WTO and the Third WorId: On a Catastrophic Course

An Interview with Martin Khor,
director of the Third World Network

Multinational Monitor, October / November 1999

Martin Khor is the director of the Third World Network, a Penang, Malaysia-based international network of organizations and individuals involved in issues relating to development, the Third World and North-South issues. The Third World Network maintains offices in Delhi; Montevideo, Uruguay; Geneva; London; and Accra, Ghana. It publishes the daily SUNS (South-North Development Monitor) bulletin, the fortnightly Third World Economics and the monthly Third World Resurgence. Khor is the author of countless articles, and several books, including Malaysian Economy: Structures and Dependence.

Multinational Monitor: In general terms, how have the Uruguay Round Agreements impacted the Third World? What's the record of the WTO after five years?

Martin Khor: One set of problems is that the developing countries-at least the governments -had expected some benefits. Their biggest disappointment is that the benefits did not occur.

For instance, on textiles. There was an agreement to phase-out the quotas on textiles, clothing and footwear, but the implementation of that has been done in a way that has not benefited the exporters. Most of the phasing out will only be done in the last two or three years, which will be in 2004 and 2005.

Second, although the rich countries have said they would reduce their tariffs and so on, they have now undertaken non-tariff barriers against developing countries, mainly the misuse of antidumping measures against products coming from developing countries, including textiles.

Third, there has been a return of a "voluntary export restraints." The U.S. had an agreement with Brazil, for example, that Brazil would voluntarily restrain from exporting their steel to the United States. That is a return to barriers to developing country exports.

The second category of problems involve difficulties the developing countries have found in the course of implementing the agreements. Many of the agreements have a transition period of five years before implementation. So the worst aspects are yet to come. But developing countries are beginning to feel the pinch. In now formulating new national laws to take into account the Uruguay Round Agreements, they are coming to realize that the Uruguay Round Agreements contain many imbalances that harm the developing countries.

The third category of problems is that they face increasing pressures to continue to liberalize. This pressure comes through the built-in WTO agenda that is already part of the agreements, through new protectionist measures such as anti-dumping measures, and through new pressures. At the Seattle Ministerial, the rich countries want new or expanded agreements on investments, government procurement and other areas. Developing countries also fear that trade and environment and labor standards may be used by rich countries to further set back the developing countries.

This has led them to put forward a long list of requests to reform the WTO Agreements-what we in the NGO community would call a turnaround process. They put forward a long list of suggestions and proposals for the Seattle conference, but the United States has rejected this request.

MM: Have there been agricultural harms that are already visible in developing nations?

Khor: Developing countries will have to reduce their import duties after a grace period is over, which is quite soon. Governments will be more and more prohibited from giving domestic and export subsidies to farmers.

In many countries, NGOs and farmers have expressed great concern that if the import duties have to go down progressively, while at the same time Europe and the U.S. continue to heavily subsidize their exports, then the farmers in developing countries will face great competition from imports and their livelihoods will be threatened. Studies in the Philippines already show how cheaper imports due to liberalization are causing grave problems for Filipino farmers. The situation will get worse in the next five and 10 years.

In order to anticipate these problems and to counter them before we have a social disaster in our hands, NGOs like ourselves have proposed that special and differential treatment be given to developing countries on grounds of food security and the protection of livelihood of a large portion of the population-i.e. farmers. In this special and differential treatment, all food produced in developing countries for domestic consumption should be exempted from the provisions of the Agricultural Agreement in relation to import liberalization and in relation to domestic subsidies.

MM: What are two or three other major repairs that you'd like to see at the WTO?

Khor: One is the Trade Related Aspects of Intellectual Property Rights (TRIPs) Agreement. There are now even mainstream economists who have come forward to say that the TRIPs Agreement doesn't even belong in the WTO. The best repair would be to eject the entire TRIPs agreement out of the WTO. This is an agreement on intellectual property rights; it is not directly related to trade, nor is it part of liberalization.

The WTO is meant to be an organization that looks into liberalization. The TRIPS Agreement does the opposite-it is a protectionist device to prevent the transfer of technology from transnational corporations to domestic firms of developing countries. It would prevent domestic firms in developing countries from being able to absorb new and modern technology. It would perpetuate technological superiority of the big companies so they can have control of the market and keep consumer retail prices far above what they would otherwise be if there were competition.

