All over the world, many poor people suffer as a result of current global trade rules. In some cases their needs are ignored or by-passed; in others the bene- fits they receive are minimal or short-lived. For a decade, these rules have been negotiated through the World Trade Organisation (WTO). They cover not merely trade issues but also investment, services, agriculture and intellectual property rights. The rules will soon be renegotiated, transforming still further the workings of the global economy. In turn these changes will shape the lives and livelihoods of billions of people around the world.
People everywhere must act now to make sure that the rewriting of global trade rules does not deepen or extend poverty, or further marginalise more of the world’s population. Trade can be made to work in the interests of poor people. Christian Aid believes that the international community now has a great opportunity to rewrite the rules to serve the poor rather than to continue to favour rich, powerful countries and global elites. The Jubilee 2000 debt campaign showed beyond doubt that concerted international action can convince decision-makers that they should change their policies in the interests of poor people.
Poor countries generally depend more on trade than rich countries. Overall they earn eight times more each year from trade than they receive in aid. But the world’s 49 least developed countries together accounted for less than half of one per cent (0.40 per cent) of world trade in 1999.
What is wrong with current global trade rules?
- The decision-making process is biased against the poor.
- The WTO is in reality dominated by the governments of rich countries, so its rules mainly reflect their interests and those of the large corporate interests and transnational corporations (TNCs) based in them.
- Many WTO agreements harm rather than help the poor.
- The global rules impose uniform policies, which can prevent poor countries from doing what they need to promote sustainable development and root out poverty.
- Sometimes there are no rules where rules are needed.
- There is no adequate national or international legislation to regulate large transnational corporations, despite their growing size and influence, and despite the fact that the activities of some can, and do, undermine poor people’s livelihoods.
Losses for the poor
Analysis from five United Nations (UN) agencies shows that for many of the poorest people in the world the effects of global trade policies have been either to increase poverty and vulnerability, or to bypass or ignore their needs. Our report illustrates this with examples from around the world. Of course many poor people benefit from international trade, though under current rules they are still highly vulnerable to changes in global markets or the unregulated activities of transnational corporations. Also, benefits that have been achieved have often been short-lived.
Poor countries generally depend more on trade than rich countries. Overall they earn eight times more each year from trade than they receive in aid. But the world’s 49 least developed countries together accounted for less than half of one per cent (0.40 per cent) of world trade in 1999. Though the poorest countries have expanded their trade, their share of world trade has fallen by a half over 20 years (it was 0.80 per cent in 1980). The benefits of world trade expansion have simply passed them by. At the same time the terms of trade (the ratio of export prices compared with import prices in any year) are worsening for many developing countries as prices of many of their principal export commodities have fallen to the lowest level for 150 years. This means that these poor countries are having to export much more, just to be able to import the same range of products. Rapid globalisation is not bringing the expected prosperity to the world’s poorest people.
The WTO agenda and corporate protectionism
Christian Aid has been shocked to see the world’s powerful states and corporations force their priorities through the WTO, often in the face of mass opposition from developing countries and strong counter-arguments from UN agencies. As a result, the interests of poor people have often been neglected.
- Issues only marginally relevant to trade, such as intellectual property, have been added to the WTO agenda. TNCs now have unprecedented private monopoly rights over much of the world’s natural public resources. The United Nations’ Development Programme (UNDP) describes this process as ‘a silent theft of centuries of knowledge from developing to developed countries’.
- Aspects of the global trading system which benefit rich countries (for instance tariffs which protect their producers against cheaper imports from developing countries) have been largely retained. But changes have been forced through which reduce the protection of developing countries through tariff and nontariff barriers. The United Nations’ Conference on Trade and Development (UNCTAD) estimates that by the year 2005, developing countries could earn $700 billion more each year from expanded exports if rich countries opened their markets by removing tariff barriers.
- Critical development issues, such as the need to subject TNCs to legally binding international regulation, are not currently being discussed in any international forum. The trade agenda of the world’s richest nations is primarily driven by a desire to help their companies to expand production by breaking into profitable foreign markets. The freeing of trade is the aim, not the promotion of a trade system which works in the interests of poor people in the poorest countries. The main beneficiaries are the big global corporations, based largely in the rich countries. Powerful governments are promoting an agenda which not only opens up poor and vulnerable economies to the power and force of these massive global players, it also prevents developing countries from choosing economic and trade policies which violate global free trade rules. The result, in effect, is a Robin Hood policy in reverse – one of corporate protectionism for the strong pitted against the decreasing power of the already weak.
