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The WTO and the South: Implications and recent developments

In this paper, the author analyses how the WTO has become, through the multilateral trading system, the main vehicle of the industrialized countries for organizing and enforcing global economic governance. He goes on to examine how, through the untransparent process at the WTO's first Ministerial Conference in Singapore, the North succeded in forcing new issues into the domain of the WTO, thus tilting the imbalance further against the interests of developing countries.

by Martin Khor


1. THE WTO AND THE INSTRUMENT OF TRADE AGREEMENTS

The newest and perhaps most important phenomenon in the globalisation process is the emergence of trade agreements as key instruments of economic liberalisation and as mechanisms used by the major countries to have disciplines and rules placed on developing countries in a wide range of issues. Trade agreements, that are legally-binding and have strong enforcement capability, have become the most important vehicles for disseminating and implementing economic and social policies across the world, policies that have been planned by the few developed countries for developing countries to follow. The World Trade Organisation, which is the organisation of the multilateral trading system, has in fact become the main vehicle of choice of industrialised countries for organising and enforcing global economic governance.

At the regional level, trade agreements are also proliferating. NAFTA is a prototype of a regional legally- binding agreement involving North and South countries, and its model may be extended to South America; APEC is another model with both North and South countries, but without being ruled by a legally-binding agreement; the European Community is of course the main example of a legally-binding regional agreement among developed countries. Regional trade arrangements among developing countries (such as ASEAN, SADC and Mercusor) have also emerged or are also evolving.

However, the WTO is by far the most important institution for evolving and implementing trade agreements. The Uruguay Round vastly expanded the scope of the multilateral trade system so that it no longer deals only with the conduct of trade in manufactures. Its scope expanded to cover trade in agriculture; trade and investment in services; and beyond trade issues into intellectual property rights and investment measures. Moreover it directed that the new issue of trade and environment be discussed at committee level in the WTO. The change-over from the old GATT to the new WTO with expanded powers and jurisdiction marked the arrival of the age of trade agreements in a new phase of the globalisation of policy making. Due to the extension of issues beyond trade into other areas such as intellectual property, investment and investment measures, and the environment, the WTO is no longer only a "trade" organisation. "Trade" in the context of the multilateral system has become a code-word to include all issues that have come or may come under the purview of the WTO. Moreover the WTO agreements have the most significant implications for non-economic matters; for example the WTO services agreement and the specific agreements on communications and information technology will have far- reaching effects on the culture of countries around the world.

The vastly increased scope of "trade agreements" through the Uruguay Round and now beyond it to the current negotiations in the WTO on a new package of issues has tremendous significance for the shaping of national economic and social policies, for the scope of development options, concerns over equity and marginalisation, and national sovereignty. It is thus crucial to understand the meaning and mechanics of this new era of trade agreements.

The conclusion of the Uruguay Round (UR) was heralded in the mainstream global media as a major triumph for the international economy and a boon for all countries. It is clear however that the results are at best mixed for some developing countries and for many others (especially the poorer countries) the UR is likely to have an overall negative effect that will further drain their economic resources. For all South countries, the Round will also foreclose a wide range of development options.

In a sense, the UR complements what structural adjustment programmes (SAP) are achieving. The Round will lead to a very significant external liberalisation of many sectors and facets of the domestic economy of all the developing country members of the WTO. Structural adjustment affects about 80 indebted developing countries facing repayment problems. Should some of these countries get out of debt crisis and no longer require SAP loans, or should there be a change of government or government policies, the SAP policies can be changed or reversed.

However, once a country's government has signed on to the UR agreements and enters the WTO, that country is obliged to follow the WTO rules. Domestic laws and policies in a wide range of areas have to be changed to bring them in line with these rules. According to several analyses, the UR agreements will severely restrict or constrain the possible policy options in many areas. Non-compliance of the rules can result in complaints being brought against a country, and the threat of trade penalties and retaliation through measures affecting trade and other activities. Due to the "single undertaking" nature of having to sign on to all the multilateral agreements of the Round, and to the "integrated dispute settlement system", countries also risk having "cross-sectoral retaliation". At the extreme, non-compliance can also lead to explusion from the WTO, and thus the loss of the automatic "most-favoured nation" status granted to a WTO member by all other members. The WTO system has thus a powerful system for obtaining compliance from member countries. It is the organisation with the strongest "bite" in getting its legally- binding rules enforced. Thus, signing onto a WTO agreement is a very serious undertaking. In contrast, signing onto a UN Declaration, even a UN Declaration of over a hundred heads of government, has little enforcement possibility and becomes only a moral commitment.

It would be very difficult, if not impossible, for a developing country Member to change the WTO rules, or to avoid compliance of obligations. The disciplines of the WTO are legally binding on present and future governments. Once the WTO agreements come into force, it would be difficult for a present government to have economic policies relating to foreign trade, investment, sectoral policies in services and agriculture, or technology policy (vis-a-vis intellectual property rights) that are in violation of WTO rules. Moreover, the rules are binding on future governments as well. Thus, should a present opposition party have a different economic programme, it would find it difficult or impossible to implement it (should it come to power) if this were to contradict the WTO rules. In this way, policy options have been significantly narrowed, for a country's policies would have to be made (or changed) within the boundaries of what is permissible by the WTO Agreements.

2. THE IMBALANCED AND INEQUITABLE OUTCOME OF THE URUGUAY ROUND

The Uruguay Round negotiations that gave birth to the WTO resulted in a package of Agreements that were on the whole imbalanced and inequitable in favour of developed vis-a-vis developing countries. Various aspects of the asymmetries and disadvantages to developing countries have been brought out in several studies (for example, Raghavan 1990, 1995; Das 1996, 1997; South Centre 1995; Dubey 1995; Nayyar 1995; G. Corea 1995; Shahin 1996).

According to Raghavan (1995): "From the perspective of developing countries generally (and more so of their poor and disadvantaged sections), the new trade order under WTO has more negative than positive features. And while it could be beneficial as a rule-based system (depending on how the major industrialised countries implement it in letter and spirit), the rules in some areas of obligations for the majors are ambiguous and vague, while those relating to developing countries are specific and quite onerous such as in the field on TRIPs, where the original purpose of intellectual property rights (namely, rewarding innovation while ensuring disclosure and sharing of knowledge for enabling further innovation), has now been overtaken by attempts to cater to the greed of the corporations and safeguarding their investments through monopoly rentier incomes."

A recent and comprehensive study by B.L. Das (1997) concludes that the Uruguay Round "has been a unique negotiation in which most of the concessions have been made by developing countries without getting anything but meagre concessions in return. It is not because the negotiators or trade policy officials of developing countries ignored the interests of their countries... The results are in fact characterised by the massive gap between the economic and political strengths of developed and developing countries." The study analyses the severe overall imbalance in concessions made by South and North and how the recent trend in WTO enhances the imbalance. It then examines the imbalances and deficiencies in various areas: the dispute settlement system, market access, balance of payments and safeguards; subsidies and dumping; specific sectors like agriculture and textiles; the new issues of services, and IPRs; neo-protectionism; and commitments of developed countries.

Referring to the WTO Agreements, Nayyar (1995) states: "It would seem that the institutional framework for globalisation is characterised by a striking asymmetry. National boundaries should not matter for trade flows and capital flows but should be clearly demarcated for technology flows and labour flows. It follows that the developing countries would provide access to their markets without a corresponding access to technology and would accept capital mobility without a corresponding provision for labour mobility. This asymmetry, particularly that between the free movement of capital and the unfree movement of labour across national boundaries lies at the heart of the inequality in the rules of the game for globalisation in the late twentieth century. These new rules, which serve the interests of transnational corporations in the process of globalisation, are explicit as an integral part of a multilateral regime of discipline."

A significant critique of the Uruguay Round outcome was also made in 1994 by Luis Fernando Jaramillo, then Chairman of the Group of 77 in New York and Colombia's permanent representative to the United Nations. In a speech after the Round's conclusion, he stated: "The Uruguay Round is proof again that the developing world continues to be sidelined and rejected when it comes to defining areas of vital importance for their survival. The Third World confined itself to a role of passive spectator of the decisions adopted... The countries of the Third World have been put in a situation in which they already paid the price of accepting the new terms in different areas of interest for the industrialised countries, without obtaining in exchange satisfactory conditions of market access... According to some estimates, the industrialised countries, which make up only 20 percent of the GATT membership, will appropriate 70 percent of the additional income that will be generated by the implementation of the Uruguay Round. It would seem that this does not allow one to conclude that the Uruguay Round will translate into a positive balance to developing countries... Unquestionably, the developing countries are the losers both individually and collectively."

