WTO and corporate globalisation - a background paper

This paper provides the background analysis to the Overview and Ten Point Reform Programme. Wherever possible the text is cross-referenced to the relevant reform being proposed.

Section 1. Winners and Losers from Globalisation

Of the world's 100 largest economies, 51 are corporations and only 49 are countries" (Institute for Policy Studies 1999 Report: The Rise of Corporate Power)

"Since the early 1980s the world economy has been characterised by rising inequality"

(UNCTAD Trade and Development Report 1997). "Extreme poverty declined only slowly in developing countries during the 1990s… and the number of poor people remained roughly constant as the population increased." (World Bank Report, Development Indicators, May 2001)

The proponents of global free trade argue that it promotes global economic growth, creates jobs, makes companies more competitive, and lowers prices for consumers. It is also claimed to provide poor countries, through infusions of foreign capital and technology, with the chance to develop economically and, by spreading prosperity, creates the conditions in which democracy and respect for human rights may flourish. In fact although transnational corporations invested record amounts abroad in 1999, it was mostly in the developed world, the share of developing countries in global foreign direct investment inflows having fallen from 38% in 1997 to 24% in 1999. (World Bank Development Indicators 2001). Multinationals do not make their investment decisions from altruistic motives, they position themselves to take advantage of their potential markets and they move from location to location to maintain the lowest manufacturing costs.

Analysis by the United Nations Conference on Trade and Development (UNCTAD) shows that income gaps between North and South have continued to widen and that globalisation has contributed to this tendency. In 1965, the average per capita income of the G7 countries was 20 times that of the world's poorest seven countries. By 1995 it was 39 times as much. Growing wage inequality between skilled and unskilled workers is characterised as a global problem. In almost all developing countries that have undertaken rapid trade liberalisation, wage inequality has increased, most often in the context of declining industrial employment of unskilled workers and large absolute falls in their real wages. Locally controlled production and employment is diminished. Capital has gained in comparison with labour, and profit shares have risen everywhere. (source:-1997 Trade and Development Report).

The following extracts from current World Bank Reports confirm the impact of these trends and illustrate graphically that the poor and marginalised peoples of the world lose out from globalization:-

"Three-fifths of the world's people in the poorest 61 countries receive 6 percent of the world's income—less than $2 a day. But their poverty goes beyond income. While 7 of every 1,000 children die before age five in high-income countries, more than 90 die in low-income countries……….Africa is now the region with the largest share of people living on less than $1 per day….… in 2000 about half of the population of the developing world still lacked adequate sanitation….. approximately 1.5 billion people in low and middle-income economies lacked access to safe water supplies….and in Sub-Saharan Africa fewer than half the population has access….thirty-eight countries have seen life expectancy decline since 1990. Most are countries hit by the AIDS epidemics"

Some Europeans, particularly those in the central and eastern countries, do not appear to be benefiting either. According to the European Commission's Communication on Sustainable Development (May 2001) "One in every six Europeans lives in poverty. Poverty and social exclusion have enormous direct effects on individuals such as ill health, suicide, and persistent unemployment. The burden of poverty is borne disproportionately by single mothers and older women living alone. Poverty often remains within families for generations."

It is of course not just the relationship between trade liberalisation and social development or poverty which is in question. As the WTO itself acknowledges "the growing world economy has been accompanied by environmental degradation, including deforestation, losses in bio-diversity, global warming, air pollution, depletion of the ozone layer, over-fishing and so on." (Trade and the Environment Study No 4 1999.). WWF estimates that the Earth's natural ecosystems declined by 33% between 1970 and 1999.

The winners and losers under the present system are thus clear. It is equally clear that for the majority of the world's people the present pattern of economic growth and international trade is not delivering on its promises. If the 'triple-bottom line' demands that sustainable economic growth goes hand-in-hand with social and environmental sustainability, then we need a radical re-definition of the goals of international trade and a fundamental re-shaping of the mechanisms by which we can achieve these goals.

