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World trade, poverty and the environment in the age of global governance

Kevin Watkins Jean-Pierre Lehmann
11 June 2002

openDemocracy – What are the core arguments in Oxfam’s report Rigged Rules, Double Standards?

Kevin Watkins – International trade has an enormous potential to take people out of poverty. We have seen that potential realised in East Asia, where around 300 million people have been brought out of poverty in two decades. Most of the countries in the region have seen their share of exports and GDP rise very significantly, and so they have managed to integrate into the global markets in a way that has spurred economic growth.

“International trade has an enormous potential to take people out of poverty, far more than aid or debt relief… But the full potential of trade to reduce poverty is not being realised.”

Also – and I think this is an important difference from other developing regions – they have succeeded in achieving a fairly wide distribution of benefits from economic growth. So trade policies have supported strong growth and pro-poor distribution. Recently, we have seen countries such as Vietnam, Uganda and a few others achieve similarly impressive results in poverty reduction and growth, which is partly linked to trade policy reform.

But the key message in the report is that the full potential of trade to reduce poverty is not being realised. We see this, in particular, in sub-Saharan Africa, which is falling behind in terms of global income distribution and has a very low rate of poverty reduction. We also see it in Latin America, where countries have liberalised very rapidly, but have achieved fairly insignificant results in terms of increased growth and poverty reduction. Take the figures for Africa: a 1% increase in world market share for Africa brings about five times as much as the region receives in aid and debt relief.

But there are two sets of serious problems in realising this potential. The first set is rooted in international trade policies and in institutions such as the World Trade Organisation (WTO) and the International Monetary Fund (IMF). They are rigging the rules of the global market against poor countries through inappropriate regimes on intellectual property rights and on services, and through the promotion of ‘big bang’ liberalisation policies introduced by the World Bank and the IMF.

The second set concerns national policies in many developing countries themselves. Many have failed to establish the institutions and policy framework to distribute the benefits of international trade to the poor – policies that relate to environmental resource management, to land distribution, to employment rights and, in particular, to the employment rights of women.

Jean-Pierre Lehmann – I have no problem with the core arguments of Oxfam’s report. I agree about the unjustness of protectionism by developed countries vis-à-vis poor countries, and I have been fighting this battle for a number of years. So, any report that comes along and is a source of ammunition for this is welcome. When I discuss these things, people claim not to have heard this before. I think that there is a problem with ignorance.

“The entrepreneurs in most developing countries are screwed by their own [governments], rather than by international institutions.”

So the core I think is fine. But I have four overall comments. Firstly, there is not enough emphasis on discrimination by northern countries in terms of labour mobility. We have all sorts of reports on the advantages of remittances, and I think that the advantages they offer to developing countries are one of the key issues. But this is less a criticism than another question that needs to be addressed.

The second comment, which is perhaps more critical, is that insufficient attention is paid to the major obstacles that exist within countries and within regions (1). I agree that the major problem is with the industrialised countries, but beyond that it is clear that there are major impediments to enterprise creation, creative liberalisation. There are problems with insufficient investment in human capital formation. The entrepreneurs in most developing countries are screwed by their own, rather than by international institutions. This is one of the reasons that I was rather upset by the campaign in Dakar (2).

Viking ship
Vikings - pioneers in the creation of TNCs?

My third comment is to emphasise that regionally there are differences. Compare South-East Asia and Africa. One of the important dynamics of South-East Asia has been the degree to which its various countries have gradually been able to open borders to each other and become cooperative regionally. Where I have fairly strong disagreement with the Oxfam report is with respect to Transnational Companies (TNCs). Of course, I know that there are many abuses, and it is great to point these out. But, at the same time, I think that what is presented is very distorted.

I think that TNCs provide greater benefits than is recognised in the report, and this is why I have recommended to one of Kevin’s colleagues that Oxfam participate in some of the executive training programmes that I have here, so that Oxfam and the executives from some of these TNCs could exchange information. I am sure that they are open to suggestions on means of improvement. Some of the executives that I work with are from the countries concerned and they would like to see improvements – and by and large they are working to that end. I would like to see more cooperation and support, rather than just using multi-nationals as targets, which I think is unjustified.

Christopher Columbus
Columbus - the world was his backyard

Fourthly, I hold to my point as outlined in the Financial Times (3) that in its campaign in Dakar in Senegal, Oxfam is guilty of double standards. Why plaster the streets of Dakar with these posters on the iniquity of the international system, especially given the fact that the Senegalese cannot do very much about it, instead of the streets of New York, Washington, Brussels, Geneva and Tokyo where it is especially important to get the message across?