3. THE URUGUAY ROUND'S COMBINATION OF LIBERALISATION AND PROTECTIONISM

It is a mistaken notion that the Uruguay Round was set up to promote liberalisation overall. As pointed out by Nayyar, the main asymmetry in the Round's results was the liberalisation of those areas which are of benefit to the major countries, whilst protectionism was given a major boost in the area of technology and IPRs, and liberalisation of labour services (proposed by some developing countries) was unacceptable to the North.

When the Round began in l986, many Third World countries were strongly resisting the Northern countries' push to expand GATT's powers into "new areas" such as services, investments and intellectual property rights. Up to then, GATT's jurisdiction was only in keeping the rules in trade in manufactured goods. The Southern countries were rightly concerned that the North was interested in liberalising economic areas in which they had an advantage, where their corporations could penetrate and capture new markets which till then had been relatively protected by Southern governments.

This was certainly the case in services, a fast expanding sector, with transnational enterprises ranging from banking and insurance to motion pictures eagerly awaiting the removal of barriers to their advance into Third World markets.

The negotiations over "trade-related investment measures" (TRIMs) were similarly initiated by the North to pressurise Third World governments to give up their powers to impose conditions on the entry and operations of foreign companies. The "liberalisation" of investments would clearly benefit the North, where most transnational companies are based. The South was concerned that with only weak restrictions permitted to be placed on these big corporations, the smaller-scale domestic businesses may not survive the onslaught of foreign investments.

On the other hand, when it came to the subject of technology transfer, the North took an aggressively anti- liberalisation stance and instead pushed for all GATT members to compulsorily introduce a standard set of national laws to protect "intellectual property rights". Since most patents are owned by transnational companies, this in effect meant the legal protection of technological monopoly by these Northern- owned firms, and a drastic curtailment of possibilities by the South to learn and use new technologies.

The North's motives for introducing "trade-related intellectual property rights" (TRIPs) in the Round were to enable their firms to capture more profits through monopolistic higher prices, and through royalties and the sale of technology products; and to place stiff barriers preventing the technological development of potential new rivals from the South.

The Northern push in TRIPs proved that "free trade" and "liberalisation" were only nice slogans waved to move the Round forward. The reality was "liberalisation if it benefits me, protectionism if it benefits me, what counts is my commercial interest."

Although in the early and middle stages of the Round, several Third World countries (including the influential India and Brazil) put up a stiff resistance to the Northern push and interpretation of the "new areas", by the final two years the Southern fight had melted, and in the end the Round adopted texts to protect IPRs, liberalise services and prohibit trade- related investment measures. All three issues have thus become integrated with trade in manufactured and agricultural goods, and all now fall under the jurisdiction of WTO.

In effect the Uruguay Round has most benefited the transnational corporations. The "free trade" so much bandied around by the proponents of the Round has come to mean, in reality, the vastly expanded freedom and powers of transnational corporations to trade and invest in most countries of the world, whilst correspondingly governments now have significantly reduced powers to restrict their operations; and at the same time, these corporations have "freedom" from potential new competitors whose possibilities to develop technologically are now curbed by intellectual property provisions in TRIPs. The big companies, which were the powerful lobbies behind the Northern governments propelling the Round from start to end, have won many more rights without having to meet new obligations: indeed, previous obligations they may have had to observe are now dropped.

4. OUTCOME OF WTO AGREEMENTS FOR DEVELOPING COUNTRIES

On the whole the Round has benefited the rich industrial nations, and some developing countries (mainly the more advanced ones) whilst many countries (especially the LDCs and weaker economies) have lost out. It is simply not true that "we are all gainers, there are no losers", as some leading proponents of the Round would have it. Some have gained more than others; and many (especially the poorest countries) have not gained at all but may well suffer severe loss to their economic standing.

The Uruguay Round outcome is expected to bring some benefits to those developing countries able to take advantage of certain changes. A lowering of Northern countries' industrial tariffs will benefit those Southern countries with a manufacturing export capacity. The planned phasing out of the multifibre arrangement will have positive effects on textile-exporting Southern countries. (However, textile- exporting developing countries are disappointed and frustrated that due to end-loading of the implementation schedules of developed countries, the benefits accrue mainly only at the end of the ten year phase-out period). The reduction of agricultural subsidies would improve the market access of those Southern countries that export agricultural products.

These benefits will mainly accrue to the better-off developing countries that already have an export capacity. The weaker countries (and especially the least developed countries) would not be able to benefit, or to benefit much, from these. Several countries (especially in Africa, but also including Indonesia) are projected to suffer absolute losses as a result from the Round agreements. The benefits (which fall significantly short of what had been requested by the developing countries) will also take a long time (10 to 20 years) to come on stream, whilst the problems of compliance are already being felt by developing countries, especially the poorer ones. The LDCs will be particularly hit. At the UNCTAD's Trade and Development Board session in October 1996, the Secretary of the Bangladesh Commerce Ministry, Mr. Farouk, speaking on behalf of the LDC group, said the LDCs are not yet well placed to take advantage of the Uruguay Round's opportunities. He added: "In fact, the opportunities for LDCs stemming from the Uruguay Round are expected to be indirect and would perhaps materialise in the long run. In contrast, the challenges arising out of it are more immediate." This, he said, was due to four reasons: erosion of preferences; limited number of exportable items resulting in their inability to participate effectively in global trade; higher prices for import of food, pharmaceuticals and essential capital goods; and increased administrative cost of compliance with their Uruguay Round obligations.

In exchange for some uneven benefits in the Uruguay Round, the South as a whole has had to make major concessions, especially in agreeing to bring in the new issues of services, investment measures and intellectual property rights, into the GATT/WTO system.

For particular groups of Southern countries, the UR will also result in specific problems. For instance, the agriculture agreement could have severe negative effects on some Third World countries. Most of them (excepting the least developed countries) will also have to reduce domestic subsidies to farmers and remove non-tariff controls on agricultural products, converting these to tariffs and then progressively reducing these tariffs. This will impose competition on the domestic farm sector. Farmers unable to compete with cheaper imports may not survive. Agricultural liberalisation will also raise world food prices, which may benefit food exporters but about 100 Third World food importers will face a higher food import bill and are likely to be among the biggest UR losers.

The UR also for the first time brought services into GATT, and liberalisation of services will be an important part of the WTO's agenda. Although the framework of the Services Agreement does not oblige countries to conduct blanket liberalisation, as liberalisation will be on the basis of a listing of positive offers, there will of course in reality be far increased pressures for liberalisation. In many Third World countries, the services sector is relatively shielded and local enterprises in banking, insurance, trade, the media and professional services have been able to develop. It is feared that under the pressures of liberalisation, the Northern TNCs involved in services will make further inroads and in some countries may come to dominate some of the services.

The South's collective loss was most acutely felt in the agreement on TRIPs (trade related intellectual property rights) through which countries are obliged to introduced IPR legislation similar to Northern standards. This will hinder Southern countries indigenous technological development. It should be noted that the present industrial countries did not have patent or IPR laws, or laws as strict as will now be imposed through TRIPs, during their industrialising period, and this enabled them to incorporate technology design originating from abroad in their local systems. It will also give rise to increasing technical payments such as royalties and license fees to TNCs owning most of the world's patents.

The new IPR regime will also have significant impact on raising the prices of many products. By restricting competition, the IPR rules will enable some companies to jack up prices of their products far beyond costs and thus earn rents in terms of monopoly revenues and profits. This is clearly seen in the case of computer software. Also, most Third World countries have exempted agriculture, medicines and other essential products and processes from their national patent laws, but with the passage of TRIPs, everything is subject to IPRs unless explicitly exempted. The prices of medicines are expected to shoot up in many countries, and foreign drug sales will increase rapidly at the expense of local products.

