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Nothing to gain, everything to lose

  • OMC

The negotiations leading up to the World Trade Organization (WTO)
Ministerial in Hong
Kong are apparently getting nowhere. The draft ministerial reports
on the state of
negotiations in agriculture, non-agricultural market access, and
services are out, and
while all try to put a positive spin that there is a movement toward
« convergence » there
is very little of that. A close examination of the document shows
that there is
agreement only, on at the most, 10 per cent on key negotiating
points and divergence,
indeed, wide divergence on 90 per cent. When the draft ministerial
declaration does
come out, it is likely to be what the WTO secretariat calls a « heavily
bracketed »
document like the draft declaration for the Seattle ministerial.

By Walden Bello*

(Talk delivered at the Forum « What is at Stake in Hong Kong?, » co-
sponsored by Stop
the New Round Coalition and Focus on the Global South, Sulo
Hotel, Quezon City,
Philippines, 25 November 2005.)


Since the « July Framework » was rammed through at the General Council meeting
in late
July 2004, the developing countries have been engaged in what might be
as defensive warfare at the WTO. In the three key negotiating areas,
services, non-
agricultural market access (NAMA), and agriculture, they have had to defend
markets from aggressive efforts to further liberalize them by the developed
led by the United States and the European Union. In two of these, NAMA and
owing to their much higher tariff levels than developed countries in
manufacturing and
industry and preferential treatment for local service providers, they had
everything to
lose and little to gain by liberalizing. In agriculture, they were also on
the defensive but
at least they could relieve pressures for further liberalization of their
markets by
mounting a counterattack on the massive agricultural subsidies that have
European Union and United States agricultural interests to dominate and
distort global

In the three sectoral negotiations, the most immediately threat, from the
point of view of
developing countries, is the services negotiations. Here, there has been a
strong move
on the part of the developed countries to replace the flexible request-offer
approach with
one that has a mandatory element. Let me explain briefly: the negotiating
practice in
the General Agreement on Trade in Services (GATS) is that a government is
free to
request another to open up several service sectors but the requested
government is
also free to offer only those it is willing to open up or even not to make
any offers at all.
In the current negotiations, « complementary approaches » such as
« benchmarking » and
« numerical targets » have been introduced to force developing countries to
« improve the
quality » of their offers, meaning they must agree to open up more services
than they
have so far put on the table in the current negotiations.

In the current draft ministerial text issued by the chair of the Council on
Trade in
Services, while the more threatening approaches of « benchmarking » and
« numerical
targets » are not mentioned, at least explicitly, the text endorses a
approach whereby one government or a group of governments may make a
request to another government or group of governments to open up one or
service sectors and the latter would have to « enter into plurilateral
negotiations to
considers such requests. » As developing countries have rightly perceived,
negotiations is the first step on the slippery slope to mandatory

In NAMA, there has been wide divergence, and the Chairman’s Progress Report
on the
negotiations issued 22 November, 2005, reflects this. Neither a formula for
non-agricultural tariffs nor the differential coefficients for developed and
countries to plug into such a formula (that would take into account the
status of the industrial and manufacturing sectors of the developing
countries) has been
agreed. One disturbing note in the text, however, is its implying that
members have
agreed on a « Swiss Formula » for cutting tariffs, that is one that would
require higher
proportional cuts from higher tariffs rather than a « Uruguay Round » formula
that would
mandate an average tariff cut but leave a member with the flexibility to
spread that
average cut discriminately across the tariff lines, with tariff cuts for
sensitive products
being less than for others. Since many developing countries maintain higher
tariffs on
many manufactured and other non-agricultural imports than developed
countries, they
would be the main losers whichever Swiss formula is adopted. And this is
the reason
why, contrary to the impression left by the text, many are resisting a Swiss
or any
Swiss-type formula.

As we have noted, in services and NAMA, it has been largely defensive
warfare for
developing countries, with few handles for an offensive strategy except
perhaps for
mode 4 in services, which has to do with the movement of « natural persons »
that provide
services, like highly skilled professionals. But even with mode 4, the
position of the
developed country governments that they have hardly any « flexibility » for
reasons (read anti-immigrant sentiment) has severely limited the possible
gains in this


In the agricultural negotiations, however, it has been a different story.
Despite the
advantage given to them by the terms of the July Framework, differences in
offers of
subsidy reduction among the developed countries and the ability of the
countries to keep the focus on developed country subsidies and market
protection have
put the EU and the US on the defensive.

