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We need a new economic paradigm globally that can discipline harmful corporate practices while actually increasing growth, reducing poverty, and expanding sustainable development globally, argues Deborah James.

22nd August 08 - Deborah James, Centre for Economic and Policy Research (CEPR)

When the history of the seismic shifts occurring today in the global economy is written, the failure in July 2008 of corporate interests and some governments to expand the World Trade Organization (WTO) through the Doha Round will stand as a watershed moment.

It was in this lakeside town where negotiators threw in the towel on their seven fruitless years of trying to expand a particular, corporate-driven set of policies, to which the majority of governments have said “no”, time and time again (in Seattle in 1999*, Mexico in 2003, and Geneva in 2006). WTO Director General Pascal Lamy attempted a last-minute push to conclude a Doha deal by calling for an exclusive, invitation-only mini-Ministerial of around 30 of the WTO’s 153 members in Geneva last month, despite wide divergences in political positions within the areas of negotiation, and despite the fact the Bush administration has no authority to sign any potential deal.

And since it wasn’t enough of an abrogation of democratic process to exclude four-fifths of the WTO’s membership from the so-called “Green Room” negotiations, when talks failed to converge amongst those 30 countries, Lamy continued negotiations with a mere seven members, including almost all of the developed world, yet excluding all of Africa – in a round that proponents still shamelessly refer to as a “Development Round.” Many developing countries such as Bolivia and Kenya and even the host, Switzerland, raised significant process concerns about their exclusion from the meeting, but their concerns were dismissed by Lamy. 

Were Africans allowed to participate in the secret discussions, they would have demanded resolution on issues such as the reform of U.S. cotton subsidies to 20,000 domestic producers, which encourage overproduction and erode the income of 10 million African cotton farmers in countries such as Benin, Burkina Faso, Mali and Chad, driving many of them out of business and reducing revenues key to health care and education budgets for the poor. Some observers have highlighted Africans’ strong stand on development issues when they were allowed at the table. Many have even argued that rich countries’ desire to avoid key African issues such as cotton is actually what led to the collapse, but this part of the story seems just too ugly to have been repeated in the U.S. press.

Recent coverage in the United States of the talks’ failure has focused on the negotiating positions of various countries, particularly blaming India and China. But when one delves into the underlying issues, it becomes clear that much more was at stake in the negotiations than “trade,” and that the collapse was due to forces far greater than individual countries’ positions – including issues surrounding the food, climate, and financial crises – as well as the lack of progress on development due to the failure of neoliberal policies to actually promote growth or reduce poverty. Given the changes in international political dynamics as well as the global agenda, the collapse in the current negotiations will have far-reaching impacts beyond just the WTO.

Food Sovereignty or Food Crisis

Take agriculture, for example, the issue cited by most accounts to have provoked the collapse. India, supported by the vast majority of developing countries, fought for the right to be allowed within the WTO to protect its farmers, food security, and rural development from the volatility of the commodity markets. Import surges of subsidized foreign products have so devastated local agricultural producers, who represent three-fifths of the workforce in a population of 1.1 billion people, that it is said that over 100,000 farmers have committed suicide in recent years. However, U.S. negotiators wouldn’t allow for the protections, and demanded increased access to poor countries’ markets for its agribusiness exports, while refusing to reduce the cap on domestic subsidies below twice their current rate.

It is not a coincidence that the talks fell apart over issues related to agriculture, in a year where countries from Haiti to Pakistan and Mexico to Cameroon have seen riots break out over food prices. While commodity prices are fortunately on a slight decline, the food crisis is eroding allegiance to the free trade dogma in agriculture. Many developing countries that used to be able to take care of their own food needs are now heavily dependent on imports. Two-thirds of developing countries are now net food importers. Decades of IMF and World Bank-mandated structural adjustment policies, coupled with “free trade agreements” as well as WTO policies, have forced developing countries to reduce tariffs – which, combined with high levels of permitted subsidies in rich countries – has eviscerated the productive capacity of many developing countries. WTO policies have also contributed to the erosion of the family farm in the United States and other rich countries. Further WTO expansion would exacerbate, not solve the food crisis, no matter the claims of Lamy.  