The TRIPs agreement also opens the door to the patenting of lifeforms such as microorganisms and modified genetic materials, thus providing the boost in incentives so much desired by the biotechnology industry. Many environmentalists are concerned that this will be detrimental to the global environment as the present lack of controls and accountability in biotechnology research and application will likely accelerate biodiversity loss and could threaten natural ecosystems.

For plant varieties, TRIPs does permit countries the option to either introduce patents or an alternative "effective" sui generis system of intellectual property protection for a trial period of four years, after which the agreement will be reviewed. Many farmers' groups (especially in India, where huge farmers' demonstrations and rallies have been held against GATT) and environmentalists are concerned that in the end Third World farmers will be disallowed the traditional practice of saving seed for the next season's planting (if the seed used is under the intellectual protection of a company) but forced to purchase the seeds.

In the next few years, these farmers and their supporters may argue the case for a sui generis system to protect their rights as an alternative to corporate intellectual property rights, and it will be interesting what Northern governments and the WTO consider to be "effective" in protecting intellectual property rights.

In the area of TRIMs (investment measures), the most important point is that national policies relating to foreign investments have also now begun to come under the ambit of the GATT/WTO system. Originally the Northern countries proposed that foreign companies be given an automatic "right to establishment" or "commercial presence". This would have given rights to foreign companies that were attained by the colonisers through war and bloodshed in the colonial era. Eventually the objections of some developing countries prevailed.

In the final TRIMs agreement, "investment measures" such as local content (obliging foreign firms to use at least a specified minimal amount of local inputs) will be phased out. This of course has serious enough implications in terms of prohibiting measures that promote local industry and greater linkages to the domestic economy, and that protect the balance of payments. Just as significant, once the area of "investment" has been brought into the ambit of the WTO, even if only in relation to investment measures (which had already been part of the old GATT rules), it could be easily predicted that the Northern governments would soon resume their pressures to bring in the whole body of "investment policy per se" into the WTO framework. This has now happened, with the current intense pressures by the North to establish a new Multilateral Investment Agreement in the WTO.

5. DANGERS OF THE PROLIFERATION OF "TRADE RELATED ISSUES"

In the recent post-Uruguay Round period, the developed countries have intensified the pressures to incorporate more and more issues which are to their advantage into the WTO. Developing countries, on the other hand, are unprepared individually or as a group, for these new negotiations. It is likely that the WTO will be used for implementing more and new rules that would be detrimental to the interests of the South, unless officials and political leaders in developing countries prepare themselves much better and defend their interests more effectively in the current and future WTO negotiations.

Northern government plans to link trade (and the possible use of trade measures and sanctions as enforcement mechanisms) to several economic and non-economic issues in ways that are to their advantage. Trade and environment is already being negotiated under the WTO's Committee on Trade and Environment. There have been strong attempts by some Northern governments (especially the US and France), under pressure from trade unions, to link trade with labour standards in the WTO. It is likely that a wide range of other issues, such as human rights, tax systems, cultural behaviour, will also be sought to be linked to trade measures in the WTO in future.

The linking of issues to the possibility of sanctions under the device of attaching a "trade related" prefix to the chosen topics was successfully used in the Uruguay Round to inject IPRs (through a trade-related intellectual property rights agreement) and investment issues (through a trade-related investment measures agreement) into the GATT/WTO system. The justification for introducing these issues was that they were "related to trade." In fact, the real objective was to link the chosen issues to the threat of "trade retaliation and penalties" for non-compliance of disciplines. The device of bringing in new topics by alleging that they are trade-related has continued to be used in on-going WTO negotiations. In fact the pretence of being directly trade-related is no longer even necessary and may unnecessarily restrict the scope of the issues being introduced. The prefix "trade-related" has now been dropped in proposals for these new issues, which are now sought to be brought into the trade arena through simply using the word "and", as in "trade and environment", "trade and labour standards" and "trade and investment."

The device of linking trade with other issues (when the intention is really to link the dispute settlement system of the WTO to new policy areas) is being increasingly used for the purpose of further opening up Third World economies or to reduce their competitiveness in the scramble for world market shares. The WTO could also be used as an instrument to shift a great portion of the burden of future global economic adjustment (for instance, because of environmental imperatives) to the South, which presently has a very weak bargaining and negotiating position in the WTO forum. Indeed it is precisely because the South is so weak in the WTO arena, coupled with the fact that the WTO carries the power of "bite" in the form of trade retaliation mechanisms, that this institution has been chosen as a vehicle to institute reforms favourable to the North.

6. THE NORTHERN INITIATIVE FOR A MULTILATERAL INVESTMENT AGREEMENT

By far the most important "new issue" being promoted by Northern countries in the international arena is investment policy per se. What was dropped in the Uruguay Round TRIMs negotiations, as a result of strong opposition from the South, is now being pushed with tremendous energy and resources. The investment initiative is being promoted in two fora: the WTO and the OECD. The objective is to establish an international agreement that widens the rights of foreign investors far beyond the current position in most developing countries, and to severely curtail the right and powers of governments to regulate the entry, establishment and operations of foreign companies and investors. This initiative is currently also the most important development in attempts to extend the scope of globalisation and liberalisation.

The agreement is termed the Multilateral Agreement on Investments (MAI) in the OECD and the Multilateral Investment Agreement (MIA) in the WTO context. For the proponents, the desired content of both is basically similar. The MAI is being negotiated by the 28 members of the OECD and is expected to be completed by May or later in 1997, whereupon non-OECD countries (who have not been invited to participate in the negotiations) will be invited to also join. The MIA has been informally pushed, particularly by the European Union, at the WTO. Due to growing opposition to such an MIA by many developing countries, the Northern countries instead proposed a "study process" in the WTO to examine the links between trade and investment. They enlisted the support of some developing countries. This was endorsed by the WTO Ministerial Conference in December 1996, which established a new WTO working group to examine the relationship between trade and investment. In the working group, the proponents are expected to advocate for upgrading the study process to negotiations that would lead eventually to an MIA.

The process began in the WTO in March 1995, when the EU held a briefing for several Third World trade diplomats in Geneva, where it circulated an EC paper, "A level playing field for direct investment worldwide". It is clear from this paper that the proposed agreement would oblige signatory governments to:

* Grant free access for foreign investments. Foreign firms will have the right to enter and establish themselves, with 100 percent equity, in all sectors and activities except security.

* Grant "national treatment" to foreign investors. Foreign companies would be treated in a "non-discriminatory" way like local firms. Policies that now favour local companies, banks and professionals will have to be changed. Foreigners and foreign firms would have full rights to own land and real estate and to receive government aid, subsidies and contracts, just like locals.

* Take further "accompanying measures" (such as the right to full profit repatriation, changes to tax and company laws to remove existing favourable treatment to locals, etc) so as to create favourable conditions for foreign investors. The rules being proposed by the EU, and which enjoy support from other developed countries, have thus been resurrected from the Uruguay Round negotiations on TRIMs, where they had been rejected by developing countries as being not relevant to the GATT's mandate.

The newly proposed rules still go far beyond the current and legitimate concerns of the WTO, which are supposed to be restricted to the trade implications of investment measures. Compared to the WTO's present mandate in investment, which is confined to "trade-related" investment measures, the EU proposal would extend the scope of the issue to national policies, conditions, regulations and operations of foreign investments per se and as a whole. With the MIA, the WTO would no longer be a "trade organisation", but become an agency with the extra powerful function of regulating investments worldwide. This would of course be a very major extension of the WTO's powers. It would also mean the extension and application of the WTO's principles and its system of dispute settlement (including the use of trade sanctions and trade retaliation) to investment policy.

The acceptance of such a MIA would have the most profound effects on the behaviour, operations and effects of foreign investments worldwide, and on each country. Transnational companies would have the greatest freedom and rights to conduct business all over the world, free from the many government regulations they now face. On the reverse side, it would mean that governments would no longer have the right or the power to draw up their own basic policies or laws regulating the entry, behaviour and operations of foreign enterprises in their economies. Existing national laws and policies that now place restrictions on foreigners would have to be cancelled or altered to fit the new multilateral investment treaty.

This would of course have serious implications, since most developing countries now have policies that deliberately seek to promote domestic companies and to protect citizens from excessive control of the economy by foreign firms.

