FACTS againest MYTHS V0L-V-8-1999
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VIKAS ADHYAYAN KENDRA
Vol V # 8/99
INFORMATION BULLETIN
WTO's Roundup:
The “Millennium Round'' MYTHS
• comment
ay back in 1947 the North with the
aim of regulating global trade
established the General Agreement on
Tariffs and Trade, GATT Since then its members
met regularly to negotiate lower trade tariffs on
■goods. With the Uruguay Round negotiations
(1986-92) GATT expanded to include other
interests, such as the “harmonisation” ofstandards,
free global investments and IPRs. The so-called
hew GATT led to the establishment of World
W
Trade Organization (WTO) on January 1, 1995,
to oversee many other aspects of global trade (see
box pgs. 2&3).
Since then economic globalisation (the increasing
global inter linkages of the markets in goods,
services, capital and finance) has taken over, with
disastrous impact, the various development spaces
of especially the economies of the South. The
South has been, in fact, losing everything: custom
tariffs that proteced their emerging industries and
produced revenues; agreements on basic
commodities; producers’ associations; rice
The World Trade Organisation (WTO)
History: The WTO’s was created at the end of the Uruguay Round of international trade
negotiations. The agreement was formalized in the final act of the Round, which was signed by
trade ministers in Marrakesh(Morocco) in April 1994. Launched on January 1, 1995, it replaced
GATT which had acted as an interim world trade watchdog since 1947.
Status: WTO is officially defined as the legal and institutional foundation of the multilateral
trading system. Unlike GAIT, the WTO is a permanent organisation created by international
treaty ratified by the governments and legislatures of member states. As the principle international
body concerned with solving trade problems between countries and providing a forum for
multilateral trade negotiations, it has global status similar to that of the IMF and the World
Bank.But unlike them, it is not a United Nations agency although it has a comparative relationship
with it. Its underlying documents are the General Agreement - a 38 - article code aimed at
ensuring ‘open and fair trade’ in goods, services, agricultural produce and textiles .
Basic Principle: Most favoured nation (MEN)- Article 1 of the General Agreement - which binds
all members to give equal treatment to the products and services of all other WTO states.
The membership applications of others are being examined by working parties of present members
to see if applicants’ domestic trade laws and practices conform to WTO rules. Notable among
these are China, Russia, Taiwan, Saudi Arabia and Ukraine. The entry of all pending applications
will bring in practically every state that engages in foreign trade. The possible membership of
Iran, Iraq. Libya, Syria and North Korea have been cast in doubt, mainly due to pressure from
the United states, which sees them as ‘Rogue States”.
WTO bodies: Two key units are the Dispute Settlement Body (DSB) and the Trade Policy
Review Body (TPRB) the DSB, on which all member countries can sit, usually meets twice a
month to hear complaints of violations of WTO rules and agreements. It sets up expert panels to
study disputes and decide if the rules are being broken. The DSB’s final decisions, unlike those
of similar but les power fid body in the GATT, cannot be blocked. The TPRB is a form for the
entire membership to review the trade policies of all WTO states. Major trading powers are
reviewed every two years, others every four years.
Other major bodies are the Council for Trade in Goods, the Council for Trade Services and the
Council for Trade Related Aspects of Intellectual Property Rights.
indexation; preferential treatment; any mechanism
protecting their exports’ value and contributing to
their all-jround development.
With the forthcoming Conference at Seattle just
around the corner new isues are being introduced
by the North. These are industrial tariffs, market
access, e-commerce, social clause, trasparency in
government procurements, MAI (See FAM #10,
98), trade and competition. These "issues",
introduced in the midst of already difficult
conditions fraught with inequalities, will certainly
be used as pretexts for non-tariff barriers or to
prevent their commodities from acceding to the
market.
( FACTS against MYTHS
Vital questions are therefore being raised on the
winners and losers ofWTO, the main vehicle for
globalisation. Globalisation, however, is not an
‘inevitable process’. It is man-made, through
deliberate policies and peddled through at occasions
like the WTO Conference, the third Ministerial
Meeting in Seattle beginning November 30 to
December 3,1999.
Central to these questions is the extent to which
WTO will benefit TNCs and the degree that it
will impede local, sustainable development; the
extent it plans to re-institutionalise global
dominance over resources; the fiow of investments
and empower monopoly control of technology.
