Alternatives to the Current Global Trade System and Regime

(Note: Extract from a longer paper entitled "Implications and Effects of the Global 'Free-Trade' System and Regime" presented at the Second World Social Forum. Porto Alegre, January 2002)

The role and purpose of trade has to be redefined altogether

Trade has to be understood and argued to be a means towards furthering transformational economic and social aims, cultural and human rights and environmental imperatives. It is now increasingly acknowledged that trade cannot be an over-riding aim and end in itself.[2]

The simplistic notions of the primacy of trade as the driving force and 'engine of growth' have to be displaced from their centrality in much international discussion in recent decades that has been driven by the dominance of global neoliberal theories – and propaganda.

The crude equation that "development rests on trade and trade creates development" has to be rejected and replaced with the recognition that trade is not inherently and invariably positive. Trade can achieve some growth but does not necessarily produce development.

In fact, the accumulated empirical evidence and experience is that under adverse economic circumstances and current 'free trade' and ‘trade-related’ policy conditionalities, trade can be profoundly anti-developmental, economically and socially, and environmentally damaging.

The utility and effects of international trade are conditioned by broader international relations. And the positive potentials of trade are conditional upon the framework of international economic, environmental, social and others agreements, and related institutions. It is within these that trade and other economic interactions should be located, evaluated, negotiated and implemented. The nature of such international agreements and regulations are the fundamental international preconditions for constructive trade.

There are alternatives

Within this broad framework of understanding, there are important alternatives and national ‘policy’ and political challenges facing the governments and peoples of the world, but above all the governments and peoples of the so-called developing countries.

1.  'Developing country' governments of the South have long been demanding improved market access for their exports into the rich industrialised economiesthrough the removal of the tariff and non-tariff/technical barriers erected by the governments of such countries. The removal of such barriers could (hypothetically) increase the trade earnings of weaker economies by billions of dollars annually. Conversely, the ending also of direct and indirect production supports/subsidies within the richest economies - to the extent of some $360 billion annually - would reduce the unfair competition and damaging ‘dumping’ effects of their exports on weaker producers in lesser developed countries. These are common criticisms by all developing country governments and NGOs, as well as ‘fair trade’ campaigners in the industrialised countries. These are certainly correct in principle, and may have some utility in alleviating immediate trade constraints and pressures, and removing the most glaring inconsistencies and injustices.

    

2. However, although improved market access may expand the volume of developing country exports and may even increase the returns such countries could get from their exports, this approach does not challenge the current role of most countries of the South as mere primary commodity producers/exporters in the global economy. Greater trade openings into the richest countries may be useful to a certain degree but, even as short-term measures, they are inadequate without the recognition that it is not trade but production that is primary, because effective trade reflects and requires prior levels and forms of productive capacities. Although trade can, to some degree, with some products and in specific circumstances, improve such capacities, it is domestic economic development and diversification of production that is fundamental. Gains from improved trade access is dependent upon the necessary ‘supply capacities’ of lesser developed economies. Thus, what has to be prioritised by developing country governments are their rights to formulate and implement their own appropriate economic policies, infrastructural development, research and training programs, and so on, in order to deal with their limited ‘supply capacities’. It is only on such bases that they would be able to make real gains out of (possibly) more favourable trade openings.

    

3. Even then, the increase of external trade by weaker economies, such as most in Africa, is not a self-evident sine qua non. Trade has to be re-evaluated in terms of its role in national economies, restructured in its substance, means and methods, and redirected in terms of its orientations. Without such fundamental changes, simply increasing external trade could merely reinforce existing heavy dependencies on current exports and established markets, and maintain their continued extreme vulnerability to international price instabilities and other external shocks. The alternative is not economic autarchy, but the transformation of what are extroverted (heavily outwardly orientated) and shallow ‘trading economies’ - which characterise most in Africa - towards internally integrated and effective multi-dimensional production economies. This entails (re)shaping and relocating trade policies as part of the array of other policies and programs for the development and diversification of industrial, agricultural, agro-industrial, services, technological and social (educational) and other capacities.

