Dear friends,
At the start of the Fifth Ministerial of the World Trade Organization, the IRC presents a series of materials on the WTO and free trade. Our aim is to deepen understanding of the process, its effects on our lives and others', and what exactly is at stake in the talks.
Although expectations of the Hong Kong meeting have diminished considerably as it has become clear that little agreement exists between developed and developing nations on key issues, the WTO meeting in Hong Kong will be an important measure of progress for those of us working in the movement for global justice and fair trade.
Has the free trade model reached an impasse due to its failure on development issues? How strong is the opposition from governments and citizenries? Are clear alternatives emerging? Both within official meetings and outside in the myriad seminars, discussions, and protests planned, these and many more questions will be raised. Even a seemingly anti-climactic outcome “to continue negotiations” could mark a turning point in the fight for a development-oriented and fair trade system as it comes on the heels of a string of failed attempts to move the agenda forward.
The IRC Americas Program will be in Hong Kong, participating in the events, covering happenings, and analyzing progress.
Laura Carlsen
Director, IRC Americas Program
This Week in the Americas
What’s at Play at the WTO
By Laura Carlsen
For those who have observed the WTO's negotiation process at the ministerials in Seattle, Doha, or Cancun, it looks like an enormous and complicated game of cards. From one minute to the next, strategies change, bets are placed, teams formed and reformed, and the rules of the game shift according to the interests of the major players. While some players with weak hands bluff, other players underestimate the strength of their hands. But in the end the power and negotiating dynamics become clear.
The cards shuffled by the WTO are, in reality, enormously complex economic prescriptions that have repercussions on not only trade but also on the national development of each country. These cards are not, as they would have us believe, dealt evenly and at random, but rather they are fixed by the dealer—in this case the world's wealthiest nations: the United States, the European Union, and their allies.
Once the rules of the game have been accepted, players cannot trade in any of the cards they have been dealt. The sanctions for breaking the rules are severe and include fines, protective tariffs, and temporary market closures, among others. Poor countries face huge limitations for developing independent strategies in this game.
The objective of this game is free trade for corporations—not development. The moment a playing country sits down at the table, other objectives are automatically subordinated or even cast aside by the globalization game as defined and imposed by the WTO. Despite the fact that the current round of negotiations is called “The Doha Development Round,” in practice, development and its pillars—national industrialization, food sovereignty, social welfare and equity—are discarded. Instead, market access, liberalization, international commerce and investment, and privatization become the guiding principles.
One of the most deceitful rules is the rule of reciprocity. Generally considered a basic concept of equity and equilibrium, in the context of international trade, reciprocity becomes a way of institutionalizing permanent inequality. The reason is simple: the different nations and their productive sectors enter the game with profound asymmetries between them.
The major players remain the same and continue to play with basically the same strategies. A large-stakes player, the United States holds in its hand two aces in this game: the biggest market in the world and an impressive export capacity derived from the production of huge surpluses—for example, in basic grains. In addition, U.S.-based transnational traders control important global productive chains for manufactured products.
In the WTO, the European Union, in spite of occasional quarrels, usually plays on the same team as the United States. It shares the basic strategies of forcing open new markets for its goods, extending intellectual property rights, and transferring sectors from the public to the private realm.
At the Hong Kong meeting, the strategy of developed countries will center around four points: 1) gaining access to new markets by way of formulas that permit, in some cases, extending liberalization periods and modifying terms, but that do not allow exceptions or exclusions; 2) extending terms of intellectual property guarantees to increase royalty payments and monopoly market control for knowledge industries, particularly transnational pharmaceutical companies; 3) opening up service sectors to foreign investment and; 4) guaranteeing privileged and low-risk conditions for international investors.
The creation of the Group of 20 in Cancun (G-20) at the Fifth Ministerial has resulted in some realignment among the smaller players. Led by countries with large emerging economies such as Brazil, India, China, Pakistan, and South Africa—and peripherally but still there, Mexico—these countries now have more substantial negotiating power. The G-20 has remained cohesive (with the notable exit of several Latin American countries) and even gained strength since its inception in 2003 through a series of meetings under the leadership of Brazil and India.
Another player that has begun to take a stance different than that of the Group of 20 is the African Union. The African Union took a strong stand against the principle of reciprocity in its relationship with the European Union, thus representing a sharp break in the rules of the game. It is possible that the African Union could take a more radical position in the Hong Kong talks.
In Hong Kong once again, the proposals on the table fail to benefit poor countries. In this context, it is necessary to change the rules of the game. If that is not possible, the logical reply is not to play a game where so few win and so many lose. That was the response in Seattle in 1999 and Cancun in 2003. It continues to be the only response in defense of the poor for Hong Kong in 2005.
Laura Carlsen directs the Americas Program of the International Relations Center, online at www.irc-online.org.
See full article online at:
http://americas.irc-online.org/am/2981
With printer-friendly PDF version at:
http://americas.irc-online.org/pdf/columns/0512wto.pdf
The WTO Ministerial Conference in Hong Kong: Playing the WTO Game
By Laura Carlsen
(This Americas Program policy report, excerpted below, provides a comprehensive overview of the issues that have obstructed the completion of another WTO agreement, starting with the breakdown of negotiations in Cancun in 2003.)
There are four areas of importance in the Hong Kong WTO negotiations, now that the so-called Singapore issues (investment, governmental purchases, and competitiveness) have been taken off the agenda. The most difficult is agriculture, which will be discussed in depth in a subsequent IRC Americas Program report.
