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(The author is a Professor in International Economics in Nagasaki University, Japan)
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We all thought the World Trade Organization ( W.T.O) is dead when the financial crisis of the world economy has demolished the myth of benefits of free trade regimes and the poor of the world can rejoice. However, suddenly by some "Voodu" tricks it came back alive. Going by proposal of the World Trade Organization"s Doha Round of Negotiations, developing countries would have to cut their agriculture tariff by 36 per cent and even the most important products for poor farmers would face around 19 per cent cuts.
The proposal would not imply real cuts in huge farm subsidies in the US and EU. Both these countries pretend to make 70 per cent and 80 per cent cuts in subsidies whereas, in reality, there are no real cuts. The current US subsidy is around $7 billion while 70 per cent cut would cap its subsidies to $14.5 billion. Similarly according to estimates EU subsides by 2014 would be around 12 billion euros while the 80 per cent cut would cap its subsidies to 22 billion euros. Hence, there is no real cut in subsidies.
The rich countries and the W.T.O have proved that they are only concerned with huge multinational business businesses which want to have more and more market opportunities at the cost of millions of poor farmers and workers. India is home to around 400 million poor farmers. Over 150,000 Indian farmers have committed suicide between 1997 and 2005 as they cannot get right price for their products due to the rising competition from imports.
The Old Agenda
Adam Smith wrote in "The Wealth of Nations" that the Governments have "the duty of protecting, as far as possible, every member of the society from the injustice or oppression of every other member of it". "Those exertions of the natural liberty of a few individuals, which might endanger the security of the whole society, are, and ought to be, restrained by the laws of all governments." The Followers of Adam Smith do not listen to him but have propagated an unrestricted market system throughout the world, which they call "Free Trade" and have established a very powerful organization to take away the sovereignty of the poor and weak nations if they disagree in the name of "piercing open the markets".
The World Trade Organization is about to start the new round of ministerial negotiations on these so-called "new agendas", which were already rejected by the developing countries. Now, however, with a malleable Prime Minister the oppositions of India are neutralized. A careful analysis will show it is the defeat and collective suicide of the developing countries.
In theory the W.T.O. with 142 members including 47 African countries, operates by consensus. All countries have the right to participate in negotiations affecting them. In practice, however, key decisions, including formulation of documents presented as "consensus" positions, take place in smaller informal meetings that are closed or unannounced. These meetings include primarily the rich countries and sometimes representatives of a few key developing countries. Even when meetings are open, India, African and other developing countries are often un-represented simply because they do not have enough personnel to send to many simultaneous meetings. The unspoken rule is that if a country is not present or do not speak up at a meeting, it is considered to support the "consensus" later presented by W.T.O. staff. Even when there is vocal dissent, the positions of developing countries are often totally excluded from the emerging statements.
Issues on Public Health:
Patent rights, by granting temporary monopolies to drug manufacturers, keep drug prices and company profits up. As a result, the pharmaceutical industry has higher profit rates than any other major industrial sector. In 1994 the W.H.O. agreement on "trade related aspects of intellectual property rights" (TRIPS) mandated that member countries bring their laws into accord with restrictive standards that maximize the rights of patent holders. Both the Nobel Prize winner Joseph Stiglitz and Muchkund Dubey, India Chief Negotiator to the 1994 Treaty in Uruguay, have remarked, the 1994 agreement was "unequal" and "driven by commercial interests." The agreement does include the option for countries to use generic alternatives to patented drugs in emergencies, as the U.S. threatened to do recently to bring down the price of the patented antibiotic Capra. In practice, however, using this option requires strong political will, economic clout, and high powered lawyers to face up to pressure from drug companies and their home governments. Even though South Africa forced the drug companies to back down on a court case on the issue of HIV/AIDS drugs in April 2001, the intimidation factor is still extremely powerful. While Brazil, India, and Thailand have aggressively used in the past generic drugs to push down costs, despite U.S. pressure, only a few African and other developing countries have taken hesitant steps to do so.
