Development symposium widens gaps

by Chakravarthi Raghavan

Geneva, 18 March -- The WTO's Trade and Development Symposium and WTO efforts to open a dialogue for trade liberalization with development oriented NGOs of North and South probably ended up Wednesday evening by widening the gap between the Washington-Brussels establishments and developing countries and NGOs.

This outcome undid the efforts of the WTO head Mr. Renato Ruggiero, and even more that of the UNCTAD Secretary-General Rubens Ricupero, in his efforts to promote a new round with a positive agenda - and perhaps went some way to strengthen the view of grassroots NGOs who see the WTO as an "illegitimate and undemocratic" institution, run by and for the interests of the major industrial nations and their corporations.

This outcome was mainly the result of the way a session of "Linkages between Trade and Development Policies" was organized and run -- with an overload of invited speakers promoting the launching of the new Round with the issues that the North wants, and a Chairman of the session, Mr. Paul Collier (Director of the Development Research Group at the World Bank), who provided more time to favour those who supported this view and cut short the few dissonant discussants, and capped it with a partisan summing up in a hectoring tone to Africans, and an even worse exchange afterwards with some NGOs.

And Collier got ample help from Fred Bergsten, who presented some shop-worn arguments pitting multilateral liberalization against liberalization through regional pacts which would leave developing countries behind, and asking developing countries to agree to a new round and meet new demands lest the US become protectionist and renege on existing commitments such as on textiles and clothing (where all GATT derogations are to be finally phased out by 2005), and against bringing up anti-dumping questions in the new round, since the US won't agree and prevent ratification.

But the anger provoked by Collier's conduct of Wednesday session and his further remarks to NGOs later, flowed over into a session on Thursday morning, when Mr. Martin Khor of the Third World Network presented a joint statement by some 20 NGOs (from North and South) accusing Collier of partisanship and insulting remarks and abusing his position as Chairman, and demanding an apology from him and an explanation from Ruggiero on the choice of a chairman and main speaker from the North and criticising the WTO secretariat for organized efforts to pressurise countries to agree to a new round through initimidating tactics.

The representative of Uganda, speaking from the floor later, associated himself with this NGO view.

The symposium had got off to a good start with Ricupero raising some serious development issues relating to trade and its interlinkages with money and finance and need to address the unfinished businesses of the Tokyo and Uruguay Rounds and developing country problems.

And among the keynote speakers who followed, free trade ideologue and Yale academic, Prof. T.N.Srinivasan, came out against WTO rules on investment and competition policy, beyond making national policies transparent, and advocated the next round taking the TRIPs agreement out of the WTO and putting it into where it belongs, the World Intellectual Property Organization.

Srinivasan, like fellow academic Jagdish Bhagwati, in the run up to the Punta del Este meeting had canvassed with New Delhi to join the US moves for a new round, rather than saying no.

In analysing the preparations for the Uruguay Round and its outcome, Srinivasan said of the final outcome putting TRIPS and TRIMS into the WTO: "In my view this was a colossal mistake that has opened the door for demands for linkage of trade policy instruments that govern market access to enforce labour and environmental standards. Indeed linkage has come to be protectionism through other means. Had the developing countries not opposed discussing TRIPs at all, but insisted on such discussion taking place in the appropriate forum, namely the WIPO, leaving it to the parties in the discussion to arrive at better means of enforcement of WIPO conventions, the unfortunate consequence of TRIPS in the WTO would have been avoided."

"I wonder," he added, "whether the forthcoming review of the TRIPs agreement could be used to reflect on this issue."

Underscoring the major steps the developing countries had taken in the Uruguay Round to liberalize their trade, Srinivasan pointed out that the quantitative gains to developing countries from the trade liberalization had not only been modest, but distributed unevenly.

Also, the gains if any from new issues -- services, TRIMS and TRIPs, as well as the strengthening the dispute settlement mechanism - were impossible to quantify, "but the gains if any may not outweigh costs by a substantial margin for developing countries."

On the new themes being pushed, Srinivasan said that while the WTO's Singapore Meeting had properly decided that the ILO was the proper forum for discussing labour standards, it seemed clear that this issue would continue to be brought up in the WTO, particularly by the US. But the fact that the support for such a view rests in part on genuine moral grounds, protectionism is currently the driving force behind the demand for a "social clause" in the WTO. It was a demand being pushed by major developed countries at a time when imports from developing countries were penetrating their markets to an increasing extent. There was also a curious asymmetry in the demand focusing on those labour standards presumed to be low in developing countries, but not other plausible standards absent in many, but not all developed countries.

