Globalisation, Marginalisation and the WTO
Globalisation, Marginalisation and the WTO
This second TNI booklet on the World Trade Organisation raises some particular concerns about the functioning of the WTO and its impact on poor people and poor countries. It introduces interested NGOs, citizens, officials and politicians to the role the WTO plays in globalisation and marginalisation, and challenges the WTO's refusal to assess the distribution of benefits among workers, farmers and women.
An important part of the booklet looks at how the WTO handles the marginalisation of the least developed countries (LLDCs) in the trading system. A High Level Meeting on Least Developed Countries in Geneva from 27 to 28 October 1997 has narrowed the WTO's support to promoting technical assistance and some better market access. The limited political and public attention to these efforts are cause for concern, especially given their paucity. The booklet argues that the WTO could offer much more support to LLDCs and dispels the belief that the solution to LLDC problems lies with globalisation.
Stated aims of the WTO include full employment, raised standards of living, and environmental sustainability. The booklet suggests citizens hold the WTO to is word, and call for a social audit of the WTO's impact on poor people and poor countries. A useful set of recommendations in this regard can be found at the end of the booklet.
TABLE OF CONTENTS
The impact of the World Trade Organisation (WTO), established in 1995, has gone largely unnoticed by the majority of politicians, NGOs and citizens. Trade, however, is an important aspect of the current wave of globalisation and its influence is felt from the global level to peoples' daily practices.
This booklet looks at those countries and people who do not benefit from the current terms of increased trade and globalisation, and at the role the WTO plays in this marginalisation.
The WTO's limited mission
The WTO replaced the better known GATT (General Agreements on Tariffs and Trade) which was itself a far cry from the originally planned International Trade Organisation (ITO). The ITO was to be created after the second World War as the third pillar of the Bretton Woods system and was meant to take an integrated approach to many trade related matters: securing full employment, reducing tariffs which stand in the way of economic growth, protecting workers' rights, preventing undue domination and manipulation by big companies (competition policy), assisting weaker economies in gaining access to capital and technology, and managing commodity trade.
The WTO was established with a far more limited mission:
But many of the matters the Ministerial Conference, the highest decision-making body of the WTO, had to contend with at its initial meeting in Singapore in December 1996 were ITO issues left out of the WTO: passionate discussions on whether the WTO should deal with labour rights; calls for technical and financial assistance for the least developed countries (LLDCs); and new WTO discussion groups on the issues of competition policy and multilateral investment rules.
As in the draft ITO, the WTO has to cooperate with the World Bank and the IMF 'with a view to achieving greater coherence in global economic policy-making'. Cooperation agreements between the WTO, the World Bank and the IMF have been signed but there is no high level macro-economic co-ordinating mechanism to deal with debt, trade imbalances and budget deficits - all obstacles to weaker economies benefiting from world trade. Co-operation seems to occur mostly at the operational and country level such as exchanging information and expertise at meetings and among officials (e.g. on balance of payment problems of a particular country). Recently, the World Bank and the IMF have been involved in efforts to coordinate technical assistance for each of the LLDCs (see below). Such co-operation increases the danger of joint conditionality towards total free trade in developing countries.
The ministers at their Conference in Singapore envisaged 'a world where trade flows freely'. The WTO is considered instrumental for furthering globalisation, a process which the ministers and trade officials claim has the capacity to increase economic growth and employment... and 'help put a telephone in every village - something that can make the difference between life and death' (WTO Director General's opening speech in Singapore).
The preamble of the WTO states that trade relations should contribute to raising standards of living, ensuring full employment, increasing income, and expanding production and trade while respecting the environment and the different needs of the member countries at different levels of economic development. But the WTO has no instruments to advance or assess its concrete contribution to these objectives:
The problem with the distribution of trade benefits
The WTO's basic assumption is that its rules contribute to trade and investment liberalisation which leads to more competition, better allocation of resources, economic growth, more employment and better living standards, including environmental conservation. Although the WTO, and GATT in the past, have incorporated special measures for weaker economies, there are many pitfalls in the current system.