Behind the facade of removing non-tariffbarriers
to trade and “harmonising” domestic regulations
WTO threatens to bring about a lowering of
environmental, health and safety standards. Its
present autocratic structure lends itself to greater
influence byTNCs with continued restricted input
from citizens of the South.
In short, through the WTO, the North is going
all-out to totally open up wider opportunities for
the TNCs to seize larger and larger share of the
markets and business of local firms in the South
converting it into an immense Free Trade Zone
(FTZ). They are proposing an investment
agreement that will prevent governments from
regulating the entry and operations ofTNCs (thus
allowing maximum freedom to foreign firms); a
competition policy agreement that would disallow
^governments from favouring local industries (on
the grounds that this impedes free competition
byTNCs, etc.); and a procurement agreement that
will eventually prohibit governments from giving
any advantage to local firms in government
contracts, supplies and projects.
What is presently taking place at Geneva has thus
vital strategic relevance to South. The pressures
being piled on the South by the powerful
negotiating machine ofEurope, the US and Japan
are enormous. Between nowand December, most
of the key decisions will be taken by the diplomats
at the WTO on what the Ministers will decide in
Seatde.lt is this concern that has spurred TUs, mass
organisations, human rights and environmental
^croups, NGOs and concerned citizens the world
^ver to mount a massive campaign against the
North — to expose their invidious proposals,
surreptitious maneuvers, and tenditious
machinations against the South — in launching
the so-called new WTO or “Millennium Round”
(coined by EC Trade Commissioner Sir Leon
Brittan).But this is nothing but a turnaround.
MYTH: All member countries ofWTO, including
the South whoform the majority enjoy equal voice
in the consensus decision-makingprocess without
any form ofdiscrimination.
FACT: These decision-making processes, however,
are undemocratic. The North uses WTO trade
sanctions and rules when they are convenient for
against MYTHS
them or falling back on unilateral trade power
when it is more effective in dominating the
economies of the South.
Even a draft agreement is neve" sacrosanct to the
North. After the final signing of a WTO
agreement, these countries seek to make further
changes. Social and environmental clauses get
introduced that appear to promote workers rights
and environmental protection. However, these
causes do not control trade in toxic material like
pesticides or regulate the labelling of toxic,
hazardous and genetically engineered foods. The
North consider such issues to create “trade
distorting” barriers to their industries.
National governments are legally bound to adhere
to decisions on crucial issues that affect national
sovereignty, social and cultural values and public
policy or face the threat of economic sanctions.
For TNCs the agreements under WTO are likely
to create a friendly trading environment replete
with centralized decision-making authority,
increasingly uniform standards, greater access to
resources and increased mobility of capital.
Conversely, the WTO presents a hostile
environment in which to elevate and achieve social
objectives.
Consider the case of decisions that are supposedly
taken by consensus by various specialised bodies
of the WTO which also include the Dispute
Settlement Panels and the Appellate Body.
In this scheme, a country wishing to oppose a
harmful proposal can be effective provided it puts
a formal opposition at the time a decision by
consensus is sought.And for a positive action, it
has to muster the support of the majority of the
Members present. In the case ofthe South nothing
of this, in practice, takes place. This is partly due
to the actual operation of the whole WTO process
in considering a dispute.
Generally,important proposals in the GATT/
WTO are normally made by the North. After
they have formally made a proposal in a particular
body in the WTO, there would be some
preliminary observations by some delegations
made in a non-committal manner.Thereafter the
action shifts away from the main stage. The main
sponsors hold limited consultations with some
delegations, first trying to consolidate support and
then involving the others to soften their possible
opposition. Invariably these consultations are
limited to a small number of delegations; the ones
selected for participation being those that may have
a keen interest in the subject or those that may be
vocal in opposition in the open forum. A very large
number of countries of the South are left out of
this process of consultations which are practically
full-fledged negotiations held behind the scenes in
small groups.
In the meantime pressures are being applied on
the South that opposed the proposal. The
technique is to win over the opponents one by
one either at a bilateral level in the capitals or on
delegations at Geneva. And finally the hardcore
opponents are left with the option ofeither keeping
mum or withholding consensus in the open
consultation. Very often they do not want to incur
the political cost of formally opposing a decision
at the end, if they are left alone or are in a very
small group. The decision is thereby taken in the
open meeting by consensus.