The MIA proposal attracted a negative response from the international NGO community. A joint NGO statement signed by over 200 groups stated: "Such a proposal would abolish the power and "legitimate right of states and people to regulate the entry, conditions, behaviour and operations of foreign companies and foreigners in their country. This is a prime and fundamental sovereign right which is essential for any country to determine its own economic and social policies. This is a precious right which is especially vital for developing countries to protect. This is because the domestic sector (comprising local firms, local farms and the public sector) has been weakened through colonialism and still requires a longer period of capacity building.

"The ability to regulate foreign companies as part of economic policy is obviously crucial to enable domestic capacity building which would eventually allow local enterprises to compete successfully in the economy. The removal of the right of developing countries to regulate the area of investments, would effectively close the possibility of domestic economic capacity building."

The NGOs stressed they are not against foreign investments per se, as they recognised that "foreign investment may have a relevant and indeed significant role to contribute in the development process."

They however believed that this role has to be placed in an appropriate policy context, which "requires that governments continue to be given the right to regulate the terms and conditions for the entry and operation of foreign investment in the various sectors."

The concerns of the NGOs have much merit. The experience of Southeast Asian countries with foreign investment is illuminating in this context. These countries have successfully attracted large volumes of foreign investments, but the companies have to operate within sophisticated regulatory frameworks. For instance, foreign investors may be welcome in some sectors (manufacturing, oil production) but local firms may be given preference in others (for example, plantation agriculture). Even in manufacturing, there are policies in many countries restricting full equity rights, requiring foreign investors to enter joint ventures with locals. In the sensitive services sector, many developing countries restrict the operations of foreign firms in banking, other financial institutions, media and the professions.

In Malaysia, for instance, the New Economic Policy was formulated to increase the share of Malaysians in equity ownership in the modern sectors. The NEP requires that citizens should own a certain percentage of the shares of companies and restricts the percentage of equity that foreigners can own in various sectors. In 1970, foreigners owned 70 percent of the total share equity. Today the share has fallen to probably about 30 per cent, whilst the share of the Bumiputra community has risen from two to around 20 to 30 percent. There are regulations that require foreign banks and insurance companies to incorporate themselves as local companies; that restrict the ownership by foreigners of houses and land; that limit the scope of operations of foreign banks; and that protect the business of local businesses and professions. It has been argued that without such "social engineering" policies, Malaysia would not have enjoyed the political stability nor the building up of the domestic sector, that underlie the country's socio-economic development.

There are compelling reasons why protection of locals in the area of investment, and the right of countries to regulate foreign investments, is necessary in developing countries:

* Given the colonial legacy, local firms and farms are still too weak in many sectors to compete with large foreign firms. Giving total access to foreign investments would run many local enterprises out of business, leading to loss of jobs and livelihoods.

* To retain a meaningful measure of sovereignty over national resources and economic activity (a principle affirmed by several UN Charters and Declarations), developing countries require the right to limit the degree of foreign ownership overall and particularly in crucial resources (such as land) and sectors (such as finance).

* To avoid a structural problem in the balance of payments, governments should have the ability to regulate foreign investments in such areas as equity share (so that some of the profits will be locally owned and retained), profit repatriation (so that there is sizable reinvestment of profit) and import limitation (to prevent excessive import of capital and intermediate goods).

* To develop local enterprises (including small farmers), governments must have the right to promote their growth through subsidies or preferential policies, at least until such time when they can compete on more equal terms with the larger foreign firms. Removing the right to treat locals more favourably could well foreclose the possibility of domestic enterprise development, and perpetuate or worsen dependence on foreign firms.

* The proposed treaty would also remove from governments the use of a key instrument of macroeconomic, financial and development management.

An additional reason to be wary of having an MIA process in the WTO is that the WTO is an agency in which trade retaliation or sanctions can be applied against countries that do not live up to their obligations.

The proposed MIA would have the most serious implications for countries which have found it necessary to regulate foreign investments and to promote the growth of local firms. "Trade and investment" is therefore not a "technical trade issue" that can be left to trade officials on the negotiating field alone to handle. It is primarily an issue with great economic, social and political significance, as it will have such an important bearing on economic sovereignty; ownership patterns; the survival of local enterprises, businesses and farms; employment prospects; as well as social and cultural life.

The MIA proponents argue such rules are the best way to promote the entry of foreign investments into the South. Most developing countries indeed are trying their best to attract foreign investors. The issue however is not the desirability or otherwise of foreign investments. It is about the right of governments and peoples to choose the pattern and ownership of investments they want for their country, and in that context, the type of foreign investment they welcome, in which sector, and under what conditions. The power to regulate foreign investment, to obtain better terms and benefits from them, and the right to enact policies to aid the weaker local firms is essential to any country that wants to have a critical minimal degree of control over its economy and social life.

It should come as no surprise why the industrialised countries are putting great efforts and pressure on this issue. They would like their companies to be able to operate much more freely in developing countries, and thus are asking that current restrictions and regulations be removed. Gaining access to the resources and markets of the South, and to the right to invest and operate in the developing countries, has been a major strategic objective of the governments and companies of the North.

It was this objective that largely prompted the takeover of the Third World's territories in the colonial era. The Opium Wars in China for instance were sparked by British insistence on the right to sell opium to China; they led to the progressive opening up of China not only to trade but to investment rights to imperial powers and to loss of territory, for instance Hong Kong. The Chinese termed the "peace agreements" of the Opium Wars as "the unequal treaties."

It was the need to recapture control over resources, and to have national policies in favour of domestic rather than foreign interests, that spurred the anti-colonial struggles that finally led most colonies to win independence. It would thus be a great irony if the ex-colonial master countries were to succeed yet again to gain rights for their companies to establish themselves and dominate the economies of the former colonies, this time not through military conquest but through the device of a treaty to be agreed to by all parties. This would be the modern version of the "unequal treaties", with possibly the same disastrous effects on many countries.

For it is likely that if governments are not allowed the powers to impose regulations on foreign companies, or to give a helping hand to domestic companies, then the bigger foreign firms will overcome the local ones and win an increasing share of the domestic as well as international markets. The irony would be all the greater should the developing countries agree to such rules without clearly understanding their full significance.

Meanwhile, on a separate track, the industrial countries are also having their own negotiations on an investment treaty (the MAI) within the OECD. The major features of the MAI are similar to the EC proposal on the MIA. The US is reported to prefer the OECD as a forum, for a stricter investment regime can be attained there. An OECD investment treaty (the MAI) could then be opened up to other countries. The EC is said to prefer the WTO as a forum; one reason for this is its belief that the WTO's dispute settlement system would give the treaty "credibility."

The OECD will complete its MAI (multilateral agreement on investment) by May 1997, upon which it will open the MAI for other countries to sign on. Although some developing countries can be expected to be pressurised to sign on, non-OECD countries are of course not obliged to join an MAI negotiated solely by the OECD countries. The imminent emergence of an OECD MAI should not be grounds for countries to agree that the WTO negotiate a similar issue. In fact this would set a dangerous precedent. In future, the OECD countries can again negotiate other issues among themselves (such as labour standards, human rights, corruption etc) and then again put pressure on WTO Members to also start working groups on the same issues.

Seeing that there is growing resistance to initiate negotiations on a MIA, in the latter part of 1996, the MIA proponents watered down their proposal to begin an "educative process" in the WTO, with no commitment that there be negotiations for an agreement. At the WTO Ministerial Conference in December 1996, this was accepted, and a working group has been created to examine the trade-investment relationship, without any obligation that this would lead to negotiations for an investment agreement.

Based on the recent record of negotiations on new issues in the Uruguay Round, there is a strong possibility that once an issue is accepted as within the competence of the WTO, even for an educative process, there will be strong pressures that this would proceed into negotiations and a treaty. The pressures within the WTO towards rule-making make the WTO an unsuitable forum for an "educative process", since there would be an atmosphere of tension, fear and suspicion.

As some developing countries at the WTO (and many NGOs) argued, a more suitable forum for discussion and an educative process would be the UN, where the issue can be seen in its many facets (especially the development dimension), and not only from the perspective of rule making and the trading system. At the UNCTAD-9 Conference in Midrand in May 1996, UNCTAD was given the mandate to discuss the issue of trade and investment and the implications of a MIA, at intergovernmental level. Thus, for the next few years, discussions and an educative process could take place at this forum. Arising from such a process, the role of the trading system can be better clarified.

