WRONG TRADE ORGANISATION
One of the banners one saw during the demonstration at Seattle proclaimed the WTO was not the World Trade Organisation but the Wrong Trade Organisation.
It was the Wrong Trade Organisation because it involved itself with trade which (as the protestors saw it) spoilt the environment and promoted unacceptable working conditions for labourers in the poor countries. In the face of it, the charge is clearly not acceptable, but then, do the demonstrations have a point at all?
In the eyes of the demonstrators, the WTO would not have been the Wrong Trade Organisation if it could ensure that more trade did not automatically mean greater damage to the global environment. On this, one can have no quarrel with the Seattle demonstrators at all.
If we look at labour, everyone will agree with the premise that the most important objective of economic development is to improve the living standards of the people.
Since the business of a higher trade exchange is to derive larger profits from such exchange which can be used to hasten economic development, it can be argued that more trade should ultimately lead to better living standards. This includes labour and living standards, the inference being that more trade should lead to better living standards for labour.
The Seattle demonstrators said that this is not always the case and that in large parts of the developing world, the production of goods that ultimately generated higher trade figures rested on unsatisfactory working conditions.
Their point was that the WTO was not doing anything to ensure that such production did not enter the stream of globally traded items.
Both the charges are valid as they are, which means that concerted efforts will have to be made to look after the environment and labour aspects of higher international trade.
The question is whether it is the business of the WTO to do so. If yes, then the WTO as it is now constituted is certainly the Wrong Trade Organisation. If not, then the protesters are themselves wrong in trying to make the WTO responsible for something which really is not among its functions.
The question then is: Should the WTO be held responsible for the wrong done to global living standards and the environment flowing from a larger international trade exchange, or should these spheres to be responsibility of their organisations? Basically, the issue revolves around the question – should the WTO be involved in any sphere of international relations other than trade? As of now, nearly the entire developing world feels that it should not be so involved while the quest of the developed countries is to develop such extra-trade responsibilities for the WTO.
This is not an easy question to answer because the act of trading cannot be put into an airtight compartment in any social set-up. Take, for example, the issue of opening up trade in agriculture, which has become a major bone of contention among developed countries like the US, the Cairns Group, the European Union and Japan.
Tokyo has focused on the “multi-functionality” of agriculture within the Japanese economy, which really means that there are extra-economic (certainly extra-trade) dimensions of farming activity which must be taken into account before trade in farm products can be affected in any way by WTO regulations.
On its part, India has talked about “food security”, which can easily be tied up with “national security” (particularly in a poor country). This certainly cannot in any way be a responsibility of the WTO.
What therefore, is amply clear is the complex nature of the issue – if it is the business of the WTO to involve itself with the labour and environment aspects of trade. However, there is one factor of relief with respect to these two specific spheres: That there are in existence separate international forums the sole business of which is to look after the working conditions of international labour in one instance, and the world’s environment, in the other. Common sense would suggest that since the framework for international trade should be set by the standards in force on the labour and environment fronts, these spheres should be the responsibility of the already existing different forums.
In other words, since trade (being only one part of pure economic activity) cannot set the standards either in labour or the environment, the WTO should not get into these spheres of activity but should restrict itself to policing international trading activity, taking as given, the prevailing labour and environment standards.
It can, of course, be argued that since not much effective work is being done in both the labour and environment spheres by way of tightening up on standards by the different international forums currently engaged in the task – the International Labour Organisation, and so on – there is no alternative but to tighten the screw of these related aspects of trade activity within the WTO itself.
This could conceivably be the case, but if it is then why is so much being made of, say, the US signing the Worst Forms of Child Labour Convention, which is strictly an ILO document? In other words, if the WTO is the Wrong Trade Organisation, then the ILO is the Irrelevant Labour Organization, the work of which, however, has been applauded by, among others, Washington.
There are some who will argue that the entire effort to involve the WTO with the labour and environment aspects of trade and environment aspects of trade is actually a part of the larger effort by some developed countries to reduce the comparative advantage which poor countries enjoy by way of lower overall production costs, which makes their products cheaper in the world market.
If this is correct, then the point needs to be emphasized that the WTO is the right trade organisation, which is being sought to be influenced and controlled by the wrong sort people.