South Korea to Senegal: which path to development?

KW – In response to the point about labour mobility, we do address this in some detail in the report. We point out, drawing on the work of Dani Rodrik at Harvard University, that there are potentially enormous foreign exchange gains to be had for developing countries through improved labour mobility, and that the remittances would have a strong effect on poverty reduction – obviously stronger for some countries than for others. This also appears specifically in the context of the negotiations over the General Agreement on Trade in Services (GATS) and in the WTO.

We show in relation to this agreement that most of the bargaining that takes place has tended to focus on areas such as banking and insurance and other financial services, where the principal benefits of liberalisation would accrue to northern countries and to transnational organisations. One of the areas that has been very underdeveloped in terms of the weight attached to it in negotiations, is what is referred to as Mode 4 – the transfer of people and the right of skilled and semi-skilled workers in areas such as construction, transport and computing to enter northern markets.

To turn to the second issue, which I think is a more substantive one, Professor Lehmann accuses us of double standards, and I think that we would reciprocate in kind by quoting from his letter to the Financial Times, where he sets himself the age-old question of why it is that countries such as Senegal that forty years ago had the same GDP per capita as South Korea, now has a GDP of about a twentieth. (Of course, this is an exercise that the World Bank loves to do. They have been asking us for the last ten years why it is that Taiwan and Nigeria were the same forty years ago, and Taiwan is so much further ahead now. They will say that Taiwan and South Korea followed the policies that we recommended, and Nigeria went down the road of import substitution.) But Professor Lehmann in his letter says: “one difference may be that whereas in South Korea they just got on with it and focused energy on forcing their way into the system, in Senegal, as in many other African countries encouraged by the Oxfams of this world, they wasted a lot of energy grumbling and complaining and blaming everyone else for their problems.”

Now I’m not sure what type of analytical tools Professor Lehmann brought to bear to arrive at that conclusion, but I think to describe Africa’s experience in the international trading system over the past several decades as a consequence of grumbling, and to describe South Korea’s success as a sort of psychological dynamism really leaves a lot to be desired.

“I think that the important aspects for some of the East Asian countries were the investment in education and in human capital formation, and issues related to governance.”

I think a serious academic looking at these issues would want to look at the interface between public and private property in South Korea, the critical role of land reform, of the United States’ support in providing technology transfer and access to markets, and the fact that there was a stronger tradition of an independent civil service. All of these factors are missing in sub-Saharan Africa, where countries were emerging from the colonial experience, which is a factor that Professor Lehmann misses altogether. There are many issues to be discussed and I think that reducing the experience of sub-Saharan Africa to this psychological attribute is fundamentally silly, to be frank.

JPL – Of course, there are many reasons for Senegal’s failure and for South Korea’s success. And it is important also to bear in mind, when contrasting South Korea and Senegal, that there are two Koreas that have emerged from the same history and culture. But I think that the critical thing about South Korea, and this is what I stressed to students in Senegal, is that people there find it interesting to take a broader and more global perspective, and to learn from other societies. I think that the important aspects for some of the East Asian countries were the investment in education and in human capital formation, and issues related to governance.

Kevin seems to be saying that I am echoing the World Bank. My comments are not so much to do with the export-oriented strategies versus import substitution, but more on the basis of domestic institutions and so on. I think that Nigeria’s main tragedy has been the succession of military dictatorships and the way the country has been plundered by irresponsible elites.

All comparisons are odious, but what I was trying to stress to Senegalese students were the opportunities that can exist in the international trading environment, bearing in mind the obstacles that are there. I said that I found a great degree of realism and energy, which means that much more can be done internally in Senegal – especially, for example, when you see that 60% of the economic activity is in the so-called ‘informal economy’.

I think that there should be more incentives there for entrepreneurs. One of the things that surprised me in Senegal is that university students cannot get bank loans, which very much restricts the possibilities for education. I wouldn’t push the South Korea–Senegal comparison too far, but I would insist that there is a need to focus on domestic institutions and the quality of governance in general.

Foreign investment and employment

open – Why were you so annoyed by the posters that Oxfam was displaying in Senegal?