Nevertheless the case against a study process in the WTO did not succeed, and the working group on trade and investment will now be established. Developing countries have to prepare well for the forthcoming negotiations, or else they may be overwhelmed by the intense pressures of the developed countries.

7. THE SINGAPORE WTO MINISTERIAL CONFERENCE

(a) The Preparatory Process

The WTO's first Ministerial Conference was meant to be a "review conference", in which members were supposed to review the Uruguay Round results three years after its conclusion; and to enable members (especially the developing countries) to bring up problems they face in implementing their Uruguay Round obligations.

However it was clear during the preparatory process that review and implementation was low on the priority of developed countries. They wanted to use of the Conference to give the WTO a major push in widening further the scope of issues under its jurisdiction and to give another impetus to global liberalisation. They put forward new issues which they wanted the Ministers to endorse as the basis for new working groups and a work programme for the next few years. These new issues were trade and labour standards, trade and investment, trade and competition policy, and transparency in government procurement.

In the preparatory process, held mainly in Geneva but also at several informal seminars and meetings around the world organised by individual countries, developing countries generally argued that they were against new issues being introduced at this stage in the WTO, as they were already finding it a great strain to adjust to the Uruguay Round agreements which require major changes to many domestic laws and policies. They had little resources left over to take on new issues on the trade agenda, especially since these can have such significant effects on their economies. They argued that a discussion on yet more new issues would divert their resources and the Conference away from the tasks of review and implementation.

Several developing countries also argued against the principle or timing of letting the new issues into the WTO. On labour standards, there was general agreement by developing countries that the issue did not belong to the WTO and should be left to the ILO to handle. They saw labour standards as a social issue that did not belong to the trading system. They also viewed the attempt to link labour standards to the WTO as a move by the North to eventually increase labour costs in their countries, depriving them of their main comparative advantage.

On investment, many developing countries were strongly against the introduction of an MIA in the WTO. They argued that investment policy per se was not within the purview of the WTO, and that the relevant aspect of investment (trade- related investment measures) were already covered in the TRIMs Agreement. They viewed the MIA as a threat to sovereignty, depriving states of the ability to regulate foreign investments; as being one-sided in giving rights to foreign investors without their having to meet obligations to the host country; and as over-emphasising the trade-liberalisation element whilst totally ignoring the development dimension of investment policy.

When the MIA proponents switched to proposing setting up a working group only to study the trade-investment relationship, several developing countries concluded they could go along with this as a compromise. Several other developing countries however opposed beginning a discussion process in the WTO, proposing instead that a discussion would better be done at UNCTAD, where all aspects of the issue could be considered in an atmosphere devoid of the possibility of a binding agreement.

On competition policy and government procurement, several developing countries (similar to the ones objecting to an investment study process) also voiced opposition to beginning a work programme on these issues as they had no time yet to study the implications of bringing them into the WTO. There was also concern that the objective of the major countries was to use these issues to further open up developing countries' markets for the TNCs.

(b) The Untransparent Process at Singapore

At the Singapore Conference, many Ministers and officials from developing countries were surprised and expressed frustration at the way the Conference was organised and its decision-making process, which reflected the normal untransparent way of functioning of the WTO system in Geneva. At the Conference, all Ministers were allocated time to make speeches at the open plenary meetings. But most developing countries were never even invited to the real discussions, on issues where there were disputes, that took place in "informal groups". For most of the Conference, their Ministers and senior officials were kept in the dark on what was going on. "Lack of transparency" was the term most used by delegates, NGO representatives and journalists alike to describe the Conference's manner of operations.

The "open" part of the Conference was the plenary session where Trade Ministers of 120 countries made speeches. Those from developing countries were often articulate in pointing out their problems in having to liberalise their economies after the Uruguay Round agreements, which came into force in January 1995. Many made the plea that no new issues (especially non-trade issues) be brought into the WTO since they were still unable to cope with the problems arising from their existing WTO obligations. But, embarrassingly enough, the Ministers were speaking to an increasingly emptier hall. There were no discussions at all on their speeches, and thus no opportunity to seek solutions to the problems raised.

Meanwhile the "real" negotiations of key issues had gone "underground" in many informal meetings to which only 20 to 30 selected countries were invited by the Conference chairman, Singapore Trade Minister Yeo Cheow Tong, and WTO director- general Renato Ruggiero. The informal group negotiated whether and how the Northern proposals on labour standards and the new issues could be brought into the Conference's Ministerial Declaration.

The untransparent decision-making process, in which the real negotiations took place in within a closed-door "informal group", in contrast with the formal appearance of decision by consensus, enabled the minority of rich countries to more easily have their way over the majority. Because the ratio of North-to-South countries in the informal group was more to the favour of the North than if the meeting were to involve all Members, the Northern countries were much more able to put pressure on the developing countries present to give in. In contrast, discussions are normally held in an open forum in the United Nations and its Conferences.

Meanwhile, the majority of developing countries were shut out of the negotiating process, and their Ministers, Ambassadors and senior officials were left hanging out in corridors or in the lounges, in the dark as to what was happening. Indeed, some journalists and NGOs knew more than the delegates. The Trade Minister of an important developing country, that was not invited to the informal meetings, was shocked to learn from an NGO from his country that the text being discussed on the key issue of investment was very different from what his country had in mind, and from what he had been told was on the table.

Many delegates privately expressed their frustration of being left out of the process and being expected to merely "rubber stamp" whatever agreement or Declaration emerged from the closed doors.

It was only on the night before the Conference's closing, that all the WTO delegations were called together and provided copies of some pages of texts on the controversial issues that the informal groups had pieced together after long negotiations. At that meeting, many of the delegations that had been left out complained about the lack of transparency at the Conference. The Conference chairman and the WTO director- general acknowledged their complaints and promised that the WTO would be more transparent but "without compromising efficiency", and asked the members to give their approval to the texts.

At such a late stage, it would have been difficult, if not impossible, for anyone who had not been in the process, to make objections, for then that country would be accused of preventing a consensus and of wrecking the whole Conference. "Our job was simply to say yes and give the stamp of approval to something we did not know and could not participate in," a senior diplomat said privately. "Although many of us in the developing countries are unhappy with the way the meeting was run and also with the results, which have benefited the developed countries more than us, we had no choice but to put on a brave front and join the consensus."

The "informal group" system of negotiations used at the Singapore Conference is an extension of the way the WTO operates as a matter of routine in Geneva. What the Conference did was to expose to the international press, to NGOs and to the Ministers themselves how untransparent and to the disadvantage of developing countries is this WTO system of operating.

Before the Singapore Conference, many developing countries had already registered their frustration at the untransparent and undemocratic manner by which the preparatory process for the Ministerial Conference was being conducted, and in particular, the so-called HOD or heads-of-delegation informal process, led by the Director-General, for determining the new issues and the draft declaration.

At Singapore itself, that dissatisfaction increased manifold and extended from the Geneva diplomats to Ministers, other members of the delegations, the NGOs and the media. Even if the Ministers and their officials confined most of their grumbling in private, journalists from many countries filed reports on the lack of transparency and the marginalisation of developing countries that they had witnessed. At a closing press conference on Friday afternoon, many questions were asked of Yeo and Ruggierio about the complaints of lack of transparency and what could be done to change the WTO's image of being a "rich men's club".

The NGOs present in Singapore were also very disappointed and negative about the process and outcome of the Conference. A very wide range of NGOs, from development groups like Third World Network and Oxfam, to environment groups like Greenpeace, Friends of the Earth and World Wide Fund for Nature, to consumer groups like Consumer International and several trade unions condemned the whole process as well as the substantive outcome of the Conference.

"We came here to lobby for greater transparency and participation of NGOs in the WTO," said a leading NGO activist from a developing country. "But we found that most of our Ministers and officials knew as little as we did, and had even less to do than the NGOs. We at least had our full agenda of activities, and often we had even more information than our Ministers. So we ended up lobbying that our own Ministers and governments should have the right to know and to participate in the WTO! And this reflects the whole irony and tragedy of the WTO. We had to come to the WTO Conference in Singapore to find that out! Having found that out, we will go back and campaign to change this terrible situation..."

