WTO at 10: A Decade of Burden for Poor Countries

A decade of unhampered entry of goods and investments to Third World markets has reaped profits for the transnational corporations of rich countries. Through all these, poor countries were left to bite the dust.

By John Paul Andaquig
IBON Features / June 2, 2005
Posted by Bulatlat

The World Trade Organization (WTO), the largest and most influential trade body, is gearing up for the 6th Ministerial Conference in Hong Kong, China this December. Already, negotiations are accelerating, with member-countries preparing for the July General Council many see as pivotal to the success of the Hong Kong Ministerial.

For the U.S. and the European Union, the WTO is in crisis. Out of the five previous ministerial conferences, two have failed including the most recent one in Cancun, Mexico in 2003. The US and EU quickly blamed poor countries for stalling these trade talks.

This finger-pointing in reality masks the growing apprehension of the U.S. and EU as they have failed to forge further trade commitments from poor countries, in terms of increased market access in agriculture, industrial trade and services among others.

And this is because poor countries have stood up against unfair and undemocratic trade rules within the WTO. They continue to challenge the maneuverings of the U.S., EU and other industrialized countries, which use the so-called principles of  "free market" and "globalization" to force open Third World markets while protecting their own.

As WTO negotiations tread its way toward Hong Kong, it is important to look back at what the WTO has achieved in the past ten years and why poor countries are calling for a halt in new negotiations.

From GATT to WTO

The establishment of the WTO in 1995 marked the conclusion of the Uruguay Round of negotiations of the General Agreement on Tariffs and Trade (GATT).

The GATT is the post-war multilateral agreement that provides a framework for the conduct of international trade. Its main thrust is to liberalize trade; meaning, tariffs and other restrictions to the
entry of exported goods into an importing country must be reduced and removed.

The GATT went through several rounds of negotiations, the most ambitious of which is the Uruguay Round, launched in Punta del Este in 1986 and concluded in mid-1994 in Marrakesh, Morocco.

In the Uruguay Round, industrialized countries insisted on expanding the principle of "free trade" not only on traditional goods but also in the area of services and investment measures. At the same time, the Uruguay Round highlighted the protectionist stance of industrialized countries when they imposed the rules on intellectual property.

The Uruguay Round brought forth key GATT-WTO Agreements: Agreement on Agriculture (AoA), General Agreement on Trade in Services (GATS), Agreement on Trade-related Intellectual Property Rights (TRIPS), Agreement on Trade-related Investment Measures, and the Agreement on Textiles and Clothing.

Developed countries led by the U.S. made sure that GATT maintained, if not intensified, the post-war trading system where poor countries are only suppliers of raw materials and cheap labor, while providing as ready markets for the manufactured goods of rich countries.

Instead of being able to develop their own agriculture and industrial sectors, poor countries are forced to follow rules dictated by rich countries and forced to compete against their highly subsidized sectors.

Thus, what the GATT-WTO facilitated was the opening up of Third World markets, accelerating the absorption of resources from poor countries to rich countries, while ensuring continued profit for the growing transnational corporations of rich countries. Through all these, poor countries are left to bite the dust.

Unfair and undemocratic

The WTO agreements provide trade rules that have failed to respond to the needs of poor member-countries. It has conveniently ignored the fact that majority of its members have levels of development way behind the few richer members, that applying "free trade" rules would be harmful to these countries since they have yet to strengthen their own economies.

In the AoA for instance, member-countries are required to remove tariff and non-tariff barriers on almost all products save for a few items sensitive to the local populace ­items that would still be liberalized only later. At the same time, Third World governments are prevented from giving domestic and export subsidies to their farmers.

In contrast, rich countries continue to provide subsidies to their farmers, resulting in highly subsidized agricultural goods that enter the markets of Third World countries at cheaper prices than local goods. Not surprisingly, the results have been disastrous for poor countries, many of which are dependent on agriculture for subsistence and livelihood. Cheap imports have flooded local markets even since. Import dumping and smuggling worsened under the WTO, displacing millions of subsistence farmers.