JPL – I think our disagreement is more about means than ends. I think that the message on Oxfam’s posters is correct and is the right message in Brussels or Geneva. But I think that it is the wrong message for Senegal. In every developing country where I talk about the international trading system, I advise people to be aware of the injustices and to be on the offensive, not the defensive. I was at the Monterrey Conference for Finance and Development, and the problem is that a lot of the proclamations made in Monterrey are only being made there – and not in Madrid or Manchester. I don’t think that the majority of voters in the West are particularly conscious of how much harm their government’s trade policies are causing. So, if I could see the posters here, I would join the campaign. But I think that, in Dakar, these posters are fuelling those who say that there is no point in reforming because the world is against us. These posters do not add any incentive, which I think under the new regime in Senegal more people are in fact prepared to undertake.

KW – This is the classic case of setting up a straw man and then knocking it down. We have invested a huge amount in bringing these messages to the public in Europe and North America. It may be true, Professor Lehmann, that we have not taken out billboards, and I suspect that the price may be somewhat prohibitive. But we have organised public meeting in Britain and in Tokyo, in Brussels, in the US. We have generated huge press coverage on the impact of all of these issues, and on the impact of northern protectionism in the North. This has been a major focal point for our campaigning.

“We are working with women entrepreneurs who cannot get access to credit, with small-scale fishing communities facing problems with sustainability of fishing stock."

Now if you take the specific case of Senegal, where we are working with a large group of partners, much of the work that we are doing is grassroots institution building. We are working with women entrepreneurs who cannot get access to credit, with small-scale fishing communities facing problems with sustainability of fishing stock. We are working with others who are trying to get access to the market. So we are investing a huge amount in developing an institutional capacity in Senegal and elsewhere, and in fact it is really our core business.

It happens that our partners felt it was important that European diplomats in Senegal, as well as Senegalese society, were able to see the concerns that were being raised by civil society about the double standards that were being imposed on their country. The fact that you saw it may mean that the US and the EU ambassadors also saw it. So we make no apology about that at all.

open – Professor Lehmann questions Oxfam’s view of TNCs. He argues that they play a much more positive role in the creation of wealth in developing countries than your report allows.

KW – Oxfam does not deny that TNCs play an important role in some contexts or that foreign investment can play an important role. Foreign investment can facilitate skill transfer and technology transfer. Increasingly in the global market, where access to northern markets is conditional on being part of a production system that is linked through foreign investment, it is important that developing countries participate.

What we try to draw attention to in the report are some of the employment factors that are related to foreign investment. We are not talking here about first level employment. It is often through sub-contracting systems that in many cases the employment practices are unacceptable.

To give you one example, if you take the free trade zone areas in Bangladesh – a major source of supply for big companies such as Marks & Spencer, GAP and Nike – women working there are denied the labour rights that are available to other workers in Bangladesh, such as the right to join trade unions and to a minimum wage. We interviewed dozens of women who said that their primary concern about working in these factories was not so much the conditions, it was the vulnerability. If they became pregnant, they would almost certainly be sacked, because the companies would not take on the insurance.

I trust that Professor Lehmann would agree that this sort of practice is not one that any TNC should be associated with, and that as a major player in these countries they have a responsibility to reform those practices. This is nothing to do with being against foreign investment. It is to do with protecting the basic rights of extremely vulnerable people and giving them the right to participate in the global system and not have the benefits without suffering exploitation.

JPL – Yes, there are abuses and these must be condemned. There should be naming and shaming. But I am concerned about a tendency to paint the whole of the TNC community with a broad brush. There are cases of good and bad TNCs. In some cases, their perniciousness is unconscious and the practices that are taking place are happening without the knowledge of the TNCs. Now this is not an excuse, but this is where I believe that the roles played by non-governmental organisations (NGOs) such as Amnesty International and Oxfam are extremely valuable. I think that it is a good thing to be the conscience of the developed world.

But I also think that people in the industry reading the Oxfam report would get the sense that this is an attack, rather than an invitation to engage in means of finding solutions and trying to do away with the abuses. And this is why I am making the proposal to meet with several hundred of the 5,000 executives I have here on a regular basis. I am more than happy to give Oxfam a platform here – to make them aware of the abuses, but also for them to learn. What I have seen with these executives is generally a concern to improve the conditions of their local stakeholders.

This relates to our earlier discussion about labour mobility. I think the two issues we have discussed – improving the living conditions for people from poor countries through investments and mobility of labour – are linked.

The impact of TNCs

KW – There are different levels at which we look at TNCs in the report. A point I made earlier is that foreign investment does play an increasingly important role in the global economy and is a conduit for technology transfer and skills transfer. For example, foreign investment in East Asia in the microelectronics sector has created a huge number of jobs and has clearly had a benign effect on wages in the local economy.