If we can't eject TRIPS from the WTO, there are many things that can be changed. Consider, for example, Article 27(3)(b) dealing with patenting of life forms. It is extremely confusing.

Article 27(3)(B) should be changed to prevent companies in any country from patenting biological resources or knowledge that have already been in use in other parts of the world for generations. It should also be changed to prevent any country from patenting any kind of life forms or natural processes, including microorganism and microbiological practices. This would preempt forms of intellectual property protection that would restrict the rights of their farmers to save their seeds. There has been a proposal put forward by African countries in the WTO to that effect.

Another change would be to the Trade Related Investment Measures Agreement-TRIMS. To repair this, developing countries should be exempted from the prohibition on the use of investment measures such as minimum local content for the use of local raw materials.

Finally, to repair the WTO agreements, there is the principle of special and differential treatment for developing countries. But wherever it appears in the WTO agreements, rich countries are not obligated to grant special and differential treatment. They are only required in most cases to try their best, what is called a best endeavor. The developing countries have put forward very clear proposals that special and differential treatment should not be on the basis of best endeavor, but should be legally binding. And this principle should be applied to many of the existing agreements in the area of TRIPS, TRIMS, agriculture and so on.

MM: The new head of the WTO, Michael Moore, has said that toe will prioritize the concerns of the developing countries at the WTO. Do you think that is likely to have any consequence at the Seattle Ministerial?

Khor: Not really. The European Union has also said the same thing. I feel they are only saying it to draw the developing countries into a new negotiating round that would give the WTO additional competence on additional issues.

Recently, a journalist asked Mike Moore if he was really interested in helping the developing countries in making this a development round, would he use his office as Director General to persuade the developed countries to refrain from introducing new issues in Seattle. And Mike Moore's answer was, "I will do no such thing, because all these new issues are very good for the developing countries, and I would want them to accept the new issues."

I don't see that beyond the rhetoric there is any understanding or sincerity on either the part of the developed countries or the Director General to assist the developing countries. Their interpretation of assisting the developing countries is really nothing beyond providing technical assistance to the developing countries, by which they mean providing training to the developing countries so they can fully implement their obligations within the WTO agreements. That kind of technical assistance is not going to help the developing countries-in fact, it would make things worse for the developing countries.

MM: Why aren't the developing country's governments more able to unite and resist the imposition of these demands either now or in the Uruguay Round? It's not as if you and others were not warning of what has now happened.

Khor: To be fair, there was little public knowledge or involvement in the issues. Even the Third World Network entered quite late. There was Mr. Rhagavan and his SUNS newsletter, and he was the only person outside of government who was really monitoring the events from a developing country point of view during the Uruguay Round. There were very few of us and the kind of civil society awareness that is now built up around the world did not exist. Most of the developing country governments were not active in the Uruguay Round because they didn't have enough officials to participate and they didn't fully understand the issues, so it was not difficult for the rich countries to win them over.

Among the few countries that resisted almost right to the end, some fell into debt and had to rely on the IMF and the World Bank for loans. That very much weakened their position in the negotiations. I must say that for the Seattle conference, the developing countries are better prepared than in the past; they've put forward a lot of proposals. Some of them have done it as a grouping of countries to make their position stronger. The Africa group put forward a proposal on TRIPS. A group of about 13 countries called the like-minded countries - including India, Pakistan, Egypt, Malaysia, Honduras, the Dominican Republic, Cuba, Uganda, Zimbabwe-have been meeting regularly and they have put many proposals on the table, which are now reflected in the draft of the Seattle declaration. But having said that, the rich countries-the U.S. and Europe as well as Japan, Canada and Australia-by and large have much more negotiating machinery and capacity. They are faster, and are backed up by research institutes and a whole army of bureaucrats. And they have more economic power-including the power of deciding things for the developing countries outside of the WTO. Developing countries are dependent on bilateral aide- on World Bank and IMF loans-so they're always facing the other side with a disadvantage.

Despite the good performance put forward by developing countries, the big countries know how to use and even manipulate the WTO negotiating system, and they may get what they want at the end of the day in Seattle.

So the reform of the WTO must take place not only in terms of its rules, but also in terms of its decision-making process, in terms of transparency of who is making the decisions and how influence is carried out. And, the meetings of the WTO should be open to the public, just as United Nations meetings are open to the public. When you open it to the public-to NGOs, to parliamentarians-then the kind of power plays that take place will be exposed and, being exposed, will not be able to take place in the same way in the future.

