The Guardian December 1, 1999


Why we should oppose a new WTO Round

As the Ministerial Conference of the World Trade Organisation (WTO) at 
Seattle gets under way, developed nations led by the European Union are 
pushing for a new Round of trade negotiations which would have a crucial 
impact on the economies of the South. MARTIN KHOR, Director of the Third 
World Network, sets out some of the key issues which are being pushed by 
these rich countries and explains why it is of vital importance to resist 
this latest drive to compel countries of the South to liberalise their 
economies.

Pressures are once again building up to get developing countries to open up 
even more to the big companies of the industrial countries. The forum for 
these pressures is the WTO, which is holding its third Ministerial Meeting 
in Seattle on November 30 to December 3.

The European Union, backed by Japan, Canada and other developed nations, 
have announced they want to launch a new comprehensive "Round" of trade 
negotiations at this meeting.

They hope that in such a Round, several issues will be made the subject of 
negotiations for new multilateral Agreements that would be legally binding 
on WTO members.

For example, the Uruguay Round (1986-94) concluded with many new Agreements 
covering services, agriculture, intellectual property rights, investment 
measures and other issues. It also created the WTO to replace the old GATT 
(General Agreement on Tariffs and Trade).

The developing countries were then generally against these new issues 
entering the trade system, as the Agreements legally oblige them to change 
their national policies and laws so as to open up their economies further 
to foreign goods, services and companies.

Since the farmers and local firms are generally small and lack the 
technology or marketing skills, they are unable to fairly compete with the 
big companies of the West or Japan.

There is a deep fear that when these existing Agreements are implemented 
(after a grace period of five years or so), the developing countries will 
face many problems.

Bigger foreign firms with the latest technology or with marketing outreach 
will increasingly take more market share away from the local sector.

This may well cause retrenchment and dislocation, especially in the less 
developed of the Third World countries. The least developed countries are 
understandably the most worried.

Even before the problems arising from the Uruguay Round have been 
understood (let alone dealt with), the big companies are once again pushing 
their governments to open up yet more areas in the developing countries for 
them to enter.

The European Union therefore proposed launching a new Round of 
negotiations, on which it even conferred the glamorous term "the Millennium 
Round".

Although the US originally seemed cool to the idea (preferring to push 
issues it liked on a sector-by-sector basis), President Bill Clinton 
appears ready to endorse the idea. [Since this article was written, 
differences between the US and the European Union (EU) on the agenda appear 
to have become more serious  Ed.]

A few developing countries, such as Malaysia, India and Egypt, have spoken 
up strongly against such a new Round with new issues thrown in. Many other 
developing countries, especially in Africa, have supported this position.

Should the countries of the South want to prevent such a new Round, they 
had better make a stronger impression in the WTO meetings, otherwise we may 
have another intensification of the globalisation process foisted upon us.

New issues

The EU has already made it clear that it wants to pursue "new issues" such 
as international investment rules, competition policy and government 
procurement through this Round.

These three issues were put on the agenda of the first WTO Ministerial 
Conference in Singapore in 1996.

Most developing countries were against having any negotiations for 
Agreements on these issues, but the pressure from the developed countries 
was so strong that they compromised and agreed to taking part in "working 
groups" to discuss the issues.

The developing countries made it clear that the working groups had the 
mandate only to discuss the topics in a sort of academic way, in what was 
called an "educative process".

The three working groups have now gone through more than two years of 
discussion, during which time some of the developed countries made it clear 
they intend to "upgrade" the talks into negotiations.

Their plan now is to use the device of the "Millennium Round" to make the 
three issues (investment, competition, government procurement) the subject 
of talks for new Agreements.

But this is not the end of the story. Some of the industrialised nations 
also want other issues like "trade and environment" and "labour standards" 
to be part of the proposed new Round. [The ACTU and affiliates in Australia 
are part of an international trade union campaign in support of the 
inclusion of labour standards  Ed.]

If the environment and labour standards are also thrown into the pot of the 
new Round, the influential civic groups may then be won over, or at least 
they may not campaign so hard against the proposed Round. Or so the 
establishment thinking goes.

US interests

The US meanwhile is very keen that the Uruguay Round issues of services, 
agriculture and intellectual property rights be revisited and revised so 
that its corporations will have yet more market openings or advantages.

New negotiations on these existing topics, which are already on the WTO 
agenda in any case, will also certainly be part of a new stage of 
negotiations, whether or not the new issues are accepted as part of a 
Round.

However, it is still not certain that there will be a new Round. As already 
mentioned, many developing countries are against it.

Their position is that the WTO should allow developing countries (who 
afterall form the majority of the membership of the WTO) the time and space 
to tackle the problems of implementation of the existing Agreements.

That is cause enough for headaches and economic dislocation. The financial 
crisis and its bad impact on trade and growth has now magnified the 
problem.

How then can they cope with negotiations on yet more new issues, which are 
certain to cause another round of new and potentially disastrous problems 
or crises?

Whilst this position obviously has merit, the developing countries are 
unfortunately not united. India, Malaysia, Egypt and many African and least 
developed countries have spoken out against a new Round. But most Latin 
American and a few Asian countries have indicated they are for the European 
proposal.

Need to unite

Those countries that have thought through the problem and oppose 
negotiations on new issues should get together and strengthen their 
position.

Trade officials from Japan, the EU and the US have agreed that they should 
conclude the next round of talks within three years, compared to the eight 
years for the Uruguay Round.

Although they form only a small minority, the rich countries (and in 
particular, the US, the EU, Japan and Canada, known as the "Quad") have 
usually succeeded in calling the shots in the WTO, often riding roughshod 
over the objections of many developing countries.