The WTO considers the distribution of the benefits of trade to be not a matter for the WTO but for each country individually. Many facts and figures show, however, that the current global economic and trade system incorporates an unequal distribution of benefits. UNCTAD reports calculated how liberalisation and globalisation not only widen the gap between rich and poor countries but also increase income inequality within countries:
These distributional problems cannot be revealed by trade information covering country and product statistics and government (free) trade policies. Trade figures need to give information on the actual trade operators, the companies, especially those which have been pushing for globalisation and lobbying hard for the Uruguay Round to finish. These multinationals cover most of the world's commodity trade, investment and intellectual property rights (see TRIPs below). 40% of world trade concerns trade within multinationals and around a third of world trade relates to trade among multinationals. More information on workers, consumers and companies might help the WTO meet its original aims.
At the Singapore Ministerial conference many euphoric statements were made about the achievements of globalisation and the WTO's contribution to this process. Globalisation is not only the result of technical innovations, capital concentration, the geographic spread of production processes and other company strategies to improve profit-making worldwide 24 hours a day. Political decisions by governments to remove institutional barriers to international trade and capital flows and to provide incentives for companies have also supported the globalisation process: at national level through unilateral liberalisation and structural adjustment for export-led growth, and through labour and social policy reform; at regional and multilateral levels, through agreements on trade and investment liberalisation.
The WTO is the most important regulator of trade at international level and also sets the terms within which regional agreements can be signed. In this way, globalisation is managed at world level from a trade perspective.
The WTO's broad reach
The significance of the WTO for globalisation is that more than 130 countries must jointly open up their economies to each other and abide by common rules making it easier to trade and invest. The WTO also brings a wide range of economic sectors into the ambit of the global economy.
WTO members have to implement a series of agreements and obligations which they negotiated in the Uruguay Round:
The WTO continues to broaden its reach as a forum for continuing negotiations on liberalisation and rule-making. Many of the above agreements included the timing for new negotiations:
The WTO makes an important contribution to globalisation by covering so many sectors and allowing greater interaction of national economies, foreign direct investment and capital markets.
Governments give up control
In signing WTO agreements, governments abdicate a lot of their power to control their domestic economies and set their own development priorities. The WTO is an important instrument of global deregulation, for example, by :
WTO obligations are guaranteed and enforced by the WTO's dispute settlement mechanism, which acts like a small private court. The dispute panel's preoccupation with strict implementation of the WTO rules precludes the wider concerns governments may consider and, indeed, ignores the objectives laid down in the preamble to the WTO. Even when there is broad popular consensus about a particular rule, such as the banning of meat hormones in the EU, the panel rules against it on the basis of the assessment methods prescribed in the WTO.
Such strong enforcement of WTO obligations guarantees companies - especially those with global capital - freedom to operate where they can benefit most.
Unequal competition leads to marginalisation
By setting the rules for more than 130 countries' integration into the world economy, the WTO has intensified competition and raised the standards of international trade. This competitive globalisation is praised for creating more jobs in the export industry and stimulating economic growth, for making products more affordable and enlarging consumer choice, and for alleviating poverty by creating new opportunities in export-oriented sectors employing poor, unskilled workers.
In practice, however, a highly complex and non-transparent competition has been established involving participation in production and information networks, meeting high product standards, sophisticated marketing, research and development. This requires technology, communications and information, capital, training, management, know-how (intellectual property rights), skilled labour, practices to reduce labour and other costs to a minimum, large consumer markets, adequate support and government infrastructure.
Companies from market economy countries in the North and South East Asia are best placed to take advantage of the opportunities because of their ability to meet the high requirements and strong position in world trade. Exports from the EU to South East Asia grew by an average of 15% annually between 1990 and 1995. Transnational companies are using increased market access and competition to get the best prices from suppliers, limit their labour force, get the best investment incentives and make deals over markets and the development of new technology.
Such increased worldwide competition, not least among the major traders, has led to pressure to lower wages, decrease employment and make hiring and firing of workers easier (except in high skilled jobs which have increased in value). This has resulted in greater job insecurity, repression of labour rights and exploitation of women. At the same time, company profits have skyrocketed.