On the case being made out on environmental standards and need to except trade measures of multilateral environment agreements, Srinivasan said that before pejorative epithets of "free riding" could be made against those not parties to these MEAs and trade sanctions applied against them, it had to be proved that such agreements were efficient and equitable in burden sharing. Otherwise the politically-powerful rich countries, could devise a treaty putting inequitable burden on the politically-weak poor countries and use the cloak of an MEA and WTO legitimacy to impose an unfair burden on them.

On the issues for a new round, Srinivasan endorsed Ruggiero's view that there should be full implementation of the liberalization commitments agreed by the industrial world in the Uruguay Round. Industrialized nations had not lived up to the spirit of these commitments, such as on textiles. Understandably, the developing countries were reluctant to enter into new negotiations when the old commitments had not been kept.

As an example, Srinivasan cited the use of anti-dumping measures against imports of textiles from developing countries and said: "the economic rationale for dumping (rules) has never been very strong and having antidumping measures as WTO legitimate instruments only encourage its abuse."

On the Ruggiero's support for investment and competition policy rules in the WTO, the Yale academic said that a convincing case for going beyond making policies of countries in these two areas transparent has not been made. And harmonizing policies across countries and industries, and enforcing them through linkages to market access are at best premature and at worst not in the best interests of countries involved. "For most developing countries without market power in most world markets, openness to trade is the best competition policy.

"Investment issues include sovereignty in an essential way and as such cannot be treated lightly," he added.

Srinivasan was also critical of the way the banana issue was being dealt with, and pointed out that the Caribbean countries would face significant adjustment problems if the EC banana regime were to be dismantled in a short time as demanded. It was ironic that the 10-year backloaded phaseout of the MFA would provide ample time for industrialized nations to adjust, while the relatively poor banana exporters of the Caribbean will have a much shorter time to adjust to the loss of their preferences, he added.

Fred Bergstein, in a half-hour presentation and another 15 minutes for responses, unwittingly confirmed the NGO views about how the WTO is run, when he spoke of the EU, Japan, the US and Canada as "the quadrilateral group that functions as an informal steering committee for the system". These four with several others he said had agreed to use the Seattle meeting to launch the Millennium Round to liberalise trade and write new rules to govern additional types of economic transactions among nations -- a reference to the demand for rules on investment, competition and government procurement. Bergstein also spoke of the "substantial backlash against globalization" gathering force in some quarters which if successful could derail new international liberalization initiatives and promote creation of new protectionist pressures. He warned of growing protectionist pressures in the United States, and advised developing countries to ward them off by agreeing to a new round and liberalize their economies further, so that the US and others would be able to keep their commitments on textiles and clothing. Bergstein compared the WTO and trade liberalization to riding on a bicycle, where if one stopped one would lose balance and fall down.

Keith Bezanson of the Institute of Development Studies at the UK, as a discussant argued that a new round of global negotiations was in the interests of development and that given the current imbalances in the world economy (recession and current account imbalances), the US role in taking in imports would be unsustainable and there were already worrying signs like use of anti-dumping and expanded calls for protection. A new era of protectionism would damage development prospects and a new round to confront current turbulence and imbalances was needed. He conceded though that while openness to trade and FDI "CAN contribute" to development and trade policy may an important ingredient, trade policy and general economic openness was not a substitute for development policy.

Maria Livanos Cattaui of the International Chamber of Commerce told the Africans that they were responsible for the capital flight and failures in their countries, and the best way for them was to liberalise and open their economies to foreign capital, and write investment rules in a new round of trade negotiations. She also advised developing countries, and the least developed, to give up their rights for special and differential treatment at the WTO.

Prof Deepak Nayyar of the Jawaharlal Nehru University in India and a former chief economic advisor to the government, who provided a non-orthodox view (and was cut short by the chair) that despite the shift from development consensus to the Washington consensus, the degree of openness to the world economy and the degree of intervention by the state in the market remained critical issues in the debate on development. But while there had been a complete swing of the pendulum, the complexity of the issues of development had not been captured by either the old or new consensus.

