are revealing: "it is estimated
that less than 5% of the money spent worldwide on pharmaceutical
R&D is for diseases that predominantly affect developing countries";
"in 2002, the world drug market is valued at $406 billion,
of which the developing world accounts for 20%, and low income
developing countries very much less";
"large pharmaceutical companies are unwilling to pursue a
line of research unless the potential outcome is a product with
annual sales of the order of $1 billion";
and "of the 1393 drugs approved between 1975 and 1999, only
13 were specifically indicated for tropical diseases".
216. We raised this matter when we visited the WHO
in Geneva. Dr Gro Harlem Brundtland, Director-General of the WHO,
when asked about intellectual property rights and research by
pharmaceutical companies said that "there has been a history
in this organisation to try to inspire and to argue and to work
with others to have investment in research as a global good"
(Ev II, Q 1205). Dr Brundtland described how pharmaceutical companies
were encouraged, by the provision of public money, to undertake
research into less profitable medicines. But she also thought
that rules on intellectual property were necessary to ensure that
research was undertaken: without some intellectual property regulation
"there will not be investment in new things" (Ev II,
217. Sir Richard Sykes, Chairman of GSK, a major
pharmaceutical company, confirmed the view that without intellectual
property protection, research by private companies would be inhibited:
"GlaxoSmithKline believes that TRIPS strikes
an appropriate balance in encouraging the innovation that is essential
if we are to see advances in treatments and vaccines for developing
country diseases, while providing flexibility for governments
to safeguard public health interests.
The re-opening of
would do nothing to improve access [to medicines
in developing countries], but would help to undermine the incentive
to invest in the discovery and development of new medicines"
(Ev II, p 99).
TRIPS was not, he said, the reason why many developing
countries lacked reliable access to essential medicines. The cause
was "poverty and the resulting lack of infrastructure and
resources that are required to run effective healthcare systems"
(Ev II, p 99).
BURDEN OF COMPLIANCE
218. Dr Supachai Panitchpakdi confirmed the complaints
about TRIPS, both in relation to its corporate provenance and
the burden of compliance. In describing why developing countries
were dissatisfied with the WTO, he suggested that it was because,
in general, the burdens of the trading arrangements outweighed
the benefits, and he described TRIPS as "the main new burden"
arising from the Uruguay Round, an agreement which had emerged
late in the day "because of [a] proposal made by the US pharmaceutical
companies". Dr Supachai did not refute the need for rules
governing intellectual property rights but said that it could
not be denied that "the burden that has been put on developing
countries in adopting [the] regime is tremendous" (Ev I,
Q. 563) because of the need to set up an adequate infrastructure
to enable compliance with the TRIPS agreement.
219. Mr Otten, Director of the Intellectual Property
at the WTO, agreed that TRIPS had put a burden of compliance on
developing countries: "It is certainly true that the TRIPS
agreement is one of the more demanding agreements on developing
countries and has caused them to have to re-formulate or create
new laws in some areas, to reinforce enforcement institutions,
to set up new offices in some cases, to reinforce existing intellectual
" (Ev II, Q 1125). He said, however,
that the World Intellectual Property Organisation (WIPO), which
he described as being "in the fortunate situation of being
relatively wealthy", was assisting developing countries with
technical co-operation, capacity building and legal assistance.
220. Clare Short shared the view that the rules on
intellectual property rights were needed to ensure that the pharmaceutical
companies undertook research into areas where it was most needed:
"We can only get there if we have basic, fair rules so that
the private sector knows it can get a rate of return on its research."
(Ev II, Q 2019). She agreed, however, that implementation by some
developing countries was an issue and that therefore they should
be given extra time to phase in the agreement. She also referred
to the Commission on Intellectual Property Rights which she had
established in May 2001 and which she anticipated would recommend
changes to the TRIPS agreement.
221. The Commission reported in September 2002. The
principles underlying its approach to intellectual property rights
and healthcare provision were that "healthcare considerations
must be the main objective in determining what IP
regime should apply to healthcare products" and that "IP
rights are not conferred to deliver profits to industry except
that these can be used to deliver better healthcare in the long
The Commission made a range of recommendations about how the global
intellectual property regime could be applied by developing countries
more advantageously and what steps developed countries could take
to assist developing countries in ensuring access to healthcare.
