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The WTO Road to Neo-Liberal Development — On Keeping Alive the Alternatives

 

The merchant-minister caravan of the World Trade Organization (WTO) has moved to Hong Kong for its ministerial conference. What really is another round of multilateral negotiations to advance the cause of “free trade” had been designated a “development” round. Not surprisingly, development has been conceived as a mere corollary of free trade, never mind the historical and contemporary record of the ossification of the structures of underdevelopment as a consequence of free trade. The Doha Round, it seems, needs a lot of peddling to push its agenda forward. Among the “developing countries” (what their spokespersons call themselves), Brazil and India have been bestowed the privilege of being part of the “new Quad” (along with the USA and the European Union), an extra-legal mechanism — like the old Quad (the USA, EU, Canada and Japan) — of decision making in the WTO.

Free trade as the key to development is an old ruling idea. Recycled and re-packaged, presently it is part of the neo-liberal policy package. Along with free trade come privatization, freedom of entry and exit for foreign capital (direct and portfolio), government deregulation of business, a rejection of Keynesian macroeconomic policy, and reductions in social welfare programs. Of course, there is an ideological framework that underpins this policy package. The ideological framework assigns primacy to economic growth sans any redistribution, a celebration of personal wealth, even if primitively accumulated, and, most importantly, a dogmatic belief in the dynamism of markets and private enterprise. Having accepted this neo-liberal policy package and its ideological framework, the underdeveloped countries compete in the global economy on the basis of providing cheap labor and extending incentives to attract transnational corporations (TNCs) as they make international location decisions at their board meetings in Frankfurt, London, New York City, and Tokyo.

Background

Such has been the hegemony of US capital in the post-Second World War period that each of the eight rounds of multilateral trade negotiations under the General Agreement on Trade and Tariffs (GATT) was designed to coincide with major changes in US trade policy. The Uruguay Round (1986-1993) was the most ambitious. Agriculture — taken out of GATT rules in 1955 to suit US commercial policy — was brought back into the GATT framework. Textiles and clothing, excluded from GATT rules in 1958 at the behest of the USA and Japan, was also brought back into the GATT fold. Intellectual property rights (IPRs) were brought in, though the agreement on Trade-Related Aspects of Intellectual Property Rights, the TRIPS agreement, essentially deals with not international trade but IPRs in national markets. And, in keeping with the structural changes in the developed capitalist economies, trade in commercial services, dominated by firms headquartered in a handful of developed countries, was also brought into the GATT framework for the first time. The Uruguay Round, as we know, led to the formation of the WTO, which joined the World Bank and the International Monetary Fund as the third watchdog of the global economy.

Dan Ngo, Seattle, 30 Nov 1999
Dan Ngo, “50,000 Demonstrators,” Infoshop.org

The first ministerial conference of the WTO at Singapore in 1996 sought to bring in investment, competition policy, government procurement, and environmental and labor standards under the WTO framework. The issue of labor standards was however taken off the list as the International Labor Organization was deemed to be the “competent authority.” A much more ambitious round (a Millennium Round) was to be launched at the Seattle ministerial but was aborted by concerted opposition in the streets and the conference halls there. Finally, after September 11, 2001 and in the wake of a public outcry against the “profits-over-people” business policies of the pharma TNCs in South Africa and a host of implementation concerns related to the inadequacy of rules and market access, a so-called development round was launched at the Doha ministerial in November 2001.

It should be recalled that, although the Uruguay Round was launched in September 1986, the developing countries refused to negotiate on IPRs and services for the next two years. However, the US enacted the 1988 Omnibus Trade and Competitiveness Act with its infamous sections 301 through 310 and started forcing countries into accepting new “trade obligations” by threatening tariff retaliation if they did not — the US premise was that US markets can and should be closed as a means to open new foreign markets. By 1989, developing countries began falling in line. Today, more than ever before, wealthy and powerful persons and the corporations that they control, and backed by the governments that represent them, are increasingly determining the priorities and directions of development worldwide. It is an age when corporations and the state team up to expand their activities, their interests, and their power beyond their borders.

“Singapore Issues” May Be Revived

Following the launch of the Doha Round, the Cancun ministerial (September 2003) collapsed because of deep disagreements over the agenda of the development round and the framework to guide the negotiations. As a compromise, the General Council of the WTO decided in July 2004 to drop three of the so-called “Singapore issues” — investment, competition policy, and government procurement. Despite the hegemony of neo-liberal ideology, the developing countries were relieved. Otherwise they would have had to offer sectors for foreign direct investment (FDI) on neo-liberal terms and even move in the direction of what is called pre-establishment national treatment, i.e., substantially doing away with the screening process for FDI. Limits to foreign equity participation and obligations to transfer technology would have had to be prohibited or severely restricted. A signing of an agreement on competition policy would have meant having to follow the so-called global norms informing the regulation of mergers and acquisitions. An “effective equality of opportunity” would have had to be given to the TNCs and their products in the domestic market. And, in the area of government procurement, among other things, preferences of governments for the small-scale sector and local firms would have had to be dumped.