To create the space in which this can be achieved, we need a standstill on all new multilateral, plurilateral, regional and bilateral trade deals.

See Reform Programme Points 1, 2, 9, 10

Section 2. What's at stake in Qatar-trade issues in detail

The existing WTO Agreements were established at the end of the Uruguay round in Marrakech in 1994 and the WTO was established in January 1995. Member countries meet every two years in Ministerial Conferences. The history of the collapse of the last Ministerial, in Seattle in December 1999, is well known. The 4th Ministerial will take place in Doha, the capital of the Gulf state of Qatar, in November 2001. Although there is much unfinished and unsatisfactory business resulting from the Marrakech agreements to be discussed, some members, notably the European Union, want to repeat the attempt to launch another round of multilateral negotiations by putting new issues onto the free-trade agenda. Many, particularly developing countries, want to see the promised benefits of the existing agreements before starting on new ones. They argue that if these 'implementation' issues are made conditional on agreeing to new deals, they are in effect being asked to 'pay twice'. The EU, in an attempt to sweeten the least-developed countries and tempt them into new negotiations, has launched its 'Everything But Arms' initiative with tariff- and quota-free access to the EU market for LDCs for all products (but with serious delays for certain food commodities which impact on EU and other preferential producers).

The key trade issues discussed below are (A) those still under discussion or continuing negotiation from Marrakech, (B) those new issues which the EU wants to introduce, (C) thematic problem areas. In some cases these categories overlap. To avoid another perceived failure, the WTO intends to decide in July 2001 whether there is consensus on the need for, and content of, a new round.

A. Built-In Agenda Items:-

A.1 General Agreement on Trade in Services (GATS)

This Agreement is part of the Built-in Agenda, mandated in Marrakech for continued negotiations aimed at achieving a progressively higher level of liberalisation. A new Services round started in 2000.

The WTO lists 160 types of services from tourism and telecommunications, to public services like water treatment and health care. In principle members can nominate which sectors they agree to liberalise and which modes of supply they will permit. Because services are delivered in a different way to physical goods, it is possible to specify free-trade in international telephone calls, for example, but not the setting up of a new foreign-owned telephone company. 50 out of the 140 WTO members have already made some liberalisation commitments on education or health.

In theory public services "not provided on a commercial basis or in competition with other suppliers" are outside the scope of GATS but in practice most public services and utilities are no longer exclusively public and the inexorable logic of the marketplace will further erode this concept. Although GATS does not require the privatisation or deregulation of any public service or utility, the WTO makes it clear, in the context of water privatisation, that "The trends towards consolidation in the industry and increasing firm size are also likely to lead to greater internationalisation." In the ongoing negotiations, the EU has proposed, inter alia, to liberalise environmental services, including water for human use & wastewater management, solid/hazardous waste management, protection of ambient air and climate, remediation and cleanup of soil & water.

EU policy is to liberalise its markets in services, subject to certain guidelines, such as universal service, safety, continuity and security of provision for public services (or 'services of general interest'). The Treaty of Nice will lead to national and international provisions in most service sectors being harmonised. Under Nice, Community competence will now extend to the negotiation and conclusion of agreements relating to all international trade in services with the exception of agreements relating to trade in cultural and audio-visual services, educational services, and social and human health services, which continue to fall within the shared competence of the Community and its Member States

GATS threatens to impose new and severe constraints on the ability of national or local governments to maintain or create environmental, health, consumer protection and other public interest standards. The GATS rules include a 'necessity test' whereby governments would bear the burden of proof in demonstrating that any of their countries laws and regulations are 'not more burdensome than necessary,' (in other words, the least trade restrictive) regardless of financial, social, technological or other considerations. GATS could also restrict the use of government funds for public works, municipal services and social programs by requiring governments to make public funds allocated for public services directly available to foreign-based, private service corporations. There are also serious obstacles to the ability of public agencies to specify that public procurement programmes should respect social and environmental values (See B.3).