In these small group consultations and negotiations
the Quad countries (Mafia?) countries (the US,
the EU, Canada, Japan) are always present.
Switzerland as the host country is also invited.
Besides, either Australia or New Zealand, if not
both, gets included. Thus, the scale is very much
tilted against the South,not only by way of
economic and political clout, but also, quite
ironically, the weight or numbers.
Transparency & Participatory Function: This is
another eye-wash as far as the South is concerned
and who get called in the proceedings of the
Consultations either at the very beginning and or
at the close of any negotiations. Yet, without active
involvement in the actual negotiations, the South
must abide by the obligations imposed by these
decisions. To illustrate:
£T At the first Ministerial Conference at
Singapore from December 9-13,1996, the
‘Open Part’ of the Conference was the
plenary session where Trade Ministers of
127 countries made speeches. But
ambarrassingly enough, the Ministers were
speaking to an increasingly empty hall;
FACTS against MYTHS
There were no discussions at all on their
speeches, and thus no opportunity to seek
solutions to the proble~is raised.
Meanwhile the ‘real’ negotiations on vital issues
went ‘underground’ in many informal meetings
to which only selected countries were invited. The
US started its own group when the Ministers were
presenting their speeches. No one dared to point
out that it was sheer bad ettiquette to pull away so
many Ministers and officials to a private meeting
when the official plenary was on. Soon after the
Conference the chairperson, Singapore Trade
Minister Y.C. Tong, and WTO DG, R. Rugiero
made false promises.
MYTH: Through all-round promotion of
investments, FDIs., etc., the WTO will help in
boosting higher standards of living with fulL
employment and overallprosperityfor the peopnV
. ofthe South on same levels enjoyed in the North.
FACT: With the “Seattle Round” just round the
corner claims like this have since collapsed and
others are about to! For instance,
£T Between 1994-95 to 1997-98 Indian
imports have risen over and above its
exports and the BOP position has merely
worsened as also the ratio of exports to
imports. There has been no increase in the
country’s share ofworld exports; compared
to 1980 the percentage has even declined.
FDIs have risen but only in the portfolio
(share and stocks). The outflows towards
fees for technical know-how, royalties an<L
dividends have also risen very sharply. Th"
new inflow of capital is not significant.
£3" Agriculture is the most affected. The only
gain has been in the export of rice. All
other commodities have also suffered. The
link with global market has introduced an
unprecedented vulnerability in Indian
agriculture. Farmers chasing the mirage of
cash crops aind (direct or indirect) exports
have faced ruination; 300 farmers
committed suicide 1997-1998 (Cf. FAM
#6,99). The component of imports has
risen with its dependence onTNCs. GM
crops have’ further pushed these farmers
into a servitude of these mega corporations.
4
ft As for the impact, countries that entered
into WTO agreements, have experienced
the brunt of the downside of globalisation.
Philippines is a good test case. Under the
Mining Act, 1995,some 12 m. hectares of
Filipino land — about 40% of the total
land areas of the country — are now
covered by applications for mining
operations. Over half of these lands are
occupied by indignesous people who have
been dispossessed and marginalised, their
communities dispersed and their culture
uprooted. Resistance to this loss of their
ancestral lands has typically been met with
government repression;
A
£7 Food security: the Philippines has also
been threatened. Republic Act 7900 (High
Value Crops Development Act of 1995)
provides incentives to agri-business TNCs
that shift to export-crop production. The
result: vast tracts of land devoted to staple
crops have been converted to planting
high-value export crops such as oil palm,
mango, pineapple, cut flowers, etc;
£7 The repeal of the Seed Industry
Development Act, which prevented the
importation ofseeds produced locally, has
also enabled a few mega TNCs to
dominate rice and corn production
b
JT The environment has also suffered.
Mining activities have intensified,
polluting land and the river systems while
land clearings for cash-crop plantations and
related infrastructure has led to
deforestation, the loss of forest cover and
erosion;
£7 Biodiversity likewise is in danger, as the
forests are lost, and drugTNCs race to co
opt and patent useful herbs and indigenous
technology under the WTO’s IPRs.