MM: Tell us about your concerns about the potential new areas for negotiation. Why would you oppose the inclusion of labor and environmental standards in the WTO?

Khor: If our aim is really to improve labor and environmental standards worldwide, then we have to choose a venue or a forum that is going to work towards that goal and to be able to succeed.

The WTO is not that forum because the WTO is, firstly, mainly an institution dominated and controlled by the big powers.

Secondly, there are key principles in the WTO that make it an inappropriate venue. If environmental or labor standards are part of the WTO package, it is likely that the concept will apply in relation to dumping and subsidies. For example, the argument will be made that if a country's environmental standards are inferior, then that country is guilty of "eco-dumping," which would give the right to the importing country to slap on a countervailing duty. The exporting country with the lower standard would be said to be unfairly subsidizing its product. The same applies to labor standards. Of course the developing countries will be at a disadvantage, not due to any fault of their own, but because standards are largely related to the level of a country's development.

For example, when we talk about how trade negatively affects the environment-which I believe-discussions in the WTO or other international fora generally look at how the trade in tropical products or commodities like minerals adversely affects the environment. But very few Northern countries discuss how the use of oil or cars, for example, is environmentally harmful, and urge that we should cut the trade in oil or cars.

MM: You've also opposed a new WTO agreement on competition, which would seem on its face to be a desirable thing for consumers and citizens.

Khor: What we've learned from the WTO is that what appears to be the aim of the proposal turns out to be the opposite. Competition policy was originally proposed by the developing countries precisely for the reason you are suggesting. When an investment agreement seemed to be imminent, developing countries said, "To protect our domestic firms, we would also like to look at competition policy. We must have a competition policy arrangement that would restrict the big companies from practicing restrictive business practices or abusing their monopolistic powers to overwhelm domestic firms."

But when competition policy was put forward by Europe and the United States in 1996 at a Singapore Ministerial conference, they proposed a totally different view. The objective of putting competition policy in the WTO by the developed countries is to crack open the markets of the developing countries so their big companies can enter in free competition with domestic firms, so that domestic firms do not enjoy any protection from the foreign monopolies. For instance, they will argue that government monopolies are anti-competitive. If you have local firms that are given advantages by government, or if local firms are able to enjoy some privileges, that would be considered anti-competitive, and unfair to the foreign company that wants to take over the market.

The United States is quite clear on this. Charlene Barshefsky, the U.S. Trade Representative said at the Singapore conference of 1996 that the U.S. aim in competition policy is to gain greater market access in developing countries for American companies. The EU in its WTO paper earlier this year said the usefulness of putting the competition policy in the WTO is that then we can apply WTO principles to the competition policy. The principles it mentioned are national treatment and liberalization. In other words, the EU wants to be able to ensure that developing countries do not have policies that favor the local companies. Secondly, progressive liberalization within the WTO should be applied to competition policy, so that there can be liberalization in the markets in the developing countries to allow foreign companies to enter without restriction.

The developing countries mean something quite different when they talk about competition policy. They mean how to curb the big monopolies that are now getting bigger from taking over the local markets of the world. They also mean how to prevent the abuse of anti-competitive practices, such as the abuse of anti-dumping measures used particularly by the United States.

I am afraid that given the balance of bargaining power in the WTO, the developed countries' interpretation of what competition means will win out. This is the reason why we should not have a competition agreement in the WTO, at least not at this stage.

MM: What would be different about a proposed investment agreement versus the existing TRIMS agreement?

Khor: Originally in the Uruguay Round, Europe and the United States wanted a full investment agreement that was almost identical to the Multilateral Agreement on Investment (MAI). Such an agreement would have required developing countries to allow total freedom to foreign companies to enter their borders and be treated as if they were local companies. These are the principles of national treatment and the right to establishment. Under such an agreement there would be no performance requirements for investors, no regulation, and tree mobility of capital in and out of countries. The developing countries fought tooth and nail, and succeeded in blocking investment policy as an agreement. What remained was the TRIMS agreement.

TRIMS relates more to trade than to investment policy as a whole. Local content regulations are an example of what is prohibited under TRIMS. If you require a foreign company or even a local company to use 60 percent, for example, of raw materials from local sources, that would adversely affect import of raw materials from foreign countries. So that is prohibited.