Questions:
1. What are the basic limitations of World Trade Organisation?
Limitations and suggested Refinements
Trade theories provide logical explanations about why nations trade with one another, but such theories are limited by their underlying assumptions. Most of the world’s trade rules are based on a traditional model that assumes that (1) trade is bilateral, (2) trade involves products originating primarily in the exporting country, (3) the exporting country has a comparative advantage, and (4) competition primarily focuses on the importing country’s market. However, today’s realities are quite different. First, trade is a multilateral process. Second, trade is often based on products assembled from components that are produced in various countries. Third, it is not easy to determine a country’s comparative advantage, as evidenced by the countries that often
Export and import the same product. Finally, competition usually extends beyond the importing country to include the exporting country and third countries.
In all fairness, virtually all theories require assumptions in order to provide a focus for investigation while holding extraneous variables constant. But controlling the effect of extraneous variables acts to limit a theory’s practicality and generalization.
One limitation of classical trade theories is that the factors of production are assumed to remain constant for each country because of the assumed immobility of such resources between countries. This assumption is especially true in the case of land, since physical transfer and ownership of land can only be accomplished by war or purchase e.g., the U.S. seizure of California from Mexico and the U.S. purchase of Alaska from Russia. At present, however, such means to gain land are less and less likely. As a matter of fact, many countries have laws that prohibit foreigners from owning real estate. Thus, Japan and many other countries remain land-poor.
A significant difference exists in the degree of mobility between land and capital. In spite of the restrictions on the movement of capital imposed by most governments, it is possible for a country to attract foreign capital for investment or for a country to borrow money from foreign banks or international development agencies.
Not surprisingly, U.S. banks, as financial institutions in a capital-rich country, provide huge loans to Latin American countries. Yet at the same time, a favorable U.S. business climate makes it possible for the United States to attract capital from abroad to help finance its enormous federal deficits. Therefore, capital is far from being immobile.
Labor as a factor is relatively immobile. Immigration laws in most countries severely limit the freedom of movement of labor between countries. In China, people (i.e., labor) are not even able to select residence in a city of their choice. Still, labor can and does move across borders. Western European nations allow their citizens to pass across borders rather freely. The United States has a farm program that allows Mexican workers to work in the United States temporarily. For Asian nations, most are so well-endowed with cheap and abundant labor that such countries as South Korea and Thailand send laborers to work in Saudi Arabia. China, likewise, would like to export its labor because it is the most well-endowed nation in the world in terms of this resource. In the mid—19th century many Chinese peasants were brought to the United States for railroad building.
While immigration laws often restrict labor movement across countries, business laws however tend to welcome capital movement to utilize labor in a foreign country. When wages in South Korea jumped, Goldstar Co. minimized the labor problem by importing goods from its overseas facilities back into South Korea. It can be said that, in the production of tradable goods, unskilled labor markets in the developed countries have been effectively joined with international markets. As in the case of apparel assembly and footwear which do not lend themselves as yet to technology-intensive methods. A large share of output already has been transferred to poor countries. Even in Thailand where labor was once plentiful and cheap but where labor cost has moved up, some Thai apparel firms are transferring parts of their production operations to Cambodia and Vietnam. Likewise, Taiwanese shoe companies are establishing new operations on the mainland.
Because workers cannot easily emigrate to another country possessing better wages and benefits, wages have not been equalized across countries. Conceivably, computer workstations and communications technology could lessen this problem by allowing a portion of the work force to work for any company in any part of the world. As mentioned by Andrew Grove, Intel Corp.’s chief executive officer, “Capital and work-your work and your counterpart’s work-can go anywhere on earth and do a job. . . .If the world operates as one big market, every employee will compete with every person anywhere in the world who is capable of doing the same job.” Theoretically, if developments continue along these lines, a worldwide labor market is possible.
In the 1970s and 1980s, workers in the Western world learned a painful lesson: manufacturing could be moved virtually anywhere. History may repeat itself again as it is becoming easier for firms to shifrt knowledge-based labor as well. This development can be attributed to the worldwide shift to market economies, improved education, and decades of overseas training by multinationals. As a result, a global work force is emerging, and it is capable of doing the kind of work once reserved for white-collar workers in the West. Advances in telecommunications are makings these workers. More accessible than ever. In electronics, Taipei, Edinburgh, Singapore, and Malaysia, although far away from the end-user and technological breakthroughs, have emerged as global product-development centers. Therefore, conventional notions of comparative advantage are rapidly changing.