Intransigence in the developed countries’ negotiating positions helped sink
the Cancun
ministerial in 2003. It has now become the main sticking point in the
lead-up to Hong
Kong. Although the EU is a bad boy — as the US tried very hard to get
governments to believe at the recent Asia Pacific Economic Cooperation
(APEC) summit
in Busan, Korea – it is not the only one. The US’s much publicized offer to
cut its overall
subsidization of agriculture by 60 per cent was all smoke and mirrors. It
was a cut from
allowable levels of support, not from actual, current levels. It would not
only have
allowed the current level of government support to continue but provided
space for it to

Moreover, the US proposal would leave the system of subsidization virtually
untouched, if not expanded. There were no concrete commitments to cut food
aid, which
is really a dumping mechanism; reduce export credits, which are really a
form of export
subsidy; or to significantly trim the « green box » subsidies. And, indeed,
the US
continues to press for the expansion of its « blue box » to accommodate the
new round of
subsidies for farming interests legislated by the Bush administration under
the 2002 US
Farm Bill. These two « boxes », which were institutionalized during the
Uruguay Round,
exempt-for specious reasons–various kinds of dumping-promoting subsidies
elimination or significant reduction.

Why are the US and the EU finding it so hard to make serious offers?
Because the
Agreement on Agriculture (AOA) was never meant to promote fair trade in
agriculture but
to regulate the monopolistic competition between the US and the EU to dump
goods in third country markets while making cosmetic cuts in domestic
support to
legitimize the process. The main aim was to open up and regulate dumping in
developing country agricultural markets, never to end developed country
subsidies. So
even if the US and EU were now to make « better » offers than those they have
tabled, it is
very unlikely that these would make any but the slightest dent on their
systems of
massive subsidization.


So with no movement in agriculture, are we caught in a stalemate leading up
to Hong
Kong? I wish this were so. But what many fear, in fact, is that the EU-US
on who can make a better offer is nothing but a finely choreographed kabuki
play that
will end with them coming up with a compromise formula at the last minute.
parallel some draw is with the agricultural negotiations in the last phase
of the Uruguay
Round when the US and EU went to the brink, from which they drew back at the
minute by coming up with the current Agreement on Agriculture, which they
then tossed
to other countries. Take it or leave it, they said, but if you refuse it,
you’ll be
responsible for scuttling the round.

A similar scenario can unfold, warns economist C.P. Chandrasekhar:

« It is precisely [the same] act that is being replayed. Expectations that
the EU
would move a little further from its second offer are high. However, this
ensure that its agricultural interests would be well looked after and still
demand that developing countries make major concessions in non-agricultural
market access (NAMA) and services. If they resist the latter demand, the
of wrecking the round would be shifted at the last moment onto the shoulders
developing countries. »

And the danger, he notes is that « in the scramble to get as much as they can
being forced to shoulder that responsibility, countries like India and
Brazil would make
large concessions that hurt not just their own producers but those in Africa
elsewhere. » Indeed, many are worried that the Brazilians could sell the
store with a
commitment from the EU on an explicit schedule to phase out export subsidies
and the
Indians for a commitment from the US to marginally increase HB1 work visas
for Indian
high-tech specialists.

There is, in fact, now talk of stretching the deal-making process beyond
Hong Kong to
ensure that there will be an agreement and a triumphant conclusion to the
Doha Round. As Celine Chevariat of Oxfam describes it, what influential
actors are
talking about is a « one-third of an agreement in HK and four month
postponement for
final conclusion of modalities » in another ministerial before the middle of
2006. In my
view, the « one third » agreed in Hong Kong could well be a services agreement
endorses the « plurilateral » approach, with the two thirds, mainly
agriculture and NAMA,
concluded later in the second ministerial.

Indeed, even if the only outcome of Hong Kong or a « Hong Kong Plus » process
is an
agreement based on the current services draft, that would already be a big
win for the
trading powers and a big setback for the developing countries. Aileen Kwa
of Focus on
the Global South warns that the plurilateral approach legitimized by a
agreement could be easily turned into formal sectoral negotiations with a
momentum for liberalization that could begin immediately after Hong Kong,
much like
the negotiations on telecommunications and financial services were quickly
into sectoral negotiations after talks on a plurilateral basis in these
sectors were
endorsed in 1997.