But, for now, governments are still free under the WTO to have their own investment policy - to decide what kind of foreign investors to permit, and what conditions to impose.

The original proposal by the European Union was to have the MAI agreement in the WTO. That was in 1995. It was blocked in the 1996 Singapore meeting. As a result, at the WTO there is only a working group to study the relationship between trade and investment. There's no commitment to an investment agreement.

Meanwhile, the fiasco of the MAI took place. I think the governments of the North now realize that the MAI is politically impossible at the moment because of public opposition. So what the European Union has now done is to put forward a proposal in the WTO for a watered down version of the MAI. Under the European proposal, the government can specify for each sector what kind of policy to have towards foreign investment-in other words, whether to open up fully or not, whether to offer national treatment or not, and so on. And it would be confined to foreign direct investment, not portfolio investment. But the European Union proposal would require progressive liberalization, and also a ban on some of the performance requirements.

If they do get this kind of an agreement, then five, 10 or 15 years down the road there would be more and more liberalization. In the end we would have something close to the MAI, which they could not achieve overnight.

MM: You have written a lot about the particular harms of trade liberalization for the Third World. Do you think the Third World should move towards trade liberalization at a later period, after certain internal conditions or global conditions have changed, or do you think that trade liberalization itself is the wrong path?

Khor: I think the issue is not whether trade liberalization is good or bad. There are so many recent mainstream economic studies that have now come forward which show that there is no automatic relationship between trade liberalization and openness and economic growth and performance. Some countries that opened up did well; some did very badly.

A new paradigm is going to emerge in the coming years, which is that trade liberalization can be good if it is accompanied by certain other factors and conditions.

For example, liberalizing your imports can be good if you have local firms that can make use of the cheaper imports to export to the world. But the firms must already exist and be able to take advantage of markets elsewhere; markets elsewhere must be able to absorb the goods that you are able to produce; and the conditions in the country must already be good enough in terms of technology, infrastructure, education of the work force and so on.

In countries where such conditions do not fully exist, then liberalizing imports would destroy local industry or farms. At the same time, the country would not have the firms that would be able to export and counterbalance the cheaper imports.

We cannot press a country to liberalize before it is ready, because it will lead to a potential collapse of that economy. This is something that the WTO has to realize. The developed countries may want to export more to the developing countries, but if they don't have jobs and income and are not able to themselves export, you are exporting to a country that is not able to import. In the end, you just end up with a world recession, which is what we are now seeing.

MM: Can you foresee a WTO that would be responsive to that point of view? Or does the WTO need to be abandoned and something else, if anything, put in its place?

Khor: In the mind of the free-traders, the ideal situation would be zero industrial tariffs all over the world. But this would actually mean the death of local industry in many developing countries. The whole issue is whether we are going to have any domestic economy left in the developing world-either industry, services or agriculture. The situation is going to worsen in the next five to 10 years. In the end, the WTO will have to come to its senses-not because of any ideology, but because of what is happening empirically on the ground-that outright, all-out, big-bang liberalization is a disaster for the majority of countries in the world, and that this disaster will boomerang back on the developed countries in the form of lost markets, political instability around the world, and so on.

The issue is whether we realize it now and change the way the WTO works and change the way the developed countries treat the developing countries. If we do that, then we will prevent a catastrophe from happening around the world.

The alternatives is we don't change. The developed countries keep pressing the developing countries to open up in every area, and at the same time prevent technology from reaching them. Then there will be a major catastrophe-socially, politically and economically. In the end, we will have new global institutions arising out of the settling down of that catastrophe.

I think the first choice is the better of the two. That's what we are really trying to work towards. We are trying to work towards something which we might call sustainable trade and sustainable development, a trading system which is fair and equitable and which also does not destroy nature.

If we don't achieve it, then we are going to have very destructive trade, with production and consumption systems that will not be able to withstand the pressures of inequality and environmental stress. Out of that anarchic disaster, something will have to happen, but in the meantime a lot of lives will be lost, a lot of nature will be destroyed.

It is better to prevent all of these problems by coming to our senses and redesigning the way world trade and the way the world economy works right now. This is what we should do in Seattle.

Whatever the governments decide, Seattle provides citizen groups an opportunity to improve our understanding, and improve our networking and campaigning, so that we can take the lead. If the governments continue to pursue the wrong policies, it is up to us as citizens to take the lead and show the insanity of the present system and point the way to another system that is more accountable and more balanced.

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