Pause in WTO, Reform and Reorientation advocated

by Chakravarthi Raghavan

Geneva, 11 Dec 2000 -- Rather than wasting energies in an doomed effort to launch an across-the-board new trade round under existing arrangements, there should be a pause in the WTO’s processes and a reconsideration of its fundamental purpose and capacity to achieve them, a Canadian academic and one of the world’s outstanding development economists advocated Monday in a lecture at UNCTAD.

Prof. Gerald Helleiner, Professor Emeritus of the Department of Economics and Distinguished Research Fellow at the Monk Centre for International Studies, University of Toronto, was delivering UNCTAD’s 10th Raul Prebisch Lecture, under the title, “Markets, Politics and Globalization: Can the Global Economy be Civilized?”

Author of several books and publications on finance and trade, and Third World development questions and in particular African development problems and issues, Helleiner had directed, from 1990 to 1998, the research activities for the Group of 24, the Third World caucus at the Fund-Bank institutions.

His lecture dealt with the theme of Global Economic Governance, Financial and Trade, and the political processes to bring this about.

Helleiner’s views on the World Trade Organization (WTO) came in the part of his lecture on ‘Global Governance of Markets and the WTO’, and later in response to comments from UNCTAD Secretary-General Rubens Ricupero, and questions and comments from the floor on whether the need for changes and proposals were reconcilable with economic and market power of those who possessed them and what civil society could do, other than a street campaign to shut down the WTO, if those in power are unwilling to change as had been demonstrated in the last year since Seattle.

The history of the Uruguay Round and the Marrakesh agreement are not repeatable, said Helleiner, while acknowledging that the reform and reorientation of the WTO as a ‘development institution’ was a long-term process and history showed that sometimes changes have come only by crisis or fears of those in power about the consequences.

And Helleiner was hopeful that the power of ideas, public pressures, including from NGOs who have launched a “major assault on the rules and processes, and indeed on the very legitimacy” of the WTO, as well as the loss of confidence in the WTO on the part of developing countries who had not benefited would bring about changes.

“I do not think the WTO can survive if it does not somehow, within the next decade or so, redirect its basic purposes in the direction of development,” said Prof Helleiner. “If it does not do so, developing countries will lose such confidence as they retain in the body and the action will move elsewhere.” If the WTO did not meet the aspirations of the majority of the nations, perhaps then they will look elsewhere.

At the outset, Helleiner addressed the question of ‘globalization’ (shrinkage of space and time due to technology) as a fact that could not be escaped, and its being confused and used misleadingly with external liberalisation of goods, services and free mobility of capital and movement of capital which involved policy choices of governments; the markets their problems and the critical role of politics in economic policy and limitations in current global economic governance, and the current issues of global financial governance.

Speaking on ‘Global Governance of Markets and the WTO’ in this context, Helleiner said that a standardized rule system could be a bulwark against bullying by the strong. “But if the rules are constructed by the strong to protect their own interests or if there is imbalance in capacity to implement them or both, such a system may be worse than useless to the relatively weak,” he said.

Corporate social responsibility too had a place but “it would be naive and foolhardy to rely on it - or for Global Compacts dependent on it.” States must make rules for the effective functioning of markets, and in the social interest.

What mattered was the process in these matters - how are the rules established? who sets the agenda for the rule-setting? in what forums and through whose inputs are disagreements analyzed? how is adherence to the rules monitored and policed?

While the WTO is obviously the key global institution in this arena, its name does not accurately describe its actual sphere of activity, Helleiner said.

What sort of World Trade Organization is it, after all, that doesn’t seriously concern itself with trends and fluctuations in its members’ terms of trade, particularly those of its weakest and most vulnerable members? or with ‘burdensome surpluses’ (as the Havana ITO charter called them) in primary commodity markets? or with restrictive business practices and abuse of dominant power in international goods and services markets?