In one study estimate, developing countries lose over $40 billion of net agricultural exports and $24 billion in agricultural and agro-industrial income because of subsidies and protectionism of industrialized countries.

But the reality of this impact went unheard within WTO negotiations. Worst, the WTO has proven to be an undemocratic exercise, as poor countries are usually left out in crucial negotiations through such mechanisms as the "Green Room" ­closed-door meetings among selected groups of trade ministers usually coming from rich countries. Decisions taken inside the Green Room meetings are presented to the whole body, not for rebuttal but for immediate approval. This was evident during the Cancun ministerial where several trade ministers from Third World countries reported being "arm-twisted" by representatives from richer countries into conceding their position against new negotiations.

Impact on RP

The Philippines is one of the original member-countries of the WTO. It has dutifully followed trade liberalization measures based on claims that GATT implementation in the country would not only expand trade but also increase government revenues through tariffication, as well as public expenditure on agricultural research, irrigation and market infrastructure.

In the first five years, the Philippines was nowhere near the projected economic gains from WTO. In agriculture, not only did production dipped but the trade balance worsened.

By 1997, the agricultural sector registered US$764 million in trade deficit, from a high of US$585 million in 1991, when the GATT-UR was still in negotiation. For several crops such as palay and corn, and even livestock, the government has become dependent on importation to augment production shortages. But in reality, importation grew under the WTO and worsened the manipulation of traders and landlords in several sectors. More imporantly, liberalization also worsened age-old problems of landlessness, high productivity, low technology and productivity.

Liberalization also failed in creating half a million of jobs in agriculture as projected. Since 1994, fewer jobs are being added, while in 1997, the sector lost 191,000 jobs. In 2000, about two million rural farm workers lost their jobs.

Local industries meanwhile are faring even worse. Unable to expand production as a result of undue foreign competition, many companies lost market shares and incurred substantial losses, forcing them to downsize and even close shop. Everyday from 2000 to 2003, at least eight local establishments either closed down or retrench workers, translating to 196 workers displaced daily.

Poor countries fight back

The Philippine experience is shared by many Third World countries in Asia, Africa and Latin America. The harmful impact of WTO agreements have led various sectoral groups and people's organizations to launch a wide spectrum of campaigns from calls to democratize WTO proceedings to more radical approaches urging poor countries to opt out of the WTO.

In 1999, Third World countries called for a review of the GATT-UR agreements but rich countries wanted to expand negotiations in these agreements and opened up new ones in the Singapore issues (investment, government procurement, trade facilitation and competition policy).

At the Seattle Ministerial in November 1999, rich countries insisted on another comprehensive round of negotiations similar to the Uruguay Round. But talks broke down, as a result in large part of people's protests.

More than 50,000 people from around the world poured into the streets of Seattle to campaign against WTO policies. From union workers and environmentalists, to students and even religious groups, citizens formed street blockades despite physical assaults by police forces.

The people's resistance showed in Seattle successfully delayed the drafting of expanded agreements that would have further burdened the economies of poor countries.

By the 2001 Ministerial in Doha, the EU dubbed the negotiations as the "Development Round" in an attempt to romanticize proceedings as rich countries continue to aggressively push their corporate agenda of expanding trade to whatever sector is left in Third World markets.

Through Green Room meetings and other maneuvers, rich countries were able to force a draft decision on the implementation of the four Singapore issues ­set to be achieved by the Fifth Ministerial in Cancun.

After Doha, the undemocratic maneuvers within the WTO continued. For instance, the practice of committee chairs to write and submit texts "under their own responsibility" became widespread.

By September 2003 at the Cancun Ministerial, poor countries decided to form alliances and seriously challenge the manipulation being done by their powerful counterparts.