At this point it is necessary to point out that
though foreign investments are undoubtedly
desirable for the South,the underlying motives of
the North in introducing this subject in the Seattle
Round are more to do in restraining the discretion
and flexibility of governments in the South in
respect of putting conditions on foreign
Q FACTS against MYTHS
investments thereby ensuring free and unfettered
operation of foreign investors in the South. Their
main appears to be centered on protecting the right
of TNCs, through multi-lateral binding
commitments which would be enforceable
through the Dispute Settlement Understanding of
the WTO, particularly through the provision of
cross-retaliation. It is not aimed at ensuring the
flow of investment into the South.
As regards benefits of WTO accruing also to
women this claim has been an exaggeration.
Besides, the costs of its policies to women have
been totally ignored. At the 2nd Ministerial
Meeting of the WTO at Geneva womens groups
had specifically expressed their outrage at the failure
of the Conference on issues and concerns affecting
them. For instance,
£7 The growing domination of TNCs over
food systems through the WTO
Agreements on Agriculture & TRIPs has
imperiled and denied women’s rights as
food producers and consumers. Women’s
knowledge and skills in biodiversity
conservation and agriculture is further
being undermined by trade liberalisation
and the TRIPs agreement. Women have,
for thousands of years, had an important
and vital role in local trade. However, with
the current global trade regime, women
are being reduced' to suppliers of cheap
labour and consumers of foreign goods.
MYTH: FDIs are the need ofthe hour. They have
led to economic growth and development in the
South as well as transfer of technology and
welfare gains.
FACT: This dogmatic claim is to be one of salient
features of the so-called Seattle Round. Eminent
economists and institutions, however, reinforce the
stand that there is no evidence that FDI is an engine
of growth. It is also misleading and dangerous to
ask the South to pursue FDI. Das* for instance reinterates that though it has its uses FDIs
$3” .involves outflow of foreign exchange
through the repatriation of profits. In
fact, within a short span of a few years,
the one-time inflow of FDI may be
balanced by the outflow of profits; and
5
thereafter, it will be a situation of new
outflow from year to year for any
particular investment;
may not be as stable as it was thought
earlier. Operations of the trade in
derivatives make FDIs vulnerable to
considerable instability;
More specifically, FDIs have certainly risen but these
have mainly been in the form ofpurchase ofshares
and stocks in existing Indian firms rather than in
the manufacturing sector. Further, the dominant
share of all FDIs was accounted for by mergers
and acquisitions of existing assets in these firms
rather than the creation of new areas and sectors
though the illusion of much new investment has
actually occured.
As Das further explains, FDIs can be very useful
and the adverse implications can be mitigated if it
is put to long term gain. But this will not come
about automatically because it may not coincide
with the first choice of the investor, whose main
driving force, as mentioned above, are i)quick
profit from investment, ii) production with the
least of worries. The choice of the product and
that of the location of the production unit will be
guided by these concerns. More often, it may lead
to i) production in non-priority sectors and ii) units
located in already developed regions. The necessary
consequences will be: wastage of foreign exchange
and regional disparities in development.
Further, the statistical correlations between FDI
growth and economic growth is now also highly
questionable*. For instance, FDI inflows into Latin
America in the 1990s were 13 times higher than
in the 1970s but the average growth in the 1990s
was 50% lower. This has been attributed to the
fact the FDI did not lead to gross fixed capital
formation but to the transfer ofexisting assets, and
the funds obtained by regional governments
through privatization went to finance the BOP
to 13.4% in 1992 and 23.7% in 1993, coming
down to 21.7% in 1994 and to 18.2% in 1995,
and then rising again to 24.4% in 1996 and 36%
in 1997.
The IMF report makes the point that Polands
external debt stock would be higher by more than
10% if the stock of FDI-asspciated credits were
included.
Evidently, FDIs have made only a modest
contribution to the country’s development and
above all, the export models based on natural
resources or industrial commodities derived from
them have only reproduced existing enclave
schemes.
MYTH: In the globalised economy of today
electronic commerce devoid of the barriers of
‘customs duty, etc., will usher in virtually
unlimited opportunities and benefits oftrade and
commerce to all, including the South
FACT: This claim stems from the proposal,
initiated by the US during the WTO Conference
on May 20,1998, to introduce duty-free treatment
for items transmitted via electronic commerce (see
following box). It involves scanning the various
possible sources ofsupply, deciding on the supplier,
placing the order for supply, the supply of the
product and finally making the payment.