Production factors are now considered more mobile than previously assumed, but their mobility is still considerably restricted. As a result, production costs and product prices are never completely equalized across countries. The small amount of mobility that does exist serves to narrow the price/cost differentials. In theory, as a country exports its abundant factor, that factor becomes more scarce at home and its price rises. In contrast, as a country imports a scarce factor, it increases the abundance of that factor and its price declines. Therefore, a nation is usually interested in attracting what it lacks, and this practice will affect the distribution of production factors.
Since a country’s factors of production can change owing to factor mobility, it is reasonable to expect a shift in the kind of goods a country imports and exports. Japan, once a capital-poor country, has grown to become a major lender/supplier of money for international trade. Its trade pattern seems to reflect this change.
Immobility is not the only item of relevance when considering the factors of production. Another item that is very significant involves the level of quality of the production factors. It is important to understand that the quality of each factor should not be assumed to be homogeneous worldwide. Some countries have relatively better-trained personnel, better equipment, and better-quality land and climate.
Although a country should normally export products that utilize its abundant factors as the product’s major input, a country can substitute one production factor for another to a certain extent. Cut-up chicken fryers are a good example. Japan imports chicken fryers because a scarcity of land forces it to ujse valuable land for products of relatively greater economic opportunity. Both the United States and Thailand sell cut-up chicken fryers to Japan. The two countries’ production strategies, however, differ markedly. The United States, because of its high labor costs, depends more on automation (i.e., capital) to keep production costs down. Thailand, on the other hand, has plentiful and inexpensive labor and thus produces its fryers through a labor-intensive process. Therefore, the proportion of factor inputs for a particular product is not necessarily fixed, and the identical product may be produced with alternative methods or factors.
Like Joseph Schumpeter before them, some economists argue that innovation (knowledge and its application to real business problems) counts for more than capital and labor, the traditional factors of production. Entrepreneurs, industrial research, and knowledge are what matters.
The discussion so just as critical, and demand reversal (when it occurs) may serve to explain why the explain why the empirical evidence is mixed. Tastes should not be assumed to be the same among various countries. A country may have a scarcity of certain products, and yet its citizens may have no desire for those products. Frequently, LDCs’ products may not be of sufficient quality to satisfy the tastes of industrial nations’ consumers. Yugo, for example, tried in vain to convince American consumers that is automobiles, despite their very low prices, were not a bad value or of poor quality.
In some market situations it is possible for product quality to be too high. Companies in developed countries, for example, sometimes manufacture products with too many refinements, which make the products too costly for consumers elsewhere. German machineries, for instance, have a worldwide reputation for quality. Nonetheless, many LDCs opt for less-reliable machinery products from Taiwan because Taiwan’s products are less costly. Such circumstances explain why nations with similar levels of economic development tend to trade with one another, since they have very similar tastes and incomes.
Perhaps the most serious shortcoming of classical trade theories is that they ignore the marketing aspect of trade. These theories are primarily concerned with commodities rather than with manufactured goods or value-added products. It is assumed that all suppliers have identical products with similar physical attributes and quality. This habit of assuming product homogeneity is not likely to be made among those familiar with marketing.
More often than not, products are endowed with psychological attributes. Brand-name products are often promoted as having additional value based on psychological nuance. Tobacco products of Marlboro and Winston sell well worldwide because of the images of those brands. Also, firms in two countries can produce virtually identical products in physical terms, but one product has different symbolic meaning than the other. LDCs are just as capable as the United States in making good cosmetic products, but many consumers are willing to pay significantly more for the prestige of using an American brand such as Estee Lauder. Trade analysis, therefore, is not complete without taking into consideration the reasons for product differentiation.
A further shortcoming of classical trade theories is that the trade patterns as described in the theories are in reality frequently affected by trade restrictions. The direction of the flow of trade, according to some critics of free trade, is no longer determined by a country’s natural comparative advantage. Rather a country can create a relative advantage by relying on outsourcing and other trade barriers, such as tariffs and quotas.