Developing countries have proposed a clear declaration from the W.H.O. meeting that "Nothing in the TRIPS agreement shall prevent Members from taking measures to protect public health." While not changing the text of the existing agreement, such an explicit statement would make it much easier for developing countries to take advantage of the loopholes in TRIPS. The U.S., Switzerland, and other rich countries have opposed this statement, and have proposed weaker language that sounds similar but would mean little change in the status quo.
The rich countries are also offering to change the deadline for patent law compliance by "least developed countries" from 2006 to 2016. But by applying only to "least developed countries," this would exclude precisely those developing countries most able to produce and export generic drugs, including Brazil, India, and such African countries such as Cote d"Ivoire, Ghana, Kenya, Nigeria, and South Africa.
Issues on Agriculture:
Trade liberalization, its proponents promise, will bring benefits to all countries. The World Bank, for example, has calculated that "full" trade liberalization could bring between $200 billion and $500 billion in additional income to developing countries. First, these forecasts are just as good as astrological forecasts, as these are nothing but assumptions build upon assumptions. In practice the rich countries take full advantage of the openings they press on developing countries, while failing to open their own markets. This is particularly clear in agriculture, where agricultural subsidies to farmers in the U.S., Europe, and Japan have risen to almost $1 billion a day more than six times the amount these countries provide in development assistance.
Together with other measures such as tariffs ( Japan has 500 percent tariffs on imports of rice) and quotas, these subsidies make it difficult for developing countries to compete in rich country markets.
Even more damaging, they allow agricultural exports from the rich countries to drive small farmers out of business even in their home countries. This threatens domestic food security as well as undermining export potential. The previous Uruguay Round of trade negotiations which ended in 1994 promised greater market access in the rich countries for developing countries" exports. This has not happened.
Developing countries wanted this failure to be addressed before they accept another round of negotiations. However, their request fell upon deaf ears. Doha declaration only mentioned abolition of export subsidies but precisely very little about various tariffs and non tariffs restrictions on imports, production subsidies and price supports in most developed countries that cause unfair trade advantages against the farmers of developing countries both in their exports and domestic markets.
It is a false propaganda of some Western charitable organization that removal of agricultural subsidies and tariffs on the exports from the developing countries would benefit the poor nations. Even if the Europeans remove all subsidies and import tariffs on agricultural products that would not imply prosperity for the farmers in poor countries. The other side of the coin of "free trade" is the free flow of imports from foreign countries, developed and developing. At the same time, farmers in poor countries also would not get any subsidies regarding water, electricity, or fertilizer.
Indian rice farmers would face severe competitions from the farmers in the developed countries and from Thailand, Brazil, and China. Wheat farmers in India would face competition from the European, Australian, American wheat farmer. Costs of imported rice and wheat can be less than the cost of production of the farmers in India, which would make the Indian farmers bankrupt. Recent movements of prices of major agricultural products in the world market demonstrate the fate Indian farmers are facing which has already provoked a large number of them to commit suicide.
The subsidies provided by western governments to their producers lead to over-production, which in return lowers the price of cotton, benefiting those who receive the subsidies and ruining those who try to compete on the WTO"s terms of "open, fair and undistorted competition." This has led to a situation in which hundreds of firms engaged in the cotton industry in 13 African countries are facing bankruptcy.
According to the UN, at least ten million people in Benin, Burkina Faso, Cameroon, Central African republic, Chad, Ghana, Guinea, Ivory Coast, Mali, Niger, Nigeria, Senegal and Togo are at risk of losing their jobs and therefore the livelihoods of their families due to the existing subsidies for cotton farmers in the developing countries. Ten million jobs could represent indirect consequences for a hundred million people. In the Cancun discussions of the WTO in 2003, a number of West African States requested the USA and E.U. to reduce their level of subsidies. The result was that the USA and E.U. refused to reduce subsidies and also to provide compensation for the damages resulting from this policy. The only thing between ruin and survival is a change of opinion and attitude by the western producers, namely providing compensation for Western and Central African producers.
