A number of influential world leaders are planning to expand the world trading system in the year 2000 by initiating a new 'Millennium Round' of trade negotiations in the WTO. They are rejecting calls for a review of the social and environmental impacts of the last 'Uruguay Round' of negotiations; and ignoring a wealth of evidence showing that the current trade system promotes inequality, is undemocratic, and degrades the environment, social structures and cultural diversity.
The proponents of the 'Millennium Round' are pursuing an aggressive marketing strategy, waving economic 'sticks' at developing countries and dangling environmental and labour 'carrots' in front of civil society. Yet past experience and the current negotiating positions of a number of WTO members indicate that a Millennium Round will not address the environmental or developmental failings of the world trade system in any meaningful way.
It is the underlying principles on which the free trade system is based that are fundamentally flawed. Trade liberalisation does not benefit the majority of the world's population. The current economic model places growth and profits above all other considerations; and is based on unsustainable rates of resource use. These defects cannot be addressed by tinkering with the structure and/or regulations of the WTO. The time has come to reflect on deeper, more systemic difficulties.
For these reasons, Friends of the Earth believes that governments should reject the European Union's proposal to expand the scope and power of the WTO. There should be no new issues and no new round of trade liberalisation negotiations. Rather, the time has come for a thorough and independent review of the environmental and social impacts of the existing trade system, with a view to developing an alternative economic system which focuses on peoples' quality of life and is based on the equitable distribution of resources and 'environmental space'.
The global economic system is fundamentally flawed. It is unsustainable (relying as it does on unlimited natural resource inputs), inequitable and undemocratic. The current processes of economic globalisation and trade liberalisation are exacerbating these underlying problems; and the world trading system, administered by the World Trade Organisation (WTO), is one of the most obvious manifestations of the failings of the current economic model. The current trading regime:
The current world trade system - and its pursuit of trade liberalisation above all other concerns - is one of the root causes of environmental and social problems the world over. It affects almost everything we do as individuals and has had a marked impact in many areas of concern to FOE. For example:
This briefing sets out why it is essential to prevent a further round of trade liberalisation negotiations and promote an alternative, humane and sustainable economic system.
The first section explains the myths, impacts and institutions of world trade and outlines current proposals for new trade negotiations in various different sectors. The second section explains the reasons underlying FOE's opposition to a Millennium Round; and makes recommendations for change.
People have traded with each other for thousands of years. Local scarcity is the most fundamental reason for trade although other reasons include:
Although largely between individuals or companies, governments have played a significant role in trade, often controlling it through either the use of force or the use of tariffs, subsidies or regulations. Policies to intervene in the trade system and support domestic industries are pejoratively known as 'protectionism' while policies that deregulate trade and aim for non- intervention are known as trade liberalisation or 'free trade'.
What's wrong with the current trading system?
In addition to the negative social and environmental impacts of the current trading system, there are a number of systemic defects and misconceptions about 'free trade' that need to be borne in mind.
The current economic system is fundamentally flawed. It pursues profit via trade and investment liberalisation at all costs despite significant weaknesses in its philosophy, rules and operations. In particular, it focuses on constant economic growth based on ever-increasing (and thus unsustainable) rates of resource use; and pays little heed to the needs of the poor and disenfranchised of the world. It deals only with the monetary economy; and fails to address a range of issues related to peoples' quality of life.
- the theory of comparative advantage is wrong
Free trade is based on the theory of comparative advantage, which states that nations should specialise in producing what they are best at; and that they should then trade with other nations. The theory of comparative advantage argues that this is the most efficient and mutually beneficial form of production and exchange. However, the theory is also based on the fact that capital is immobile and will be invested in the most efficient form of domestic production. This is patently untrue in the modern world where capital moves to wherever products can be produced at the least cost - and does so at the touch of a button. Thus, it is now the case that some countries will have or can acquire absolute advantage; and that others will lose out completely. This can only lead to increasing economic insecurity; and the lowering of international standards as companies compete in the global market place. Nevertheless, despite being comprehensively debunked by some eminent economists 'comparative advantage' is still an accepted 'buzz word' amongst politicians.