The second is services. Until now there has been a slow advance in the integration of services into the regulations of the WTO, starting with financial services and telecommunications. This process brings with it disadvantages for developing countries. They seldom gain anything because they cannot compete in the international services industry nor export their own service sectors, and they lose important national development and policy tools when these industries pass into foreign hands. For the WTO, the integration of services has so far been done based on a positive list, meaning that sectors are explicitly integrated into the rules. Ominously, there is also pressure to adopt a negative list approach that integrates at once all sectors except those that are specified.
The third area is intellectual property. Here, through free trade agreements, the United States is seeking a series of measures referred to as “TRIPS plus” that go beyond current WTO regulations. This includes expanding coverage of patents to more products and processes, and extending the time periods enforced. The TRIPS plus measures have negative impacts on access to medicines, and the protection of biodiversity and traditional knowledge. Additionally, being net importers of knowledge and technology, developing countries could lose millions of dollars in additional royalty payments as a result of these measures.
The fourth area is non-agricultural market access or NAMA in the stream of acronyms generated by the WTO talks. In this case, the discussion again focuses on development needs versus the aggressive market access measures proposed by developed countries. Developing countries have insisted on “less than full reciprocity” as contained in the Doha Round mandate but the progress report slights or entirely fails to mention many of their proposals.
See full report online at:
http://americas.irc-online.org/am/2982
With printer-friendly PDF version at:
http://americas.irc-online.org/pdf/reports/0512wtogame.pdf
Brazil: Trading Away Industrial Development?
By Kevin P. Gallagher
Although official estimates of developing country benefits of the current world trade talks are strikingly small, Brazil's agricultural sector stands to be a winner. Yet Brazil seems to be willing to swap just about anything for those gains, even its ability to foster industrial development.
New estimates by the World Bank put the developing country gains of the “likely” outcome of the Doha Round of World Trade Organization (WTO) negotiations to be $16 billion, or less than a penny a day per person in the developing world. In contrast, the developed world stands to gain $96 billion, or 83 percent of the total.
While most developing countries would scarcely benefit at all, Brazil's agricultural sector will get 23 percent of the developing country gain—$3.6 billion. Although those gains clearly will not be distributed evenly across the entire population, if they were it would amount to 4 cents per person.
Those are the gains, but what are the costs? There is growing concern among many development economists that countries like Brazil will trade away their policy space for the industrial policies that have made them such vibrant players in the world economy. Some key industries in Brazil, such as aircraft and motor engines, integrated into the world economy through a mix of markets, tariffs, subsidies, and the strategic use of foreign investment. WTO rules for industrial tariffs, services, and intellectual policy make that much more difficult.
Not only will WTO rules constrain the ability of nations like Brazil to make policy, they pose economic costs as well. Most of the costs in terms of losing industrial competitiveness and the blow to Brazil's industrialist class are hard to measure, but there are data available for some things.
Juxtaposed to the $16 billion in developing country benefits, the United Nations Conference on Trade and Development (UNCTAD) predicts that the losses in tariff revenue for developing countries will range between $32 and $63 billion annually—two to four times the $16 billion in benefits. For Brazil, tariff losses are projected to be as high as $3.1 billion—almost the entire projected benefit from the Doha Round.
Perhaps more significantly, the welfare losses of surrendering patents to developed countries under new intellectual property rules are dramatic. World Bank estimates of the amount of South-to-North profit transfers due to the WTO are $41 billion annually, or 2.5 times the $16 billion developing country benefit. According to the World Bank, Brazil loses $530 million each year from such profit transfers.
The actual welfare losses can be as much as six times the transfer costs. A World Bank/Yale University study of one type of antibiotic in India found that the annual welfare losses to the Indian economy were $450 million. The profit gains to foreign producers were only $53 million per year.
In addition, studies show that the cost for the average developing country to implement WTO agreements is $130 million annually. So for Brazil, add the tariff losses, patent transfers, and implementation costs together and you get $3.76 billion. In other words, the net impact of the WTO deals lead to a loss for Brazil of $160 million.
When strategizing for the upcoming Hong Kong talks in December, Brazilians should ask themselves if it is worth it for a handful of agricultural interests to gain while the rest of the economy suffers.
Kevin P. Gallagher is a professor of international relations at Boston University, senior researcher at the Global Development and Environment Institute at Tufts University, and editor of the new book Putting Development First: The Importance of Policy Space at the WTO. He is a frequent contributor to the IRC Americas Program at www.americaspolicy.org.
See full report online at:
http://americas.irc-online.org/am/2984
With printer-friendly PDF version at:
http://americas.irc-online.org/pdf/reports/0512brazil.pdf
Americas Talking Points: Price of Market Access
Trade in farm goods is the major issue before the World Trade Organization. To varying degrees, both the United States and the European Union are resisting majority demands that they end their subsidies for agroexports and zero out their tariffs on farm goods produced by the poorest of developing nations.
As a way to increase the benefits of international trade, developing countries are seeking greater access to the markets of the industrial world. But too often there is a high price to be paid for increased access to these large markets. This tension between those wanting to maintain market control and those demanding market access is obstructing a new WTO agreement, but it is also a central issue in negotiations over regional and bilateral free trade agreements.
See full talking points online at:
http://americas.irc-online.org/aptp/2911
With printer-friendly PDF version at:
http://americas.irc-online.org/pdf/talkingpoints/0510fta-tp.pdf
Also see other related Talking Points:
CAFTA & AFTA
Lessons from Latin America