In short, to sum up the state of play in the WTO, developing countries have
to lose and nothing to gain with a new WTO deal, whether that deal is
concluded in
Hong Kong or a more protracted, extended « Hong Kong Plus » process.


But the problem lies not only with the current negotiating process that has
imprisoned within the so-called July Framework. The problem is more
fundamental: the
WTO’s structure, rules, and processes are systematically biased against the
of developing countries. It has taken developing countries 10 years to
learn them, but
there are four reasons why the WTO, to borrow the title of the Focus on the
Global South
video, is really bad for the global South:

First, trade liberalization is the raison d’etre of the WTO and it is
increasingly evident
that greater economic liberalization has had exactly the opposite results to
predicted by free traders.

After 20 years of structural adjustment and other radical pro-market
policies in the
developing countries, there are more poor people in the world today than in
There is much more inequality both within and among countries. The areas of
the world
that adopted pro-market policies most wholeheartedly-Latin America and the
sub-Saharan Africa, and Central and Eastern Europe-saw their numbers of poor
increase significantly. Indeed, massively in the case of the former
poster boy of
neoliberalism, Argentina, where 53 per cent tumbled below the poverty line,
with 25 per
cent defined « indigent », following the economic collapse of 2002.

A reduction in poverty was mainly registered in East Asia, where integration
into the
global market was managed by strong states like China and South Korea that,
in most
instances, applied an anti-free trade formula protectionism at home and
abroad. But even in this region, there were countertrends, as in Thailand
Indonesia, where International Monetary Fund (IMF)-supported capital account
liberalization provoked the massive Asian financial crisis that drove more
than one
million Thais and more than 21 million Indonesians below the poverty line in
the space
of a few weeks in the summer of 1997.

Second, the rhetoric of the WTO may be free trade, but its key agreements
corporate monopoly.

If negotiations in agriculture have ground to a halt, it is because, as we
have detailed
above, the AoA was never meant to liberalize global agricultural trade, but
to allow the
EU and US to manage their monopolistic competition to dump highly subsidized
on third country markets while conceding cosmetic cuts in subsidies to gain
for the arrangement.

Like the AoA, there is nothing faintly connected to free trade in the WTO’s
accord, the Trade Related Intellectual Property Rights Agreement (TRIPs),
which is
meant to give US and other high tech corporations monopoly over
innovations through the imposition globally of draconian patent laws
patterned after
those of the United States. Indeed, so brazenly monopolistic in intent is
TRIPs that the
free-trade partisan Jagdish Bhagwati has questioned its inclusion in the
This is not to say that we prefer corporate free trade to monopolized trade
(for free trade
is also profoundly subversive of developing country interests), but to make
the point
that this fundamental contradiction between ideological principle and
corporate interest
that runs like a fissure through the WTO has been a central reason for its
loss of
legitimacy among developing countries.

Third, the WTO is anti-development.

Stampeded into signing on the dotted line in 1994, it took some time for the
countries to realize that the TRIPs agreement practically guaranteed that
the traditional
route to industrialization, industrialization-by-imitation, is a thing of
the past; and that
the Trade Related Investment Measures (TRIMs) Agreement, by outlawing
tools such as local content policy, made it well nigh impossible to use
trade policy as
an instrument of industrialization. For most developing countries, the
« Doha
Development Round » is a malicious misnomer since it marginalizes the
areas of greatest concern to the developing countries: reconciling trade and
development, implementation of trade liberalization commitments made during
Uruguay Round, and special and differential treatment for developing

Fourth, global trade does not need the WTO.

The indispensability of the WTO to the expansion of global trade is one of
those lies
that, as the Nazi propagandist Goebbels put it, takes on the status of truth
repeated often enough. A corollary to this is the claim that global trade
would fall into
anarchy were the WTO to cease to exist.

