A trade round for development

The approach to trade negotiations inherited from the General Agreement on Tariffs and Trade (GATT), with its concession bargaining and “green rooms”, has had its day.  

The collapse of world trade talks in Seattle in 1999 conveyed some crucial messages over and above the protests about globalisation, not least that the approach to trade negotiations inherited from the General Agreement on Tariffs and Trade (GATT), with its concession bargaining and “green rooms”, has had its day. Seattle also showed that trade ministers alone cannot resolve issues that go beyond the sphere of trade, and that the key systemic issues of the day cannot be reduced purely to their trade or financial dimensions. As it was so aptly put by Angel Gurría, Mexico’s former Minister of Finance: “The ultimate systemic threat today is poverty.”

Developing countries know this, and that there can be no significant trade agreements without their participation and effective endorsement, so more than ever a trade round needs to be looked at from the viewpoint of a global development policy.

Had these lessons been taken on board, we would now be talking about a development policy based on open trade, instead of a “trade round with the focus on development”. In any case, it is vital that the next round of talks lives up to expectations. This means fully gauging not just the importance of the developing countries and the scale of their problems, but also the financial and institutional efforts required for the talks to have any chance of success.

The importance of the developing countries in the next trade round stems from the success of the World Trade Organization (WTO), which now has 111 developing country members, compared with only 60 in the GATT two decades ago. These countries account for 25% of the world’s output and exports, and 25% of all complaints lodged with the WTO. Yet they are by no means a uniform group. Apart from the poverty affecting major segments of their population, the least developed countries (LDCs) and the newly industrialising countries (NICs) have fewer and fewer characteristics or interests in common. Yet their people’s aspirations are very similar. Whether the concern is social development, environmental protection or participatory democracy, the real enemy is poverty in all its forms. Rather than growth measured in purely quantitative terms, the goal has to be sustainable development.

Only if a new trade round is seen as a prerequisite for sustainable development in all developing countries will it have any chance of success. It does not require much argument now to demonstrate that open trade is vital for growth – 50 years of history are there to prove it. But if it is to win long-term public support, an open trade policy must be seen as an integral part of a growth policy focusing on poverty reduction. Such policies have to be defined by the developing countries themselves. But they will only work if the industrialised world does more than it is doing today, starting with a substantial increase in what is at present severely inadequate development assistance. As for the new trade round itself, the industrialised economies will have to be ready to go beyond the preferential treatment they have so far given the developing countries. They could accept different timetables for implementation, particularly for the least developed countries, and be more flexible about the requirement to sign up to a whole package, which can push developing countries into making commitments in sectors where they have little or no capacity to manage implementation.

A few special commitments from the industrialised world could be of decisive importance. One notable idea is to allow the 50 or so LDCs, which account for only 0.5% of world trade, free access to industrialised country markets, their main outlets. However, a proposal to this effect put forward by the European Union and Japan would cover only customs barriers and would be limited to “most imports”, when in fact other obstacles, in particular sanitary or technical barriers, have far more impact than duties. Then there is that vital WTO structure, the Dispute Settlement Body. Developing countries have already obtained satisfaction in some cases, and could be more active here if they were better prepared. United Nations Conference on Trade and Development (UNCTAD) initiatives to assist them would definitely gain from being stepped up. By the same token, simpler customs procedures would be of enormous benefit to the developing countries, whose capacity to shoulder administrative costs is extremely limited.

The European Union and Japan have grasped how important technical assistance and capacity-building are to furthering open trade, and they do offer some funding in that area, but this kind of effort needs to be shared by all the industrialised countries. It should also extend to all areas where rules to regulate globalisation, such as financial transparency, bank surveillance, accounting standards and codes of good conduct, place a very heavy burden on the poorer countries. The developing countries would certainly accept that adopting such standards can accelerate their development and heighten the benefits of open trade. But such progress needs to be brought within their reach and appropriate funding could contribute significantly to a balanced set of comprehensive negotiations. This is one area where the interests of the industrialised world and those of developing countries clearly converge.

All this leads us towards the idea of a far-reaching round of trade negotiations, since it has to demonstrate that the WTO mission to promote open trade is part of a credible, comprehensive drive to foster sustainable development. This in turn should lead to greater financial stability and the achievement of major commitments made over the past decade in areas such as education, health, the environment, core labour standards and greater regional security.

Nevertheless, this raises key institutional issues that are all too often overlooked. In the wake of the Asian crisis, the first steps to create a sounder monetary and financial architecture were taken under the aegis of the IMF. It is important that they continue. For the WTO, determining its sphere of competence and integrating the development objective are high on the agenda. How should WTO action on sustainable development tie in with that of the Bretton Woods institutions? Some useful agreements have been signed in this area. But what about the burning social and environmental issues? How could a round of WTO talks, focussed on trade concessions, further those goals? That is an open question. In my view, institutions should continue to specialise, even if it means tailoring them to suit their new responsibilities and finding ways of stating their mission more explicitly.

This brings us to three urgent issues that are all too seldom raised: Firstly, increasing the capacity of the International Labour Organization (ILO) to promote and verify the implementation of “core labour standards”. Only at this price can risky negotiations on a hypothetical “social clause” be avoided. Secondly, the need to strengthen the United Nations’ capacity to act on the environment, thereby lessening the chances of environmental concerns being used as an excuse for protectionism. And thirdly, the long-awaited adoption of a credible policy mechanism for inter-institutional co-ordination and arbitration, bringing all countries together in a small but legitimate structure. Former EU Commission President Jacques Delors once proposed setting up an “Economic Security Council” within the framework of the United Nations. As a step in that direction, I myself proposed that the G7/G8 should invite the Heads of State and Government of other countries on the Councils of the Bretton Woods institutions to meet on a two-yearly basis. It is only at their level that important decisions can be taken. There are alternative solutions, but the issue cannot be avoided for much longer.

Clearly, there are links between trade, development and world governance. Globalisation is making those links more complex but at the same time more vital. Unfortunately, the full significance of the forthcoming trade round and its many institutional implications may not have been perceived by all. The work of the OECD will certainly help to facilitate the necessary consensus-building on some of the thornier issues.

©OECD Observer No 226/227, Summer 2001 

Economic data

GDP growth: +0.6% Q1 2019 year-on-year
Consumer price inflation: 2.3% May 2019 annual
Trade: +0.4% exp, -1.2% imp, Q1 2019
Unemployment: 5.2% July 2019
Last update: 8 July 2019

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