“While it has so far paid scant attention to such obvious trading issues it has moved deeply into such domestic policy issues as intellectual property regimes, domestic investment and subsidy policies and some would even push it into labour standards and environmental practices, all of which may or may not, in fact, be ‘trade-related’?”

“On the basis of current practice,” added Helleiner, “it might better be called the World Market Harmonization Organization.”

He noted that the WTO’s functioning is presently stalled. Many of its members are “deeply disillusioned” by the experience of its first few years of existence. The world’s NGO community has also launched a major assault on its rules and processes, indeed on its very legitimacy.

Helleiner said he did not want to enter into the range of WTO disagreements over “implementation”, the TRIPs agreement, agriculture and textiles, standards (especially SPS), ‘special and differential treatment’, the functioning (some would say abuse) of the dispute settlement system, the extent and nature of technical assistance, disappointment over the ‘integrated framework’ for the least developed, and all the rest.

He preferred to address the “more fundamental issues of purpose, process and legitimacy.”

He doubted whether there was any longer much dispute “over the fact that many developing countries signed the Marrakesh Agreement without sufficient appreciation of its implications and/or in the expectation of considerably more change in industrial country protectionist practice than has so far materialized.” Nor, he suspected, was there much disagreement that industrial countries vastly overestimated developing countries’ capacities (and, as it turns out, willingness) to implement all of its elements within the agreed timetables.

“There is little escaping the fact that the WTO got off to a very bad start. The question now is what can be done about it?”

In reality, the capacity of many, perhaps most, developing countries to participate effectively in the WTO system - to take advantage of their rights and to defend their interests, indeed even to meet their obligations in the WTO - was very much in doubt.

As a member-driven organization, delegates from member countries must be actively involved in the WTO’s day-to-day activities if their interests were not to be ignored. According to some estimates, WTO processes involve at least 45 meetings a week in Geneva, most of which are technically complex and highly “legalized”. The requirements for effective participation place an enormous burden on smaller and poorer countries. When they are represented at all, their staffing is inadequate for handling the ever-increasing complexity of issues and the rising number of meetings and obligations now characterising WTO processes.

Developing countries hence were purely ‘rule takers’ as opposed to ‘rule makers’. Many, perhaps even most, developing countries are not at present in a position to play serious roles in the consensus-building consultations that went on inside and outside the formal Geneva meetings.

The WTO’s predecessor, the GATT, Helleiner noted was “a fairly secretive institution” with its major decisions, despite its formal structures, disproportionately influenced by the major industrial powers. Often, the most critical issues were discussed and “resolved” in meetings between the Director-General and a limited group of the more powerful countries. As in the case of most of the earlier rounds, decision-making in the Uruguay Round negotiations was “pyramidal” in structure in that the major trading countries (those at the “top”) had implicit, but nonetheless effective, veto power over the negotiations’ overall outcome. Thus, through various informal consultations, the major developed countries (and occasionally a few developing ones) agreed among themselves on the major issues and presented the results to other members, essentially for ratification.

“These GATT traditions cannot now be carried forward as the modus operandi for the functioning of the WTO, although until Seattle some appeared to think they could. The ‘deeper integration’ which is now on the WTO negotiating and dispute settlement agenda has generated public concern in the North (and, to some degree, also in the South) and challenge from many governments of the developing countries. At the same time, more developing countries appear to have realized the costs of their failure to be sufficiently prepared, involved and united in the Uruguay Round negotiations under the GATT, and the creation of the WTO. Many of them not only view the outcome of those negotiations as fundamentally harmful to their interests but also now recognize both their need and their potential for greater influence in future negotiations under the WTO.”

One of the early casualties of the current difficulties in reaching agreement among WTO-member governments must therefore be its present overall system of governance.

