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)