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Why Reform of the WTO is not the Agenda
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By Walden Bello

In the wake of the collapse of the Seattle Ministerial, there has emerged the opinion that reform of the WTO is now the program that NGOs, governments, and citizens must embrace. The collapse of the WTO Ministerial is said to provide a unique window of opportunity for a reformist agenda.

Cited by some as a positive sign is United States Trade Representative Charlene Barshefsky’s comment, immediately after the collapse of the Seattle Ministerial, that “the WTO has outgrown the processes appropriate to an earlier time. An increasing and necessary view, generally shared among the members, was that we needed a process which had a greater degree of internal transparency and inclusion to accommodate a larger and more diverse membership.”

Also seen as an encouraging gesture is UK Secretary of State for Trade and Industry Stephen Byers’ comment after the Seattle fiasco that the “WTO must be radically reformed.”

These are, in our view, damage control statements and provide little indication of the seriousness about reform of the two governments that were, pre-Seattle, the stoutest defenders of the inequalities built into the structure, dynamics, and objectives of the WTO. It is unfortunate that they are now being cited to convince developing countries and NGO’s to take up an agenda of reform that could lead precisely to the strengthening of an organization that is very fundamentally flawed.

What civil society, North and South, should instead be doing at this point is either pushing for the abolition of the WTO or overloading or jamming it so that it cannot function effectively.

Is the WTO Necessary?

This is the fundamental question on which the question of reform or abolition hinges.

The necessity of the WTO is one of the biggest lies of our time, and its acceptance is due to the same propaganda principle practiced by Jospeh Goebbels: if you repeat a lie often enough it will be taken as truth.

World trade did not need the WTO to expand 17-fold between 1948 and 1997, from $124 billion to $10,772 billion. This expansion took place under the flexible GATT trade regime. The WTO’s founding in 1995 did not respond to a collapse or crisis of world trade such as happened in the 1930’s. It was not necessary for global peace, since no world war or trade-related war had taken place during that period. In the six inter- state wars that took place in that period—the Korean War of 1950-53, the Vietnam War of 1945-75, the 1967 Arab-Israeli War, the 1973 Arab-Israeli War, the 1982 Falklands War, and the Gulf War of 1990—trade conflict did not figure even remotely as a cause.

GATT was, in fact, functioning reasonably well as a framework for liberalizing world trade. Its dispute- settlement system was flexible and with its recognition of the “special and differential status” of developing countries, it provided the space in a global economy for Third World countries to use trade policy for development and industrialization.

Why was the WTO established following the Uruguay Round of 1986-94? Of the major trading powers, Japan was very ambivalent, concerned as it was to protect its agriculture as well as its particular system of industrial production that, through formal and informal mechanisms, gave its local producers primary right to exploit the domestic market. The EU, well on the way of becoming a self-sufficient trading bloc, was likewise ambivalent, knowing that its highly subsidized system in agriculture would come under attack. Though demanding greater access to their manufactured and agricultural products in the Northern economies, the developing countries did not see this as being accomplished through a comprehensive agreement enforced by a powerful trade bureaucracy but through discrete negotiations and agreements in the model of the Integrated Program for Commodities (IPCs) and Commodity Stabilization Fund agreed upon under the aegis of UNCTAD in the late seventies.

The founding of the WTO served primarily the interest of the United States. Just as it was the US which blocked the founding of the International Trade Organization (ITO) in 1948, when it felt that this would not serve its position of overwhelming economic dominance in the post-war world, so it was the US that became the dominant lobbyist for the comprehensive Uruguay Round and the founding of the WTO in late eighties and early nineties, when it felt that more competitive global conditions had created a situation where its corporate interests now demanded an opposite stance.

Just as it was the US’s threat in the 1950’s to leave GATT if it was not allowed to maintain protective mechanisms for milk and other agricultural products that led to agricultural trade’s exemption from GATT rules, so was it US pressure that brought agriculture into the GATT-WTO system in 1995. And the reason for Washington’s change of mind was articulated quite candidly by then US Agriculture Secretary John Block at the start of the Uruguay Round negotiations in 1986: “[The] idea that developing countries should feed themselves is an anachronism from a bygone era. They could better ensure their food security by relying on US agricultural products, which are available, in most cases at much lower cost.” Washington, of course, did not just have developing country markets in mind, but also Japan, South Korea, and the European Union.

It was the US that mainly pushed to bring services under WTO coverage, with its assessment that the in the new burgeoning area of international services, and particularly in financial services, its corporations had a lead that needed to be preserved. It was also the US that pushed to expand WTO jurisdiction to the the so- called “Trade-Related Investment Measures” (TRIMs) and “Trade-Related Intellectual Property Rights (TRIPs).” The first sought to eliminate barriers to the system of trade among TNC subsidiaries that had been imposed by developing countries for developmental objectives, the second to consolidate the US advantage in the cutting-edge knowledge-intensive industries.

And it was the US that forced the creation of the WTO’s formidable dispute-resolution and enforcement mechanism after being frustrated with what US trade officials considered weak GATT efforts to enforce rulings favorable to the US. As Washington’s academic point man on trade, C. Fred Bergsten, head of the Institute of International Economics, told the US Senate, the strong WTO dispute settlement mechanism serves US interests because “we can now use the full weight of the international machinery to go after those trade barriers, reduce them, get them eliminated.”