- free trade is increasing inequality and insecurity
The idea that deregulation will increase trade resulting in economic growth and prosperity for all is an attractive one. It is also an idea that is fervently held, due to the historical association between protectionism, economic depression and world war. However, there is little evidence supporting a causal relationship between trade and economic growth. What is clear is that:
Free trade theory is based on the immobility of capital. Yet in 1997 some $400 billion moved around the globe as direct investments. Also, the currency crisis that hit South East Asia in 1997 saw massive 'capital flight', resulting in, for example, the Malaysian stock market losing 40% of its value (some M$250 billion) in just six months.
Free market theory is based on the ideal of 'perfect competition' where, amongst other things, there is perfect knowledge about all products and markets, all prices reflect the true costs - economic, social and environmental - of a product and there are no monopolies, oligopolies or cartels. This just does not happen.
An analysis of the 'winners' and 'losers' from the Uruguay Round of trade negotiations showed the biggest winners to be the EU, USA, Canada and China. China is not (yet) even a member of the WTO! The losers were African countries. The trade system is exacerbating global inequality. According to UNDP, "The imbalances in economic growth, if allowed to continue, will produce a world gargantuan in its excesses and grotesque in its human and economic inequalities". According to UNCTAD (1997), "The big story of the world economy since the early 1980s has been the unleashing of market forces...The 'invisible hand' now operates globally and with fewer countervailing pressures from governments than for decades...Since the early 1980s the world economy has been characterized by rising inequality and slow growth".
The United States Trade Representative (USTR) Charlene Barshefsky (1998) stated that, "The GATT...[has] provided a 'political' framework that helped instil peace and democracy...The past half century has made the world far more prosperous, secure and peaceful...". Since the end of the Second World War, the number of armed conflicts in progress world-wide rose from around 5 to a peak of 51 in 1992, dropping to 37 in 1995. In total it is conservatively estimated that upwards of 25 million people have been killed in wars since 1945. On top of this, it is estimated that the deaths of one and a half billion people have been indirectly caused by war since 1945. Contrary to the views of the USTR, the world has not become more secure and peaceful. If anything increasing inequality between and within countries has led to further insecurity.
Between 1965 and 1990 - the period of greatest growth in trade since World War II - global inequality increased. In 1965, the richest 20% of the world shared 70% of the wealth, in 1990 this had risen to 83%. The remaining 80% of the world's population all had their income squeezed, with the poorest fifth dropping from 2.3% to 1.3% over the same period. 1.3 billion people still live in poverty on less than $1 a day.
- free trade pits the weak against the strong
One of the most oft-quoted phrases in the free trade lexicon is that it provides a 'level playing field' for international trade. This is highly erroneous. Level playing fields are only relevant in competition between equals - there is no point in Doncaster Rovers regularly competing on the same playing field as Manchester United. Yet small scale producers are expected to compete in the global economy along with the likes of Microsoft, Monsanto and Mitsubishi even though there are massive wealth differences. The WTO does nothing to correct these imbalances.
In the 1950's there were approximately 450,000 farms in the UK. There are now around half that number. It is estimated that the average cereal grower will require at least 800 acres to remain profitable on the global market.
Just four companies control 90% of the world's exports of corn, wheat, coffee, tea and pineapples. As long ago as 1983, over 70% of world trade in rice, cocoa beans, bananas and sugar, was controlled by just 3 to 6 TNCs. Also, in 1983 over 85% of world trade in such materials as forest products, cotton, tobacco and jute were controlled by just 3 to 6 TNCs.
- 'export-led development' is a sham
Export-led development is a central feature of the current 'conventional wisdom' of economic development. It is promoted by the International Monetary Fund, the World Bank and through the WTO, the central concept being that countries can export their way to a better quality of life. Experience shows however that 'export-led development' policies can be environmentally destructive, economically damaging and contrary to a nation's development objectives.