The U.S. trade pattern is also distorted by trade restrictions and regulations. The U.S. automobile emission control standards have effectively prevented Brazilian cars from entering the U.S. market. Thus, protectionism can alter the trade patterns as described by trade theories.
The new trade theory states that trade is based on increasing returns to scale, historical accidents, and government policies. Japan’s targeted industry strategy, for example, does not adhere to free-market principles. Therefore, a moderate degree of protection may promote domestic output and welfare. However, as pointed out by Jagdish Bhagwati, it is not easy to differentiate fair trade based on comparative advantage from what may be considered unfair trade. Are trade practices based on work habits, on infrastructure, and on differential saving behavior to be considered unfair? If so, all trade could possibly be considered unfair.
Q. 2. Why is the World Trade Organisation Called “Wrong Trade Organisation?”
Agricultural subsidies in the western world appears to be the (un)democratic right of the developed nations. The so-called 'democratic' World Trade Organisation (WTO), as The Economist prefers to address the wrong trade organisation as, sees nothing wrong in subsidising the rich and the powerful. After all, The Economist's economic survival too depends upon the advertisement revenues garnered from the corrupt -- knowing well the exposed reality of the American corporate world following the stock market scandal.
At a time when the global media continues to protect the corrupt, and when the WTO has digressed into a protectionist measure for the western agriculture, service industry and finance, it is the subsistence farmers in the majority world and their numbers swells into several billion, who have to pay the price. Many reports that we carried earlier have pointed to the direct connection between western subsidies and the mounting poverty, hunger and loss of livelihoods in the developing world. But the WTO refuses to correct itself, in fact it refuses to even accept that such huge subsidies are trade distorting in the first place!
ActionAid UK is one such charity that has relentlessly campaigned against the trade distortions. We bring you below a report from the Financial Times based on an ActionAid study. The second articles looks at the impact on Indian and developing country agriculture.
Contents:
1. ActionAid report: Agricultural subsidies lead to dumping and over-production -- by John Madeley
2. The Subsidy Conundrum: On the upswing in US and Europe -- by Devinder Sharma
3. EU six defend farm subsidies -- by Ian Black
1. ActionAid report:
Agricultural subsidies lead to dumping and over-production
JOHN MADELY / Finacial Times (UK) 24sep02
"Rich countries are paying more than $300bn a year in subsidies to their agricultural sectors, six times more than the total amount of aid to developing countries."
Government subsidies to farmers in Western countries are damaging the livelihoods of farmers in developing countries, according to a report by ActionAid. The report "Farmgate: The developmental impact of agricultural subsidies", says the subsidies have led to overproduction and dumping -- exporting at prices below the cost of production -- which is throwing small farmers in developing countries out of business.
Rich countries are paying more than $300bn a year in subsidies to their agricultural sectors, six times more than the total amount of aid to developing countries. "In a massive breach of faith, rather than complying with the spirit of [World Trade Organisation] agreements, and reducing levels of agricultural subsidies, rich countries have actually increased them," says the report.
At the same time, rich countries have put pressure on developing countries to reduce or eliminate subsidies. Rich countries are practising double standards, says the report - "protection for the rich and the free play of market forces for the poor". The farm subsidies of the EU and the US have encouraged overproduction, distorted trade and depressed prices; and made EU and US farm goods artificially cheap on world markets, resulting in the dumping of cheap, subsidised produce in poor countries.
But the subsidies have failed to prevent small UK farmers going out of business. The richest 20 per cent of UK farm holdings receive 80 per cent of the subsidies. Each tonne of UK [and EU] wheat sold on international markets is sold at 41 per cent below the cost of production, against 33 per cent in 1997.
The EU has historically ensured that returns to its wheat farmers are artificially high by using a combination of market price support - including through intervention buying and export subsidies - and direct payments. The report includes studies from Bangladesh, Indonesia, Kenya, Nigeria, Pakistan and Swaziland to show the effect of subsidies.
In 2000 there was a sudden and dramatic increase in the volume of cheap, duty-free wheat flour imported by Kenya from Egypt, undercutting local prices by up to 50 per cent and threatening the livelihoods of about 500,000 Kenyan people dependent on wheat for their income.