New Issues for Negotiations:
Agriculture is only one example of the many trade sectors in which developing countries have not benefitted as promised from previous agreements. They wanted a comprehensive reevaluation of existing agreements before starting up a new series of complex negotiations on additional sectors. Developing countries have identified at least 104 specific "implementation" issues they wanted to address. A few examples include U.S. use of "anti dumping" barriers to restrict exports of steel from developing countries, including India, the impact of lower industrial tariffs in devastating domestic industries in many developing countries, and the failure of the rich countries to provide adequate technical assistance to enable developing countries to comply with trade regulations and compete effectively. Developing countries have also led a fight to oppose the use of intellectual property rights to patent life forms, a trend which threatens developing country control over genetic stock vital for agricultural production.
The bottom line is that while developing countries have been forced into opening their markets, allowing cheaper imports to undermine domestic agriculture and industry, rich countries have failed to lower their own trade barriers, which cost developing countries some $100 billion in lost opportunities. Instead of addressing these concerns, the rich countries and the W.H.O. secretariat have pressed for several new rounds while offering practically nothing to address these implementation issues.
The agenda of the proposed new round accepted by the rich countries includes extending W.H.O. negotiations to include matters related to the policies of countries for regulating investment, competition, transparency in government purchasing, and trade facilitation (such as customs procedures). The effect, should negotiations be completed on these topics, would be to make even larger areas of economic life in all member countries subject to complex W.H.O. regulations.
As in the agreements already in place, developing countries are at a particular disadvantage in defending their interests in negotiating or implementing such agreements. Developing countries have repeatedly voiced their disagreement with proposed consensus statements. The draft declaration presented in Doha simply ignored these disagreements.
All previous trade agreements, including the Uruguay Round concluded in 1994, recognize in theory that developing countries have disadvantages that may warrant "special and differential treatment." In other words, these countries may and should be granted better market access, be allowed greater flexibility in implementing trade rules, and be allowed to sign agreements with developed countries that do not require full "reciprocity."
The Uruguay Round assumed that such treatment would be very temporary, and that developing countries could quickly adopt the general standards after brief transition periods with the aid of technical assistance from rich countries. The catch was and is that almost all the "special and differential treatment" provisions were not mandatory but instead dependant on the political will of the rich countries to implement them. As a result they have rarely been implemented.
Developing countries have demanded that the non application of special and differential treatment provisions should be reviewed, and that they should be mandatory and binding on developed countries.
Disputes between the rich and poor nations:
The levels of tension between rich and poor countries are now at even higher levels than before. Most developing countries now suffer from the dual dangers: (a) recessions in the developed world and as a result fall of the export earnings; (b) growing danger of droughts and lack of rainfall due to the climatic change of the world. Instead of taking the opportunity for dialogue on these very important matters which are beyond the scope of public policies in any developing country, rich countries have offered little or nothing to address the concerns of the developing countries. The poor are asked to accept the trade agenda whether they like it or not and to swallow their rage as rich countries, claiming to represent global interests, once again impose their minority views.
On the Draft Declaration on Intellectual Property and Access to Medicines, there were two options:
[Nothing in the TRIPS Agreement shall prevent Members from taking measures to protect public health. Accordingly, while reiterating our commitment to the TRIPS Agreement, we affirm that the Agreement shall be interpreted and implemented in a manner supportive of W.H.O. Members" right to protect public health and, in particular, to ensure
access to medicines for all. In this connection, we reaffirm the right of W.H.O. Members to use, to the full, the provisions in the TRIPS Agreement which provide flexibility for this purpose.]
[We affirm a Member"s ability to use, to the full, the provisions in the TRIPS Agreement which provide flexibility to address public health crises such as HIV/AIDS and other pandemics, and to that end, that a Member is able to take measures necessary to address these public health crises, in particular to secure affordable access to medicines. Further,
we agree that this Declaration does not add to or diminish the rights and obligations of Members provided in the TRIPS Agreement.]