It has been Washington’s changing perceptions of the needs of its economic interest-groups that have shaped and reshaped the international trading regime. It was not global necessity that gave birth to the WTO in 1995. It was the US’s assessment that the interests of its corporations were no longer served by a loose and flexible GATT but needed an all-powerful and wide-ranging WTO. From the free-market paradigm that underpins it, to the rules and regulations set forth in the different agreements that make up the Uruguay Round, to its system of decision-making and accountability, the WTO is a blueprint for the global hegemony of Corporate America.

In contrast, among the developed countries, Japan, the European Union, and most other OECD countries were already reasonably satisfied with the old, loose GATT system. Whether the WTO would, in fact, bring more benefits than costs to them is, in fact, a question is unresolved in technocratic circles.

Can the WTO Serve the Interests of the Developing Countries?

But what about the developing countries? Is the WTO a necessary structure--one that, whatever its flaws, brings more benefits than costs, and would therefore merit efforts at reform?

When the Uruguay Round was being negotiated, there was considerable lack of enthusiasm for the process by the developing countries. After all, these countries had formed the backbone of UNCTAD, which, with its system of one-country/one-vote and majority voting, they felt was an international arena more congenial to their interests. They entered the Uruguay Round greatly resenting the large trading powers’ policy of weakening and marginalizing UNCTAD in the late seventies and early eighties.

Largely passive spectators, with a great number not even represented during the negotiations owing to resource constraints, the developing countries were dragged into unenthusiastic endorsement of the Marrakesh Accord of 1994 that sealed the Uruguay Round and established the WTO. To try to sell the WTO to the South, US propagandists evoked the fear that staying out of the WTO would result in a country’s isolation from world trade (“like North Korea”) and stoked the promise that a “rules-based system” of world trade would protect the weak countries from unilateral acts by the big trading powers. Moreover, three agreements were specifically said to be designed to meet the needs of the South:

The Agreement on Textiles and Clothing mandated that the system of quotas on Third World exports of textiles and garments to the North would be dismantled over ten years.

The Special Ministerial Agreement approved in Marrakesh that special compensatory measures would be taken to counteract the negative effects of trade liberalization on the least developed countries;

The Agreement on Agriculture, which, while “imperfect,” nevertheless promised greater market access to developing country agricultural products and began the process of bringing down the high levels of state support and subsidization of EU and US agriculture, which was resulting in the dumping of massive quantities of grain on Third World markets.

With their economies dominated by the IMF and the World Bank, with the structural adjustment programs pushed by these agencies having as a central element trade liberalization, much weaker as a bloc owing to the debt crisis compared to the 1970’s, the height of the “New International Economic Order,” most developing country delegations felt they had no choice but to sign on the dotted line.

Over the next few year, these countries realized that they had signed away their right to employ a variety of critical trade measures for development purposes.

In contrast to the loose GATT framework, which had allowed some space for development initiatives, the comprehensive and tightened Uruguay Round was fundamentally anti-development in its thrust. This is evident in the following:

Loss of Trade Policy as Development Tool

In signing on to GATT, Third World countries were committed to banning all quantitative restrictions on imports, reduce tariffs on many industrial imports, and promise not to raise tariffs on all other imports. In so doing, they have effectively given up the use of trade policy to pursue industrialization objectives. The way that the NICs, or “newly industrializing countries,” made it to industrial status, via the policy of import substitution, is now effectively removed as a route to industrialization.

The anti-industrialization thrust of the GATT-WTO Accord is made even more manifest in the Agreement on Trade-Related Investment Measures (TRIMs) and the Agreement on Trade-Related Intellectual Property Rights (TRIPs). In their drive to industrialize, NICs like South Korea and Malaysia made use of many innovative mechanisms such as trade-balancing requirements that tied the value of a foreign investor’s imports of raw materials and components to the value of his or her exports of the finished commodity, or “local content” regulations which mandated that a certain percentage of the components that went into the making of a product was sourced locally.

These rules indeed restricted the maneuvering space of foreign investors, but they were successfully employed by the NICs to marry foreign investment to national industrialization. They enabled the NICs to raise income from capital-intensive exports, develop support industries, bring in technology, while still protecting local entrepreneurs’ preferential access to the domestic market. In Malaysia, for instance, the strategic use of local content policy enabled the Malaysians to build a “national car,” in cooperation with Mitsubishi, that has now achieved about 80 per cent local content and controls 70 per cent of the Malaysian market.

Thanks to the TRIMs accord, these mechanisms used are now illegal.

Monopolizing Innovation

Like the TRIMs agreement, the TRIPs regime is seen as effectively opposed to the industrialization and development efforts of Third World countries. This becomes clear from a survey of the economic history not only of the NICs but of almost all late- industrializing countries. A key factor in their industrial take-off was their relatively easy access to cutting-edge technology: The US industrialized, to a great extent by using but paying very little for British manufacturing innovations, as did the Germans. Japan industrialized by liberally borrowing US technological innovations, but barely compensating the Americans for this. And the Koreans industrialized by copying quite liberally and with little payment US and Japanese product and process technologies.