Discerning observers are expecting the “Singapore issues” to be revived at an appropriate juncture; anyway, they are being incorporated in various bilateral agreements that developed countries are signing with developing countries.

Comprehensive TRIPS: Comprehensive Review Scuttled

The TRIPS agreement set the same high minimum IPRs standards for countries at vastly different levels of development, augmenting the market power of TNCs to charge exorbitant prices and reduce public access to essential medicines at affordable prices. The big disappointment is over the virtual non-implementation of Article 71 of the TRIPS agreement, which called for a comprehensive review of that agreement from the year 2000. In the bid to find a way of supplying affordable patented essential medicines to the “least developed countries” without a local pharma industry of their own, a lot of controversial issues regarding TRIPS seem to have been swept under the carpet. Some of the issues are the following: what is patentable, including whether there should be any IPRs over life forms; the basis of recognition of geographical indications; operationalizing arrangements for the transfer of technology, including the question of what ought to constitute “working” the patent in the public interest; TRIPS recognition of the UN Convention on Bio-Diversity; the issue of plant breeder rights and farmers’ rights; provisions for exemptions of the grant of patents in certain cases; provisions for exceptions to the rights of patent holders; and specifications of the grounds and procedures for the grant of compulsory licenses to non-patentees to produce and sell the patented product.

Questioning Public Support to Agribusiness Concerns

The Agreement on Agriculture under the Uruguay Round was the result of a compromise between the US and the EU. All non-tariff barriers (NTBs) were to be converted to tariffs, which involved finding their average tariff equivalents. Most countries resorted to very high tariffs in the process of “tariffication” of NTBs. After all, the tariff equivalent of an import ban would tend to infinity! Special safeguard measures — an extended form of safeguard that is even more protective than the one that applies to industrial goods — were instituted. Domestic support measures were classified, by the extent to which they “distort” product markets, into the amber box (e.g., input subsidies and price support), the blue box (e.g., deficiency payment — an incentive not to produce — as a supply-side management measure), and the green box (e.g., rural infrastructure services, R and D, extension services, environmental protection, and decoupled income support). Targets to reduce the amber subsidies resulted in government expenditures on subsidies being shifted from the amber box to the others.  Countries with a low level of subsidies, like India, could not now subsidize their agricultural sector in excess of 10 per cent of the value of agricultural output. However, small and middle peasants need amber subsidies as well as green ones to survive. Regarding agricultural export subsidies, the tactic of the developed countries has been to target certain specific crops for export subsidies, while trying to meet the overall reduction target from 1986-88 levels — for example, corn and wheat in the case of the US. Of course, India, which had no direct subsidies for agricultural export, could not apply them after the agreement came in force.

In the present negotiations over further market access, reduction of “trade-distorting” subsidies, and elimination of export subsidies, common criticisms are that the developed countries’ offers to reduce protection and subsidies are inadequate, that implementation of the Agreement on Agriculture has been poor, and that there are problems of food security, especially for the net food importing countries, that have not been addressed. What has been often disregarded, however, is a fundamental fact: the model of agriculture for developed countries has been agribusiness since the 1950s, so the world market tends to be dominated by a few transnational trading companies, with only a small fraction of the final retail prices at the “center” accruing to the actual producers or their governments in the “periphery.” In other words, there is a lopsided distribution of the gains from trade and the receipt of the subsidies. We think that the subsidies, including export subsidies, doled out to the agribusiness companies should be targeted for elimination, while those accruing to peasants and farmers (not landlords) can indeed be reasonably enhanced. Free trade is premised on the assumption that comparative advantage is permanent and does not change over time. Now, if, say, the French farmers are made to abandon their occupations upon losing their protection and subsidies, it may be very difficult or almost impossible for them to resume production even if the kind of farming they are engaged in becomes commercially attractive later on. A moderate degree of protection and subsidy for peasants and farmers everywhere is socially necessary.

In the recent past there have been catastrophic declines in the prices of certain agricultural commodities — for example, cocoa, coffee, cotton, rice, and sugar — of interest to the developing countries. As it is, in the normal course of trade, these commodities are sold to transnational agribusiness companies who are monopsonistic buyers that extract the lowest possible price. It must also be mentioned that in the 1980s the UK and US governments, under the sway of neo-liberalism, withdrew support for international commodity agreements brokered earlier with the assistance of the UN Conference on Trade and Development (UNCTAD), leading to the breakdown of these agreements. There is thus an urgent need to view the “distortions” in the market structures of agricultural trade in the context of the “commodities crisis” and relate the two — the need ignored by the present trade negotiations.

“Kicking away the Ladder”?