While Cancun was supposed to be the venue for the acceleration of negotiations for the four Singapore issues, it became the battleground for the issue of agricultural subsidies of the US and EU to their farmers despite the disastrous impact it has dealt on the livelihoods of small-scale farmers in Third World countries.

Two alliances were formed. The Group of 21 (G21) underdeveloped countries led by Brazil and India pushed for agricultural trade reforms, demanding drastic cuts in developed countries' farm subsidies and trade barriers.

The Group of 23 led by Indonesia meanwhile called for crop exemption in areas vital to food security and rural livelihood, and also demanded the use of a special safeguard mechanism against import surges of cheap crops. The Philippines was a member of both groups.

In response, the U.S. asked poor countries to give something in return while the EU pushed for the Singapore issues. By the time the agriculture text was circulated to member-countries, not a single line echoed the major concerns of poor countries. The contentious position of poor countries with regards agricultural trade counter-attacked the aggressive refusal of the U.S. and EU to drop their subsidies. Eventually, trade negotiations broke down as no consensus was formed, since draft declarations in the first place were not consulted to all members and instead were written by committee chairs.

The battle rages on

Poor countries however suffered a major setback last year. Despite their protests, a Framework on Modalities was accepted at the July 2004 General Council. The Framework did not contain clear commitments from the U.S. and EU on reducing their domestic supports, but insists poor countries to agree on formulas for tariff reduction, a framework for Non-Agricultural Market Access and the inclusion of at least one of the Singapore issues.

The endorsement has set in motion the completion of agreements under the Doha agenda to be accomplished this year in Hong Kong, as if Seattle and Cancun never happened.

Believing they have won the agriculture battle, rich countries are now gearing up on expanding trade under GATS and opening negotiations for NAMA, as well as the Singapore issues.

Implementing a fully-expanded GATS and NAMA are seen by poor countries as a double whammy that would bury the final nail on their attempts to retain the few protected sectors in their small economies and their chances of being industrialized themselves.

The problem with GATS is that liberalizing the services sector such as banking and finance, and transportation and communication, would only give substantial and clear benefits to industrialized countries which have relatively advanced service sectors. Poor countries however are relying on negotiations on subsidy, safeguards and government procurement in order for the GATS to have any use to them. Otherwise, their weak service sectors would be destroyed by bigger foreign competition.

Nevertheless, the biggest impact of GATS would come once it encompasses basic services such as public utilities. Privatization of water and power utilities in the Philippines has proven detrimental to consumers in terms of increased service rates. Fundamentally, government's responsibility of ensuring basic services to its people would be severely compromised once these are fully under corporate control.

The NAMA on the other hand essentially would weaken local industries as it seeks elimination of import tariffs on almost all industrial products. The NAMA is expected to hasten the entry of cheaper industrial imports and provide undue foreign competition to small, struggling industries in poor countries.

The NAMA in itself is contradictory under the concept of fair trade. Reducing tariffs on industrial imports defeats the purpose of an industrialization program, wherein countries need to protect certain products and allow access for other products to develop their industrial base. What free trade advocates refer to as "competition" needed by local industries to improve their production is meaningless when the playing field is uneven from the start. Even Texas steel millers in the U.S. have complained against EU steel exports causing job losses in their factories.

Thus, the following months leading to the Hong Kong Ministerial would probably be the most contentious period yet both for rich and poor countries. While rich countries are trying to ram negotiations away from public scrutiny, poor countries are given another chance to forge their position and continue to fight for policies that would genuinely make global trade responsive to national needs instead of catering to corporate greed.

The Hong Kong Ministerial is an important venue for citizens and various people's groups to renew their militant stance against unfair trade. This year, like the past ten years, they have relentlessly raised public awareness against the WTO and its disastrous effects on the economies and livelihood of Third World countries. With a report by Somayyah Abdullah / IBON Features / Posted by Bulatlat

IBON Features is a media service of IBON Foundation, an independent economic policy and research institution. When reprinting this feature, please credit IBON Features and give the byline when applicable.

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