While the difference in language seems small to the nonspecialist, analysts regard Option
2 (aggressively pushed by the U.S. and Switzerland) as making little change to the status quo. In contrast, Option 1 (advocated by the developing countries, as well as non governmental groups) clears the way for more effective use of TRIPS safeguards on public health to make drugs available to those who need them. The broader title "Public Health" is the one favoured by developing countries. On November 1, Harvey Bale, director general of the International Federation of Pharmaceutical Manufacturers Associations (IFPMA), denounced Option 1 as "nutty" and said it would destroy the industry. The same day, however, the European Parliament passed a resolution affirmed their "clear and unambiguous support for the position of the developing countries," and in particular the wording that "nothing in the TRIPS agreement must be used to prevent W.H.O. members from taking measures to protect public health." At the end in Doha, Option 2 was accepted thereby undermining the vital interests of the developing countries on public health.
Issue of Tariff:
The developed countries want complete market access in the developing countries by abolishing all tariffs and non-tariff restrictions. However, the tariffs and non-tariff barriers against the manufactured products from the developing countries are still very high. Processed agricultural products and textiles are prime examples. The average tariff rates in the developed countries may be low, but the variations around the average tariff are very high. In the U.S, the average tariff rate for imports of industrial goods is 4.9 % but the range of variation is 0 to 350 %. In Japan, the average rate of tariff is 4.3% in 1998 but the range of variation is 0 to 60 %. In the E.U, the tariff rate is 4.8% with the range of variation of 0 to 89%. The range of variations is due to specific tariffs on a range of products, which can hide the real degree of protection in the rich countries. Commodities subjected to high tariffs in the developed countries are those very products in which the poor countries have comparative advantages.
Thus, the developed countries have not yet reduced their tariff protections; most of the items of exports are under higher tariff rates. These higher tariff rates are also for exports of other developed countries using materials from the developing countries.
High tariff against the exports of industrial goods from the poor countries cover 63 % of all export items of the poor countries. High tariff rates against the exports of agricultural products from the poor countries constitute 97.7 % of all agricultural export items of the poor countries. That is not all. Tariff rates escalate along with the number of processing of a natural product.
The idea that the developed countries have already reduced their tariff rates is a myth; they did only for those products, which are not going to cause unemployment in their own countries. If there is a little tendency for any export item from the poor countries to cause unemployment in the rich countries, anti-dumping measures are followed vigorously by the developed countries. Nearly 50 percent of all anti-dumping measures approved by the W.T.O are by industrialized countries. Thus, the developing countries do not have much market access but they are forced to open their markets for the rich countries.
The rich countries have developed their economies under tariff-walls and still protecting their economies with various measures of tariffs and non-tariffs restrictions. Thus, their advice that the growth prospects of the poor countries will be magnified if they remove all trade restriction cannot cut much ice.
Flow of Investments:
Developed countries have initiated a strong campaign to include free flow of investments as a condition for the member of the World Trade Organization. Free flow of investments has several dimensions. It demands all countries must allow complete freedom for the multinational companies to invest in any sector they like with complete freedom to withdraw investment and to remit profits across the border. It implies, the member countries cannot have any form of exchange control and the any control on money or capital flows. It also means foreign companies would be treated at par with the domestic companies and subsidies for the socially needed industries or sectors in the home economy would not be allowed as these subsidies are against competition. National governments will be unable to discriminate against foreign companies regarding government purchase or contracts.
The arguments of the developed countries are that free flow of capital would ensure uninterrupted flows of foreign investments, which will enhance economic growth of the poor countries. Removal of restrictive practices against foreign firms and favoritism for the domestic companies will create an intense competitive atmosphere so as to make the enterprises increasingly efficient.