Another key factor at play in the negotiations in Geneva was the continued mobilization against the expansion of these failed policies by civil society worldwide. For example, farmers in India have been organizing massive protests over the last many years against the WTO. Their anger sharpened as they witnessed the harsh pressure their government was subjected to during the talks, including at least three personal calls from President Bush to Prime Minister Manmohan Singh during the negotiations. Farmers from Indonesia, India, the Philippines, Brazil, and other countries lobbied their representatives in Geneva while keeping civil society at home up to date about the state of play in the negotiations. They pressured their governments to resist the anti-development demands, and helped ensure the victory of the collapse.

Kicking Away the Ladder of Development

A similar dynamic emerged in the other major pillar of the negotiations in Geneva, regarding tariffs on industrial goods. Tariffs are essentially taxes that corporations pay to governments for the privilege of selling their goods, and making a profit, in another country. Strategic use of tariffs has been a core strategy of any industrialization policy; governments increase tariffs to protect infant industries from foreign competition to promote domestic jobs and development, then lower tariffs when those industries are competitive, to save consumers money. As Cambridge economist Ha-Joon Chang illuminates, the U.S. had the world’s highest tariffs at the turn of the century, during our industrialization. Now, rich countries are essentially saying, “Do as I say, not as I did,” arguing that developing countries should reduce their tariffs, because rich countries now have lower tariffs and are richer. This amounts to the proverbial Kicking Away the Ladder of development.

In the WTO this plays out in the area of negotiations called “Non Agricultural Market Access,” or NAMA in WTO-speak. Both developed and developing countries have agreed to reduce tariffs, within the Doha mandate of Less Than Full Reciprocity. This means that developing countries are supposed to gain more “market access” to developed countries (and hence reduce their own tariffs by a lesser percentage) than vice versa. However, in the actual negotiations, rich countries demanded that developing countries slash their bound tariffs by an average of about 60 percent, while only offering to cut their own tariffs by half as much (about 28 percent.) This inversion is obscured by the fact that negotiations actually center on a “Swiss formula with a coefficient,” which seems deliberately intended to leave normal people confused in technical obscurities.

According to the International Trade Union Confederation, these tariff cuts would result in tens of thousands of lost jobs in newly-industrializing developing countries, in the midst of a crisis of poverty and lack of development progress in many countries. In addition, the Third World Network has pointed out that the cuts will also foreclose the possibilities for industrial development for many of the poorest countries. The United Nations Conference on Trade and Development estimates that tariff losses (which provide for a significant portion of health and education budgets in many developing countries) would amount to nearly four times the small projected “gains” for developing countries from the Doha Round.

Fortunately, trade unionists from South Africa, India, the Philippines, Argentina, Brazil, Mexico, and other countries have become increasingly vocal about their concerns, and traveled to Geneva to lobby their governments, raise their voices in the media, and ensure that workers at home were putting pressure on their capitals to defend their interests. While the issue of industrial tariff cuts was not reported as being the deal-breaker this time, it is clear that it will remain a primary objective of the rich countries in the negotiations. 

WTO Expansion would Exacerbate, not Solve, Climate, Financial Crises

Agriculture and jobs-and-development are not the only arenas in which it is becoming increasingly evident that the WTO is a contributor to, rather than a solution to, present global crises. The global climate crisis will also require new, innovative solutions. Unfortunately many of those ideas will clash with WTO prohibitions on regulatory policies that could, in some way, unintentionally restrict trade. We already know that shipping products tens of thousands of miles across the world so that corporations can take advantage of cheap labor in some countries, weak environmental standards in others, and developed consumer markets in yet a third, contributes significantly to global warming. Do we really want our ability to preserve life on our planet to be constrained by the WTO?

No issue has dominated headlines this year more than the global financial crisis, now widely agreed to have been facilitated by a lack of adequate regulation in the financial markets. Yet in the WTO negotiations on services, further deregulation and liberalization of the financial markets are sought by rich countries, representing the interest of their financial industries. It is without logic that the WTO Director General, Pascal Lamy, has called for a conclusion to the WTO expansion agenda as a solution to the global financial crisis, when its actual policies would, by any sensible estimation, contribute to further instability.