During the economic recovery in the US, the average real gross weekly earnings in 1996 were below those of 1991, while the share of profits in the non-financial business sector rose 3.5% between 1992 and 1996. In Fiji, an ICFTU report found that the government had used repression of labour rights to attract investment to its export industries and that, in addition, existing discrimination had made it easier for the companies to exploit women, whom they preferred to hire. The result was that Fiji increased its exports considerably at the expense of its women workers.
Countries and people with few skills or assets benefit little from increased trade and globalisation. Although an estimated 20 million jobs have been created in developing countries as a result of exports to developed countries, this amounts to an increase of only around 1.5% of total manufacturing jobs in developing countries. And these have been created in the export processing zones (EPZs, concentrated in around 10 developing countries), presumably displacing workers in competing domestic industries. Moreover, the benefits to poor women, who account for more than three quarters of EPZ labour, are limited as their wages are low, working conditions mostly deplorable and job insecurity high.
The danger of globalisation is that poor producers and producing countries are likely to lose out and be marginalised in the competition because they cannot meet the costs of adjusting to the competition, the high standards and changing patterns of trade.
Poor and small producers are being locked into low-paying production and declining sectors. Even the successful export industries of Bangladesh are threatened. In 1997, the EU objected that clothing exports did not fulfil the EU rules of origin which require that the basic fabric of the clothes also be produced in Bangladesh. Bangladesh does not have sufficient productive capacity in this area and imports fabric from India. The EU pressed Bangladesh to recall thousand of export licenses which resulted in serious job insecurity for the more than 1 million workers, mostly women, who produced more than 3 billion $ in hard currency in 1996. In addition, the EU condemned the country's exported prawns for not meeting hygiene standards, which caused prices to plummet and the flooding of Bangladesh's domestic markets.
In the agricultural sector, there are indications that increasing agricultural export production can lead to substantial land concentration with food crop producers being pushed aside, as can be observed in the Philippines and Indonesia.
If the above least developed countries have problems, how much worse for the likes of Haiti with 4 million peasants, and only 400,000 artisans and 16,000 assembly workers plus suffering political instability. Such countries have little to gain from liberalisation and globalisation. The process of marginalisation will be explained further below.
The WTO contributes to unequal competition
The WTO and the Uruguay Round agreements contribute to unequal competition because:
During the Singapore Ministerial Conference in December 1996, the WTO admitted that there was a 'problem of marginalisation for least developed countries (LLDCs), and the risk of it for certain developing countries'. It was especially concerned about the marginalisation of the LLDCs in terms of their very small and decreasing share of world trade and investment'. It is humbling for us all to have to acknowledge that the 48 least developed countries account collectively for less than one-half of one-percent of total world merchandise trade, and for an insignificant share of world trade in services' said Mr Hoda, Deputy Director General of the WTO to NGOs on 26 September 1997. The WTO is now taking the first steps towards implementation of its declared commitment to addressing this problem. The low political and public attention WTO initiatives receives is cause for serious concern. The information below provides information and suggestions for action by citizens, NGOs, politicians and decision-makers.
Figures indicating marginalisation
LLDCs represent 12% of the world's population but they are of little significance to those who want to exploit the opportunities of the global economy. LLDCs have had a share of between 0.3% and 0.4% of world trade, down from 0.6% the decade before. They also receive a tiny part of the private investment flows (FDI) that go to developing countries: LLDCs received 1.8% of FDI going to all developing countries in the period 1991-1995, down from 2.1% in the 1986-1990 period.
The only glimmer of hope lies with the rates of growth in GDP at 5.2% in 1995 and 4.7% in 1996 (when world growth was 2%) and increased FDI flows (a 56 % increase in 1996).
The least developed countries are those which are poor in terms of:
There are 48 LLDCs and they have a combined population of 570 million. Thirty-two of the countries are in Sub-Saharan Africa. Of the 48 LLDCs, 29 have become members of the WTO and more are in the process of joining (this includes reducing tariffs).
In 1993, exports represented 9% of LLDC GDP whereas imports accounted for 16% of GDP. By way of comparison, foreign aid (ODA) represented just over 8.5% of the GDP of all LLDCs. LLDCs thus have a serious imbalance in their import-export structure and need much more foreign exchange for their imports than they earn from their exports.