“Some more efficient system of representative decision-making will have to be devised for a membership organization of such unwieldy size and such vast and complex a mandate. Failing its development, whatever the WTO’s formal structure, its decision-making risks reversion to previous ‘Green Room’ practices in which the main players exercise disproportionate and inappropriate influence behind closed doors. To achieve equity in representation and improve overall transparency of processes, and thus to restore developing country confidence in the WTO system, will be a major and top-priority challenge.”

Another casualty must be the concept of the “single undertaking” (originating in the Uruguay Round) in which member countries are required to agree on (and abide by) an entire set of rules, multilaterally negotiated within the WTO. More flexible arrangements for joining and/or opting out of particular sub-agreements within the overall organization, while maintaining a “fundamental core” of tenets and practices to which all subscribe - arrangements analogous to those in the later stages of the GATT - would be more conducive to future agreements among so large and so varied a membership; and are therefore also likely to be a requirement for the restoration of confidence, and for further progress, in the WTO system.

“What the WTO most requires, then, is not now an attempt at a new Round of ‘global’ negotiations which, even if labelled a ‘Development Round’ for public relations purposes, would probably, under present arrangements, only recreate the imbalances and inequities of the last Round,” said Helleiner and recalled that the Marrakesh Agreement was itself the product of a Round that was launched with much fanfare about the symbolic importance of its location in a developing country. “And where did that lead?” he asked.

“Rather, what is required is a pause in current processes - to permit a deliberate reconsideration, even a formal redefinition, of the fundamental purposes of the organization; and a thorough and independent review of its current capacity to achieve them.”

The WTO needs to make it unambiguously clear that it, like the World Bank and now even the IMF (after decades of forceful denial), is to be a “development institution”. At present it is not one; nor is it now seen as one. The WTO’s raison d’etre is today seen as the achievement of an agreed set of rules, a “level playing field”, for economic transactions within the global economy.

“It is often presumed, within WTO secretariat and G-7 circles, that the universal application of the current rules (and others still to be agreed) will promote development for all; but that is theory or hypothesis rather than reality. Many challenge it ... and with reason.  Even though the WTO charter formally commits it to poverty alleviation and the promotion of sustainable development, these are not seen by anyone as primary WTO objectives. Despite a certain amount of rhetoric and symbolism to that effect, development was not a primary purpose of the Uruguay Round (or earlier GATT Rounds) or the Marrakesh Agreement.  Even the most optimistic of the somewhat dubious models of the likely future consequences of the Uruguay Round predicted income losses for some of the poorest countries. And everyone knew these models missed most of the negotiation story—TRIPS, TRIMS, subsidies etc etc.

In the future, the WTO should be assessed primarily on the basis of its achievements towards poverty reduction and sustainable global human development. This statement of purpose is one that the WTO General Council could approve.

But whether it does or not, what is urgently required is a thorough and independent review of the developmental consequences of the content and actual implementation of the Marrakesh Agreement, including the capacity of the WTO’s current governance arrangements and staffing to promote global development in the future.

“The potential development role of the WTO is so important for the global economy (whether for good or ill) and many of the battles within the WTO are now so politicized, that any independent group to undertake a review such as I suggest might best be appointed by the Secretary-General of the United Nations. It needs to be liberally funded and given time enough to do its job thoroughly and carefully.  Its report could provide critical independent input to a politically stalemated WTO, as well as to ECOSOC and to the (now intensely interested) broader international community.

Such a reconceptualization of the WTO as a development institution, Helleiner said, may not happen quickly, though he was fully confident that it eventually will. His suggested review would also take time. It seems unlikely that there can be much change in the WTO in the short-to medium-run.

“As long as the WTO and the international rules system, including the negotiation of new bilateral and plurilateral agreements, continues along its current path, there is no immediate option, therefore, but to seek better protection for the weaker members of the international community on a case-by-case basis.”

Today’s rules systems are complex and their implementation required expensive legal inputs. The mere threat of US or European anti-dumping action, for instance, was enough to discourage small developing country exporters without the wherewithal to launch a legal defence. Similarly, when large countries breach the agreed rules at the expense of the small and poor, the cost of a legal challenge may exceed the financial capacities of the latter or, in some cases, even the relevant trade losses.