“There are cases of good and bad TNCs. In some cases, their perniciousness is unconscious and the practices that are taking place are happening without the knowledge of the TNCs.”

We highlight three aspects of TNC influence in the report. Firstly, we contrast good and bad quality investment in different national contexts. Look at the case of Intel in a country such as Costa Rica, which has been very successful. Costa Rica attracted Intel without offering huge tax concessions, without running down its labour standards, without setting up a free trade zone, and went with Intel into a partnership to invest in training and to develop a new generation of skilled engineers in microelectronics. Very strong linkages were set up between Intel and local entrepreneurs. This has had a positive effect for Costa Rica.

However, if you look at the type of foreign investment that is going into Mexico in the maquiladora zones, this foreign investment is almost entirely de-linked from the local economy. It is essentially an assembly operation. TNCs are bringing goods from the US, assembling them in Mexico, and re-exporting them. Something like 2% of the value-added comes from local entrepreneurs in Mexico. Now this is creating a lot of jobs, albeit at a low wage level. But in terms of long-term dynamism, we don’t believe that this type of investment is particularly positive, and we argue that there are strategies that governments can adopt to change this picture. When one talks about foreign investment it is important not to do it in blanket terms. There are very different types of quality of investment involved.

“When one talks about foreign investment it is important not to do it in blanket terms. There are very different types of quality of investment involved.”

Secondly, we also address the very important issue of what we see as the undue influence of the multi-nationals in the trade negotiation process as a whole. Let’s take two examples. For practical purposes, the set of rules that govern intellectual property issues were written by the global pharmaceutical industry and pushed through during the Uruguay Round. One of the immediate effects has been to push up the cost of anti-HIV AIDS drugs in sub-Saharan Africa and elsewhere.

More generally, these rules are going to raise the cost of technology transfer, precisely at the moment in the global economy when poor countries need access to these technologies to climb the value-added ladder, and to participate in the knowledge-based global economy on a more equitable level. We believe that this is an example of a case where private interests have prevailed over the public good in the multilateral negotiation process, and we would say that the same occurred with the negotiations over services. So we argued very strongly in the report that if the credibility of the multilateral trading system is to be restored, then something has to be done to get this corporate influence under control.

Thirdly, we focus on TNCs behaviour over labour rights. We do not argue that TNCs are single-handedly going around the world, trying to destroy labour rights. Rather, the point is that, in order to attract foreign investment, the governments of developing countries are being sent a consistent signal by the investor community, by northern governments and by the World Bank and the IMF, that if you want these guys coming to your country, then you lower labour standards, you get rid of union rights, you get rid of minimum wage requirements and social insurance.

We think that this is misplaced in economic terms and fundamentally wrong in social terms. The response of the corporate sector has been to say, let’s go down the road of voluntary codes of conduct, corporate social responsibility. But the evidence that we show in the report shows pretty comprehensively that this does not work, and this is why many TNCs (many of whom we are in dialogue with) support us, saying we want to see proper legislation in place here. They don’t want to have to hire accountants in the North to monitor contractors and sub-contractors – they want a proper legislative framework in place – and this is one of the core things we are arguing for in this campaign.

JPL – On the intellectual property issue, I have no particular disagreements. What we have been arguing very strongly about is that the intellectual property rights strategy being adopted by northern countries is hypocritical. I have said that no country has achieved the status of being a leader in technology or science without having stolen intellectual property previously, and the most egregious of all is the US. I totally agree that one of the things we should argue for is genuine effort towards technology transfer. The effort must be made because technology transfer is a means of generating more quality growth, higher levels of education, and so on.

But I would refer back to Mexico and argue that with, for example, the creation of NAFTA and the maquiladora, the creation of jobs is initially good news – so long as it is taken advantage of to move to higher levels. Perhaps my judgement here is informed by the experience of having been around for a long time, and in many places. If one looks at the situation in Taiwan or Singapore in the 1960s, it was not dramatically different from what is happening today in Mexico. But the Singaporeans and the Taiwanese went on to develop local institutions, to develop higher education and to move up the value-added chain and to generate better quality jobs.

Taipei
Taipei: is Taiwan's contemporary prosperity rooted in providing R&R to US servicemen in the 1960s?

There are histories here. In Taiwan, when I first visited in 1966, the major forms of generating revenue were the sweatshop textile business and servicing American servicemen on R & R from the Vietnam War. Their success since then has partly to do with the international system, since the markets were open, but it has had a lot to do with investment in human capital formation and accountability by the government.