In its present form, the WTO challenges the right to democratic decisionmaking. In theory, the WTO operates by consensus and some developing countries are successful in making their voices heard. But in practice, decisionmaking is dominated by the powerful countries, often meeting behind closed doors.
The WTO’s ambitious vision of ‘progressive liberalisation’ now includes the opening up of markets for government procurement, investment and services. If this process continues, poor country governments will be left with no meaningful protection against cheap goods and imported services, and with even less power to develop, deepen and diversify their national economies to ensure they maximize economic opportunities for their people, and protect them from the external shocks caused by the process of globalisation. Once again, the main gainers will be powerful private global corporations.
Global rules are certainly needed to regulate trade, and this inevitably restricts national policy-making. But greater flexibility is needed to enhance the ability of poor countries to use trade policy to promote development, not to reduce it. There is a very real danger that WTO agreements will lock developing countries into a one-size-fits-all straitjacket, which gives them minimal freedom to follow policies appropriate to their local conditions. Countries which have most successfully reduced poverty in the past (for instance the industrialised West and more recently in South-East Asia) have often pursued policies which are very different from those currently prescribed by international bodies like the WTO. Governments have judiciously intervened to help build up viable and competitive national firms. Many of these successful trade and development policies are banned under WTO agreements. Christian Aid believes that poor countries must be able to retain the option to pursue what they consider the most appropriate policies for development and poverty-reduction.
In its present form, the WTO challenges the right to democratic decisionmaking. In theory, the WTO operates by consensus and some developing countries are successful in making their voices heard. But in practice, decisionmaking is dominated by the powerful countries, often meeting behind closed doors. Equally important is the power of organised business lobbies, some of which have successfully shaped EU and US negotiating priorities. By comparison the interests of the poorest people in the world have been marginalised, and the representatives of these people play next to no role in shaping contemporary trade policies.
Christian Aid believes that the WTO’s power should be used to create overarching global rules only where they are strictly necessary. In particular, its ability to set global rules which impinge on national sovereignty needs to be limited. In accordance with the principle of subsidiarity, more decisions on trade policy need to be taken at local, national and regional levels, to increase the likelihood that they reflect country diversity, and to ensure that policies suit the national context and the need to eradicate poverty.
The seven deadly rules
Agreements already made in the WTO risk deepening poverty and extending inequalities. But issues that are currently on the negotiating table may make this situation worse.
- Transnational corporations are increasingly securing access to (and often control over) markets in developing countries in areas previously denied to them.
- Developing countries are being prevented from promoting policies in their own development interest.
Christian Aid identifies seven specific trade rules which lie at the heart of this process.
Rule one: limits protection against cheap food imports
Developing countries are restricted from intervening in order to raise adequate barriers against cheap food imports, while export subsidies by rich countries are allowed to persist.
The outcome: a flood of food imports into developing countries which undermines or threatens to undermine the livelihood of many poor people.
Rule two: limits government regulation of services
Countries which agree to sign up must open up their services sectors to foreign suppliers by abolishing restrictions on access to those markets.
The outcome: the renegotiation of the WTO’s services agreement may result in health, education and water services being run and controlled by profit-driven foreign corporations.
Rule three: limits regulation of foreign investment
The WTO’s investment agreement bans policies and regulations favouring the use of domestic over foreign products.
The outcome: poor countries are denied some important ways of supporting the development of viable local industries over foreign producers. A new investment agreement would further strengthen this rule.
Rule four: limits use of agricultural subsidies
Developing countries are limited in their freedom to increase subsidies to agriculture. Some (the non-least developed countries) are required to reduce them. Particular types of subsidy are banned altogether. Meanwhile the EU and US are still permitted to spend huge sums on agricultural subsidies themselves.
The outcome: poor people’s food security is being undermined by restrictions on subsidies which deny poor countries an important tool in development.
Rule five: limits use of industrial subsidies
Governments are prevented from using industrial subsidies to promote the manufacture of domestic products over imported alternatives. Some subsidies of special use to poor countries are banned, while some of special use to rich countries are permitted.
The outcome: poor countries’ industrial development is being hampered by taking away a critical policy tool to help develop their own industrial sector.
Rule six: blocks exports from developing countries
Rich countries can retain high import barriers or other restrictions against key exports from developing countries.
The outcome: poor countries lose much needed export revenues and the economicgrowth rates of affected poor economies will suffer potential losses.
Rule seven: gives business rights over knowledge and natural resources.