Despite the self-congratulatory satisfaction of the organisation's top management and the major countries, which in their own words achieved all their objectives in Singapore, the WTO's credibility and legitimacy has suffered a major blow where the public groups are concerned. At a briefing for the NGOs near the end of the Conference, Chakravarthi Raghavan, Chief Editor of the South-North Development Monitor, said in his 18 years experience of following the GATT at Geneva, he had never found such utter lack of transparency as what exists now. "The lack of transparency and democracy in decision- making had made the WTO and its agreements illegitimate," he remarked. "No institution or instrument lacking legitimacy can command or expect obedience or acceptance of civil society."

For many developing countries, their faith in being able to really participate as members (and to avoid being manipulated by the majors and be used as rubber-stamps to produce "consensus" against their own interests) has also been shaken. If it is to regain some of that credibility, legitimacy and faith, the WTO has to seriously tackle the issue of transparency of information and process, and participation of all Members, big or small, when it sits again to follow up on its decisions in Singapore.

Will it be up to the challenge, in the coming 50th anniversary year of the founding of GATT, its predecessor? Or will it be "business as usual", with the Quads making the blueprints, drawing the policies, and through persuasion and pressure, with the help of the Secretariat, and via the secretive "Green Room informal meetings" keep on producing the "consensus" to advance the cause of their global economic governance?

(c) Unbalanced Outcome

The Conference's neglect of the issues of importance to developing countries and its imbalanced results in favour of the North are also reflections of the way the world trade rules in WTO are tilted against the poorer countries and how their concerns are marginalised.

Although the developing countries form four-fifths of the WTO's membership, and the WTO is supposed to decide by consensus, the minority of Northern countries were able to force the agenda with their priority issues, forcing the South countries in the frontline of the discussion to react in a bid at "damage control."

The imbalance at the Conference was reflected in the way liberalisation of their information technology products was put on a super-fast track via the Information Technology Agreement being promoted by the US, whilst liberalisation of products exported by developing countries (for example, textiles and clothing) were neglected. Concerns of the South over continuing protectionism by the North (for example, by the extension of the unilateral trade actions of the US and the protectionist use of anti-dumping measures against Third World products) were also brushed aside. The problems faced by developing countries in having to meet the Uruguay Round commitments, voiced by their Ministers in the open plenary, were hardly discussed.

Instead, most of the negotiating energy of the Conference was focused on the new issues put forward by the Northern countries. In the end, they succeeded in getting the Conference to extend the boundaries of the WTO to begin discussions and a work programme on new areas (investment, competition, and government procurement). From the statements given, especially after the Conference ended, it is clear the major countries intend to use these new issues to further open the markets of the developing countries for their corporations. The key objective that was often cited by the leaders of the US and EU was the opening up of "market access" for their corporations.

On the new issues, the Conference decided (through its Ministerial Declaration), to:

* Recognise labour standards as an important issue, but that the appropriate body to deal with the issue is the ILO. The Conference thus did not decide on a work programme in the WTO on trade and labour standards.

* Establish a WTO working group to examine the relationship between trade and investment.

* Establish a WTO working group on trade and competition policy.

* Establish a WTO working group on government procurement.

* Establish a WTO working group on trade facilitation.

(d) Labour Standards

Of all the new issues, the developing countries did best in protecting their interests in labour standards. The Director- General's draft declaration, carried over from Geneva, had not in any case placed labour standards as an item for a future work programme (unlike the other new issues), but in an early part of the declaration as a general statement. Thus the negotiation in Singapore was not about a work programme on labour standards, but how to word the text and whether it should be included in the Declaration.

Whilst a few developed countries (mainly the US and France) made a play for harder language for the WTO to have a larger say on the issue, developing countries in the end succeeded in establishing in the Declaration (para 4) that the Ministers "renew our commitment to the observance of internationally recognised core labour standards", and that (i) the ILO is the competent body to set and deal with labour standards; (ii) growth and development promotes these standards; (iii) the use of labour standards for protectionist purposes is rejected; (iv) the comparative advantage of countries, particularly low- wage developing countries, must in no way be put into question; and (v) in this regard, the WTO and ILO secretariats will continue their existing collaboration.

Some developing countries took the position that the text should not be in the Declaration as there was a possibility it still gave an opportunity for bringing labour standards into the WTO. Others argued that putting these principles in the Declaration would settle the way the WTO would look at the issue once and for all. The latter position prevailed in the end.

In his closing chairman's statement, Singapore Trade Minister Yeo Cheow Tong interpreted the paragraph to mean that "it does not inscribe the relationship between trade and code labour standards on the WTO agenda" and that "there is no authorisation in the text for any new work on this issue."

He also said: "Some delegations had expressed the concern that this text may lead the WTO to acquire a competence to undertake further work in the relationship between trade and core labour standards. I want to assure these delegations that this text will not permit such a development."

The main proponents of labour standards in the WTO appeared to see the outcome differently. The French Trade Minister Yves Galland told the press: "The major debate of labour standards is here to stay in the WTO. It will never go away."

Acting US Trade Representative Charlene Barshefsky, at a post Conference press conference said, "We must recognise issues of workers' welfare and worker rights are absolutely part of the trade debate, whether we like it or not ideologically." "When we have such an important subject it will always remain an important subject in the WTO."

To sum up, developing countries, supported by some developed countries like the UK and Australia, have succeeded in placing the issue of labour standards within a non- protectionist context and located it in the ILO instead of the WTO. However, the post-conference statements, though these may of course be aimed at the labour constituencies in their respective countries, indicate that the US and some European countries might want to revive the issue in the WTO at a future date and in doing so make use of the paragraph in the Declaration.

(d) The Three New Issues

On the other three "new issues", the developed countries succeeded in getting the Conference to form working groups and to agree to a future work programme on the areas of investment, competition policy and government. Developing countries were, however, able to build in some safeguards in the text of the Declaration, in an effort to protect their interests. There is no doubt, however, that these issues have now entered the ambit of the WTO and there will be intense pressures by the major countries in the Working Groups to have their interpretations and objectives adopted.

Some developing countries had come to Singapore with the intention of blocking the inclusion of any new issue in the Declaration, continuing the strenuous efforts taken by their diplomats in the gruelling preparatory talks in Geneva of the past year. These countries, including India, Malaysia, Indonesia, Egypt, Tanzania, Ghana, Uganda and Haiti, had objected to the mention of investment in the Declaration. Several other countries also objected to competition policy and government procurement, whilst a vast majority of developing countries (supported by some developed countries) were against labour standards.

They felt that integrating these areas in the WTO would allow the rich countries to gain unfair advantage over the South and open the door for them to link non-trade issues to the WTO and its dispute settlement system, including trade penalties for non-compliance. They feared that even a decision to "study" or "examine" these issues would already be accepting the principle and concept of the new issues being within the WTO's competence, and constitute a dangerous opening for full-scale negotiations and eventual binding agreements.

These developing countries fought to exclude the divisive issues from being included in the draft declaration, on the ground that there was an absence of consensus. They argued that in the reports of the various Councils and committees, only points where there were consensus were included, and this general principle should also be used for the draft declaration. They also argued that otherwise the WTO conference's main aim of reviewing the Uruguay Round results and the problems of implementation faced especially by developing countries would be derailed.

This request was overruled by the WTO Director-General, who brought the divisive "new issues" to the Singapore conference and organised for them to be negotiated in a small informal group.

The expected resistance of the core group of developing countries opposing the acceptance of new issues softened considerably in the first days itself. Firstly, one of the major resisting countries changed position from opposing the mention of issues on principle, to accepting the formation of the new working groups, but negotiating their terms of reference. Following this, more countries shifted their position and the negotiations changed from whether or not the new issues should be included, to how they should be worded. Damage control replaced damage prevention. From initially arguing against the principle of including the new issues in WTO (at least at this stage), developing countries shifted to an acceptance of starting discussions in the WTO on these issues and attempting to yield as less as possible and building in safeguards in the terms of reference of the future discussions on the issues.