These included, for example: additional public funding for research
on health problems in developing countries (because "[the
Commission does] not think that the globalisation of IP protection
will make a significant contribution to increasing R&D expenditure
by the private sector relevant to the treatment of diseases that
particularly affect developing countries");
a satisfactory system of differential pricing mechanisms through
improved legislative regimes in developed countries to prevent
parallel importing of low-priced pharmaceutical products from
developing countries; and, a corresponding improved legislative
regime in developing countries enabling them to import patented
medicines if they can obtain them more cheaply abroad.
222. Work on TRIPS is also taking place in the context
of the Doha Development Round. The Doha Ministerial Declaration
on TRIPS and Public Health has required the WTO Council for TRIPS
to consider certain aspects of the TRIPS agreement.
223. We are convinced of the central role that
R&D play in the process of economic development, and the importance
of intellectual property protection as helpful to that end.
There is, however, widespread concern that the TRIPS agreement,
in some respects, is acting against the interests of developing
countries and placing a burden of compliance on developing countries.
We share that view.
224. We also note the following: first, economic
analysis tells us that intellectual property law is not the only
way that new discoveries can or are protected;
secondly, support for legal protection is not the same as saying
that the law as present constituted cannot be improved;
and, lastly, it is not obvious that the pricing policies of some
companies, anxious though they are to maximise their own profits,
give a fair deal to the poorest nations. To the extent that they
are charged for past sunken costs connected with research from
which they will not benefit, they are paying but not receiving.
225. We therefore support the initiatives both
in the UK and the WTO that seek to review the operation of TRIPS
and urge the UK Government to take the steps necessary to ensure
that the interests of developing countries are properly considered
in the amendment of the TRIPS agreement.
The General Agreement on Trade in Services
226. Like TRIPS, GATS was introduced in the Uruguay
Round of trade negotiations. Under GATS, countries are encouraged
to open up service sectors to foreign competition. At present,
they are able to choose which sectors are opened up and when it
should happen. For this reason, the Department for International
Development described GATS as "a bottom-up agreement"
(Ev II, p 232).
227. The WTO, in its information about GATS, argues
that: "Since the services sector is the largest and fastest-growing
sector of the world economy, providing more than 60% of global
output and in many countries an even larger share of employment,
the lack of a legal framework for international services trade
was anomalous and dangerous - anomalous because the potential
benefits of services liberalisation are at least as great as in
the goods sector, and dangerous because there was no legal basis
on which to resolve conflicting national interest."
According to the WTO's Trading into the Future, "the General Agreement on Trade in Services is the first ever set of multilateral, legally-enforceable rules covering international trade in services"..
The agreement covers all internationally-traded services - services which are provided on a commercial or competitive basis. These include:
· services supplied from one country to another ("cross-border supply")(for example, international telephone calls);
· consumers or firms making use of a service in another country ("consumption abroad")(for example, tourism);
· individuals travelling from their own country to supply services in another ("presence of natural persons")(for example, fashion models or consultants).
The agreement excludes all services provided in the exercise of governmental authority.
Unlike goods, the agreement on services allows countries temporarily not to apply the "most-favoured nation" (MFN) principle of non-discrimination. "MFN means treating trading partners equally: therefore, if a country allows foreign competition in a sector, equal opportunities in that sector should be given to service providers from all other WTO members."
228. The Department for International Development
see GATS as an instrument to assist poverty reduction in developing
"Research undertaken by a number of organisations
including the World Bank, the UN and the Institute of Development
Studies into the effects of services liberalisation on developing
countries has shown that liberalisation in sectors such as telecoms
and financial services often leads to significant increases in
economic growth - without which sustainable poverty reduction
will not be achieved." (Ev II, p 232).
Patricia Hewitt noted that "increasingly, for
instance, in financial services and in telecommunications, [developing
countries] are seeing the benefits of liberalisation" - India
being an example (Ev II, Q 1878).
229. Although issues relating GATS did not emerge
as prominently in the evidence we received as the criticism of
the TRIPS agreement, none the less we have a clear impression
that there is a concern that GATS, like TRIPS, in some respects,
acts against the interests of developing countries.
230. Barry Coates of the WDM suggested that GATS
embodied "an inappropriate extension of trade rules that
have been developed to apply to trade in goods" (Ev I, Q
931). Save the Children complained that GATS worked against efforts
by developing countries to link foreign direct investment with
local and national economic development: the GATS agreement, they
told us, "bans access conditions on FDI in services, prohibiting
countries from setting equity caps on TNC investment or from requiring
TNCs to establish joint ventures with local partners" (Ev
I, p 335).