This WTO rule requires countries to introduce effective patenting laws, including plant varieties and seeds, which can give TNCs rights over those products for 20 years. This in effect legalises biopiracy of natural resources and knowledge.
The outcome: poor people’s food and health security can be threatened if TNCs are successful in securing monopoly control over knowledge and natural resources.
Transnational corporations and the need for regulation
The mobility of capital gives TNCs the freedom to move around the globe in search of the least restrictive conditions in which to operate. Fundamental rights like the freedom to organise and work in safe conditions are often compromised.
Over the past two decades of expanded trade and globalisation, TNCs have secured unprecedented power across the world economy. The largest 200 account for more than a quarter of global Gross Domestic Product (GDP). Many transnational corporations provide benefits to poor people, for example through creating jobs, supplying a wide range of cheaper consumer products and, indirectly, through higher levels of government revenue which can be used to tackle poverty. But unregulated TNC activity can lead to environmental degradation, undermine human rights, threaten the livelihoods of the most vulnerable and create great instability when corporations choose to disinvest. The economic management of developing countries must not be distorted simply to cater to the demands of transnational capital.
TNCs have grown as trade, financial flows and investment regulations have been liberalised. This has allowed companies to reorganise themselves to exploit their size and realise new opportunities to obtain security and higher returns. For many of the larger TNCs, the recent wave of mergers and acquisitions has radically increased their overall market power. Desperate to attract investment, governments of developing countries frequently compete with each other to offer foreign investors the best deal. So under pressure from powerful countries and companies, laws have been enacted which are far less favourable to the individual national interest than might have been achieved within the framework of a more collaborative inter-national approach. The mobility of capital gives TNCs the freedom to move around the globe in search of the least restrictive conditions in which to operate. Fundamental rights like the freedom to organise and work in safe conditions are often compromised.
That is why regulation is needed to protect the interests of poor people. But currently there are no binding international regulations to hold TNCs to account for their activities. Most national legislation does not make TNCs responsible for the activities of their subsidiaries: they are usually not obliged to apply ‘home’ standards across all their operations. Most national laws fail to address adequately the global structures and strategies of TNCs. Instead of binding regulation, there are voluntary codes of conduct like the OECD’s Guidelines on Multinationals and the UN’s Global Compact. These remain incomplete and inadequate in the prevailing climate of rapidly growing corporate power. International law on subjects like human rights, the environment and development is the responsibility of the private sector as well as of governments. But strengthening legally binding regulation to uphold ethical standards is not currently on the agenda of the WTO, the UK government or the governments of most other rich countries. Fashioning a new system of international rules to address the growing power of large TNCs is crucial to enhance the positive role that the foreign private sector can play in development.
Alternatives and recommendations
Global trade rules need to be rewritten in order to benefit poor people. New trade rules should champion diversity and protect the rights of governments and people, especially in the poorest countries, to decide how best to develop their own economic activities. These should ensure that trade is a means to promote sustainable development, not an end in itself.
Many principles upon which the WTO agreements are based need to be reversed. Currently the WTO:
- tends to treat all countries the same, with strict limits on ‘special and differential treatment’ for poor countries
- restricts regulation of the private sector by national governments
- treats domestic and foreign companies the same
- enforces the primacy of global rules.
But the WTO should:
- treat rich and poor countries differently as a matter of course
- encourage sensible regulation of the private sector by government
- treat domestic and foreign companies differently
- emphasise the primacy of national and local decision-making while still tackling global problems through global rules.
Christian Aid believes that global trade rules must be rewritten:
1 To ensure their impact on the poor can be assessed, and changes made where they are needed
An impact assessment of existing agreements must be conducted urgently, as WTO members promised under Article XX of the Agreement on Agriculture (and Article XIX of the General Agreement on Trade in Services).
2 To contribute explicitly to the reduction of poverty
In its mandate, the WTO must replace its commitment to ‘progressive liberalisation’ with a more explicit promise to promote trade policies which help to reduce poverty and promote sustainable development.
3 To narrow the focus of the WTO to enable more decision-making on trade policy to take place at local and national levels
The WTO’s ability to set global rules which impinge on national sovereignty needs to be limited. Under the principle of subsidiarity, more decisions on trade policy need to be taken at local, national and regional levels. The principle that developing countries need to be treated differently as a matter of course must become a key tenet of all agreements.
4 To ensure rules are decided in a fair and democratic way
All major decisions must be taken with the active participation of all WTO members, ending the practice of rich countries agreeing deals behind closed doors. The capacity of developing countries to formulate and negotiate trade policy needs to be strengthened.
