Earth Trends by Martin Khor

11 June 2001

A New WTO Round would hurt developing nations

The campaign by developed countries to launch a "New Round" in the World Trade Organisation is hotting up.  Their aim is to get new agreements negotiated so that their products and companies will be better able to penetrate the markets of developing countries.  But for the developing countries, the new issues and the proposed New Round may threaten the ability of their governments to formulate development policies and the ability of their firms to survive or thrive.

(This is the second in a two part series).

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The next few months will see intense debate in the World Trade Organisation whether a "comprehensive New Round" of trade talks will be launched.

Developed countries, led by the European Union and Japan, are fervently campaigning for such a launch during the WTO's Ministerial Conference in Doha, Qatar in November.

Some developing countries have been outspoken in opposing this New Round, whilst many others are reluctant for its launching.

The issue is supposed to be decided by the end of July, when the agenda for the Doha meeting is to be set.  But if there is no consensus, the debate may continue.

For its advocates, the "comprehensive New Round" is aimed at getting the WTO members to negotiate new agreements and thus set rules in new areas such as investment, competition, government procurement, trade facilitation, and possibly also labour and environmental standards.

Most developed countries want to bring many non-trade issues into the WTO, not because it would strengthen the trade system, but because they would like to make use of the enforcement system of WTO.

Countries that do not follow the rules can be brought before a panel under the WTO's dispute settlement system, and if found to be at fault they have to comply or face trade sanctions (for example, higher import duties placed on their export goods).

Developed countries thus like to make use of the WTO to get developing countries to follow the policies that they desire, particularly policies that enable their companies to penetrate the latter's markets. 

If these new issues are brought into WTO, and WTO principles as interpreted by developed countries are applied to them, developing countries will be at great disadvantage.  They may lose a great deal of their economic sovereignty, and their ability to make national policies of their own regarding economic, financial, social and political matters.

During the Uruguay Round talks (1987-94), the developed countries already brought new issues into the trading system: intellectual property, services and investment measures.  This is already causing many serious problems.

Prof. Jagdish Bhagwati, the doyen of free-trade economists, and advisor to the GATT director general Arthur Dunkel during the Uruguay Round, has recently published in the Financial Times that it was a mistake to have introduced the intellectual property agreement (known as TRIPS) into the WTO as it is not a trade issue, and has made the WTO a royalty collecting agency at the expense of developing countries.

The developed countries' real aims are to enable their big corporations free entry into the markets of developing countries.  The proposed new rules would lead governments in the developing world to gradually reduce the ability to regulate foreign firms, and to give preferences to locals in policies or contracts.  This is the aim of introducing the investment, competition and procurement issues. 

On the other hand, the labour and environmental standards issues could lay the ground for new forms of protectionism against developing countries' products and firms through setting high standards. 

The introduction of these new issues is the essence of what the developed countries mean by launching a "comprehensive New Round."   The new issues is what makes a New Round new for them. 

They give the wrong impression that without these new issues, the WTO will lose dynamism or have nothing to discuss.  But this is not true as the WTO agenda is already full even without the new issues.

The items already include:

**  Resolving the problems of implementing the existing agreements, an item developing countries have insisted on.

** The "built-in agenda" of agriculture and services negotiations. 

** The mandated reviews of agreements such as those on investment measures and intellectual property.

** Discussions in the many working groups and committees, and normal work in the trade review process and the dispute settlement cases.

On the other hand, there are reasons why there should not be a "Comprehensive New Round", or why the next stage of negotiations in WTO should not include "New Issues."

Introducing new issues into the WTO will distract from the other work of the WTO's already full agenda. Developing countries do not have the manpower and financial resources to cope with negotiations on new issues as well as the other items.

The proposals for bringing in the new issues (investment, competition, procurement) through a New Round are also inappropriate for the following reasons:

** The WTO is a multilateral trade organisation that makes and enforces rules. It should stick to its mandate for dealing with trade issues. 

** Principles and guidelines that were created for a regime dealing with TRADE issues may not be suitable when applied to non-trade issues.

** The "new issues" are not trade issues and do not belong to the WTO.  If these issues are to be discussed internationally, other more appropriate venues should be found for them.   If they are nevertheless brought into the WTO, they will lead to a distortion of the multilateral trade system, to the detriment of world trade.

** Developing countries will be severely disadvantaged and their options for economic, social and development policies would be severely constricted, should these New Issues enter the WTO.   They would largely be unable to take measures to boost the conditions and prospects of local firms, or to manage many aspects of their macroeconomic, financial and development policies, or government procurement policies.

Therefore, the WTO should stick to its main job of handling trade relations between trading partners trade issues, which have a legitimate place within a system of multilateral trade rules.

And these rules and the system must primarily be designed or re-designed to benefit developing countries, which form the majority of the WTO membership.  

It is misleading to equate the WTO with the "multilateral trading system", as is often done in many discussions.  In fact the WTO is less than and more than the global trade system.  

There are key issues regarding world trade that the WTO is not seriously concerned with, including the problems of low commodity prices and the terms of trade of its Members, especially developing countries.

On the other hand, the WTO has become deeply involved in domestic policy issues such as intellectual property laws, domestic investment and subsidy policies.

The WTO and its predecessor the GATT have evolved trade principles (such as non-discrimination, most favoured nation and national treatment) that were derived in the context of trade in goods.  It is by no means assured or agreed that the application of the same principles to areas outside of trade would lead to positive outcomes.  Indeed, the incorporation of non-trade issues into the WTO system could distort the work of the WTO itself and the multilateral trading system.

Therefore, a fundamental rethinking of the mandate and scope of the WTO is required.  Firstly, issues that are not trade issues should not be introduced in the WTO as subjects for rules.  This rule should apply at least until the question of the appropriateness and criteria of proposed issues is dealt with satisfactorily in a systemic manner.

Secondly, a review should be made of the issues that are currently in the WTO to determine whether the WTO is the appropriate venue for them.

Within its traditional ambit of trade in goods, the WTO should reorientate its primary operational objectives and principles towards development, as elaborated in the sections above.  The imbalances in the agreements relating to goods should be ironed out, with the "re-balancing" designed to meet the development needs of developing countries and to be more in line with the realities of the liberalisation and development processes.

With these changes, the WTO could better play its role in the designing and maintainence of fair rules for trade, and thus contribute towards a balanced, predictable international trading system which is designed to produce and promote development.

The WTO, reformed along the lines above, should then be seen as a key component of the international trading system, co-existing, complementing and cooperating with other organisations, and together the WTO and these other organisations would operate within the framework of the trading system.

Other critical trade issues should be dealt with by other organisations, which should be given the mandate, support and resources to carry out their tasks effectively. 

These other issues should include:

** assisting developing countries to build their capacity for production, marketing, distribution and trade; 

** monitoring and stabilising commodity markets, with a view to ensuring reasonable prices and earnings for commodity-producing developing countries; 

** addressing the restrictive business and trade practices of transnational corporations that reduce the conditions for smaller firms to engage in production and trade;  

** addressing the problems of low commodity prices and developing countries' terms of trade.  

These issues can be dealt with by various UN bodies, especially a revitalised UNCTAD.