The total income of the 10 largest TNCs is now greater than that of the world's poorest 100 countries, and many TNCs have greater sales than the GDP of some developed countries (UNDP, 1997). For example, General Motors is more powerful in pure economic terms than Denmark (UNDP, 1997). Such economic power is being increased through mergers - a recent example being the deal between BP and Amoco resulting in the largest company in Britain and "...one of the strongest... international energy and petrochemicals groups in the world." (BP, 1998). About two-thirds of world trade is now accounted for by just 500 companies, and 40% of world trade occurs within these companies (UNDP, 1997).
Within 24 hours of Chiquita - a major US banana multinational - making a $500,000 donation to the Democratic Party in the USA, the US Government lodged a complaint against the EU's banana import regime that favoured Caribbean banana producers. Chiquita's bananas are mainly from Latin America.
In the 1960s and 1970s, the Philippines became one of the top four timber exporters in the world. In the process, it exterminated 90% of its forests. The country is now a timber importer with 18 million impoverished forest dwellers, an external debt of nearly $40 billion in 1995 (up from $17 billion in 1980) and over one third of the population still living below the poverty line.
In the late 1980s Bangladesh was earning some $10 million from exporting about 50 million frogs legs per year. This resulted in the depletion of the frog population (to an estimated 400 million) and an increase in insect populations requiring the import of more and more pesticides. Bangladesh ended up spending some $30 million on pesticide imports to counteract the loss of frogs which earned just $10 million! The winners in this were the companies, some of whom were both exporting frogs legs and importing pesticides.
Note: it isn't possible for every nation to export more than it imports. Where will the surplus go?
- investment deregulation is not a development policy
Another widely accepted concept is that the only way to 'develop' is through attracting foreign direct investment (FDI).
The Multilateral Agreement on Investment (MAI), and now the investment proposals before the WTO, are pushed on the basis that, without an attractive (i.e. deregulated) investment regime, nations will not attract FDI and will not 'develop'. This concept is bogus on two counts. First, FDI is not necessarily beneficial and does not necessarily result in 'development' or increased employment. Second, there is no link between deregulating foreign investment rules and attracting FDI.
Some 58 Per cent of FDI is accounted for by cross border mergers and acquisitions. These are renowned for job losses. Subsequent to one such merger (of BP and Amoco) 7,000 redundancies were announced. Moreover, in 1998 BP-Amoco axed a further 3,000 jobs because, despite the fact that it still made a massive $4.5 billion profit, this was a drop from $6.5 billion the previous year. In 1999, BP-Amoco acquired American oil company Arco resulting in 2,000 job losses.
In 1996, China attracted a staggering 40% of all FDI inflows to developing countries. China is not renowned for its deregulatory approach to investment or any other sector of its economy. FDI is much more likely to be attracted to countries with a basic infrastructure and skill base. Deregulating investment is a side issue.
What is the WTO?
After World War II, a concerted effort was made to set up international institutions to manage the global economy. This was in response to the economic collapse of the 1930s that had led to increased protectionism, nationalism and the rise of Hitler. This effort resulted in the formation of the World Bank, the International Monetary Fund (IMF) and also the General Agreement on Tariffs and Trade (GATT) - a multilateral forum for agreeing cuts in border taxes (tariffs).
Since the original formation of the GATT in 1947 there have been 8 'rounds' of trade negotiations. Initially, these negotiations dealt solely with industrial tariff reductions/binding but by the 1980s the remit had expanded to cover non-tariff barriers to trade (NTBs) which include environmental and health standards. This expanded remit became most obvious during the 'Uruguay Round' negotiations (1986-1994) when agreements were concluded on NTBs and new issues such as trade in services, intellectual property rights and investment.
The Uruguay Round was the longest, most tortuous and most controversial set of negotiations in the GATT's history. With an expanding membership and new issues on the agenda, as well as increasing public awareness of the possible impacts of the agreement, international trade became more than just an argument over tariffs versus trade liberalisation. For the first time, there was significant debate about the wider impacts - political, social and environmental - of the GATT agreement. There was also a great deal of criticism about the lack of transparency of the process and the fact that the majority of governments (almost exclusively from developing countries) were simply excluded from important 'green room' meetings that constituted the bulk of the negotiations.