Finally, as Das states, the claim is a peculiar one in
that it is devoid of all elements of reciprocity, as
far as the South is concerned. Practically all the
benefits will go to the North. The South will gain,
at best, merely peanuts!
4
REFERENCES:
1.
Who Makes the Rules? Decision-Making
& Structure of the New WTO, WEDO
Primer, #3,Women’s Environment &
Development Organization,(WEDO),
New York, 1995
2.
No New Round - Review & Repair the
WTO Instead, Third World Resurgence,
#108-109, Malaysia, 1999
3.
Das, Bhagirath Lal, Electronic Commerce
in the WTO, Third World Resurgence,
#95, Malaysia, 1'995
gapFurther, most FDI data cited or used are derived
from the IMF BOP data. One IMF report shows
that as the FDI rose so did the loans, with the
ratio of loans to FDI increasing from 7% in 1991
FACTS against MYTHS
6
The logic behind this proposal is that electronic-commerce transactions be duty-free is no
identification of the physical point of crossing the boundary by the ‘product’, perhaps the
term ‘customs duty (or tariff)’ may not be appropriate; one may call it an ‘import tax’ for the
sake of convenience and avoid confusion by use of other terms. Presently, no country applied
any such ‘tax’; hence the proposal is to obtain a commitment of binding the current situation,
something like binding the tariff on goods.
However, this proposal for binding the ‘import tax’ at zero rate and that the claim of virtually
unlimited benefits for the South is the height of exaggeration. The first part has serious
implications for the South. They gain nothing but more to lose. The North will be the major
beneficiaries instead. Das reveals that some of the implications include:
In the e-commerce, the exporters are generally the North, whereas the South are the importers.
Save a few countries in the South, they hardly have much prospect for export in this area;
In such a situation, a pragmatic trade policy is South will be more in favour of levying a tax,
rather than giving up the option of a tax altogether, as called for in the current proposal
Even the few countries in the South which have any prospect of exports in this area, will
perhaps not suffer from the ‘import tax’ being imposed in other countries, as their cost of
production on such items is generally very low compared to that of the major exports, i.e., the
North. In spite of the import tax in other countries, they will generally remain competitive
■ compared to suppliers from the North. Hence, they too do not have to apprehend any adverse
impact from such a tax in other countries;
A related aspect is that of revenue for the state. This is a vastly growing activity, as is evident
from the anxiety shown by the main proponent to get an agreement. And taxing this type of
transaction can bring massive resources to the South. Committing the country to a zero tax
will foreclose all future options to raise revenue from this source, and it will be a huge potential
loss to the state coffers. The South generally has problems of limited resources and foreclosing
such an option will be harmful;
There is also the systemic question. This proposal for zero duty constitutes a discipline on a
particular mode of transaction, and not on goods or services. Agreeing to this will open a
totally new chapter in the WTO.
£3" Government procurement trade facilitatiomThe conference decided to set up a working group
to study transparency in government procurement practices, and directing the Council for
Trade in Goods to undertake exploratory and analytical work on simplification.
73 Core Labour standards: Renewal of commitment of observance of core labour standards, which
will continue to be dealt with by the ILO, ruling out their use for protectionist purposes and
the erosion of comparative advantage of low - wage countries
73 Investment and Competition: Establishment of two working groups under TRIMS Agreement,
one to examine relationship between trade and competition policy, without closing down the
possibility of future negotiations.
Textiles and Clothing: In this sector, a commitment to full and faithful implementation of the
'Agreement on Textiles and Clothing. Reference to concerns of developing countries vis-a-vis
trade distortive measures and circumvention, Goods Council to oversee agreement and
.integration.
73 Pharmaceuticals: Addition of over 400 products to lists of tariff free products in pharmaceuticals.
73 Services: Progress towards a successful conclusion to the negotiations on basic telecoms in
February 1997, and resumption of financial negotiations in April 1977 to achieve improved
market access commitments.
Plan for LDCs: Approval of a Plan of Action to provide duty free access aimed at improving
LDC’s, overall capacity to respond to the opportunities offered by trading system.
Q FACTS against MYTHS
WTO Structure
Facts Against Myths is a monthly bulletin offactual
information on a number ofdevelopment myths and
fallacies, etc, including information against alien
development models, paradigms and false concepts
on caste, creed and gender.
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