(e) Trade and Investment

On the investment issue, whilst agreeing to establish a working group, developing countries were able to put in some safeguards in an attempt to restrict the scope of the Work programme. Through the Declaration, the WTO will "establish a working group to examine the relationship between trade and investment." The Declaration however has placed this examination within a complex set of terms of reference, including:

* The simultaneous establishment of a working group on trade and competition policy;

* The two groups (investment and competition) will draw on each other's work;

* The group will link its discussions to existing WTO provisions including TRIMs;

* The work undertaken shall not prejudge whether negotiations will be initiated in the future;

* The group will draw on the work of and cooperate with UNCTAD and other intergovernmental fora;

* The development dimension will be fully taken into account of;

* The General Council will review the work of the two groups and determine after two years how their work should proceed;

* Future negotiations, if any, on multilateral disciplines, will take place only after an explicit consensus among Members;

* In organising the work, careful attention will be given to minimising the burdens on delegations, especially those with more limited resources.

After the Conference closed, sharply different interpretations of this text had already emerged. India's officials were clear that any reference to an MIA was rejected and that the investment study should be conducted as part of a TRIMs review and that there would not be a negotiation towards an MIA, and that "investment does not belong to the WTO."

However, the EU had a clearly different view than developing countries. The EC vice-president and trade commissioner Leon Brittan which said: "On investment, the most important theme of all for the future of the world economy, we have at last put WTO on the map. Investment indeed seems to me THE top priority for WTO in the years ahead... It is also an issue which is primarily for the WTO because it involves the development of an appropriate framework of binding rules... WTO rules will help provide the necessary underpinning." The clear message from the EU is that the Declaration opens the road to a multilateral "framework of binding rules" and that it will argue, once again, that this is necessary for foreign investments to flow to developing countries.

It thus seems likely that the pre-Conference debates on the MIA will cross over to the working party on investment. Now that the "trade and investment" door has been established and the crack has opened, the battle in Geneva will be mainly between:

* The MIA proponents who will push hard for the door to open beyond the hard-won crack to the half-way stage of negotiating for investment rules and then fully into a binding agreement. Brittan's post-Conference statement has given notice that this is the EU's intention.

* The opponents of an MIA in WTO who will make use of the safeguards they placed in the Declaration to restrict the discussions to existing WTO provisions and TRIMs, to push for the discussions to fully take into account the development dimension (and not just the trade aspect), and to ensure that there is no explicit consensus to bring the discussion to the stage of negotiations for rules. Unless developing countries organise themselves well, on both substance and the tricky processes of the WTO system, the "examination" of trade and investment in the working group could well prepare the ground for "negotiations" for investment rules.

(f) Trade and Competition Policy

One of the WTO Ministerial Conference's most important decisions was to establish a working group on "trade and competition policy", a new issue that had figured quite prominently in the pre-Ministerial Conference Geneva process. Concerns over the greater concentration of economic power in fewer giant corporations should, in any objective discussion, be the focus of a move to look at anti-competitive behaviour or curb monopoly tendencies and practices around the world. However, this is certainly not what the main proponents of the issue (the US and EU) had in mind.

"Competition policy" in the WTO context has different meanings for different parties. The US and EU are aiming to get the South to establish "effective" domestic anti-monopoly laws so their corporations can have better market access; Hong Kong wants to examine WTO rules in a "globalising economy"; developing countries back Japan and Korea in wanting to look at anti-competitive abuse of trade measures; and some South countries want to bring in the restrictive business practices of TNCs.

Many developing countries had opposed the introduction of this new issue into the WTO. It is likely that many, if not most, of the WTO Members were not really aware of what they had agreed to. In the post-Conference press conferences, the issue has already generated sharp controversy on what was agreed to.

The Declaration agreed to: "Establish a working group to study issues raised by Members relating to the interaction between trade and competition policy, including anti- competitive practices, in order to identify any areas that may merit further consideration in the WTO framework."

In the WTO's Geneva preparatory process, it was the EC that proposed the item, stating in a paper that its aim was to develop "an international framework of competition rules in the WTO" and that "effective application of competition policy can keep markets open and accessible for foreign competitors." It proposed: (i) commitment by all WTO members to adopt effective domestic competition laws; (ii) core common competition rules or principles and procedures to be adopted at international level; (iii) cooperation between competition authorities; and (iv) to identify how the procedural and material elements can be made subject to the WTO dispute settlement mechanism.

The EC made clear the working group should only explore an "international framework of competition rules" and should not include other competition-related issues like anti-dumping, circumvention and exchange rates.

Japan and Korea agreed to a working party but wanted it to also study how the abuse of trade measures (such as anti- dumping, subsidy and countervailing investigations and measures, "safeguards" etc) were used for protectionist purposes and thus restricted competition in domestic markets from imports.

Hong Kong proposed an even broader framework, seeking a review of "WTO rules in a globalizing economy", including: (i) the interaction between globalisation and existing rules (including rules of origin and GATT Article IV on border measures to counter unfair trade); (ii) the relation between existing trade and investment rules and competition policy; (iii) and any new forms of anti-competitive behaviour.

Most developing countries were unable to adequately follow the Geneva discussions on competition. Some were, however, concerned that the EU proposal was aimed at ensuring greater market access for their TNCs in the South. The EU was seen as using the WTO to commit developing countries to have domestic competition laws to break down local monopolies or practices that helped local companies maintain their market shares, so that the larger transnational monopolies could break into or enlarge their share of the domestic markets of developing countries.

This suspicion was augmented by the lack of interest of the North in countering the international anti-competitive and restrictive business practices (RBPs) of transnational corporations (such as transfer pricing and other intra-firm practices) which harmed Third World economies (resulting for example in reduced taxes, higher prices or unfair commercial advantages). Proposals by some developing countries on this were received coolly. The EC proposal thus seemed aimed at ensuring that developing countries institute anti-monopoly laws at the national level, which their corporations and agents could invoke, but would not deal with the anti- competitive behaviour and restrictive practices of their TNCs at international level.

Domestic businessmen of some developing countries were concerned that their business position might be adversely affected. In April, the ASEAN Chamber of Commerce and Industry Council, representing national chambers of Asean countries, issued a joint communique expressing concern about competition policy being advocated at the WTO, saying this issue "must be dealt with care." "Competition laws existing in developed countries should not be limited to trade and should not be imposed on ASEAN," it stated. "The formulation of competition laws should be a domestic matter that is best left to each nation to decide." Some businessmen worried, for example, that competition laws introduced via a WTO agreement would enable the TNCs to make use of local dealer networks built up by domestic enterprises - the kind of demand that the US made on behalf of its auto-giants vis-a-vis the Japanese market and the Japanese auto-manufacturers.

At an early stage of negotiations in the informal group at Singapore, a few countries that had previously opposed starting work on this issue, changed position by instead proposing changes to the text and thus implicitly agreed to including work on competition policy in the declaration. On condition that the Working Group's mandate would also cover "anti-competitive practices", many of the developing countries in the informal group agreed to the setting up of the Working Group. "Anti-competitive practices" was a code for the abuse of trade measures (such as anti-dumping actions), and for some countries, the restrictive business practices of transnational companies.

Some who were opposed to the investment issue, when its inclusion seemed inevitable, saw much merit in simultaneous work on competition policy questions and the anti-competitive behaviour of TNCs. During the Uruguay Round negotiations, these countries had taken the view that investment measures were a justifiable response to the anti-competitive practices of TNCs. Thus, with the curbing of such measures through the TRIMs Agreement, they had proposed (in Article 9) that the review of this Agreement after five years should include the question of investment and competition policy.

Developing countries at the end of the Singapore meeting felt they had built enough safeguards. But it remains to be seen if all parties will abide by the "bargain" struck at Singapore. Major developed countries were already backsliding even as the Singapore Conference ended.

At a press conference, Acting US Trade Representative Charlene Barshefsky said, "Work on competition will not threaten our laws. We should not undo work within the WTO on anti-dumping issues. The work plan must focus on the problems of cartels and other private anti-competitive behaviour which can impede US exporters' access to foreign markets." Asked by a Japanese journalist whether this meant the US would refuse a discussion on anti-dumping trade measures, she emphatically replied: "For the United States, and for the EU as well, anti-dumping laws are not on the table. There is no question of that at all. The study is going to focus on competition policy and anti-trust laws to counter commercial behaviour that impedes our market access."

The Japanese journalist could not contain his shock, and responded: "This is really to my surprise."