    

4. However, in order to increase and diversify national productive and services capacities, and to reduce extreme external vulnerability, an important strategic framework is the development of cross-border trade and other economic cooperation relations between countries in close proximity to each other, at relatively closer levels of development; and, above all, sharing many other common concerns, needs and aims. This entails increased intra-regional trade and consequently a relatively reduced role for international trade. But such intra-regional trade strategies must not only facilitate greater volumes of cross-border trade within their immediate region but also a wider range, or changes in the specific types of possible exports. Above all, this must be based on, different trade terms than those promoted under the dominance of the ‘free trade’ paradigm. A major problem is that most African governments are shortsightedly fixated on their current trade (and aid) dependencies upon their ‘traditional trade partners’ – mainly in Europe. But, even where governments are formally committed to promoting preferential (not mere ‘free’) trade amongst themselves, there are major internal, intra-regional and international counter-pressures on countries entering into multi-national regional development arrangements.[3]

    

5. Thus, alternative production-and-trade strategies in developing countries - whether through national, or regional and inter-regional programs - will only be possible through the combined role of governmental and parastatal agencies, regional development banks, local community organisations and other accountable public agencies [4]. By extension, such complex, and of necessity negotiated, economic strategies cannot be driven by the self-selected, self-interested and narrowly focused business operations of corporations, whether domestic or foreign. The prevailing insistence on international investment on the efficiency and sufficiency of ‘market forces’ is self-serving propaganda by private sector interests. It has always been an ideological myth and is coming to be increasingly questioned even by quite ‘mainstream’ economists [5]. Nonetheless, market theorists continue to sweep under the carpet the built-in instabilities and failures of ‘the market’. In addition to the growing social imbalances and blatant inequities created by the free market system [6], pro-market propaganda minimises or ignores the inefficiencies and waste, the externalization of the environmental costs created by private enterprise, and the social costs of market processes, particularly in unemployment, underemployment and insecure employment.

    

6. Current free market propaganda also ignores the fact that, historically and currently, both in the highly industrialised and in the more recent industrialising economies, national economic growth and development – and even ‘private’ enterprise per se - have needed governmental regulations, supports, protections and strategic policy and practical interventions. In this light, what is now required is the formal recognition of the need and right, the "policy space" [7]- and of course the financial means - for less industrialised countriesto be able to use their own carefully selective tariff policies, targeted production input, transport and marketing subsidies, and other instruments, in ways that are necessary for their own effective and sustainable economic - and social - development needs.

    

7. Such 'interventionist' and developmental roles for the state and other public agencies require fundamental changes not only in national policies and programs but in current international ‘trade’ and ‘trade-related’ rules/requirements which are restricting and even prohibiting alternative economic and social policy options within developing countries. One counter-demand by developing country governments, supported by many NGOs, is for modifications or greater flexibility in WTO agreements, including through the fully recognised and reinforced status and extension of the current rather weak ‘special and differential terms’ (S&Ds) within the WTO for developing countries. This could be a useful interim tactical position in order to create a certain period and policy space for such countries to pursue distinctive programs to deal with their own specific needs. At present S&D provisions are interpreted in WTO agreements, and by the major powers, as providing only transitional and temporary time ‘concessions’ for developing countries to fulfill the standard WTO ‘obligations’. But the strategic utility in promoting S&D is that, if fully (re)legitimised as a principle, and applying to all countries, it could begin to erode the current one-size-fits-all system of international trade and trade-related rules.

    

8. However - whether as in-principle exceptions or as partial modifications within existing WTO agreements for weaker economies - such piecemeal changes cannot substitute for the formulation and implementation of fundamentally different models and policies appropriate to all individual countries, and regional groupings, as they choose. Such differentiated policies and programs are essential in order to begin to counter and correct the current profound imbalances that have been created by ‘history’ and aggravated in the recent neo-liberal decades. Trade and related policy choices have to be (re)designed to promote justice and equity between countries and peoples. However, in a deeply interdependent world – more fundamentally ecologically interdependent than the globalist economic theories acknowledge – such different national/regional policies and programs also have to be located within internationally negotiated and agreed frameworks that not only promote economic justice but also ecological justice for all peoples, all species and the entire planetary eco-system.