A common characteristic of the “developing countries” is that the development that was expected to accompany the growth of modern industry has bypassed them and they have been obliged to accept a subordinate position, economically and politically, with respect to the developed countries. Despite what they claim, development in these countries has not been about meeting the basic needs of the people and overcoming mass poverty and misery, but about making way for a prosperous middle class and defending the privileges of private property, including primitively accumulated wealth.  Moreover, even some of the countries referred to at the WTO negotiations as “advanced developing countries” (that’s what their spokespersons like to be called) still have a significant proportion of their working population engaged in agriculture and related activity, with a low level of agricultural output per head. The process of industrialization has not yet pulled them out of this. And yet, some of these countries, including Brazil and India, are willing to extend bindings on tariff lines to full coverage and make deep cuts in already bound tariffs with line-by-line tariff reductions. (Needless to say, both the so-called “Swiss formula” that entails deeper cuts in tariffs for products that have higher bound levels and a modified version of the “Swiss formula” offered by Argentina, Brazil, and India have left the African and Caribbean countries in the lurch.) Notice that the concept of reciprocity is increasingly being reinterpreted in conjunction with the concept of “graduation.” In tariff negotiations, countries like India and Brazil are being asked to offer “full reciprocity” in return for only “concessions” from the developed countries.

Historically, Britain used a protectionist policy to catch up with Holland. Germany embraced protectionism in the process of catching up with Britain. Later, the USA implemented a protectionist industrial policy, right up to 1939, to steal a march over Britain and Germany. Japan too followed its own protectionist industrial strategy during the 20th century, till the 1970s, and South Korea and Taiwan followed in her footsteps. In fact Japan adopted a cascading structure of effective rates of protection (ERP), from raw materials (relatively low) to final goods (relatively high), including capital goods. The high ERP of capital goods was reduced only after Japan became internationally competitive therein in the 1970s. These countries now want to “kick away the ladder” from those who have been left behind. The likely effects of the deep cuts in the already bound tariffs and line-by-line tariff reduction across all tariff lines, as demanded by the developed countries, must be analyzed in the context of conservative fiscal policy, “monetarist” monetary policy, financial liberalization, and the institution of a number of measures in their infrastructure sectors that actively discriminate against local capital goods suppliers. An important “supply-side” determinant of industrial productivity in the developed countries has been the combination of myriad interlocking and mutually reinforcing technologies. Line-by-line deep tariff reduction without flexibility in the upward direction would therefore be retrogressive from a development perspective. After all, if the historical experience on the now industrialized countries is anything to go by, different industrial branches require different degrees of effective protection at different stages of a process of industrialization.

Asymmetry in Services

There are four modes of transnationalization of commercial services:

  • Mode 1: the cross-border sourcing of supplies, e.g., Continental Airlines contracting out its reservation system or call centers to Indian business process outsourcing (BPO) companies, which does not require movement of “natural” persons;
  • Mode 2: the consumer going abroad to a country where the service is being provided, as in so-called medical tourism;
  • Mode 3: the establishment of a commercial presence abroad, entailing FDI; and
  • Mode 4: the movement of “natural” persons — requiring the temporary posting of personnel — as in computer firms sending their personnel to service systems abroad.

There seems to be a willingness among certain developing countries to bargain for greater access to foreign markets and consumers via Mode 1 and 4 by conceding greater market access to transnational banking, insurance, and other finance companies via Mode 3 (through the FDI route), with enhanced levels of foreign equity participation. At a more general level, this will only advance the globalization of finance, with pressures for further financial liberalization, sure to magnify what Joan Robinson called the “humbug of finance.” What stands out mostly starkly, however, is the clear contrast between the high mobility of capital and capital-related services and the relative immobility of labor and labor-related services across national boundaries. Their marked asymmetry in this respect in the present phase of globalization needs to be redressed. The General Agreement on Trade in Services (GATS) obliges member countries to liberalize the global mobility of capital (as in Article XI and Article XVI.1), but the same privilege is not accorded to the international migration of labor.

Aborting Alternatives to Neo-liberalism

There are public concerns that social services, hitherto provided by the public sector in many developing countries but now being commercialized in competition with the private sector, will ultimately come under the disciplines of the GATS agreement. Under structural adjustment programs and loan “conditionality,” the Bretton Woods twins — IMF and the World Bank — have already been forcing the commercialization, privatization, and opening up to the private sector, including transnational suppliers, of sectors like health care, education, and water supply. In the field of health care and education, this may lead to a dual system — one segment with world-class facilities for the powerful and the wealthy, the other, poorly financed in the public sector, for the subaltern. The division will then make it difficult for future progressive governments to reverse the course. One immediate alternative to neo-liberalism is to make universal access to education and health care with entitlements the centerpiece of a set of polices that will include managed trade and capital controls as part of the alternative international commercial and financial policies. Interaction with the international economy will be on the basis of an increasingly better educated and more healthy workforce. Exclusive decision making as in the so-called “green room” and the “Quad” of the WTO will be replaced by egalitarian and democratic practices. If health care and education are brought under the disciplines of the GATS agreement, however, it will abort alternatives to neo-liberalism in the making.


Economic and Political Weekly Bernard D’Mello is deputy editor of Economic & Political Weekly, Mumbai, India. He is a member of the Committee for the Protection of Democratic Rights (CPDR), Mumbai.


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