The Uruguay Round also led to the formation of the WTO. Whereas the GATT was an agreement with 'contracting parties' and served as a negotiating forum, the WTO is a recognised international body with 'Members' and is responsible for monitoring and enforcing the new set of global trade rules known as World Trade Agreement (WTA) or GATT 1994. The WTO was formed in January 1995 and currently has 134 member countries.
In April 1998, the world trade system celebrated its 50th birthday to great fanfare in the financial press. As the twentieth century draws to a close, the concept of free trade has become accepted as 'conventional wisdom' for economic policy and, apart from a few notable exceptions, is rarely questioned amongst academic, industrial and governmental economists. The WTO is the institutional embodiment of this 'conventional wisdom'.
How does the WTO work?
The WTO is an intergovernmental organisation with a secretariat based in Geneva. The Director General is appointed by the members (governments) while the rest of the staff are employed as in any other organisation. Its highest decision-making body is the Ministerial Meeting which takes place every two years or thereabouts. Within the WTO is a General Council made up of member representatives that meets periodically to discuss issues that can be referred to the Ministerial Meetings.
The prime objective of the WTO is to facilitate economic growth through the multilateral trade system.
The WTO's main functions are:
The most important of these is the dispute settlement system, which is legally binding and backed by across- the-board trade retaliation powers. This is what gives the WTO its power.
There are a number of WTO reviews and negotiations due in 1999 and subsequent years that will take place whether or not there is a Millennium Round. Governments signed up to these commitments during the last Uruguay Round of trade negotiations and are unlikely to back down now. This 'built-in' agenda includes reviews of the existing :
All of these reviews/negotiations could have outcomes that impact negatively on the environment or society, in both the North and the South. For example, TRIMs restricts governmental control of inward investment; the TBT Agreement deals with ecolabelling; and TRIPs impacts on peoples' ownership of and access to food and seeds and has the potential to significantly reduce genetic diversity.
Negotiations to further liberalise trade in agriculture and services are likely to be highly controversial in themselves.
In agriculture, the US and the Cairns group of agricultural exporters plans to target agricultural subsidies in Europe, which is likely to trigger intense opposition amongst European farming and rural communities. (The Cairns group consists of Australia, Canada, New Zealand and a number of developing countries including Brazil, Malaysia and Thailand, all of whom operate without agricultural subsidies) In addition, there are bound to be disagreements about whether agricultural trade should be completely liberalised or whether exemptions for food security or environmental purposes are permissible.
According to the UN, roughly 1.4 billion people around the world depend on farm-saved seed for their food security. Under WTO-enforced patent law Monsanto has the right to take farmers to court if they collect and use seeds from its patented plant varieties. In the USA, Monsanto has opened more than 475 such 'seed piracy' cases nationwide. Monsanto may be able to avoid such cases in the future if it develops and markets its 'terminator gene' technology that makes plants sterile. If Monsanto is able to hard-sell its patented or 'terminator gene' crops in the developing world, it could pose a major threat to food security.
As far as services negotiations are concerned, it is not yet clear which industrial sectors governments will decide to include. There has been a suggestion from the United States that all service sectors should be considered. This could have extensive environmental and developmental implications, with areas such as health, education, tourism, and energy and water services being liberalised and brought under the umbrella of the WTO.
The proposed Millennium Round is an attempt to have another comprehensive round of trade negotiations which would add new issues and negotiations to the 'built-in agenda' outlined above. 'Comprehensive Round' is government-speak for an integrated negotiation across a number of sectors (e.g. agriculture, investment etc) which permits countries to make concessions in certain sectors and gain benefits in others. While this sounds good in theory, it can in fact be extremely disadvantageous for weaker economies, who may find themselves under immense pressure to make concessions in particularly sensitive sectors. In effect, developing countries can face an ultimatum - accept an agreed package of trade proposals or face isolation in the global economy.