There are many problems in these arguments. Foreign investments are neither necessary nor sufficient for economic development. Japan, Korea, former Soviet Union all have rapid industrializations without foreign investments. Brazil, Argentina, Thailand, Indonesia have received significant amount of foreign investment, but still they are poor. On the face of the World financial crisis created by gambling instruments, commonly called derivatives, on every type of financial concepts whether interest rate or exchange rate, these arguments cannot stand. Countries after countries in Europe and Latin America are now on the verge of bankruptcies due to these free flow of investment products. Countries like China or India have not suffered only because of their control on capital flows and the nationalized banking sector. W.T.O wants all these restrictions to be removed so that in future China and India would suffer just like the European countries.
The implications for a regime of free flow of investments are many. It would allow foreign investors to control eventually all natural resources including agricultural land. That would take away the sovereignty of the government making the country a dependent economy. It would not allow the home government to direct investments to the socially desirable sectors or to the economically backward regions. It would also create extreme inequality between regions and between social classes, which can undermine the stability of the country. The experience of the East Asian countries in 1998 financial crisis showed that an absence of controls over capital flows can make the country suddenly bankrupt if foreign investors lose confidence on the country"s prospects. There was no "Asian Crisis" in India, Malaysia or China in 1998, as these countries had controls over monetary flows.
During the last ten years, the poor countries have a number of setbacks regarding the promise made by the World Trade Organization and the developed countries. The developing countries have accepted a new international investment regime already in the form of TRIMS (Trade Related Investment Measures), TRIPS (Trade Related Aspects of Intellectual Property Rights) and GATS (General Agreement on Trade in Services). These three new systems already give the multinational companies and the rich nations considerable advantages and freedom to operate in the developing countries. TRIPS agreement prevents much needed technology transfer to the developing world by ensuring control of knowledge and technology in the hands of the corporations of the rich countries. TRIMS agreement curtailed the freedom of the governments to demand that foreign investors use a minimum percentage of local content as inputs, export a minimum percentage of their domestic production, or restrict the level of repatriation of profit. "GATS" requires member states to treat foreign service providers no less favorably than domestic providers.
The W.T.O cannot satisfy all countries all the time, as the economic interests of different countries are different. A multinational trade negotiation bounds to fail because of the divergence of interests of the participating nations. Free trade is not a recipe for economic development, there is not a single evidence exist that a country was developed having a free trade regime. Thus, for the developing countries, it is better to have a trade management system along with a consistent development policy. That implies bilateral trade negotiations and regional trade blocks rather than a multilateral trade organization.
In India during its freedom struggle self-sufficiency of the country was the ideal for the future India. Subhas Chandra Bose in 1938 has founded the Planning Commission for all round development of future India. One of his most important declarations was, "India should not import anything which it can produce" (in Indian struggle). India"s Five Year"s plan came into being as a result of that dream to create a "socialistic pattern of society". This idealism came to an end when in 1991 Man Mohan Singh as the finance minister accepted the I.M.F"s stabilization plan along with the more savage "Structural Adjustment Programme" of the World Bank and signed in the G.A.T.T treaty which was described by Muchkund Dubey, Indian"s chief negotiator to the G.A.T.T, as unequal and unfair.Mon Mohan Singh through his acceptance of the IMF-World Bank"s " Structural Adjustment Programme" has faithfully implemented anti-people and pure capitalistic market oriented policies. In India, these are called "Liberalization" or "Reform Programme", without which, it cannot be acceptable to the W.T.O.
India came too late in this picture. The same type of policies were implemented in a number of countries in Latin America, Africa, former Yugoslavia, former Soviet Union and East European countries, ruining their economies and turning their people into destitute. However, in 1995, Mon Mohan Singh in a parliamentary debate falsely claimed that these policies have solved the problem of poverty in the South East Asian countries. Countries in South East Asia, who have followed these policies, Indonesia, Thailand, Malaysia, the Philippines, are still very poor. In East Asia, countries that came out of poverty, Japan, South Korea, Taiwan, have followed a very strict version of the planned economy, very different from the liberalized economic reform policies, the agenda of the World Trade Organization.