The US position appears to confirm the concern or suspicion of that competition policy has been put on the WTO agenda by the major countries to be used as an instrument to change the domestic industrial-commercial-business structures of developing countries, so that the corporations of the developed countries can have greater access to and can better penetrate the markets and economies of developing countries.

At another press conference, India's Ambassador to the WTO, S. Narayanan, said that on the competition issue, it had been India's insistence that the restrictive business practices of transnational corporations should also be studied. He added that Hong Kong, Japan and Korea had also insisted on including the effect of trade policy measures like anti-dumping on competition.

Meanwhile, EU Commission vice president Leon Brittan, in his post-Conference statement, said: "I welcome the recognition of developed and developing countries alike that better competition rules are essential to a prosperous world economy." This made clear the EC's main objective to get the WTO to establish multilateral rules on competition policy. It is contrary to the Declaration text that study process shall not prejudge whether negotiations for disciplines will be initiated in future and also against the views of some developing countries; for example, the Malaysian Trade Minister said in Singapore that such a study on competition should not lead to negotiations within the WTO.

In the post-Singapore negotiations at the working group, it must be expected that the real intent of the majors, which the US acknowledged, is getting greater "market access" for their TNCs in the countries of the South. It remains to be seen whether the South can defend its interests and promote its own issues.

Among the key sets of issues that different players can be expected to put forward at the working group are: (a) The EU proposals for getting WTO members to commit themselves to adopting and enforcing domestic competition laws; (b) The proposals (originally from Japan and Korea, backed by several developing countries) to study how abuse of trade measures like anti-dumping adversely affect competition; (c) The broader Hong Kong proposal to examine WTO rules in the context of a globalising economy; (d) The restrictive business practices of TNCs, an issue that developing countries have been trying, not too successfully, to put on the international agenda, and on which much work has been done by UNCTAD; (e) The link between competition policy and investment measures; (f) The appropriate role, if any, of the WTO in handling (or not handling) these and other issues.

(g) Government Procurement

The WTO Conference also agreed to establish a new working group to study "transparency in government procurement practices" and develop elements for "an appropriate agreement." Whilst the study, and the agreement, only covers transparency (and not the practices themselves), the major countries pushing this issue have made clear their ultimate goal: to fully integrate the lucrative multi-billion dollar government procurement market into the WTO rules and system. If they succeed, governments in future will not be allowed to give preference to local companies to supply goods and services or to carry out development projects.

The system of government procurement has been taken for granted as very much a matter of national prerogative. This situation is about to change, through the working group. It will initially study only "transparency" in government procurement practices, and evolve an agreement on this limited theme. But the prime mover of this initiative, the United States, has made it clear that in its scenario, this is only a first step towards a full-scale opening up of the "market" for government procurement for foreign companies. With the support of the European Union, the US plans that an "interim" agreement on transparency emerging from this working group will eventually be upgraded into a full-blown agreement on government procurement practices. This would give "national treatment" rights to foreign companies (to have the same chance as locals to bid for and win public-sector contracts), and "most-favoured-nation treatment" rights to all WTO countries (to be treated in a non-discriminatory way in the procurement awards).

The game-plan of the US and EU was candidly presented at the pre-Singapore preparatory process. The US administration had in fact initially brought the issue up using the term "corruption" but dropped the term because of the negative response it inspired among developing countries which protested against yet another "non-trade" issue being linked to WTO. The discussion on the same issue at the WTO then switched to "transparency, openness and due process" of government procurement practices.

Despite the objections of several delegations of developing countries in Geneva, the WTO Director-General Ruggiero not only brought the issue to Singapore but strengthened the draft text. At Singapore, the objections on principle were removed and the negotiations centred instead on the text language. The final Declaration states that the Ministers agree to "establish a working group to conduct a study on transparency in government procurement practices, taking into account national policies, and, based on this study, to develop elements for inclusion in an appropriate agreement."

In practical terms, this decision carries a heavier commitment than the decisions on the other new issues of investment and competition policy, which only mandated an "examination" whilst the procurement group should develop elements for an "appropriate agreement."

Developing countries appear to have accepted the decision because the working group, and the reference to an agreement, refers only to "transparency" in procurement practices. However, the post-Conference statements by the US and EU make it very clear that for them the working group is only an interim measure towards rules to ensure full access for their companies to the multi-billion dollar government procurement business in developing countries.

US Trade Representative Charlene Barshefsky said: "The study on procurement is intended to be the first step toward an agreement on transparency practices in government procurement which should serve to reduce the influence of corruption. This initiative will, as we continue to push it, help create an environment where businesses can expect a fair stake in competing for contracts with foreign governments." EU Commission vice-president Leon Brittan was equally direct: "We have agreed to a study on transparency in government procurement. Europe is determined to see the proposed study forming the basis of a wider multilateral agreement providing for non-discrimination in government procurement."

Thus, as far as the major countries are concerned, the transparency issue is only a first and tactical measure to draw developing countries, step by step, into the larger area of national treatment for foreign firms to obtain contracts for government procurement and projects. The developed countries have not attempted to hide this goal. In the heads-of-delegation process in Geneva over the past months, the US and EU papers made clear they considered government procurement to be a gigantic business which had hitherto remained outside the WTO's ambit and should be brought in through multilateral rules so that their companies could have full access to the developing country markets.

In its first paper in March 1996, the US pointed out: "Procurement markets worldwide account for trillions of dollars in commercial transactions. Large, commercially attractive procurement occurs at all levels of government." It cited as examples: municipal government procurement for police, fire departments and local public works; provincial government procurement for health and social security programs; central government procurement for national telecommunications networks, electrical power grids and transportation systems. The problem, said the US, is that although governments are the largest purchases of goods and services in the world, procurement activities are not subject to basic WTO rules on market access and national treatment, except for the plurilateral Government Procurement Agreement (GPA). It then proposed that "WTO members can create an environment for greater market access opportunity by taking steps to address the lack of transparency, openness and due process that characterises much of procurement worldwide."

In a second paper in June, the US said the interim arrangement should cover both goods and services and in principle should apply "across the board to all government procurement," recognising the variety of governmental structures.

The paper concludes: "Government procurement accounts for a substantial value of commercial activity in all countries... Literally trillions of dollars annually are spent by governments in procuring goods and services. Transparency, openness and due process are important first steps... Future steps towards full integration will generate increased opportunities for suppliers to compete on an equal basis in government procurement markets worldwide." A third paper in July stresses there should be no exemption or lower standards for developing countries nor LDCs.

A separate paper by the EC during the Geneva preparatory process equally clearly laid down its aims: "An interim arrangement should focus on basic principles of transparency, openness and due process in government procurement practices on the understanding that the Community's final objective is to achieve national treatment and MFN effectively for all government procurement in all WTO member countries."

There can be no doubt, therefore, that where the EC and US are concerned, what was decided on in Singapore was an initial step (an "interim arrangement") on the road to full access and national treatment for their companies to the government procurement business, especially of developing countries. Developing country delegations should thus be under no illusion that the decision they agreed to in Singapore is of small or limited consequence because it has only committed them to negotiations on transparency and procedures and that the matter will then rest there.

What the major countries especially want to see eradicated in developing countries are the types of government procurement policies and practices that currently favour local enterprises and people - practices that the major industrialised countries had followed not too long ago within their countries and which had benefited some of their giant corporations. These policies are adopted in most developing countries in order to help build the domestic sector, strengthen domestic linkages and demand and support local entrepreneurs. Since liberalisation is proceeding so rapidly in other areas, government expenditure remains one of the few (and probably the most important) sectors of economic activity which can be used as an instrument to boost local business and domestic demand.

This crucial "development dimension" is however lost in the "market access paradigm" adopted by the Northern proponents of fully integrating government procurement in WTO rules and dispute settlement systems.

At the working group, developing countries should thus be prepared with positions on the whole issue of government procurement, and not just the transparency aspect. For transparency is just a subset of the general issue of procurement policies and practices. And in the gameplan of the majors, the negotiations for an "interim arrangement" are only a means to a final agreement aimed at full integration of government procurement practices in the WTO multilateral disciplines, single undertaking and dispute settlement system. (TWE No. 161, 16-31 May 1997)

Martin Khor is the Director of Third World Network.

 

 


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