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You cannot use trade policy to encourage development in poor countries.

What's wrong with the WTO?
You cannot use trade policy to encourage development in poor countries.

The WTO restricts less-developed countries' use of trade as a tool to foster balanced development. It also attacks special trade arrangements that make up for past injustices.
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Opinions

"[The] enhancement of human freedom is both the main object and the primary means of development."

—Amartya Sen, Nobel Prize-winning economist, India

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"The new rules of globalisation - and the players writing them - focus on integrating global markets, neglecting the needs of people that markets cannot meet. The process is concentrating power and marginalising the poor, both countries and people."

—United Nations Development Programme

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"In almost all developing countries that have undertaken rapid trade liberalization, wage inequality had increased, most often in the context of declining industrial employment of unskilled workers and large absolute falls in their real wages, on the order of 20-30% in Latin American countries."

—United Nations Conference on Trade and Development

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"We will strive to ensure that trade policies are conducive to fostering food security for all through a fair and market orientated [sic] world trade system".

—World Food Summit plan of action, 1996

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"The founding Charter of the International Trade Organization [proposed in the 1940s] had broader basic principles. But then they ditched the commodity agreements. They ditched the technology-transfer code. They ditched the code on restrictive business practice. They ditched the code of conduct for transnational corporations and the UN Centre on Transnational Corporations. The Uruguay Round was the Empire striking back against all these attempts to regulate."

"We at Third World Network turn the whole thing upside down. Instead of 'trade-distorting' we say 'development-distorting'... We want to examine all the existing agreements under a new principle called 'Development and Equity.' That should be the operational principle of the WTO - sustainable development. Actually, if you look at its constitution, its objective is 'sustainable development' - not trade liberalization, which is only a means."

—Martin Khor, Director, Third World Network, Malaysia

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"In contrast to the loose GATT framework, which had allowed some space for development initiatives, the comprehensive and tightened Uruguay Round was fundamentally anti-development in its thrust."

—Walden Bello, Director, Focus on the Global South, Bangkok, Thailand

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The WTO Agreement on Agriculture "has perpetuated the unevenness of a playing field which the multilateral trading system has been trying to correct. Moreover, this has placed the burden of adjustment on developing countries relative to countries who can afford to maintain high levels of domestic support and export subsidies."

—Cesar Bautista, former Secretary of Trade, the Philippines

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"The WTO is driven by a mission to 'liberalize' world trade and 'open' every country to its balm. This is supposed to be good for everyone. In practice it has proved very much better for some than for others, and no good at all for most of the world's people. The more world trade grows the wider becomes the yawning gulf between rich and poor, both within and between countries."

—New Internationalist magazine, May 2001, U.K.

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"Via Campesina rejects the neoliberal policies that push countries into cash crop export production at the expense of domestic food production. These policies contribute to low commodity prices that are far less than the real costs of production. Developing countries are forced to adopt these policies in order to pay their external debt. These countries must also open their borders to the importation of food which leads to even greater debt. There is no doubt that the WTO is an instrument that places greater control and profits in the hands of the transnational corporations."

—Via Campesina, a world-wide organization of small-farmer associations

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"The further 'liberalization' of trade in agricultural products will mean greater freedom for the big to drive out the small, forcing people everywhere to depend for their daily meals on distant global markets with unpredictable price swings. It also means another mass exodus from rural areas and the further growth of cities, and could lead to the final triumph of inefficient and ecologically destructive monocultures over ecologically rational and sustainable farming practices."

—Peter Rosset, Executive Director, Institute for Food and Development Policy, U.S.
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Most developing countries have not prospered in the brave new world of liberalized trade. Small farmers in both poor and rich countries have fared particularly poorly.

From 1995 to 1999, one index of export prices of primary commodities fell from 106 to 87 (where 1990 = 100). This means that developing countries, which export mainly such commodities, earn less for their exports, although they still have to pay rising prices for manufactured imports from industrialized countries. These shifting terms of international trade are dragging the world's poorest people deeper into poverty.

Overall, as trade barriers have been torn down, income disparities have increased between developing and industrialized countries and within countries. According the the United Nations, the gap between the fifth of the world's people living in the richest countries and the fifth in the poorest grew from 30 to 1 in 1960 to 60 to 1 in 1990, and then to 74 to 1 in 1997. By the late 1990s, the richest fifth enjoyed 86 percent of total world income while the poorest fifth received only one percent. Another U.N. study reported that internal wage inequality has increased in those developing countries that have rapidly liberalized their trade policies.

From 1985 to 1998, developing country exports as a share of total world exports dropped from 31% to 28%, although trade volume grew sharply. The share of exports by the least-developed countries has fallen by two-thirds during this period, from 1.5% to 0.5% of the world total. And the United Nations projects that wealthy countries will gain more than twice as much from liberalized trade as the rest of the world.