See Reform Programme Points 1, 2, 3, 10

A.2 Agriculture Agreement (AA)

This is the subject on on-going negotiations with "the long-term objective of substantial progressive reductions in support and protection resulting in fundamental reform……..to establish a fair and market-oriented agricultural trading system." The Commission continues to press for a comprehensive new round including all aspects of agriculture. Commissioners Lamy and Fischler claim that the position of the EU is strong and that US "trade distorting" support by direct payments to US farmers (up from $4.6bn in 1996 to $32.3bn in 2001) violates the AA. The EU position is to defend the blue box framework (direct payments and compensations) and to get a clearer definition of the criteria laid down in the green box including environmental protection and conservation measures.

The key question is whether the Agriculture Agreement should be de-linked from its purely trade base and dealt with in a separate and adequate way. Agriculture is not just about producing commodities, but is integral to food security and food sovereignty, it depends to a great extent on natural conditions, and it offers many services which do not fit into a structure which can be monitarized. Neither the damage caused by 'food miles' or 'food swapping' (the long-distance transport of food items and the practice of both importing and exporting the same products) nor the new approach to sustainable rural development to include social, environmental, employment and innovation dimensions, the reduction of transport distances, support for direct marketing, protection of biodiversity and conservation of the diversity of food, find space in the WTO forum.

This concept of "multifunctional agriculture", together with the necessary re-orientation towards food quality and local/regional production and identity rather than food quantity, needs much further development and is not compatible with the current WTO international agricultural trade regime; specifically the Sanitary and Phytosanitary- 'SPS'- and the Technical Barriers to Trade –'TBT'-Agreements which favour unrestricted trade based on the lowest common denominator and which seek to promote international trade and brand names, leading to the elimination of regional appelations d'origine. The protection of regional geographic indicators and labels must therefore be strengthened.

The only way out of the dead end of making food production, security, distribution and safety fit for international trade is to start from an agenda which reflects the specificity and the complexity of the role of agriculture and rural economy for the various existing societies in the world. We must step out the dominating ideology which says that only trade can bring development. We must show how a different set of trade rules and objectives can respond to the various needs of all trade partners in farm products.

See Reform Programme Point 6

A.3 Trade Related Aspects of Intellectual Property Rights (TRIPS)

TRIPS is supposed to be subject to a review process as another element of the Built-In agenda. In fact the review is currently blocked because many developing countries want to review the content and application of the deal, whereas developed countries merely want to press for its early implementation. It covers the range of intellectual property rights but there are three particularly unsatisfactory areas.

The first concerns Article 27.3b dealing with patents on living material and plant variety registration which 'no patents on life' critics wish to see substantially revised and brought into line with the Convention on Biological Diversity. The second concerns strengthening the rights of WTO members to invoke public health provisions to manufacture or import cheap copies of life-saving drugs in cases of national emergency or extreme urgency such as the HIV/AIDS pandemic, exemplified by the recent court case brought against the South African government by a consortium of patent-holding multinational pharmaceutical companies. The third relates to the need for stronger protection of regional and geographical indications and designations of origin for all agricultural and processed food products against branded or trade-marked produce.

In the meantime the EU, in its bilateral trade agreements with some developing and least developed countries, including Mexico, Bangladesh and Tunisia, is pursuing what some have described as a TRIPS Plus agenda, incorporating intellectual property rules on life patents and plant variety protection, exceeding those of the TRIPS Agreement.

A full scale re-appraisal of the content of TRIPs is called for to prohibit patenting of life forms, to re-establish the pre-eminence of biodiversity protection, to better protect farmers' and indigenous peoples' rights and regional resources, to outlaw biopiracy and to remove or restrict commercial drug patent rights in urgent cases.

See Reform Programme Point 1, 6, 7, 10

A.4 Other Agreements

These include Trade Related Investment Measures (TRIMS) and The Agreement on Textiles and Clothing (ATC).