In 2000-01, the US and EU together supplied Egypt with almost 4m tonnes of the grain. Significant quantities of this were dumped. "There are strong suspicions," says the report, "that subsidised US and possibly EU wheat has been used to manufacture the flour in Egypt that has been sold to Kenya at cheap prices."
Cheap wheat imports to Nigeria from the US have nearly doubled since 2000 and are having a detrimental impact on the country's production of staple foods.
Subsidised wheat coming into Bangladesh as food aid is also having a negative effect on local farmers. The Washington-based International Food Policy Research Institute says the food aid helped undercut prices for local wheat producers, acting as a disincentive for them to be more self-reliant and grow their own crops.
EU subsidies to the sugar sector are also causing problems, eradicating the competitive advantage of sugar-producing developing countries. Swaziland, for example, produces sugar at less than half the cost of EU countries, and yet is unable to compete with the EU imports that increasingly dominate its market. Subsidised EU sugar exports to Swaziland have led to the loss of about 16,000 jobs in the Swazi sugar industry and 20,000 jobs indirectly linked to the industry.
ActionAid is calling for the level of agricultural support in the developed world to be reduced substantially and for a phasing out of subsidies that distort production and trade, and which lead to dumping. Negotiators are meeting at the WTO in Geneva this week to discuss how to reduce agricultural subsidies. Commonwealth finance ministers, meeting in London this week, are also likely to discuss the impact of these subsidies.
The Subsidy Conundrum:
On the Upswing in US and Europe
www.tehelka.com undated
American farmers are escaping insolvency because the US Government pumps in billions of dollars through subsidies, says Devinder Sharma.
If you are wondering as to how much subsidy an American or an European farmer receives, just hold your breath: last year, the average net income for a commercial soyabean grower in the United States was US $ 47,000 a hectare. Of which, the payment from the federal government was US $ 37,000. In England, I know of farmers who get a subsidy of one million pounds a year for not growing anything!
Against such massive government support in the rich and industrial countries, the resource-poor, lean and toiling image of an Indian farmer looks rather pale. It certainly is a depressing tale considering that more than 550 million farmers in India receive an annual subsidy of US $ 1billion, and all of it is indirect in the form of subsidised seed, fertiliser, credit, water and electricity. The amount of subsidy a western farmer gets on a cow is more than the average income of a farming family in India!
With the agricultural subsidies increasing in the two biggest farm blocks - the US and the EU - the resulting damage to the resource-poor farmers in India and, for that matter, in the other developing countries is going to be catastrophic. More so, when the Indian government continues to swear by the WTO's Agreement on Agriculture, which promises drastic reduction in agricultural subsidies being doled out in the western countries. These subsidies are, in reality, increasing.
Early this year, with the strong backing of the White House, Congress added $5.5 billion to next year's budget blueprint to cover potential emergencies. This is in addition to the US $ 22 billion plus that has already been doled out to its farming community in the past two years by the former President, Bill Clinton. In another few months, before the end of the year, the fourth instalment of federal subsidies is expected to be announced.
Interestingly, the US farm bill that George Bush often refers to, promises to end agricultural subsidies by the year 2002 - a promise that is sure to remain unfulfilled. Large farmers around the country continue to complain to Congress that Freedom to Farm is not working because their crops are selling at the same low prices their grandfathers' crops fetched 40 years ago. When lawmakers passed the act in 1996, they approved generous subsidies for the first two years in order to give farmers a cushion to prepare for their independence. But when the world market pushed prices down, farmers asked for emergency payments. And the cycle that provides more subsidies continues unabated.
As if this is not enough, George Bush promises to aggressively push to dismantle foreign trade barriers and eliminate other countries' agricultural export subsidies. And here lies the catch. True to the American character, George Bush has promised to force open the other countries' markets while protecting his own. Still, we are being told that the world is beginning to dismantle its subsidy support and that we need to open our trade barriers to make Indian agriculture competitive. And if you think that it is the American rhetoric (and not its actual actions) that is swaying popular economic thinking in India for opening up the country to US farm exports, you are mistaken. There is a strong vested Indian interest for food imports, and for obvious reasons.