But what is “technological diffusion” from the perspective of the late industrializer is “piracy” from that of the industrial leader. The TRIPs regime takes the side of the latter and makes the process of industrialization by imitation much more difficult from hereon. It represents what UNCTAD describes as “a premature strengthening of the intellectual property sustem...that favors monopolistically controlled innovation over broad-based diffusion.”

The TRIPs regime provides a generalized minimum patent protection of 20 years; increases the duration of the protection for semi-conductors or computer chips; institutes draconian border regulations against products judged to be violating intellectual property rights; and places the burden of proof on the presumed violator of process patents.

The TRIPs accord is a victory for the US high-tech industry, which has long been lobbying for stronger controls over the diffusion of innovations. Innovation in the knowledge-intensive high-tech sector—in electronic software and hardware, biotechnology, lasers, opto-electronics, liquid crystal technology, to name a few—has become the central determinant of economic power in our time. And when any company in the NICs and Third World wishes to innovate, say in chip design, software programming, or computer assembly, it necessarily has to integrate several patented designs and processes, most of them from US electronic hardware and software giants like Microsoft, Intel, and Texas Instruments. As the Koreans have bitterly learned, exorbitant multiple royalty payments to what has been called the American “high tech mafia” keeps one’s profit margins very low while reducing incentives for local innnovation. The likely outcome is for a Southern manufacturer simply to pay royalties for a technology rather than to innovate, thus perpetuating the technological dependence on Northern firms.

Thus, TRIPs enables the technological leader, in this case the United States, to greatly influence the pace of technological and industrial development in rival industrialized countries, the NICs, and the Third World.

Special and Differential Status

The centerpiece of UNCTAD is that owing to the critical nexus between trade and development, developing countries must not be subjected to the same expectations, rules, and regulations that govern trade among the developed countries. Owing to historical and structural considerations, developing countries need special consideration and special assistance in levelling the playing field for them to be able to participate equitably in world trade. This would include both the use of protective tariffs for development purposes and preferential access of developing country exports to developed country markets.

While GATT was not concerned about development, it did recognize the “special and differential status” of the developing countries. Perhaps the strongest statement of this was in the Tokyo Round Declaration in 1973, which recognized “the importance of the application of differential measures in developing countries in ways which will provide special and more favourable treatment for thenm in areas of negotiation where this is feasible.” Different sections of the evolving GATT code allowed countries to renegotiate tariff bindings in order to promote the establishment of certain industries; allowed developing countries to use tariffs for economic development and fiscal purposes; allowed them to use quantitative restrictions to promote infant industries; and conceded the principle of non-recirpocity by developing countries in trade negotiation. The 1979 Framework Agreement known at the Enabling Clause also provided a permanent legal basis for General System of Preferences (GSP) schemes that would provide preferential access to developing country exports.

A significant shift occurred in the Uruguay Round. GSP schemes were not bound, meaning tariffs could be raised against developing country until they equalled the bound rates applied to imports for all sources. Indeed, during the negotiations, the threat to remove GSP was used as “a form of bilateral pressure on developing countries.” SDT was turned from a focus on a special right to protect and special rights of market access to “one of responding to special adjustment difficulties in developing countries stemming from the implementation of WTO decisions.” Measures mean to address the structural inequality of the trading system gave way to measures, such as a lower rate of tariff reduction or a longer time frame for implementing decisions, which regarded the problem of developing countries as simply that of catching up in an essentially even playing field.

STD has been watered down in the WTO, and this is not surprising for the neoliberal agenda that underpins the WTO philosophy differs from the Keynesian assumptions of GATT: that there are no special rights, no special protections needed for development. The only route to development is trade liberalization.

Fate of the Special Measures for Developing Countries Perhaps

Quoted in Proposal for Oxfam Work on WTO Institutional Reform, December 1999. Ibid. In her speech on Nov. 30, 1999, shortly before the collapse of the Seattle ministerial, Minister of Development Clare Short did not mention anything about the need for any reform of the WTO. Instead she tried to sell a Millenium Round as “Development Round” in a desperate effort to push through a new round of global liberalization. Figures from World Trade Organization, Annual Report 1998: International Trade Statistics (Geneva: WTO, 1998), p. 12. Quoted in “Cakes and Caviar: The Dunkel Draft and Third World Agriculture,” Ecologist, Vol. 23, No. 6 (Nov-Dec. 1993), p. 220. C. Fred Bergsten, UNCTAD, Trade and Development Report 1991 (New York: United Nations, 1991), p. 191. See discussion of this in Walden Bello and Stephanie Rosenfeld, Dragons in Distress: Asia’s Miracle Economies in Crisis (San Francisco: Institute for Food and Development Policy, 1990), p. 161.

Quoted in John Whaley, “Special and Differential Treatment in the Millenium Round,” CSGR Working Paper, No. 30/99 (May 1999), p 3. Ibid., p. 4. Ibid., p. 7. Ibid., p. 10. Ibid., p. 14.