The poor and uneducated but wise people of India understood from the very beginning that the market oriented "economic reform" policy is a ploy to deprive them of whatever gains they have made since independence from the unsympathetic governments. However the WTO wants India and every other developing countries to implement more "Eonomic Reforms" so as to integrate their economies to the profit and loss accounts of the multinational companies. Yet, at the same time, the W.T.O is so far helpless to go against the nationalistic policies of USA, Europe, Japan and China.
Free trade is one of the three foundations of the Anglo-American economic thought, the other two being price stability through the agency of independent central banks and free flow of capital. Faster growth is possible, so the theory goes, but only if democratically elected politicians are restrained from power to improve the living conditions of the people who have elected them but instead leave the destiny of the people to the market. In the Cancun conference of the WTO in 2003, it was expected that the developing countries would be forced to accept a deal, whereby in return for minor reductions in import tariffs and subsidies in the developed countries, they would be forced to accept a regime of the free flow of investments. The perceived fear was that otherwise the W.T.O will fail and such failure will spell doom for the developing countries. The "Cancun" conference has failed mainly because of the combined efforts of India, Brazil, and South Africa to standup against the protectionist developed countries. WTO along with developed countries are now trying to go through the backdoor to persuade the developing countries to accept that unequal and unfair treaty. The fundamental idea is still that, free trade is necessary for the developing countries to prosper. However there are alternatives, which the proponents of the W.T.O and the Anglo-American economics do not want to mention.
Developing countries should not put trade liberalization at the top of their list of priorities. They should consider that the history of the US in the 19th century shows that countries can be highly dynamic behind big tariffs provided there is vigorous domestic competition. They should ask themselves whether it would be better to have an industrial strategy before a trade strategy.
During the second half of the 19th century when India was incorporated into the British Empire, a free trade regime was imposed upon India. That had destroyed the existing manufacturing industries. Farmers preferred not to cultivate due to unprofitable agriculture. India had to pay for her imports of both agricultural and manufactured products through exports of natural resources and increased taxation on her already impoverished population. The result of that free trade regime has turned India to one of the poorest countries in the world within fifty years in the beginning of the 20th century.
The developing countries are in a trap. If India wants to the jobs created by the "business process outsourcing", it must accept agricultural imports from the United States and remove all restrictions on foreign financial services industries. If the developing countries press for removals of subsidies and import tariff, they themselves need to do the same on a reciprocal basis. That would imply acceptance of the "free trade" regime that would ruin their own agriculture and prospects for any industrial development. In addition, the developing countries would have to accept a new investment regime of free flows of capital, which would give total unrestricted access for the multinational companies to dominate and control all most all investment programmes in the poor countries. The people of the poor countries will not have any freedom to determine their own economic future, which will be dictated by the corporate plans of the multinational companies.
The W.T.O cannot satisfy all countries all the time, as the economic interests of different countries are different. A multinational trade negotiation bounds to fail because of the divergence of interests of the participating nations. Free trade is not a recipe for economic development, there is not a single evidence exist that a country was developed having a free trade regime.
Thus, for the developing countries, it is better to have a trade management system along with a consistent development policy to achieve economic self-sufficiency as far as possible. It would not create massive surplus for one group of countries when the rest of world would live in dire poverty, but it would create trade balance, which would benefit everyone. That implies bilateral trade negotiations and regional trade blocks rather than a multilateral trade organization. The W.T.O instead of being an arbitrator and promoter of "free trade" should be an advisory council to plan the foreign trade systems of the poorer countries so as to maximize their interests. UNCTAD(United Nations Conference on Trade & Development), now defunct, used to play that role in a limited way. It is better to bring the W.T.O into the UNCTAD to play that constructive role. At present W.T.O has become a fearful and destructive organization for the poor countries and as a result, it cannot survive long.
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