TRIMS applies only to investment measures having trade-restrictive and distorting effects for trade in goods, such as quantitative requirements for local content or trade balancing requirements. Transitional arrangements for the elimination of such measures expire at the end of 2001 but for developing countries these may be extended. The operation of TRIMS was supposed to be reviewed by the end of 1999. Negotiations are effectively blocked but the EU wants to use the review process to add new provisions on investment and competition policy, which should be resisted as being a back-door attempt to widen the scope of the Agreement.

The ATC is supposed to secure the eventual integration of the textiles and clothing sector - where much of the trade is currently subject to bilateral quotas negotiated under the Multifibre Arrangement (MFA) - into the GATT on the basis of strengthened GATT rules and disciplines. It is a transitional instrument running until 2004. An implementation review is scheduled for the end of 2001 and new negotiations are supposed to begin in January 2002. Textile exporters in the developing countries, especially Pakistan, complain that little has been achieved to open up their export markets and are therefore hostile to a new round when existing commitments have not been honoured.

See Reform programme Points 1, 2, 3, 9

B. New Substantive Issues

B.1 Foreign Direct Investment

Some investment measures are already within the scope of the WTO Agreements, notably TRIMS (for goods) and GATS ( for services). There has already been an attempt to produce a comprehensive Multilateral Agreement on Investment (MAI), firstly within the WTO and later within the OECD, which would have given corporations the right to sue governments for compensation if national laws and regulations interfered with their trade and investment 'rights'. Thanks to an international political and NGO campaign, these moves were defeated in 1998.

Although there is no current negotiation of new rules or commitments, there is strong pressure by the European Trade Commissioner, backed by industry lobbies, for this issue to be re-introduced into negotiations for a new round and as these rules are already included in NAFTA and in the draft FTAA texts, the US is likely to be supportive.

The Commission's agenda for the protection of commercial investments, although qualified by the use of a non-binding code of corporate responsibility, would run counter to the objectives of local democracy, the pre-eminence of social and environmental policy-making and sustainable development and therefore should be resisted.

See Reform programme Points 1, 3, 8, 9, 10

B.2 Competition policy

As with investment, there are existing provisions on competition policy. GATT and GATS contain rules on monopolies and exclusive service suppliers and the principles have been elaborated in the rules and commitments in the GATS annex agreement on telecommunications.

The EU Trade Commissioner wants to negotiate a multilateral framework for the application of competition law to anti-competitive practices by businesses, claiming it would deal with questions such as international cartels and multi-jurisdictional mergers. However, "competition policy" in the WTO context has different meanings for different parties. Policy documents suggest that the EU and US are aiming to get the South to establish "effective" domestic anti-monopoly laws, so that northern corporations can have better market access. Southern countries on the other hand want to look at anti-competitive abuse of trade measures and restrictive business practices of transnational corporations.

Ironically, 'competition policy' was originally understood as a means to help small companies not be overwhelmed by the big firms but any new multilateral agreement is likely to be used as a market access and national treatment mechanism, enabling companies to enter any country and compete 'equally' with local firms. Such an approach would of course be a threat to many local firms, as they are smaller and have fewer resources to compete with the giants. To developing countries, therefore, 'non-discrimination' towards foreigners would in reality be discriminating against locals who would not be able to compete on equal terms. Government measures or private sector practices that favour the competitiveness of local enterprises would be considered impermissible. What is needed is a genuine and coherent policy (including market entry and state aid mechanisms) which protects local industries whilst they grow to an internationally competitive scale but which avoids the normal practice of competitors complaining about restrictions whilst trying to retain their own.

Any proposal aimed exclusively at ensuring that developing countries institute "effective" anti-monopoly laws at the national level, but which does not deal with the anti-competitive behaviour and restrictive practices of transnational corporations at international level, should be resisted.

The need for genuine rules to control monopolies and restrictive trade practices can be met by greater international co-operation between national competition agencies without having legally-binding multilateral rules and by building on the United Nations Conference on Trade and Development (UNCTAD) already agreed of multilaterally-agreed principles.