231. Christian Aid's fear was less of GATS in its
present - voluntary - form than of the implications for GATS of
"the WTO's built-in agenda of accelerating liberalisation":
the GATS framework might in future expand into social
sectors like health care, education and water. The danger is that
an expanded and revised GATS might threaten developing countries'
ability to provide services to meet the needs of poor people."
They argued that GATS has (and will continue to) evolve in this
way because of the business interests pursuing services liberalisation:
"GATS owes its existence to pressure from services companies
and governments with major services export sectors - especially
the US, but also Japan, the EU and Canada."
They gave the following examples: "The US Coalition of Service
Industries (CSI) has led international business efforts to shape
GATS and directly influence the positions of the former US Trade
Representative, Charlene Barshevsky, for example at the Singapore
ministerial conference in 1996 where a deal on telecommunications
was pushed through. The European Services Forum (ESF) has played
a similar role in Europe under a mission to 'support and encourage
the movement to liberalise service sector markets throughout the
world and to remove trade and investment barriers for the European
Save the Children similarly referred to the influence of TNCs.
They quoted the Director of the WTO's Services Division as saying:
"Without the enormous pressure generated by the American
financial services industry, particularly companies like American
Express and Citicorp, there would have been no services agreement."
(Ev I, p 336).
232. Since January 2000, the WTO has been engaged
in negotiations on GATS. In the Doha Ministerial Declaration it
is asserted that these negotiations will be conducted "with
a view to promoting the economic growth of all trading partners
and the development of developing and least-developed countries".
There is a concern, however, that the WTO's commitment to progressive
liberalisation will operate against the interests of developing
countries. In particular, there is concern that unreasonable pressure
will be applied to force developing countries to open up their
service sectors; and that after a particular sector has been opened
up, it will be impossible under GATS for this action to be reversed,
even if circumstances change. It is, perhaps, too early to predict
what the effect of GATS will be. We are convinced, however, that
GATS will have a major impact and is something that needs close
233. The UK Government should help to ensure that
the implementation of GATS does not place unreasonable pressures
on the governments of developing countries prematurely to introduce
competition into their service sectors.
97 There are, at present, 144 members - covering over
97% of world trade. A further 28 countries are negotiating accession. Back
WTO, Trading into the Future (March 2001), p 4. Back
Ibid, p 5. Given the extent of protectionism to be observed
throughout the world accompanied by an array of restrictive business
practices, we interpret these principles as an aspiration and
not as an approximation of trading reality. Back
The trade rounds are as follows (number of countries involved
indicated in brackets): 1947 Geneva (23); 1949 Annecy (13); 1951
Torquay (38); 1956 Geneva (26); 1960-61 (Dillon Round) Geneva
(26); 1964-67 (Kennedy Round) Geneva (62); 1973-79 (Tokyo Round)
Geneva (102); and 1986-94 (Uruguay Round) Geneva (123). Ibid,
p 9. Back
Doha Ministerial Declaration, 14 November 2001, para 3. Back
A majority vote is possible but has never been used in the WTO
and was used only rarely under GATT. Back
Martin Wolf put this starkly: "The WTO as an organisation
is nothing, it is no more than the vehicle of the concerted will
of a very limited number of great powers, and so the idea of the
WTO or indeed any of these institutions as autonomous agencies
is a fig leaf over the decisions made by ourselves and the Americans."
(Ev II, Q 1603). By "ourselves", Mr Wolf was referring
to Europe. In the written evidence submitted by the UK Section
of the Women's International League for Peace and Freedom concern
was expressed that "whilst the WTO claims to be a democratic
institution, in fact the rich countries exert much control over
its proceedings" (section C) (Ev II, p 391). Back
World Bank, Globalization, Growth, and Poverty (2002),
p 57. Back
:"It is true that the WTO still bears the heavy imprint of
the much smaller group of mainly northern countries that have
dominated the founding of the General Agreement on Tariffs and
Trade (GATT). And it is true that the WTO should be more transparent
and open and its rules easier to understand." (para 227).
"To create a fairer multilateral trading system, an urgent
priority must be to strengthen the capacity of developing countries
to participate effectively in the WTO and the international trading
system." (para 239). "We will work with developing countries
and other development agencies to help build trade policy capacity
in both national capitals and in Geneva." (para 240): Eliminating
World Poverty: Making Globalisation Work for the Poor, Cm
5006, December 2000. Back
Nicholas Stern gave an interesting example of a non-tariff barrier:
he described how a French cheesemaker and Mauritanian camel herders
tried to sell camels' cheese in Europe. Not only was the cheese
categorised so that it would have the highest possible tariff
but a requirement was place on the milk producers that the camels
should be milked mechanically. The enterprise failed as a result.
