May 7, 1998

  

TIME FOR CELEBRATION OR MOURNING?

BY AILEEN KWA*

Geneva, May (Focus/TWN) -- The up-coming second Ministerial Conference in Geneva is unlikely to bring many surprises, either in its process or its content. Like the first ministerial meeting in Singapore, developing countries had better brace themselves to be pushed in directions which may not be in their best interest.  

Those with a fleeting interest in trade and WTO issues may well remember that the agenda of the Singapore Ministerial Conference (SMC) had been dominated by the interests of the developed countries as well as the higher income developing countries. No time at all was spent on reviewing the implementation of the Uruguay Round, and addressing issues pertinent to the developing world, especially in areas such as textiles and agriculture.  

The way in which the WTO conducts its business is as important as the very content of its business. In looking at the decision making processes within the WTO, it becomes clear where the power-lines are drawn and this largely explains what gets onto the agenda and what gets thrown out.  

Take the SMC, for instance. The main negotiations took place in informal group meetings among about 30 countries out of the total 127 members. The 30 were chosen by the Chairperson of the Conference and the WTO Director General Renato Ruggerio. There had been no prior consensus on the composition of the group or its choice. This meant many developing country delegates were unaware of where the critical negotiations were talking place and what the latest developments were.  

Many of the countries who were left out voiced complaints. This issue of need for greater transparency was addressed in the final press conference by the WTO Secretariat. Both Ruggerio and Chairperson Yeo explained that in wanting to maintain a certain level of efficiency, they had chosen a group that was representative of a diversity of interests. They acknowledged that the transparency had to be improved in the future but without compromising on efficiency.  

One wonders if they will remember their promise and if there will be any change in this area at the second ministerial conference. 

But the work of the WTO since Singapore is not very encouraging. As usual, the areas where work has been done -- conclusion of the financial services agreement and further inroads in the information technology products agreement -- largely reflects the interests of the most developed countries, especially the US and the EU.  

In fact, the US,"leadership" (read dominance) of the WTO has been openly supported and justified by Ruggerio in November last year. He said then: "The US has an indispensable role to play not only in shaping the new trade agenda -- as it already has in services and information technologies -- but also in building the necessary consensus to move ahead. Without US leadership it is difficult to see how the multilateral trading system can move forward." 

The US interest was also the reason given for the conclusion of the financial services agreement in December 1997. These negotiations, said Ruggerio, "have been a clear US trade objective since the early 1980s. The goal is to achieve real improvements in access to markets for one of the most dynamic sectors of the US and the global economy."  

Ruggiero also identified the areas important to US interests that will be up for renegotiations: trade in agriculture, services and aspects of intellectual property. He concludes with the remark that "If America's leadership is more important than ever to the future of the multilateral trading system, then the multilateral system is also more important than ever to America's economic future." 

Since they are economic superpowers, the US, EU dominance in the WTO seem to be taken as a given, and as a positive contribution to the trading institution. But why should an institution such as the WTO with near universal membership be under the monopoly control of one or two members? What does it mean for the other members?  

Developing countries had better get ready for another gruelling round.

There is no reason to believe that the May ministerial meet will be any different from the usual US, EU domination. 

The 2nd WTO Ministerial Conference comes in the wake of several significant world events and developments. Firstly, it comes in the midst of the continuing Asian crisis. Secondly, the OECD talks on the Multilateral Agreement on Investment (MAI) have reached a stalemate in the past few weeks. Thirdly, the WTO meet also comes just before the review of the GATT Agreement on Agriculture is to take place in 1999.

Given these, there would not be many surprises as to the agenda of the conference. 

The Asian financial collapse may not be a main item on the agenda.

However, the consequences of the crisis are widespread, and has in various ways already affected the US economy. The changing economic climate will therefore be an important backdrop to the negotiations that will take place. Asian government officials will no doubt be looking at the impact of the various items discussed, in the light of their teetering economies. While the US economy is showing robust growth, its widening trade deficit with the Asian countries, specially Japan, is likely to add fuel to the business the US, and to some extent, the EU, conducts at this WTO conference.  

While Bill Clinton has dismissed the turbulence from the Asian crisis as only a 'glitch' for the US, figures reveal that a storm may be brewing. The US trade deficit rose to $12.1 billion in February, the largest deficit in a decade, and due in large part to Japan's stalled economy. The deterioration in the world's second largest economy and the broader weakness in Asia is already hurting profits of US high-technology companies and other exporters.  