Foreign exchange is also needed for repaying their debt. In the period 1990-1993, LLDCs had a debt which represented 73% of their GDP. These problems were reflected in the 1990s by a decrease in imports in comparison with other developing countries.
There are different reasons for LLDCs' marginalisation and their difficulty in taking advantage of the opportunities trade and investment offer:
Narrow scope of support by the WTO
Overcoming the many different problems of LLDCs is a huge challenge to the WTO. When developing countries started joining GATT, the WTO's predecessor, GATT parties agreed to undertake special efforts to ensure that less developed countries would increase their export earnings and share in the growth of international trade in order to improve standards of living, achieve full employment and economic development. Part 4 of GATT, which is incorporated in the WTO, also allowed developing countries to take special measures so as not to endanger their development. Part 4 encouraged developed countries to commit themselves to giving products of interest to developing countries greater access to their markets, especially commodities and processed goods.
Specific mechanisms negotiated in GATT and integrated into the WTO include:
Notwithstanding these mechanisms, the outcome of the Uruguay Round for least developed countries (LLDCs) was unsatisfactory. The differential and more favourable treatment was implemented in a limited way and figures show that LLDCs gained much less from the new agreements than the major trading powers. Ministers signing the Uruguay Round paid lip service to concessions through a decision that more access could be offered - after the negotiations were over!- by developed countries on an individual basis and that LLDCs would be accorded 'substantially increased technical assistance'. The then Director General Sutherland refused to admit that the Uruguay Round would have negative effects on developing countries and LLDCs. Northern countries encouraged them instead to take advantage of the opportunities for exports that the Uruguay Round offered.
It was at the G7 in 1996 that Director General Ruggiero called in vain for rich countries to permanently reduce tariffs on all LLDC products to zero. After this unsuccessful effort, the WTO's Trade and Development Committee started to prepare a 'Comprehensive and Integrated Plan' of Action for LLDCs. The final, much weaker, outcome of this Plan of Action was decided upon by the WTO Ministerial Conference in December 1996. At the same time, the US and the EU refused requests for better market access for textiles and clothing exports from developing countries.
The 'Comprehensive and Integrated' WTO Plan of Action for the LLDCs called for:
The WTO Ministerial Conference agreed to organise, with UNCTAD and ITC, a meeting to co-ordinate technical assistance among the different agencies to enhance their LLDCs' trading opportunities. A High Level Meeting on the Least Developed Countries has subsequently been scheduled by the WTO Sub-Committee on LLDCs for October 1997 (see below).
This background demonstrates the limited commitment of many Northern countries to the successful implementation of the WTO Plan of Action for LLDCs. It is also noteworthy that the agenda has been narrowed to 'assisting LLDCs in enhancing their trading opportunities' and increasing their trade, with little assessment as to how this contributes to raising standards of living, employment and sustainable development.
The Plan of Action does not address the fact that the WTO rules themselves could be changed or eased for LLDCs in order to lessen the negative impact on the great number of poor people who live there. Nor does it tackle other external problems such as the debt burden, fluctuating commodity prices and decreasing ODA.
The WTO should put its house in order
There are many ways for the WTO itself to support LLDCs' trade and development:
The 'High Level Meeting' on Least Developed Countries in Geneva on 27-28 October 1997 partly implements the 'Comprehensive and Integrated' WTO Plan of Action for LLDCs. The organisation of the Meeting not only involves the WTO but also the United Nations' Conference on Trade and Development (UNCTAD), the International Trade Centre (ITC), the World Bank, the United Nations' Development Programme (UNDP) and the International Monetary Fund (IMF).
The aim of the High Level Meeting is to build the capacity of LLDCs to increase their trade and maximise the opportunities provided for in WTO agreements.
The main items of the Meeting are market access proposals, coordination of the different agencies that provide trade-related technical assistance and discussions on trade capacity-building and attracting investment.