See Reform Programme Points 1, 2, 4, 9

B.3 Government/Public Procurement

The EU, USA, Japan, and nine other industrialised countries have signed a plurilateral agreement on government procurement (GPA). All government and public agency purchases of products, services and supplies above certain minimum value and size thresholds have to be open on equal terms to suppliers from all member countries, with no less favourable treatment than that accorded to local suppliers. Although there are exceptions for measures necessary to protect public morals, order or safety, human, animal or plant life or health or intellectual property and for the products or services of handicapped persons, of philanthropic institutions or of prison labour, there are no provisions for discriminating in favour of local suppliers on other policy grounds-the promotion of local or women's employment or the use of environmentally benign or local materials, for example.

The GPA prohibits the use of technical specifications to determine the process or production method of a product ("PPMs"), permitting only performance but not design or descriptive characteristics. In any event specifications must not create unnecessary obstacles to international trade. The EU Commission has stated that as part of its Sustainability Strategy it will promote environmentally-friendly procurement of products and services, which should therefore include PPMs. The GPA agreement therefore needs to be amended to give greater precedence and protection to public policy considerations, including the specification of sustainable process and production methods. The PPM issue also affects other trade deals, notably that on food safety (the SPS Agreement) which require the same re-formulation.

See Reform Programme Points 1, 2, 3, 10

C Thematic problem areas

C.1 Regulatory 'transparency'

This has become a central demand of some industrialised countries, notably the US, but the apparently attractive language hides a completely different meaning. In WTO-speak, 'transparency' is used to indicate that proposed national and local laws and regulations should be pre-circulated to other member countries so that they can examine them for 'compliance' with WTO rules before enactment. The scope for corporate and inter-governmental lobbying and interference in national democratic legislative processes is self-evident. 'Transparency' should be returned to its natural meaning of open access to documents and policy-making and effective legislative scrutiny and control.

See Reform Programme Point 5

C.2 Labour Standards

Although there is no WTO Agreement on this subject and there are no committees or working parties dealing with the issue, the relationship between trade and labour standards is highly controversial. The 1996 Singapore ministerial conference agreed that the International Labour Organisation (ILO) was the competent body to deal with core labour standards but that of itself does not resolve the key questions. Should trade action be permitted as a means of putting pressure on countries considered to be severely violating core labour rights? If a country has lower standards for labour rights, do its exports gain an unfair advantage? Is the WTO the proper place to discuss labour?

Developing countries and some development NGOs take the position that these issues have no place in the WTO framework and are simply an excuse for protectionism and an attempt to undermine the comparative advantage of lower wage trading partners. Industrialised countries, particularly those which are strongly unionised, disagree, arguing that WTO rules and disciplines would provide a powerful incentive for member nations to improve workplace conditions. The demonstrations and lobbying by US Trades Unions contributed significantly to the collapse of the Seattle Ministerial.

The ILO Core Labour Standards (fundamental rights) are (a) freedom of association and recognition of collective bargaining rights, (b) elimination of forced or compulsory labour, (c) effective abolition of child labour and (d) elimination of discrimination in respect of employment and occupation. If the objectives of the WTO are to be re-oriented towards social justice, then these core values must be incorporated into a re-focussed WTO rule-book. A fair mechanism has to be found for enforcement measures against excessive violations by corporations and governments (such as the totally unregulated export processing zones in some countries) whilst protecting the overall comparative advantage of those countries and guarding against sanctions aimed at protectionism.

See Reform Programme Points 3, 4, 9

C.3 Environmental Standards

The WTO estimates that about 20 of the 200 multilateral environmental agreements (MEAs) currently in force include provisions that can affect trade, for instance by banning trade in certain products, or allowing countries to restrict trade in certain circumstances. Examples include the Montreal Protocol for the protection of the ozone layer, the Basel Convention on the trade or transportation of hazardous waste across international borders, and the Convention on International Trade in Endangered Species (CITES). The relationship between the WTO agreements and various international environmental agreements and conventions is uncertain. In practice WTO rules can take precedence because it has bigger teeth in the shape of its disputes settlement mechanism and the right for members to impose draconian penalties. At national or regional level, the unofficial threat of a complaint to the WTO can often result in the weakening or the withdrawal of planned environmental protection measures.