And if you are wondering as to how these subsidies, for instance, impact the American farmers, let me explain. Chicago Tribune recently reported a study conducted by Farm Credit Systems, a company dealing in farm loans. According to the study, subsidies are, in a weak climate like the one that prevails today, the only barrier to insolvency. "Without federal assistance over the last three years, we would have seen large numbers of farm bankruptcies," said Doug Yoder, director of marketing for the Illinois Farm Bureau, adding that one in seven of the state's 79,000 farms is losing money this year, while many others are barely breaking even.
Take the case of Lanny Bezner, a successful family farmer in Texas. Sticking rigorously to the principle that economy of scale as the only way to survive in modern farming, he thinks that the bigger the farm, the better likelihood of turning a profit. So, he has been buying adjacent fields to expand his cropland from 700 acres to more than 8,000. In five years he has doubled his grazing land by leasing 90,000 acres of pasture. He owns a fleet of tractors and heavy farm equipment; he fills their tanks with fuel from his own gas pumps. He dries and stores his harvest in his own imposing grain elevators, which hold more than a million bushels of corn.
Talking to The New York Times, Bezner says the key to his family's prosperity is federal farm subsidies. Although he hesitates to discuss the size of those subsidies (and refused to divulge how much he makes without federal help, or what his expenses are), government documents show that in the last four years of the 1990's, he received $1.38 million in direct federal payments.
How do the American farmers' view the federal subsidies? "It's a welfare check," the Chicago Tribune report quoted Robert Johnson, 57, who farms 500 acres of corn and soybeans. "I don't like welfare and I know other people don't either--but you have to take it to survive." He said prices for his crops are too low for him to make a living. He drives a truck at night and his wife drives a school bus to make ends meet. Perhaps what Johnson does not know, and no one cared to tell him, is that when the subsidised farm commodities are exported to countries like India, it drives out farmers from agriculture leading to further marginalisation of the farming communities.
In Illinois alone, the average income of a farmer this year averaged at US $37,000 of which, US $16,000 comes from government farm subsidies. These subsidies reportedly help farmers meet their current debt liabilities. In the past two years, direct government payments to farmers in America rose 86 percent to reach US $22.7 billion, and are expected to go even higher this year. George Bush has already promised still higher federal support by way of direct payments. Incidentally, direct payments to farmers are excluded from WTO's subsidy reduction commitments.
The US Department of Agriculture expects farm income to drop this year. "Crop receipts are forecast to fall by $2 billion in 2000, reaching their lowest level since 1994," the USDA said in a report earlier this year. "Net farm income is forecast to be US $40.4 billion in 2000, a decline of $7.7 billion from the preliminary estimate of $48.1 billion for 1999." But interestingly, what the USDA refuses to acknowledge is that farm incomes are also falling in the developing countries (including India) whose trade barriers are being forced open.
Now, where will all this lead to? With the subsidy to America's miniscule farm community multiplying, and with the other industrialised countries also relentlessly jacking up financial support for agriculture, there is practically no hope for India to find a foothold in the global food market. In turn, with India phasing out or completely doing with the quantitative restrictions (QRs), the country is sure to be inundated with cheap and highly subsidised farm imports.
It has happened in the past in Zimbabwe, Burkina Faso, Mexico, Brazil, and the Philippines. It is now the turn of India to be faced with a flood of subsidised agricultural imports, some of which have already started pouring in. Unless India refuses to open up its agricultural market till such time that all farm subsidies in the developed countries are brought to zero, a disaster awaits to strike.
IAN BLACK / The Guardian 23sep02
France and six other European Union countries are insisting that the common agricultural policy, which consumes half of the EU budget, must be kept at levels agreed three years ago.
Signalling a looming battle over farm subsidies which will be critical in talks on the eastward expansion of the union, Hervé Gaymard, the French agriculture minister, and colleagues from Ireland, Spain, Portugal, Belgium, Austria and Luxembourg, insist in a letter to the Guardian that the CAP is unjustly pilloried.
Rejecting "false accusations", they defend a "European model of agriculture", and predict tough arguments ahead.
France, which receives the biggest farming subsidies, understandably champions the policy, which is the legacy of a deal between French farmers and German industry when the EEC was founded in 1957.
Britain, Germany, Sweden and the Netherlands - the "Northern Alliance" - want urgent reform of a policy which costs ?49bn (£31bn). They say the CAP cannot continue in its current form in a union of 25 or more members.