5 To guarantee that rich countries as well as poor countries abide by the rules
The dispute settlement mechanism needs to be changed to replace the current bilateral system with more effective multilateral mechanisms. The legal aid system established in Geneva should also be widened.
6 To regulate transnational corporations effectively
People in developing countries need the legal right to take TNCs to court on issues relating to the activities of their subsidiaries in the developing world. A legally-binding global code of conduct for TNCs needs to be established enforcing agreed environmental, human rights and development standards. A new Global Regulation Authority should be established to police this code.
The seven deadly WTO rules should be rewritten to give a high priority to the needs of the poorest people.
Rule one: protect adequately against cheap food imports
Developing countries need to be free to choose effective import tariffs to ensure they are not flooded with cheap and disruptive food imports, and export subsidies in rich countries should be made illegal.
Rule two: require no mandatory opening up of services sectors
Poor countries in particular should not be required to open up their service sectors to foreign companies without careful analysis and without their explicit agreement. No future services agreements should be drawn up until detailed analysis of their effects on poor people has been made, and they have poverty alleviation as their priority.
Rule three: ensure appropriate regulation of foreign investment
The WTO agreement on investment (TRIMs) must be rewritten to ensure that foreign investment can be fully regulated by developing countries. The ban on policies which discriminate in favour of domestic companies should be lifted.
Rule four: promote national and local food security policies
Developing countries need to be able to support their farmers to maximise food security for poor people. Either the WTO agreement on subsidies should be rewritten or the issue taken out of the WTO altogether.
Rule five: support domestic industry
General global rules outlawing some industrial subsidies and other support mechanisms need to be reversed to permit poor countries to intervene in ways they deem appropriate to establish viable, competitive industries.
Rule six: enable fair access to rich country markets
All exports from least developed countries should be able to enter rich country markets duty-free. Tariff peaks and tariff escalation on processed agricultural products must be eliminated.
There must be an increased burden of proof on rich countries seeking to use sanitary and phytosanitary measures to ban imports from developing countries.
Rule seven: protect against biopiracy and misuse of patenting
Intellectual property issues should be negotiated through the UN, not the WTO. To prevent biopiracy, companies taking out new patents must be required to demonstrate the prior informed consent of the original holders of any resources or knowledge applied in the development of patented products. Developing countries must have greater flexibility in overriding current patent protection, especially in public health emergencies.
The sharp contrast between the limited life-chances and opportunities of 1.3 billion people who are forced to live in extreme poverty, and the expanding opportunities of the rich is morally unacceptable. The current global economy is failing to resolve the problems of poverty of so many of the world’s poor.
Christian Aid believes that developing countries should not be forced to put all their faith in international trade but be free to pursue policies suited to their local situation. This may mean prioritising production for the domestic rather than international market. Securing greater access to rich country markets can reinforce dependence on a few primary commodities, and reduce food security.
The WTO must be reformed. But making it more democratic and transparent will not on its own ensure that new trade rules work in the interests of poor people. We need a global body able to set rules democratically and work in the interests of all, both rich and poor. Christian Aid believes that to ensure that poor people derive maximum benefit from trade, decisions must be taken as close to them as possible. In some ways the WTO does not so much need to be reformed as to have its focus narrowed. Its ability to make rules which impinge on national sovereignty needs to be limited. It is currently too powerful and sets global rules too rigidly. But at the same time more power is needed for the international community to hold global businesses, and especially the larger TNCs to account. Christian Aid is calling for a re-balancing of global governance to ensure that decision-making on trade takes place at the right level.
Christian Aid’s view is not that we need a world trading system which enables rich and poor to compete on equal terms. Instead we believe that in an unequal world it is our responsibility to create a global trading system which explicitly and deliberately favours those who are currently severely disadvantaged, one which gives priority to resolving the problems of acute poverty before it begins to create systems based on fairness and equality of outcome.
The sharp contrast between the limited life-chances and opportunities of 1.3 billion people who are forced to live in extreme poverty, and the expanding opportunities of the rich is morally unacceptable. The current global economy is failing to resolve the problems of poverty of so many of the world’s poor. This is manifestly unjust. Because they are relatively powerless, poor people in developing countries have the right to demand from the rich an international environment which works to meet their basic needs and fulfil their core human rights. It is our duty to help ensure that this happens, and happens fast. One major way that this can be achieved is to make trade work for poor people – to root out poverty and improve the life-chances of the world’s most vulnerable people.