1 Playing by the rules? Developing countries in the world trade regime
1.1 The WTO
The Ministerial Declaration adopted by WTO members at Doha on 14 November 2001 fails to address the most pressing needs either of the poorest countries or of the world's most vulnerable communities. This means that the people who most need a share in global prosperity are still those least likely to obtain it.
(A joint statement by Actionaid, CAFOD, Christian Aid, Oxfam, Save the Children and five other charities and non-governmental organisations, January 2002)
Underlying the WTO's trading system is the fact that freer trade boosts economic growth and supports development. In that sense, commerce and development are good for each other.
(‘Ten common misunderstandings about the WTO’,, 20 October 2002.)
In December 1999, the world's attention was focused on riots and demonstrations taking place in the streets of the American city of Seattle, where trade ministers representing more than a hundred countries were in conclave. The organisation under whose auspices this controversial meeting was held, the World Trade Organization (WTO), had come into existence barely five years earlier. It was supposed to have created a system of unanimously accepted rules governing international trade, which would lead to worldwide economic benefits, but it became evident at Seattle that not everyone shared this view.
The demonstrators who received the greatest media attention were American trade unionists protesting against job losses which they blamed on cheaper imports, and environmentalists protesting against ecological damage which they blamed on free trade. Both groups claimed that they were also speaking for poor people in developing countries. Almost drowned out in the media coverage of what came to be known as ‘the Battle in Seattle’ were the voices of the official representatives of those developing countries, who felt they were being excluded from the decision-making process. They too had serious concerns about the WTO, some of which were diametrically opposed to those of the demonstrators who were claiming to speak on their behalf. Whether because of the protests outside or inside the conference rooms, the Seattle meeting was a failure in that it ended without agreement.
Ministerial meetings of the WTO are held every two years. Learning the lessons of Seattle, the next one was held in November 2001 in Doha, in the Middle Eastern state of Qatar, where strict control could be exercised on the entry and behaviour of potential demonstrators. Here the developing countries managed to extract several concessions in the final declaration, and indeed the new round of international negotiations launched at that meeting is known as the ‘Development Round’. But many developing countries remain unhappy, and as the first quotation above indicates, their unhappiness is shared by influential groups in Britain.
As stated in the introduction on page 1, this course aims to help you to understand the concerns of developing countries under the WTO regime, and the problems they face in trying to extract a better deal from the Development Round negotiations launched at Doha. The roots of these problems lie in the Uruguay Round (UR) agreements that gave birth to the WTO, and further back in the international trading system as it evolved after the Second World War. Section 2 gives a potted history, and also introduces the major rules and principles regulating international trade. Section 3 spells out what went wrong with the UR agreements: the developing countries’ expectations that were unfulfilled, and the onerous costs they had to incur. Section 4 explores aspects of the road ahead from Doha, with particular attention to the two issues that so exercised the demonstrators at Seattle and are likely to come up again at future meetings: environmental damage and labour standards. In examining the WTO trade regime from the point of view of developing countries, I shall also establish several key themes of this first part of the book. International trade – that is, the buying and selling of goods and services between countries – has a hugely important influence on countries’ economic growth and development, and negotiated rules governing trade strongly influence who benefits most. High-profile trade negotiations among states that are formally sovereign reflect unequal power and modify the exercise of national sovereignty in practice.
What is this organisation, the WTO, to raise such passions? Misconceptions abound: in particular, that it is a kind of supranational government that imposes its policies on sovereign nations. Although there is much that is wrong with the WTO, this particular complaint is off the mark. The WTO deals with the rules governing international trade, but neither devises nor enforces them. It provides a forum for international negotiation, in which the rules are usually agreed by consensus. This is not to say that the process of arriving at the consensus is a convivial one, nor that everyone is happy with the outcome. There is hard bargaining involved, and the resulting trade regime reflects the asymmetries of a world in which countries differ widely in respect of their economic and political muscle. (A trade regime is a framework of rules and institutions governing international trade.) But there is no ‘WTO view’ that is forced on countries: in principle, the rules have been agreed by all members and ratified by their parliaments, and no country is forced to become a member.
Most WTO members are states. As the agreements concern trade policy, administrative units that govern trade policy for a particular region can also be members. For example, the European Union has free trade between its member states and a unified policy on trade with non-members, so it is a WTO member in its own right, as are its member states. Hong Kong, a founding member of the WTO in 1995, retained its membership even after reunification with China; China itself joined only in 2001 as a distinct member with a very different trade policy.
The WTO has a mechanism for periodically reviewing each member's compliance with the agreed rules, and another mechanism for impartially settling disputes between them, but it cannot enforce its rulings. In these respects, it is unlike the two international organisations with which it is frequently clubbed: the World Bank and the International Monetary Fund (IMF). Both these organisations have their own very definite views on economic policies, which overlap considerably in what has come to be known as ‘the Washington Consensus’. These financial institutions ensure that sovereign governments in developing countries take their advice seriously by lending them vast amounts of money, often conditional on compliance with elements of the Consensus.
The WTO does not make loans; it is an organisation set up to administer a set of international agreements governing international trade. In its ardent advocacy of freer trade between nations (as exemplified by the second quotation with which this section began), it does promote one key element of the Washington Consensus – but in principle it does so only to the extent that its members have agreed to reduce barriers to trade and subject themselves to a rule-governed trading system. That, at least, is the formal position, clearly and forcefully stated on the WTO's official website.
However, many critics (including the present author) see a definite attempt to impose policies on developing countries, not by an autonomous WTO bureaucracy, but by the richer countries. It may seem paradoxical that this can be built into a formally democratic and consensual organisation which has no teeth to enforce its rules. This course illustrates how it has come about.