This over-riding emphasis on trade values above all else could be made worse by suggested investment protection measures which would permit corporations to sue governments if environmental policy inhibits their activities. This rationale needs to be turned round so that trade becomes subordinate to ecological justice.

See Reform Programme Points 2, 3, 8

C.4 Implementation Measures

Implementation issues include existing provisions on market access, capacity building, technical assistance, anti-dumping. On most of these issues a majority of developing countries are dissatisfied with the lack of progress and insist that that these failures must be rectified before any new issues can be negotiated. The Commission says it is prepared for discussion but wants to wrap them up in a comprehensive negotiating agenda together with new issues, effectively asking developing countries to pay twice. Although the EU, US and Canada have recently make some limited funds available towards the creation of a UN/WTO Trust Fund for an Integrated Framework for Trade-Related Technical Assistance, it remains the case that very little has so far been achieved in capacity building and technical assistance. Many of the poorer WTO member countries still do not have permanent representation in Geneva. Developing countries are understandably suspicious that these recent donations are part of the strategy to encourage their participation in a new round.

These thinly disguised attempts to extract further concessions from developing countries have to be resisted. Pre-existing commitments by industrialised WTO members must be honoured without additional conditions.

See Reform Programme Points 4, 7, 9

C.5 Shrink or Sink the WTO

As presently structured, the actions of the WTO are controlled by trade diplomats and negotiators dominated by a few powerful governments acting on behalf of their corporate elite and reading from a 'trade-first script'. There is no role for democratic participation and it therefore lacks popular legitimacy and parliamentary scrutiny of its actions.

Simply trying to make the current decision-making process more open or visible does not, however, solve the problem. The WTO "one-world" trade model fails to address the major issues facing the planet today; poverty, sustainability, public health, environmental destruction. Moreover, it takes away power from national and local authorities to pursue their own non-trade policies to tackle these problems.

It is therefore central to any attempt to make the world trade system responsive to people's needs that a major re-orientation of WTO objectives takes place, together with a re-construction of the global institutional architecture and a re-location of powers. Either its purpose has to be re-defined or other value systems have to be imposed upon it externally.

Adding a parliamentary consultative body to the existing WTO structures, as proposed by some, is not a solution to the democratic deficit either. At best, it would only be able to perform a limited advisory role. Even in this capacity, there would be severe practical problems of democratic representation and effective access to impartial data.

What is required is effective and authoritative scrutiny and control of its activities at a level which represents the public will at local and national level. National and Regional parliaments (including the European Parliament) at present do not actively participate in policy formulation, do not participate in setting their government's negotiating mandate, are excluded from the negotiating chamber and are not generally empowered to validate the outcome of negotiations other than, in some but not all cases, by a simple yes/no ratification process.

One feature of the WTO which sets it apart from other international treaties is the Disputes Settlements Understanding (DSU), which gives exceptional powers to members to impose penal and exemplary sanctions on other members where they are judged to be in breach of WTO rules. The DSU is a powerful and deeply flawed weapon , because it fails to separate the executive or regulatory powers of the WTO from the judicial. In effect the WTO sets the rules and then acts as both judge and jury in arbitrating strictly within those rules on disputes. Where there are provisions to protect the public interest, these are interpreted narrowly and are always judged against the presumption that trade interests are paramount.

See Reform Programme Points 1, 2, 3, 5, 8

Section 3. Sustainable Globalisation?

The concept of sustainable development is in many ways completely contradictory to the values that drive the corporate free-trade agenda. At present there is a tendency to view this issue as a parallel activity rather than as an over-riding mechanism to stop the damage and inequalities arising from wrongly-oriented world trade.

The Greens/EFA group has already made its demands clear by stating that "Sustainability is