While at present, the figures indicate more of a weakness on the part of the Japanese economy, a declining yen can indeed take its toll on the US economy, as well as bring about another round of devaluations in the other currencies, possibly triggering off a world recession. This explains the less than friendly communication that has been exchanged between Tokyo and Washington in the past weeks.  

There will certainly be some talk at the May ministerial about ways to prevent the spreading of the Asian 'virus'. More significantly, the US and EU, in protecting their own economic interests, will certainly use the weak positions of the Asian economies to pressure these countries to open up their economies further, especially in the area of investments. This would lead to the influx of much needed capital by Asia. The double edged sword is obvious though. The bitter taste of foreign capital flight still lingers in the mouths of many Asian governments.  

One of the key issues on the agenda will be the Multilateral Agreement on Investment (MAI) which up until now has been negotiated in the OECD.

Talks there, however, have been suspended due to various unresolved issues. There is speculation that the talks have been held up with the intention that the talks on the agreement be transferred to the WTO.  

Western businesses are spearheading this drive for stronger protection of their foreign investments. Bilateral investment protection pacts between countries are seen by them to be unsatisfactory.  

Investors are seeking: a long term stability of rules and procedures, guarantees for entry and establishment, equal competitive opportunities and protection of existing investment, and a dispute settlement system to ensure commitments are irreversible.  

The OECD countries, including Japan and South Korea, account for 88% of all global outflows of investments and 69% of investment inflows. The OECD is determined to get more Asian countries on board. It argues that the Agreement will provide Asia with the badly needed foreign funds for their economies at present.  

The Asian governments at the last ministerial conference in Singapore resisted the institution of this investment agreement in the WTO. They found it an infringement of their sovereignty, not to be able to vet foreign investments. The OECD is now warning Asian governments not to cold-shoulder the MAI.  

Although the treaty is being negotiated by OECD members, it is open for signature to all countries. Hong Kong, Brazil, Argentina, Chile and Slovakia have said they intend to sign on to the agreement.  

But the MAI, in championing the interests of TNCs, will prevent countries from restricting certain types of foreign investments, such as acquisitions which will run against their economic interests. Another issue of contention for developing countries is the dispute settlement system which will allow giant TNCs to sue smaller governments or local authorities.  

While the Asian governments are realising the over-dependence of their economies on foreign funds, and hence their vulnerability, they also desperately need money to jump-start their currently ailing economies. However, an agreement of this extent and nature is unlikely to be in the best interest of many Asian countries. Many of them see the agreement as a form of neo-colonialism, giving free license to developed countries to pillage Asia's cheaper natural and human resources.  

Developing countries should therefore prepare for a battle over this issue in Geneva and Asian countries, still licking their gaping wounds from the currency crisis, should not be swayed at the expense of their longer term interests. Developing countries have never been closed to foreign investments. However, the need to guard their own national interests and to ensure that their less competitive enterprises are given an opportunity to sprout, should be respected. Given the far from democratic manner in which decisions are made in the WTO, it is crucial that developing countries work together on this issue.  

Sir Leon Brittan, the EU Trade Commissioner has been calling for a new round of trade talks - the Millennium Round. Developed countries are giving him their full support and the European Council of Ministers have said 'the best prospect for global growth and successful future WTO negotiations is through a comprehensive, wide-ranging approach

starting from 2000'.  

In mid-March, Brittan also introduced the so-called New Transatlantic Marketplace agreement between the US and EU. This initiative is intended to eliminate technical barriers to trade between the EU and US, as well as reduce tariffs and relax restrictions in services, investment and intellectual property. He has since admitted that this proposal, which is opposed by certain EU countries, is really geared towards generating interest in the Millennium Trade Round.  

Developing countries are likely to face pressure to agree to this new round at the May Ministerial Conference. Zimbabwe's Industry and Commerce Minister Nathan Shamuyarira has urged African nations to reject the Millennium Round. At a meeting of African trade negotiators preparing for the Geneva conference, he said, "We would not like to be engaged in a new round of talks before we have fully implemented the Uruguay Round results. We do not want to carry the imbalances and marginalization of developing countries into the new millennium".  

Asian governments, too, are cautious about the idea. With good reason, they fear that they will be pushed to further open up their currently rather vulnerable economies.  

[The ASEAN appears split, with Singapore and Thailand expressing support for a new millennium round in the Ruggiero consultations, while Malaysia, Indonesia and the Philippines have demurred.]  