(Ev II, Q 1823). It would not be difficult to cite many other
World Bank, Globalization, Growth, and Poverty (2002),
p 61. Back
In 2002, the CAP cost EUR44 billion, nearly half of the total
EU budget. Eurostat. In his evidence, Professor Krugman
described European agricultural policy as "one of the wonders
of the world" (Ev II, Q 1891). Back
The Department for International Development asserted that "a
key element to gaining liberalisation in the WTO agricultural
negotiations is CAP reform" (Ev II, p 232). Back
Paragraph 13 of the Doha Ministerial Declaration refers to the
commitment to "to correct and prevent restrictions and distortions
in world agricultural markets." Back
H R 2646. This was signed into law by President Bush on 13 May
Christian Aid, op cit, p 71. Back
A number of examples are given: ibid, pp 72-3. Back
WTO, Trading into the Future (March 2001), p 25. Back
Report of the Commission on Intellectual Property Rights, Integrating
Intellectual Property Rights and Development Policy (September
2002). See paras 220-21 below for further information about
the Commission.. Back
Ibid, p 34 (footnote not included). Back
Ibid, p 34. Back
Oxfam (2001), Priced Out of Reach, Oxfam Briefing Paper
No 4, Oxfam International, Oxford. Back
Report to the World Health Organisation by the Commission on Macroeconomics
and Health, Macroeconomics and Health: Investing in Health
for Economic Development (December 2001), p 79, quoted in
the Report of the Commission on Intellectual Property Rights,
op cit, p 37. Back
See the Report of the Commission on Intellectual Property Rights,
op cit, p 37 and p 61, note 17. Back
Ibid, p 37. Back
Trouiller P et al (2002), "Drug Development for Neglected
Diseases: a Deficient Market and a Public Health Policy Failure",
The Lancet, vol 359, pp 2188-94, quoted in the Report of
the Commission on Intellectual Property Rights, op cit,
p 37 and p 62, note 19. Back
See also the Report of the Commission on Intellectual Property
Rights, op cit, p 34: "
without the incentive
of patents it is doubtful the private sector would have invested
so much in the discovery or development of medicines, many of
which are currently in use both in developed and developing countries.
The pharmaceutical industry in developed countries is more strongly
dependent on the patent system than most other industrial sectors
to recoup its past R&D costs, to generate profits, and to
fund R&D for future products". Back
Intellectual property. Back
Report of the Commission on Intellectual Property Rights, op
cit, p 35. Back
Ibid, p 39. Back
In particular, the problem of those countries which, because of
an insufficient or no manufacturing capacity in the pharmaceutical
sector, have difficulty in making effective use of compulsory
licensing under the TRIPS agreement. See paragraph 6 of the Doha
WTO Ministerial Declaration on TRIPS and Public Health. Back
This ground is well covered in William J Baumol, The Free Market
Innovation Machine (2002) and Nancy T Gallini, The Economics
of Patents: Lessons from Recent US Patent Policy, Economic
Perspectives, Spring 2002. Back
The length of patent terms and copyright may need to be reconsidered
in the light of the needs of the poor nations as well as the interests
of the rich. Further thought needs to be given to the nature of
infringements and what can be allowed as fair dealing. Back
See www.wto.org Back
WTO, Trading into the Future (March 2001), p 21. Back
Save the Children is also critical of the WTO's agreement on Trade-related
Investment Measures (TRIMS) which, it complains, banned local
content and trade balancing requirements. Back
Christian Aid, op cit, p 46, citing Bhagirath Lal Das,
The World Trade Organisation, pp 325-30. Back
Christian Aid, op cit, p 47, citing Graham Dunkley, The
free trade adventure: The WTO, the Uruguay Round and globalism
(2000), pp 175-6. A report in The Observer, 13 October
2002, raised the same concern: "The World Trade Organisation
and big business are demanding the sweeping liberalisation of
Britain's public services, new government documents reveal.
There are growing concerns that GATS will lead to the full-scale
privatisation of public monopolies across the world." Back
Christian Aid, op cit, p 47. Back
Paragraph 15 of the Doha Ministerial Declaration. Back
We received submissions from Glenn Rikowski, Visiting Lecturer
at University College, Northampton, who expressed concern that
GATS would lead to the "business takeover" of education
(Ev II, p 352) and from Ruth Rikowski, Visiting Lecturer at Greenwich
University and South Bank University, who also expressed concern
about GATS in relation to library and information services (Ev
II, pp 354 ff). Back