The agenda and format of the meeting first gives the high income countries the opportunity to announce their initiatives for improving market access. Then, two parallel sessions take place
The two-day Meeting deliberately does not give room for Ministerial speeches. The Minister for Development Cooperation of The Netherlands, Jan Pronk, is to chair the Meeting and each of the LLDCs being discussed is responsible for chairing the discussion of its round table.
The participants at the High Level Meeting are ministers and officials responsible for trade or development, officials responsible for technical assistance at the WTO, UNCTAD, ITC, World Bank, IMF, UNDP and other regional or national agencies, and six 'eminent' businessmen (the chairman of Nestlé is among those invited). Non-governmental organisations may only have observer status for plenary sessions.
Improving market access for LLDCs
The Plan of Action provides for WTO members to individually decide on measures to further open up their markets for export products from LLDCs, including in the textiles sector. It encourages members to give preferential tariff rates for LLDCs on a permanent basis ('binding').
At the High Level Meeting, the OECD countries and high income developing countries (which import 35% of LLDCs exports) can each announce how they intend to, or decided to, improve access for LLDC products. The high tariffs on textiles, clothing, fish and agricultural products in which LLDCs have a stake are the most at issue. Calculations show that LLDCs in general earn most export income from: diamonds, unroasted coffee, petroleum oils, cotton shirts including T-shirts, shrimps and prawns, iron ores and aluminium ores.
Among the major trading powers (EU, US, Canada and Japan: the 'Quad'), the EU imports most from LLDCs (9.5 bn $ in 1996). EU Ministers already agreed in June 1997 to give LLDCs treatment equivalent to that of the Lomé Convention countries, namely 0% tariffs on manufactured goods, with the exception of Lomé concessions for temperate agricultural goods. The measures to implement this decision from January 1998 onwards are hindered by difficult legal questions and are likely to include some safeguards against 'sensitive' goods in which the EU is not competitive (e.g. clothing). In addition, the EU is exploring ways to change the rules of origin which restrict foreign inputs that can be incorporated in an LLDC export product. Allowing more inputs of products from the same region ('regional' cumulation), simpler and less stringent rules of origin are being looked at as solutions.
The EU decided not to make its market openings permanent under the WTO ('non-binding' concession) but might do so during future WTO negotiations if other countries join. It is exploring how a simpler, collective and more binding system of market concessions to LLDCs could be established in the WTO to avoid the complex system of preferences (e.g. the major trading members have each their own GSP system).
The EU Commission was asked by the EU Ministers to push other countries to open up their markets for LLDC products, but the other Quad members have shown great reluctance. The High Level Meeting is to provide a momentum for more initiatives by all high income members. Norway's offer has been very hopeful as it will give market access to all LLDC products at a 'bound' 0% tariff.
Coordination of technical assistance
The main purpose of the High Level Meeting is to bring together the six principal international agencies that give technical advice on trade (to LLDCs), helping them coordinate so as to avoid overlap and contradictions, and make technical assistance more efficient and better sequenced. The six major agencies (WTO, UNCTAD, ITC, World Bank, IMF, UNDP) may be joined by other agencies such as regional development banks or national development agencies.
The outcome of the meeting should lead to a permanent structure for continued co-operation and co-ordination on technical assistance and which addresses the needs for enhancing the trade capacity of each of the LLDCs. It is called 'An integrated framework for technical assistance, including human and institutional capacity-building, to support least developed countries in their trade and trade-related activities'.
The nature of this cooperation is likely to be the one practised for the High Level Meeting:
At the High Level Meeting, six or eight LLDCs can organise a round table discussion based on their needs assessment and responses from the six agencies. Round tables for other countries can be organised later at their invitation. The Framework for Technical Assistance is expected to provide for continuous contact between the six agencies to monitor the programmes and for regular exchanges on trade-related technical assistance. One month before the High Level Meeting, there was little insight on how the momentum to organise other round tables would be secured.
What is discussed?
Parallel to the country round tables, discussions will take place on enhancing the participation of LLDCs in world trade. These will be clustered around the themes of:
This thematic round table is to result in concrete action-oriented recommendations by the High Level Meeting to LLDCs, the six agencies and other development partners.