In tracing the historical and more recent economic arguments about free trade and other doctrines, Prof Nayyar said it would be a fallacy in logic to claim that if state intervention or protection did not work, its opposite, namely free market or free trade, must work. In the world of economic policies where there were always more than two alternatives, such a view as obviously false.

The emphasis on trade liberalization, based on the assumption that international competition would force domestic firms to become more efficient, made another commonplace error in confusing comparison of equilibrium positions which change from one equilibrium to another. The process of change should not be confused with ultimate destination of a economy that is competitive in the world market.

Success at industrialization is not merely one about resource allocation and utilization at micro-level. It is also much more about resource mobilisation and resource creation at macro-level. Excessive concerns over resource allocation and static allocative efficiency and resource utilization in terms of competition and openness, not only ignored inter-temporal considerations but did not incorporate increasing returns, market structures, externalities or learning inherent in any process of industrialization. And there was also a presumption that "what is necessary is also sufficient". And the emphasis on allocative efficiency was being matched by a conspicuous silence on technical efficiency.

Referring to the multilateral trading system and the developing countries, Nayyar said that in a world of unequal partners, where bargains are struck among major players, a large number of developing countries are spectators, rather than participants. It was not surprising that in such a world rules are asymmetrical in construct and outcome. The strong have the power to make rules and authority to implement them, while the weak can neither set nor invoke rules. And there were different rules in different spheres and striking asymmetries. National boundaries are not to matter for trade flows and capital flows, but are demarcated for technology and labour flows - more openness in some spheres and less in others.

The emerging rules are asymmetrical and significantly reduce the autonomy of developing countries in formulating economic policies for industrialization and development. The WTO rules now allow few exceptions and little flexibility to the latecomers to industrialization, and make selective protection or strategic promotion of domestic firms visavis foreign competition much more difficult. The tight protection for IPRs preempt technological capabilities, and the possible multilateral agreement on investment, when it materialises, will reduce possibilities of strategic bargaining with TNCs.

The agenda for new rules is partisan, and the unsaid is as important as the said. A multilateral agreement on investment in WTO seeks free access and national treatment for foreign investors, with enforceable commitments and obligations to foreign investors. But these are not matched by obligations of foreign investors. There is a clear need for greater symmetry at the WTO. But such correctives are only possible through more democratic structures of governance.

In a floor response to Bergstein, Indian ambassador, S. Narayanan, said that the case was still to be established that trade liberalization by itself necessarily led to development. He joined issue with Bergstein over developing countries having to agree to more liberalization in order to get the US to keep its old commitments and said that if India did not abide by its commitment, it would appear (from Bergstein's argument) that India could be dragged before a dispute settlement panel and sanctioned to keep its commitment. But if the US did not, India had to liberalize more to persuade the US to keep to its commitments. He found it a strange argument that when the Uruguay Round launched and concluded to end protectionism had not ended it, developing countries must agree to a new round and liberalise more.

Bergstein, he noted, had also argued that if developing countries don't agree to a new round, there would be a proliferation of anti-dumping cases and even complete phase-out of the MFA could be in jeopardy.

This the Indian envoy said was curious reasoning. It was not as if now the US and EC were not making extensive use of anti-dumping provisions.

Developing countries had already paid a price for the phase-out of the quotas on textiles and clothing and they can't be expected to pay a further price to ensure implementation of commitments already undertaken by the US and EC. Bergstein, Narayanan said, had also said that linking competition policy to tougher disciplines on anti-dumping was unacceptable to the US (and therefore should not be on the next round).

"There are many things politically unacceptable to many developing countries, but Mr. Bergstein seemed to ignore them. He was advising developing countries to give up linking competition policy and anti-dumping, even when conceding a considerable intellectual appeal to such linkages. It is difficult to accept the proposition that the entire membership should give up a reasonable and intellectual sound stand because one or two major players find it 'politically unacceptable'. I doubt the rule-based multilateral system has any future, if the system is going to link its work to the political expediency or convenience of one or two major players."

And if the view of the ICC that developing countries should give special and differential treatment should prevail, it would result in further alienation of developing countries from the multilateral trading system, Narayanan added. (SUNS4398)

The above article was originally published in the South-North Development Monitor (SUNS) of which Chakravarthi Raghavan is the Chief Editor.

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