The 15 member states must quickly agree on the level of farm payments to be made to the 10 candidate states likely to be invited to join at December's Copenhagen summit.
Poland, the largest applicant, has 10 million farmers, but there is already anger over the double standards implied by proposals to pay them just a quarter of the subsidies enjoyed by current EU members.
CAP critics blame the policy for wasteful over-production, environmental damage, crises such as BSE, and contributing to hunger in the developing world. The ministers reject this and offer a robust defence of the special needs of farmers.
"Society needs sufficient numbers of contented producers with confidence in the future to ensure... economic balance and to maintain the diversity of our landscapes, which epitomise Europe.
"For us, agricultural products are more than marketable goods; they are the fruit of a love of an occupation and of the land... developed over many generations."
Last summer, the European commission proposed deep CAP subsidy cuts and higher environmental and health standards. The reformists say it does not go far enough.
Q. 3. How does WTO affect India, particularly in agriculture and in labour aspects?
Thirtythree developing countries, including six members of the G23, formed an alliance which called on the meeting to agree to a mechanism that would allow developing countries to designate products of special interest – to poorer farmers, for example – that would be exempt from WTO rules. And this could safeguard the livelihoods of millions of people, believes the G33.
The African Union formed an alliance with the African, Caribbean and Pacific group of countries and with the least developed countries – 61 WTO member countries in all. The G61 said they had come together to promote and secure their interests.
These alliances shaped the outcome of Cancun. Ivonne Juez de Baki, the trade and industry minister of Ecuador, a member of the G23, said “We have done something historic. This is the beginning of a better future for everyone.” The three groups complemented each other, but can they hold together? The US and the EU will try to divide them, although the UK’s Secretary of State for Trade and Industry Patricia Hewitt said that she “welcomes the emergence of a new, stronger voice for developing countries”. Not so President George W. Bush. Midway through the meeting the US president telephoned the leaders of Brazil, India, Colombia, Pakistan, Thailand and South Africa to ask them to leave the G23. The hint was of improved bilateral trade deals. All said no. But the pressure will intensify. The G23 countries have different interests which the US will exploit. The US may try to punish them. What might embolden the alliances is public opinion.
If there is a new factor today, which was not present in the 1960s and 70s, it’s the strength of social movements in developing countries. There is now a much higher level of awareness and more campaigning on the issues, stimulated by the effects of WTO, World Bank and IMF policies on people’s lives. When trade rules lead to Californian rice being dumped in South Korea to sell for a third of the price of local rice, and when US soya imports into Indonesia cause nearly a million farmers to go to the wall, people will back their governments when they make a stand at the WTO. Like they did in Cancun. The draft ministerial declaration antagonised developing country delegates. There was a little progress on agriculture but nothing worthwhile on helping groups like West African cotton producers, badly hit by falling world prices caused by US farm subsidies.
The alliances suggest that the WTO will in future be linked more closely to the aspirations of the developing world. But does the WTO have a future? Two of its last three ministerial meetings have failed – in Seattle in 1999 and now Cancun. The Doha meeting may only have succeeded because it was soon after 9/11 and developing countries were arm-twisted into not doing anything that might be seen as negative for the world economy.
The WTO’s decision-making processes are weak and hardly lend themselves to democratic negotiations. These procedures were a severe obstacle to progress in Cancun. The WTO sets the rules for trade, but has no rules about procedures for its meetings – about how they should be run and organised. An attempt by developing countries, in early 2002, to press for the establishment of such procedures was blocked by the EU. Wile the decision-making processes need changing, there are deeper questions about the WTO. The organisation has played no role in helping countries that rely on primary commodities trade – a serious gap as most of the world’s 49 least developed countries fall in this category.
Again the WTO has no role in regulating the traders. Almost 70% of world trade is between transnational corporations. In today’s world it is corporations that trade not countries. Through their governments, the TNCs can influence an organisation which has no power to regulate them. The WTO increasingly looks like the wrong trade organisation for the reality of international trade today. But at least it is, in theory, a democratic organisation, with its 146 countries – soon to be 148 with the addition of Cambodia and Nepal – having an equal say. Members have the power to change the rules. The new alliances have testing times ahead.
