New trade order to discipline the South?

Issue 

By Martin Khor Kok Peng

As the trade ministers of the world prepare to make the trip to Marrakesh for the final adoption of the Uruguay Round accord in April, each country should be doing its sums. Where has it gained, where has it lost, and what is the overall balance?

The arithmetic will prove most difficult. As the veteran GATT (General Agreement on Tariffs and Trade) observer and analyst, C. Raghavan, remarked: "It will take at least 10 years before the balance of gains and losses will be known for each country, and for the South as a whole".

It is possible, however, to make a preliminary assessment.

In agriculture, there will be both gainers and losers among Southern countries. The US and EC are expected to reduce export subsidies over a six-year period beginning in 1995; this is expected to make those Third World countries that export the same products more competitive and expand their market share.

However, at the end of the six-year period there will still be massive subsidisation of domestic production of exports by the North and a high degree of protection against goods entering their markets. The process of integrating agriculture into GATT rules will then continue, but this review will likely be again dominated by the US and EC, as was the case in the Uruguay Round.

Most Third World countries will have to reduce subsidies to their farmers and to reduce tariffs on imported foodstuffs. Many farmers will have to compete with cheaper imports and may not survive.

It is estimated (in a recent OECD-World Bank study) that agricultural liberalisation will raise the world prices of many foodstuffs (including wheat, maize, barley, beef, mutton and dairy products) by 4-7%. This may benefit food-exporting countries, but about 100 Third World nations that are net importers of food will face a higher food bill.

The study also predicted price falls of 4% in cocoa and 6% in coffee. Worst hit will be those countries exporting cocoa and coffee which also import food as their terms of trade would be squeezed from two sides.

Textiles

A major "gain" for some Southern countries is the agreement to phase out the Multifibre Arrangement (MFA) within 10 years, or by 2006. The MFA (which places quotas on Third World exports of textiles and clothing to the North) had been introduced in 1974 as a "temporary measure" to enable industrial countries to adjust to the competitiveness of Third World imports.

This abrogation of GATT rules, which unfairly prevents the South from enjoying its trade advantage, has now lasted 20 years, and the removal of restrictions will take another 12. Yet the long overdue removal of this unfair system is portrayed as a "concession" to the South.

While the South as a whole had been pressured to concede on areas where it would be put in a disadvantageous position, notably in the "new areas" of intellectual property, investments and services, even on December 15, 1993, it still was left without commitments from the industrial countries on access to their markets.

As Luis Fernando Jaramillo, Colombia's permanent representative to the United Nations, noted: "The countries of the Third World have been put in a situation in which they already paid the price of accepting the new terms in different areas of interest for the industrialised countries, without obtaining in exchange satisfactory conditions of market access ...

"It is clear that the tariff reductions which developing countries could take advantage of, apart from being inferior to the ones initially foreseen, are proportionally less deep than the tariff reductions that will benefit trade among developed countries. According to some estimates, the industrialised countries, which make up only 20% of the GATT membership, will appropriate 70% of the additional income that will be generated ..."

The estimates referred to by Jaramillo are from the controversial book Trade Liberalisation: Global Economic Implications published by the OECD and World Bank. It estimates annual gains and losses from trade liberalisation from year 2002 based on a 30% cut in tariffs and subsidies as then envisaged in the Round. Of the US$213 billion overall gain, $142 billion will accrue to the North (including $94 billion to Europe, $19 billion to the US and $26 billion to Japan); $37 billion to China and $21 billion to "upper income Asia".

The big losers will be Africa (estimated to suffer a loss of $2.6 billion), Indonesia ($l.9 billion loss) and the Mediterranean region ($l.6 billion loss).

Even by the Northern institutions' own estimates, there are thus gainers and losers. "Free trade" and "liberalisation" are not "win-win" processes. Those that are strong enough to take advantage of the rules (or to draw them up) can derive the benefits; others may have a more balanced outcome; the weaker participants (probably the majority) may stand to lose out.

WTO

Probably the most important result of the round is the establishment of the World Trade Organisation. Optimists want to hail the WTO as the guardian of multilateralism, pushing back the pressures of nationalist protectionism. Indeed, by the final phase of the round, the main rationale of most countries for concluding it, and for setting up the WTO, was to cling to a multilateral framework for conducting trade.

The great fear was that the US would otherwise continue with and expand its practice of threatening unilateral trade sanctions under the "Super 301" laws, and that then Europe and Japan would introduce their own versions of Super 301, and world trade would collapse under the weight of protectionist wars.

If the multilateral rules-based system cannot be maintained, then the Third World will be left with the worst of possible worlds: the WTO will be used to discipline developing countries in areas such as investments whilst it is powerless to discipline the Northern countries against unilateral and protectionist measures.

By having the different components of trade in manufactures, agriculture, services, investments and intellectual property protection under the same big roof, the WTO will have enormous powers, in particular over the Third World countries.

The WTO will have an integrated dispute settlement system, which means that if a country does not follow obligations in one area (say, intellectual property), sanctions can be applied against it in another area which hurts it most (for example, its exports of primary produce).

This possibility of "cross-sectoral retaliation" will be the WTO's weapon to keep the South in line, to introduce intellectual property laws and to liberalise services and foreign investments.

The WTO is also almost certain to coordinate its programs and policies with the World Bank and the IMF, and the likely result is "cross-institutional conditionality", in which for instance World Bank loans to a developing country may be made conditional on its having a good report card from the WTO. The "disciplines" applied to the South will then become vice-like.

The new trinity

An ominous prediction of the way control of the world economy is shaping up has been eloquently made by Jaramillo. "The Bretton Woods institutions continue to be made the centre of gravity for the principal economic decisions that affect the developing countries", he said, a month after the Uruguay Round's conclusion.

"We have all been witnesses to the conditionalities of the World Bank and the IMF. We all know the nature of the decision-making system in such institutions: their undemocratic character, their lack of transparency, their dogmatic principles, their lack of pluralism in the debate of ideas and their impotence to influence the policies of the industrialised countries ...

"This also seems to be applicable to the new World Trade Organisation. The terms of its creation suggest that this organisation will be dominated by the industrialised countries and that its fate will be to align itself with the World Bank and the IMF.

"We could announce in advance the birth of a New Institutional Trinity which would have as its specific function to control and dominate the economic relations that commit the developing world."

[Third World Network Features. Second of two articles.]