As with the other issues developed countries are pushing, developing countries must make sure that they speak with one voice on this matter, if their opposing view is to win the day. It must be remembered that most developing countries did not want a Uruguay Round, nor many of the new issues it brought in, but it was pushed ahead by the US and other developed countries and weaker countries found it impossible not to be swept along.  

In the light of the upcoming review of the Agreement on Agriculture in 1999, this area will certainly feature largely on the agenda.  

The US, EU and Cairns Group, all major agricultural exporters, would like the review to bring about the next round of liberalisation in this sector. Most have expressed the desire that these negotiations form part of the Millennium Round of trade talks. Within the OECD countries, however, there is disagreement about the extent of liberalisation to be sort for in the next round. The US and Cairns Group are seeking further tariff and subsidy reductions. The EU while paying lip-service, is cautious about further liberalisation in this area. It is mindful of the extent to which its products will no longer be competitive on the world market.  

While busying themselves with so much talk about stripping supports, the OECD countries are the ones most guilty of providing these supports. The EU alone, in 1997, spent $42 billion on farm supports.That accounts for nearly a third of the EU budget. Indeed, developing country governments do not have the financial capacity to support farmers to the extent developed countries do. Forcing all countries to reduce supports regards of the amount of support given in the first place, is unfair on poorer countries. It means that developed countries providing these supports may continue to do so at reduced levels, while those who do not provide supports will not be allowed to introduce them at all.  

Forcing open markets to agricultural imports is likely to have a detrimental effect on food security and a country's balance of payments. Behind agricultural liberalisation is the assumption that trade can provide food security. This is a misconception. The Asian crisis has clearly proven this assumption wrong. When people have no purchasing power, they have no food, regardless of whether food prices may be slightly cheaper than if food was locally produced.

Net-food-importing countries (this is where many of the low income countries fall into) are the most vulnerable.  

In an informal paper in September 1997, Pakistan, Peru and the Dominican Republic have suggested that the Committee on Agriculture hold consultations on 'the actual experience of developing countries so far', especially the 'possible negative effects on least developed and net food-importing developing countries.'  

In preparation for these preliminary negotiations, the EU agricultural ministers have already met in late March to put together a defense, in anticipation of an attack by the Cairns Group, as well as the US on their continued supports to farmers. 

The EU price supports likely to be dismantled will be replaced with direct payments to farmers (a form of support more in line with the spirit of the GATT Agreement on Agriculture). The proposed reforms will also include 'modulation provisions', limiting the amount of money large corporate farms could receive in compensation payments.

Critics, however, have said that these reforms will only have a cosmetic effect on the CAP. Price supports are not being widely used since the EU first cut them in 1992. The effect, therefore, would be a claim by the EU that a large concession was made when it meets with its trading partners in Geneva, while in fact the reform would be minimal in effect. The modulation policy too, is unlikely to go a long way in diverting the 80 per cent of farm support from going to the pockets of the richest 20 per cent of farmers.  

The Cairns Group (of major agricultural exporters), too, has met to consolidate their position. They hope at this May Ministerial to extract from members definite deadlines for phasing out export subsidies and domestic support programmes. They are seeking to improve global market access via tariff reductions.  

The US will be pushing hard for results in this area. The US Secretary of Agriculture, Dan Glickman has already made his stand clear. He has stated that the Uruguay Round Commitments were just the first step in agricultural trade reform. There is still a long way to go. 'Our initiative is simple -- No stopping and waiting for a new agreement to emerge --no pause'. 

Agriculture is an area that impacts differently for different developing countries. Some who are exporters will benefit from further liberalisation.  

However, many countries are likely to suffer if their markets are forced open. It would be wise for these countries to band together and demand for a more sustainable and self-sufficient definition of food security within the WTO, so that they will not find themselves trading towards food insecurity and debt.  

All in all, developing countries must prepare themselves well for the May Ministerial Conference. It is difficult given the lack of transparency and democracy in the WTO to voice differing views and to have these acted on. Organising themselves according to interests groups would be a useful way of ensuring that lower income countries maintain a foothold in the institution. 

The 50th anniversary of the trading system is not a time of celebration for most countries. There is also little time for mourning. Instead, this should be a time for reflection and co-ordinated action on the widening wealth gap the trading institution has helped engender.  

(*Aileen Kwa, Research Associate at Focus on the Global South, which produces a periodic electronic bulletin 'Focus-on-Trade)