While negotiations on services were not much in the headlines, they were a key part of the WTO agenda in July. While the chair of the services negotiations attempted to pressure countries to expand the current level of services liberalization to the “maximum extent possible,” a group of countries – Bolivia, Cuba, Venezuela, and Nicaragua – successfully rejected the manoeuvre. But going further, they also circulated a proposal to remove health care, education, water, telecommunications, and energy from the WTO, on the basis that these essential public services are human rights which governments have an obligation to provide, and should not be treated as tradable commodities. These efforts were immediately supported by over 100 civil society organizations around the world within 36 hours. President Evo Morales of Bolivia had made this same point in a statement released just prior to the WTO talks.

Doha is Dead: Where do we go from here?

Many fear that the collapse of the multilateral talks will lead to increased pressure for bilateral and regional deals using the same (and often even more extreme) policies as the WTO. As well, each time the Doha Round has “collapsed” it has also been called forth from the dead, and negotiations resumed. And of course, irrespective of the collapse of the attempted expansion, the WTO will continue to regulate global trade in favor of corporate profit and against the interests of workers, farmers, consumers, and the environment.

However, this time is different. Confidence in the particular policies of corporate globalization has eroded significantly since the founding of the WTO, due principally to the abysmal failure of these policies to promote growth, equity, and sustainable development in countries of both the north and the south in the last three decades (and the failure of the WTO to do the same since 1995). As well, studies projecting “gains” from a Doha Round, having been greatly exaggerated by WTO proponents, shrank over time and remained paltry – about one penny per day per person in the developing world. The best recent summary of the gains and losses is examined here.

At the same time, some governments are increasingly experimenting with alternative policies, such as regional integration, resource nationalization, South-South trade, and increasing budgets for health and education, which are delivering growth and prosperity far more effectively. Just to give an example, the increased growth above the Latin American average growth of just Argentina and Venezuela over the last four years has brought combined gains of $140 billion to those two countries. This real economic growth dwarfs the projected gains of $16 billion for all developing countries combined (according to the most recent World Bank projections for a likely Doha conclusion; both figures in constant 2001 dollars.)

Just as importantly, global politics have re-aligned since Doha was launched. Developing countries are far less likely to accept policies handed down by the governments of rich nations, many of them having gained freedom from the economic dictates of the IMF in recent years. And while Brazil, India, and China may be the most oft-cited emerging market powerhouses, developing countries from Latin America to Africa to Asia are increasingly demanding a stronger voice in international fora.

And in the United States, Herculean efforts are being made to ensure that our next Congress and president actually implement the fair trade policies demanded by citizens who have suffered from lost jobs, stagnant real wages, and corporations gone wild for far too long, including through the new TRADE Act.

Civil society organizations have for years developed multiple ideas for a different paradigm for expanding global prosperity and sustainable development, through policies that would establish global financial stability, contribute to solving rather than exacerbating the climate crisis, and that promote countries’ ability to feed their populations, among other goals. In defeating WTO expansion one more time, the political space has been created in which these alternative policies and paradigms could flourish. That space could also shrivel up, if civil society does not keep working to ensure that the negotiations do not resume. 

What is needed now is the continued organizing to keep that political space open, coupled with the political will convert the innovative policymaking already in motion into a new economic paradigm globally that can discipline harmful corporate practices while actually increasing growth, reducing poverty, and expanding sustainable development globally. Only then may the victims of that fourth, most neglected crisis – the one in which over a billion of our fellow human citizens today suffer from extreme, often lethal poverty – ever find hope for a better future.

Deborah James is the Director of International Programs for the Center for Economic and Policy Research, and a Board member of Global Exchange. She is a key actor in the global WTO movement Our World Is Not For Sale, having participated in and led civil society activities for Ministerial meetings in Seattle, Cancun, Hong Kong, and Geneva.

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