The World Trade Organization has made this situation worse in several ways. It fosters the agro-industrial production of export crops over local food self-sufficiency. Wealthy countries use it, along with other trade pacts and the International Monetary Fund, to push too many developing countries into trying to export the same agricultural commodities. This keeps their prices permanently depressed. At the same time, the WTO forces poor countries to open their markets to cheaper exports from developed countries. For their part, developed countries have not reduced their agricultural tariffs or subsidies concomitantly, and these continuing trade barriers cost the South more than twice the total of all development aid from the North.

The WTO has also been used to successfully attack fair-trade provisions like the Lomé Convention between Europe and its former colonies, which offered special trade privileges to make up for past injustices and to encourage development.

Although the U.S. grows no bananas, the Clinton administration brought a successful WTO case against the European Union to force it to drop its Lomé Convention preferences for Caribbean bananas. CEO Carl Lindner of Chiquita Brands, a U.S.-based banana grower that lobbied the U.S. government to bring the challenge, made large donations to the Democratic and Republican parties around the times that critical U.S. decisions on the case were made.

Before the WTO, the General Agreement on Tariffs and Trade recognized the "special and differential status" (SDS) of developing countries, allowing them some room to use trade policies to foster industrialization. The WTO agreements, however, weakened SDS and deprived Third World countries of most trade policies that they had used as tools for development.

While the Asian "tigers" such as South Korea and Malaysia had previously harnessed foreign investment to domestic industrialization goals through mechanisms such as local-content requirements, the Agreement on Trade-Related Investment Measures (TRIMs) prohibited such measures. And although the U.S., Germany, and Japan in their time had all "borrowed" technological innovations from other countries in order to industrialize, the Agreement on Trade-Related Intellectual Property Rights (TRIPs) bolstered patent protections and shut the gate on technological diffusion for poor countries.

Another WTO treaty, the Agreement on Government Procurement (AGP) prevents governments from favoring local, small or women-owned businesses to encourage economic development.

Agreement on Agriculture discussions stalled

The WTO Agreement on Agriculture (AoA) is an area of particular concern for many developing countries, most of whose economies depend heavily on agricultural exports and imports. The AoA, along with the Special Ministerial Agreement of Marrakesh (April 1994), promised increased market access for Third World agricultural imports in industrialized countries, reductions of agricultural subsidies in the latter, and assistance to net food-importing countries to offset higher prices caused by these reduced subsidies.

None of these promised improvements has materialized. On the contrary, the level of overall agricultural subsidies in the OECD (industrialized) countries nearly doubled from $182 billion in 1995 to $362 billion in 1998. Although AoA negotiations are currently part of the built-in agenda of the WTO, talks in this area collapsed at the Seattle Ministerial in 1999 and remain contentious. Although some developing countries, especially from Africa, began to submit negotiating proposals during 2000 and 2001, the majority still found their concerns marginalized and excluded by closed-door consultations among powerful countries and interests—the same secrecy and lack of transparency that led to the Seattle fiasco.

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Legal Basis

The following treaties are enforced by the World Trade Organization.

Agreement on Government Procurement (AGP)

See AGP page.

Some exceptions to the non-discrimination principles of national treatment and most-favored nation status have become widely accepted around the world. Government procurement practices, for example, have not been covered by previous trade agreements. Although some procurement standards may violate non-discrimination principles, they generally do this in order to further legitimate policy goals such as fair employment, a living wage, or encouraging local businesses in poor communities.

The Agreement on Government Procurement (AGP), however, turns these exceptions into illegal trade barriers. It also prohibits members who have signed it from withholding government contracts from companies or nations who violate labor, human rights or environmental standards. Under the AGP, government support for the international boycott against South African apartheid probably would have been illegal.

Agreement on Trade-Related Investment Measures (TRIMS)

See TRIMS page.

Agreement on Trade-Related Aspects of Intellectual Property (TRIPS).

See TRIPS page.

Agreement on Agriculture (AoA)

See AoA page.

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Cases & Controversies

  • U.S. v. EU on bananas
    See Chiquita Banana Case page
    The U.S., on behalf of Chiquita Brands, won this dispute over Europe's preferences under the Lomé Convention for small banana producers in former colonies.
  • U.S. v. India on law excluding plants and animals from patenting
    See Plant and Animal Patents Case page
    TRIPS requires that by 2005 developing countries must change their patent laws to allow foreign companies to patent local plant varieties.
  • U.S. v. Thailand on traditional medicines
    See Traditional Medicines Controversy page
  • Small Mexican corn farmers in Mexico after NAFTA
    Under NAFTA, which has similar agriculture provisions to those of the WTO, Mexico eliminated aid to the country's 2.7 million small corn farmers and lowered barriers to cheap, subsidized U.S. corn. As a result, an enormous number of campesinos have been forced off their lands and into the labor pool for Mexican and U.S. agribusiness. Many more have swelled the shanty-towns of Mexican cities and the barrios of the U.S.
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Resources

Non-governmental

Governmental

Official WTO Web site

By Peter Costantini ~ Seattle ~ November 2001
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