The 'Millennium Round' was initiated and is being promoted by the EU, although some other countries (eg Japan, Canada and some Latin American countries) have been broadly supportive. The USA is less keen due to domestic political pressure and the difficulty of getting 'fast-track' negotiating rights for the President and his delegation. Nevertheless, the main reason for having a new round of negotiations is to push the liberalisation agenda of rich northern countries. This includes the further reduction of industrial tariffs (border taxes on imports) plus liberalisation (i.e. deregulation) in a number of other 'new' areas. These 'new issues' could include:
Investment is obviously a contentious issue after the demise of the Multilateral Agreement on Investment (MAI). Investment discussions are likely to focus on stripping away the controls that countries place on inward investment (like joint venture requirements) rather than allowing the kind of latitude needed to pursue a range of goals (e.g. environmental, social or developmental).
However, the labels attached to the other 'new issues' are deceptively neutral in tone. For example, government procurement is particularly significant for some of the poorest developing countries, where the government is the main economic agent. It is also of concern to local authorities around the world, who may find themselves stripped of their ability to make socially- and environmentally-sound purchasing decisions.
Similarly, electronic commerce negotiations will focus on duty-free market access for products sold via the internet, favouring the high-tech industrial North but disadvantaging importing countries (who won't be able to raise revenue / protective taxes on the back of imports). There is also a risk that any negotiations on competition policy will be skewed to address issues relating to 'fair' market access for foreign firms (ie investment negotiations by one of a number of 'back doors').
From the environmental perspective, 'trade facilitation' negotiations could be significant if they focus on removing 'bureaucratic' health and environmental regulations enforced at borders.
Also up for discussion are two non liberalisation-related 'new issues':
These are being pushed strongly by the US (labour) and the EU (environment). The EU has also commissioned a high-profile Sustainability Impact Assessment of forthcoming negotiations (although it refuses to review the impact of existing trade agreements and rules).
Although the promotion of these two issues sounds positive, there is in fact little to be optimistic about. There is every possibility that 'environment' and 'labour' will land up in a bin in the corner of the negotiating room in Seattle (because of staunch opposition form a number of developing countries; and the fact that it could simply be used by the EU as a negotiating 'chip' to be discarded when convenient).
Should 'environment' make it into a new Millennium Round, governments can be expected to focus on multilateral environmental agreements; the relevance of processing and production methods; ecolabelling; and the precautionary principle. However, there is no mention of a review of the fundamental conflicts between trade and environmental policy (as outlined in this briefing); no guarantee that the social and environmental implications of other Millennium Round negotiations will be considered; and no evidence to suggest that trade and environment negotiations would improve the status of the 'environment'. On the contrary, any WTO negotiations on environmental issues could be used to reinforce the primacy of global trade rules.
Current negotiations to include labour as an issue seem to be in disarray at the moment. Labour's champion, the United States, is pressing for increased cooperation between the WTO and the International Labour Organisation (ILO) - a sop to the trades unions which could avoid a battle with developing countries over the inclusion of a 'social clause' in the WTO.
A forest-products agreement?
It has been reported that, in order to demonstrate a 'win' to the US Congress before the vote on whether to give the President 'fast-track' rights for WTO negotiations, the US administration is seeking a pre-Seattle settlement on forest products liberalisation. The US Government is therefore in the process of trying to kick-start sectoral negotiations to reduce tariffs on forest-products to zero and discuss non-tariff barriers like certification. This has the potential to increase world-wide consumption of forest-products by 3-4% and is also a potential threat to schemes like the Forest Stewardship Council (FSC). However, concern about civil society response to such a development may mean that the US bides its time and puts forest negotiations forward as a new issue to be included in a round. This could be equally detrimental, since it can be much more difficult to prevent or influence negotiations once they are caught up in a round.
Biotechnology and other issues?
It is a fair bet that trade in biotechnological products will be on the WTO's agenda, following:
However, it is possible that talks on biotechnology could crop up in any one of a number of the proposed WTO negotiations, including reviews of the TBT and SPS agreements (SPS is the Sanitary and Phytosanitary Agreement, which is similar to the TBT, but deals with food and crop safety and standards); the review of the TRIPs agreement; or separately, as a new, 'stand-alone' issue.