Let us set the record straight: global trade did not need the WTO to expand
eighty six
fold, from $124 billion in 1948 to $10,772 billion in 1997! That expansion
took place
took place under the old GATT (General Agreement on Tariffs and Trade),
by the United Nations Conference on Trade and Development (UNCTAD). The
GATT-cum-UNCTAD framework permitted the development-oriented trade policies
enabled Latin American countries to industrialize from 1950 to 1970 as well
the state-
led protectionist/mercantilist strategies that Newly Industrializing
Countries (NICs) of
East Asia used to rapidly transform their economies between 1965 and 1995.
In other
words, the GATT-cum-UNCTAD multilateral framework allowed developing
countries a
significant amount of « policy space »-a phenomenon reflected in Robert
Pollin’s finding
that, excluding the special case of China from the equation, the overall
growth rate of
developing countries in the era of development (1961-80) was 5.5 per cent,
compared to
2.6 per cent (1981-2000) in the neoliberal era.

So why, if it was functioning reasonably well, was the GATT-cum-UNCTAD
superseded? The reason the WTO was established and its continuing raison
d’etre has
been to serve the interests of the transnational corporations (TNCs) that
dominate the global economy and are constantly seeking to open up markets.
To be
more specific, it was the US and its corporations that pushed the creation
of the WTO.
With its corporations becoming more dependent on the global economy by the
the US led the effort to replace GATT with an organization with a more
formidable trade
dispute-settlement mechanism to tear down protectionist policies; forged an
trade agreement with the EU that would manage their dumping in developing
markets; pushed an agreement that would open up the services of developing
to TNC exploitation; lobbied for a TRIMs agreement that would outlaw
countries’ use of trade policy to industrialize; and rammed through a TRIPs
that would consolidate the US advantage in cutting-edge, knowledge-intensive

Pushed by their own globalizing corporations, the EU and Japan went along
with the US
agenda, while the developing countries were largely bystanders, preferring
as they did
the relatively development friendly framework of GATTS cum UNCTAD.

Yes, the WTO is TNCs. For developing countries, it has
borrow an image from Max Weber–an iron cage that has robbed them of
space. For them, the last ten years has been a harrowing experience of
constantly on the defensive as the WTO process inexorably subordinated
to corporate trade. To defend their interests, they were forced to
establish blocs such
as the G20, G33, and G90, which contributed mightily to the derailment of
the WTO
ministerial in Cancun. If the current negotiations are stalemated, it is
because the
developing country blocs have successfully blocked the US’s and EU’s
negotiating strategy of conceding cosmetic cuts on their massive
agricultural subsidies
while demanding damaging concessions from developing countries in terms of
market access to their agricultural, non-agricultural, and service sectors.

Making a virtue out of necessity, partisans of the WTO have now seized on
emergence of these groupings to argue that that they enable countries to
negotiate on
more equitable terms under the WTO umbrella. The reality is that the deep
development bias of the WTO allows developing countries very limited space
to defend
their interests. Certainly, it is not a framework within which they can
pursue a positive
development agenda. Indeed, the one good thing to emerge from their
experience of
defensive trench warfare at the WTO is that the developing countries have
begun to
realize that they need to come together to create altogether different
institutions of
global trade governance from the WTO-institutions that subordinate trade to

The Sixth Ministerial of the WTO may well collapse in Hong Kong. This will,
be a positive development. Contrary to the self-serving doomsday scenarios
by its corporate supporters, there is life after the WTO. Its demise would
create not
anarchy but policy space for development.


Let me conclude by borrowing an image from one of my favorite authors, Bam
The WTO is like his immortal character Dracula. Every time you think you’ve
killed him,
he resurrects. Following the collapse of the Third Ministerial in Seattle
in 1999, the
WTO came back to life with its successful ministerial in Doha, Qatar, in
November 1991.
The Doha triumph, however, was followed by the unraveling of the Fifth
Ministerial in
Cancun in September 2003. Cancun was followed by the institutional coup of
the WTO
General Council in July 2004, which rammed through the draconian July
Thus the stakes in Hong Kong are high. Hong Kong may consolidate the WTO as
engine of global trade liberalization. Or it may prove to be stake that is
driven through
the heart of this profoundly anti-people organization and finishes it off.

Walden Bello is executive director of the Bangkok-based Focus on the Global
and professor of sociology at the University of the Philippines. He is
author of
Dilemmas of Domination: The Unmaking of the American Empire (New York:
Metropolitan, 2005) and numerous articles on the World Trade Organization
and the
developing countries.

Focus on the Global South