The discussion on how to enhance the participation of LLDCs in world trade will look especially at the problems LLDCs have in delivering export goods when there is a sufficient export opportunity ('supply side constraints') and the low value of their products, given their high dependence on commodities and low production of processed goods. The WTO Plan of Action prioritised diversification of export products. The High Level Meeting wants to deal only with some aspects of increasing LLDCs' trade and attracting investment, leaving related issues such as the debt burden and sufficient finance totally out.
Preparations for the discussions show a very technical trade-only approach. Each of the six agencies are to write background documents related to their expertise on issues such as:
Difficult and slow preparations
By the end of September 1997, preparations were still under way for the selection of countries for the round tables and much of the content is still to be decided during the last month. Preparations had been hampered by bureaucratic problems, rivalries between the agencies that wanted to protect their domain of activities, divergent membership and rules of operation of the six agencies involved, and Northern countries giving priority to other meetings and interests. The preparations received little political and public attention. The process was stimulated by the dynamic interventions of the Chair of the WTO Sub-Committee for the LLDCs, the Dutch Ambassador Herfkens.
Some citizen involvement
These slow and difficult preparations contributed to a lack of transparency and limited possibilities for raising public interest. The needs assessments of each of the countries can, of course, not be seen beforehand. Efforts were, however, made to make decisions and papers public when ready, which is not always the practice at
the WTO. Around 40 NGOs, mostly from LLDCs, were selected to give their input to a NGO seminar organised by the WTO and UNCTAD on 25-26 September 1997. The results of this meeting is intended to be sent to the High Level Meeting in the form of 'an informal note'.
Focus on trade for development, not development of trade
It is necessary to clarify and change the aim of the High Level Meeting and the Plan of Action. Enhancing exports and shares in world trade of LLDCs has to contribute to raising standards of living, full employment and growing real income with respect for the environment as is stated in the WTO's preamble.
Involvement of civil society and domestic entrepreneurs from the beginning
In order to guarantee the success of the High Level Meeting, it is important that citizens and domestic entrepreneurs, through their organisations (NGOs), are involved from the beginning in the process of:
This could be done through:
Making the necessary resources available
Urgent action on market access:
The reluctance of most high income countries to significantly open up their markets cannot be accepted given the tiny amount of world trade by LLDCs.
Urgent action is needed by:
Market access initiatives should include:
Discussions should start to incorporate in WTO mechanisms a simple collective permanent preferential scheme for LLDCs to be adhered to by all the members of the WTO. This could replace the different GSP schemes that LLDCs are now coping with. Such a scheme should be adopted at the next WTO Ministerial conference in May 1998.
Political will to follow-up the High Level Meeting
A good follow-up of the initiatives taken at the High Level Meeting will need political will at the different agencies. The implementation on the part of the Integrated Framework for technical co-operation should be regularly reviewed and given impetus at:
Going beyond the High Level Meeting agenda
The WTO should start planning further actions on issues that undermine LLDCs' participation in world trade and their benefits from trade:
Preparing the next WTO Ministerial Conference in Geneva from 18 to 20 May 1998 and new negotiations
One day of the Ministerial Conference in Geneva is scheduled for celebrating 50 years of the GATT system. A new round of negotiations by the end of the century might be explored ('millennium round').
Improving the WTO's relations with workers, consumers and NGOs
The current arrangements for the WTO for consultations and information distribution has so far been inadequate for promoting informed debate and citizen interests.
This booklet has been issued by the Transnational Institute (TNI), a decentralised Fellows of scholars, researchers and writers from the Third World, Europe and the US committed to critical and forward-looking analysis of sustainable development issues, particularly in the areas of poverty, marginalisation and conflict. It is part of TNI's project on the impact and accountability of the research World Trade Organisation.
Myriam Vander Stichele is Fellow of TNI and Coordinator of the WTO project. She has been monitoring trade issues and the GATT/WTO since 1990 and has supported political activists and social movements through many publications and by giving talks throughout the world. The views expressed are those of the author and do not necessarily reflect views of TNI.
This booklet on Globalisation, Marginalisation and the WTO has been made possible through the financial contribution of NCOS (Belgium) and Christian Aid (UK).