    

1. Such political and economic changes needed within and between all countries, such different models and policies will only be possible under extensive changes in the current global 'multilateral trade' system. This applies also to the substance of bilateral and inter-regional FTA (free trade) agreements located within or reinforcing the biased terms within the ‘multilateral rules-based’ trade regime. In order to challenge such rules and the currently dominant trade-and-growth paradigm, radical changes will be necessary in the structures and functioning of international institutions, such as the IMF and World Bank and, in the ‘trade’ sphere, focused above all on the WTO:

• Reforms within the WTO to make it more transparent, accessible, inclusive and democratic in its decision-making are insistent demands from developing country governments and non-governmental critics, in view of the lack of transparency and the manipulations and abuses with WTO processes by the most powerful countries.
• Such reforms are justified, in principle, and are relevant and necessary in order to deal with the substance of the WTO regime. In this regard, the demands have long been for reviews and revisions of the heavily biased rules and imbalanced agreements within the WTO which were created through highly unequal power relations and negotiations during the Uruguay Round, and with minimal participation of most developing countries in that formative stage.
• More far-reaching demands are for the removal from the WTO of inappropriate (and manipulated) ‘trade related’ agreements, above all Trade-Related Intellectual Property Rights (TRIPS). This has a very tenuous relationship to ‘trade’ and is used highly tendentiously by transnational corporations, especially giant pharmaceutical companies, to impose their global ownership and control over scientific discoveries, technology and even life forms.
• Some governments and many NGOs also proactively demand the explicit exclusion from the remit of the WTO of those activities and policy requirements relating to national and community food security and food safety, and national food sovereignty. For many, this includes the demand that agricultural production related to food rights, livelihoods and rural development be removed altogether from the trade disciplines of the WTO.
• There are other spheres and levels of economic activity where international trade is of minimal or no relevance and where international 'trade disciplines’ should not apply. This includes the fishing and forest livelihoods of billions of the world’s people, together with the protection of global water resources and the atmosphere, fish resources, wildlife and wildernesses, forestry and other global natural resources; the global ‘commons’.
• In order to ensure and protect such planetary resources, and the international agreements designed to regulate and protect them, other proposals are for the reduction or removal of the punitive powers of the highly biased WTO Dispute Settlement system, which gives the WTO rules pre-eminence over all other international agreements in all these crucial spheres.
• Such a reduction of the global rule of the WTO is taken further by more far-sighted critics and campaigners who argue for a more radical reshaping, redefinition and restriction of the role of the WTO and its (re)location within the broader UN system. This, in turn, poses the urgent need for the institutional reform, greater and guaranteed resources, and full democratisation of the entire UN system, itself.
• The most fundamental challenge is to the very validity of the continued existence of the WTO in an alternative system of international institutions and agencies, global conventions and universal human rights, social and environmental principles that should, together, form the overarching framework for all human relations and activities.

Most significantly of all, however, none of the above strategic objectives will be fulfilled, nor even interim tactical advances achieved, without fundamental changes in international relations and in the global balance of power: between governments as such, between governments and corporations, and between governments and their populations. The current world order is based on the ruthless exercise of economic, political, ideological and even military power by the most powerful governments, acting in the economic and strategic interest of their own national economies and the corporate interests driving them. The ‘free trade’ and ‘free market’ system is fundamentally power-based, as is blatantly evident in its functioning and outcomes. This power-based system will only be changed through wider and fuller public information, and active and united mobilisation of all democratic social, labour and political forces: the fundamental necessity towards making a just and sustainable world a reality.

[2] See for example Dani Rodrik ‘ The Governance of Trade – as if Development Really Mattered’, UNDP, October 2001.
[3] Amongst many other challenges, regional trade-and-development strategies will entail developing country governments challenging the current constraints laid down in WTO rules on ‘regional trade arrangements’ (Article XXIV).
[4] In the ‘state-led development era’ of the 1960s and 1970s per capita income in Africa increased by 34% and in Latin America by 73%; whereas in the neo-liberal ‘market-driven growth’ era of the 1980s and 1990s per capita income in Africa declined by 23%, although in Latin America an overall growth rate of 6% was sustained; The Observer, London 8/10/2000.
[5] Joseph Stiglitz, former Chief Economist at the World Bank and Nobel Prize winner in economics - Prebisch Lecture at the UN Economic Commission for Latin America, Santiago de Chile, 26/08/2002.
[6] UNDP Human Development Reports during the 1990s revealed that income disparities between the richest 10% of the world’s population (largely in the industrialised countries) and the poorest 10% (overwhelmingly in the countries of Africa, Asia, Latin America and the Caribbean) widened from ratios of 30:1 (1960) to 61:1 (1990) to 74:1 (1997) and over 80:I by the end of the century and still growing.
[7] UNCTAD Trade and Development Report, April 2002, stresses the prime importance of policy flexibility and ‘space’ for developing countries to develop their own production capacities..