It will not be possible to say with any certainty exactly what will be on the post-Ministerial agenda, until the Seattle Ministerial itself. In past Ministerials the largest countries have suggested completely new negotiations at the last minute, when the smaller countries were in no position to refuse (during a Ministerial it is extremely difficult for some lone officials to keep up with negotiations; and they are under immense pressure to agree to a comprehensive package).
It's extremely difficult to assess what the local impacts might be at such an early stage. Furthermore, impacts will vary from nation to nation and locality to locality, depending on the existing level of deregulation and liberalisation; the negotiating strategy of each country; and the range of local laws already in place to protect the environment and promote the local economy.
Nevertheless, it seems that two separate 'clusters' of negotiations are likely to affect local communities in the UK if the Millennium Round goes ahead. These are investment and government procurement, which may constrain local economic and environmental decision making; and agriculture and biotechnology, which could have a dramatic impact on farming, rural economies and food standards.
- investment and government procurement
Whilst it's difficult to predict the precise nature of investment liberalisation negotiations, should they go ahead, there is certainly a possibility that such negotiations could undermine local and national government efforts to protect local economies and the environment, if these are seen as discriminating against foreign investors. There could also be a risk of local authorities being drawn into international legal disputes and risking massive compensation payments, which would undoubtedly see off all but the bravest of legislators.
Similarly, negotiations on government procurement could put paid to local authorities' ability to make socially-and environmentally-sound purchasing decisions. Green purchasing policies could be threatened, for example.
- agriculture and biotechnology
It is more or less a foregone conclusion that if trade negotiations continue as planned European farmers will be affected significantly, since a number of countries including the US, are specifically targeting the EU's agricultural subsidies (see above). Whilst reform of the Common Agricultural Policy wouldn't necessarily be bad, reform driven by large agribusiness interests out to increase long-distance trade in intensively-grown food isn't likely to benefit sustainable agriculture, rural communities or local environments.
Potential negotiations about trade in biotechnology goods and products could result in the commercial planting of genetically-modified crops around the UK; and the importation and sale of unsegregated and/or inadequately labelled GM products in shops throughout the country.
Friends of the Earth believes that the WTO's Third Ministerial Meeting in Seattle (30 November - 3 December 1999) should be seen as an opportunity for society to begin to review the overall goals, structure and impacts of the international trade system. Such a review should be initiated with a view to developing a system of international commerce that is both sustainable and equitable.
This is not an appropriate time to bring yet more issues into the WTO. For this reason, governments meeting in Seattle should not instigate a new, comprehensive Millennium Round of negotiations.
FOE believes that this is a realistic proposition for a number of reasons:
Friends of the Earth recommends that governments meeting in Seattle should:
Contact Friends of the Earth for further information and updates; and details of other organisations in the UK that are opposed to the Millennium Round.
If you belong to an organisation concerned about trade you should consider signing the Statement from Members of International Civil Society Opposing a Millennium Round or a New Round of Comprehensive Trade Negotiations, which can be found at:
UK NGOs opposing the Millennium Round are planning to send 50,000 letters to MPs and Whitehall. You can contribute to this campaign by writing to your local MP asking them to oppose the Millennium Round because of its potential impacts in your area. Point out that you are concerned about the WTO's future impact on farming, GM crops, and local authority spending and legislation and ask his or her views on constituency impacts. Copy your letter to Tony Blair in Downing Street, and if you can, let us know about your action and any replies you receive.
For those you keen to take a more active role, why not visit your MPs in their constituencies and talk to local authorities and press in the run-up to Seattle.(If you plan to visit your MP you should try to make an appointment to visit their surgery before the end of November). Few people are fully aware of the international, national and local implications of forthcoming WTO negotiations and your visit is likely to be of considerable interest.
If you want to participate in a global electronic debate about stopping the Millennium Round, you can register with the 'StopWTORound' e-mail community at http://www.onelist.com
For further details contact:
Based on an original text by Peter Hardstaff.