It may well happen again at the WTO Conference this year.

The three issues that should especially worry developing countries are 
investment, competition policy and government procurement. If there is a 
new Round, it could lead to new WTO Agreements on these topics.

The following is a summary of how these issues will affect the developing 
nations:

The Investment Issue

The rich countries are pushing to introduce new rules that make it 
mandatory for all WTO countries to give foreign investors the right to 
enter and establish themselves, with 100 percent ownership.

Governments would lose the right to regulate the entry of foreign investors 
(not only for long-term direct investments but also short-term investors, 
for example in the stockmarket).

Foreigners and foreign firms should also be treated as well as (or better 
than) locals (under a WTO principle known as "national treatment") and 
restrictions on the free flow of capital into and out of the country would 
be prohibited.

Moreover, the "performance requirements" that host governments now place on 
foreign companies (such as technology transfer, the use of local 
professionals, reinvestment of profits) would be banned.

Needless to say, if such an agreement were to be passed within the WTO, 
developing countries would no longer be able to give preferences or 
protection to local investors, firms or farmers.

They would face the threat of having their local products wiped out by 
competition from the bigger foreign firms, or of being taken over by them.

Also, the kind of restrictions that Malaysia and other countries place on 
inflow and outflow of portfolio or loan capital from abroad, and on foreign 
ownership of land and houses, may come under question or be banned.

The Competition Issue

The EU is advocating a new agreement that would look unfavourably on 
domestic laws or practices in developing countries that favour local firms, 
on the ground that this is against free competition.

The EU argues that what it considers to be the core principles of the WTO 
(national treatment and non-discrimination) should be applied through a WTO 
agreement on competition policy.

Through such an agreement, it would be compulsory for developing countries 
to establish domestic competition policies and laws of a certain type.

Policies or practices that favour local firms and investors would not be 
allowed.

The rich countries are arguing that such policies or practices create a 
barrier to foreign products or firms, which should be allowed to compete on 
equal terms as locals, in the name of free competition.

At present, many developing countries would argue that giving favourable 
treatment to locals is pro-competitive, in that the smaller local firms are 
given some advantages to withstand the might of foreign giants, which 
otherwise would monopolise the local market.

Providing the giant international firms equal rights would overwhelm the 
local enterprises which are small  and medium-sized in global terms.

However, such arguments will not be accepted by the rich countries, which 
will insist that their giant firms be provided a "level playing field" to 
compete "equally" with the smaller local firms.

They would like their interpretation of "competition" (which ironically 
would likely lead to foreign monopolisation of developing-country markets) 
to be enshrined in WTO law and operationalised through a new Round.

The Issue of Government Procurement

The developed countries want to introduce a process in the WTO whereby 
their companies are able to obtain a large share of the lucrative business 
of providing supplies to and winning contracts for projects of the public 
sector in the developing countries.

At present, such government expenditure is outside the scope of the WTO, 
unless a member country voluntarily joins the "plurilateral" agreement on 
government procurement.

This means that governments are free to set up their own rules on 
procurement and project awards, and most developing countries give 
preferences to locals in such awards.

The aim of the rich countries is to bring government spending policies, 
decisions and procedures of all member countries under the umbrella of the 
WTO, where the principle of "national treatment" (foreigners to be treated 
on par with or better than locals) would apply.

Under this principle, governments in their procurement and contracts for 
projects (and probably also for privatisation deals) would no longer be 
able to give preferences or advantages to citizens or local firms.

The bids for supplies, contracts and projects would have to be opened up to 
foreigners, who should be given the same (or better) chances as locals. It 
is even proposed that foreign firms that are unhappy with the government's 
decisions can bring the matter to court in the WTO.

Since government procurement expenditure in some countries is bigger in 
value than imports, such an agreement to bring procurement under the WTO 
rules would tremendously enlarge the scope of the WTO and its rules.

As most developing countries would object to having their public-sector 
spending policies changed so drastically, the rich countries have a two-
stage plan for this issue: firstly, have an agreement only to bring in 
greater "transparency" in government procurement; secondly, to have a 
broader agreement that would cover the national treatment principle.

At the WTO Seattle Conference, the developed countries will try to wrap up 
an agreement on "transparency in government procurement".

After such an agreement is obtained, the developed countries would then 
push for an expansion of the agreement so that it incorporates the market 
access element, i.e. that foreign firms be given national treatment.

By agreeing now to negotiations for a transparency agreement, developing 
countries would also put themselves on the road to a full-scale procurement 
agreement incorporating national treatment. At stake is the right of 
governments to reserve some of their business for local firms.

With the removal of that right, a very important instrument for national 
development, and for socio-economic engineering, would be removed.

Conclusion

All the three new issues that the developed countries hope to initiate at 
Seattle for new WTO agreements have very serious implications for the 
national economic interests of developing countries.

It is not inevitable that these and other new issues will be brought into 
the WTO, since there is not yet any decision or consensus that there will 
be a new Round.

But developing countries must now go into full battle mode if they are to 
avoid a catastrophic expansion of the WTO in the wrong development-
unfriendly way.

We are in danger of once again being run over by the mighty trade 
negotiating machine of the rich nations.

Discussion and debate on these issues is crucial so that the negotiations 
are not, as usual, carried out in secrecy, with the views of the public, 
the local firms, the employees, the farmers and the consumers not being 
taken into account. 

* * *
Third World Resurgence No. 108/109, Aug-Sept '99 (abridged)

Back to index page