As within many national jurisdictions, where the legal rights of those who can’t afford the legal costs are protected by publicly-funded provision of legal aid, there was now growing recognition that analogous international arrangements are required to protect small and poor countries against bullying by the strong in the areas of international trade and investment.

Recently a small “centre” to help the smaller and poorer members protect their interests in the WTO system has been launched, with the financial support of a consortium of developing countries and some of the more progressive aid donors. Its efficacy was still untested but, like its domestic antecedents, it seemed unlikely to make more than a minor dent in the (quite major) problem.

The current efforts at technical assistance for WTO-related purposes also remained utterly inadequate and frequently, e.g. when simply “selling” WTO rules, misdirected.

What is most needed is a major international effort analogous to that of those honourable elements of the medical profession (Medicine Sans Frontier), an organization of “Lawyers Without Borders”, with some economists thrown in among them, and committed not to the earning of the highest fees from the wealthiest clients but to the “principled defence of the rights of the poorest and weakest in the global economy’s legal system and the building of their capacity to defend themselves.” Such an organization could also function usefully in a variety of non-WTO-related “cases” - helping to negotiate with foreign investors and creditors, draft domestic legislation, negotiate bilateral and regional agreements, and the like. “Such principled lawyers (and economists) do exist,” said Helleiner.”They already work without fanfare or much reward in many countries. Isn’t it time for the launch (and, of course, funding) of such an international apolitical, and therefore necessarily non-governmental, organization - both to create fairer international outcomes and to provide hope and inspiration for otherwise jaded young students in schools of international law and economics around the world, particularly those in developing countries? Though less dramatic than the activities of Medecins sans frontieres, the income and welfare gains for the poorest countries which such an organization could achieve might save just as many lives.

Later, commenting on Helleiner’s views, UNCTAD Secretary-General Ricupero noted that the outcome of international negotiations were based on economic and market power. Could this power be reconciled with the kind of proposals Helleiner had made and, beyond appeals to goodwill, would those having power feel it is in their interests to change and make the WTO a development institution?

In comments from the floor, Helleiner was asked what civil society and NGOs could do, beyond campaigning for ‘shutting the doors’ on the WTO when, a year after the Seattle shock, the leadership have shown no inclination to change? Would it be politically possible to combine his idea of a representational and a more ‘efficient’ decision-making process.

Helleiner said that history showed that changes often came as a result of major crisis - such as the international collaboration that came in the wake of the Great Depression and the Second World War. More recently, the discussions on international financial architecture began in the aftermath of the financial crisis and the fears of contagion.

There was no doubt that crises and fear of it played a role, and those promoting a more democratic process and greater participation could and should play on these fears to persuade those with power to change. As a Keynesian he also believed in the power of ideas and in the long run ideas would prevail and bring about changes. Leadership was critical.

It would be possible, he said, to devise a constituency-based representational system in decision-making, with full transparency and accountability. This would need to be combined with a system, akin to what prevailed before the WTO, of members subscribing to some core principles, but being able to selectively adhere to agreements. There already was so de factor ‘selectivity’ in individual countries not being able to implement and given extensions. Unless some selectivity was introduced, the future of the WTO is in jeopardy, Helleiner said.

Earlier in his lecture, Helleiner had said that no leadership need be expected out of the United States over the next four years, and hence others must come together to establish processes, make proposals, and analyze future possible. “It is a time for ‘middle powers’ and regional or other groupings of developing countries to join, as rarely before, in sustained pursuit of their common interests in a well-functioning and civilized global economy,” he said.

As for civil society, he said, rather than devote energies to shutting down the WTO and the FUND/Bank institutions, they could join hands to mobilise and bring pressure for change on the lines he advocated.-SUNS4802

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

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