This again is where strong criticism can be levelled at the governments of Japan, US and Europe for the international trading system, but equally at those of developing countries. The latter should be looking at each other and seeing how some have managed to improve their conditions significantly.

José Bové
José Bové - "more powerful than a thousand TNCs?"

In reference to the influence of the corporates on the world trading system, what is relatively funny here is that if you talk to them they have the opposite view – so this may be a question of perception. Many political leaders do however admit that their policies are strongly influenced by NGOs. In France, for example, the ‘peasant’ activist José Bové is much more politically influential than company directors.

Insofar as labour rights are concerned, I have no disagreement. The good feature of Oxfam’s report is that it draws attention to the International Labour Organisation (ILO), which is often forgotten. It is important to strengthen the ILO and to improve working conditions and codes.

“We must recall that local investment is just as important as foreign investment… A problem with respect to India, for example, has to do with the domestic blockages to investment which discourage entrepreneurs.”

We must recall that local investment is just as important as foreign investment. One must be critical of governments that allow human rights violations to take place. One must also be critical of governments that set too many bureaucratic rigidities for foreign and local enterprise development. A problem with respect to India, for example, has to do with the domestic blockages to investment which discourage entrepreneurs. A lot of the capital that could be used in India, therefore, goes elsewhere.

The need for fair rules – and to make them work

open – We saw at Doha significant rhetorical concessions from the major northern trading powers to developing countries: promises about liberalisation in agriculture and so on. These do not seem to be happening in practice and indeed it seems as though things may in fact be going backwards (4). What is to be done? We might all agree that a fair trading system is a good ideal, but the reality seems to be that those with most power will abuse the system to the advantage of powerful vested interests.

KW – I think that, in many respects, Doha is a last chance for the world trade organisations. It is now widely appreciated outside Geneva and northern government capitals just how badly discredited the WTO system has now become in many parts of the developing world. I think there is a sense that northern governments come up to these meetings, put on a good show over trade and poverty reduction, and go away and do nothing. Or carry on what they were doing before, which is worse than doing nothing because it is reinforcing the poverty and inequality that occurs because of international trade.

All of the early signs are that Doha is about to conform to that model. If you listen to the Director-General of the WTO, his main pitch as to why this is a development round (as it has been labelled by the northern governments) is because there is now going to be a serious investment in capacity building and a trust fund of the order of about $30 million to facilitate this capacity building exercise.

“And the point that is missed is that, in many cases, they will be going home and implementing agreements that are not in their national self-interest, or in the interest of poor people in those countries.”

The point about his trust fund is that it will support seminars on legal training to support the implementation of WTO agreements, which means that hapless trade officials from Mozambique will be brought to Geneva, and educated in the niceties of TRIPS (trade-related aspects of intellectual property rights) or GATS, and then they will have to go home and implement them. And the point that is missed is that, in many cases, they will be going home and implementing agreements that are not in their national self-interest, or in the interest of poor people in those countries.

The real investment in capacity building would be for the negotiators, academics, industrialists and entrepreneurs of developing countries to be given access to negotiations in Geneva in precisely the same way as their European Union and US counterparts.

We must scratch below the surface and ask the very basic question of what is the down payment that northern governments have made to signify good intent on the Doha round? Are they talking about improving market access for low-income countries? The answer is no. Are they talking about rolling back the most egregious forms of protectionism targeted at developing countries? The answer is no. Are they doing anything about the agricultural policies, which are destroying international markets and leading to unfair competition in local markets between subsidised northern exports and small-scale farming in Africa and elsewhere? The answer is no.

On the contrary, the tide seems to be going in the other direction. The US recently announced an increase in agricultural subsidies under the new farm bill of the order of $17-20 billion. This will generate massive over-production and subsidised dumping. We’ve seen the steel story unfolding and we know that the US will be applying the same principles to textiles and garments because there are elections to be won in South Carolina. And, of course, the congressional seat in South Carolina is worth more than a few hundred jobs in Bangladesh or elsewhere.

US farming

The US farm bill: good news for the proud family agri-businessman

open – So why should developing countries believe that they should participate in a system which looks like it is always going to be abused in such ways?

KW – Well, because I think that the developing countries are, in some respects, in the same position as the public in the North on this. They either work to change it, or they tolerate it. I think they don’t want to tolerate the intolerable, which is what the current regime is. I think that we at Oxfam and in the academic community have a responsibility to get across what is actually happening in the negotiations, and to change it. The danger in the developing countries is that they are really in something of a hard position. Of course, one can always walk out of the WTO, but then that leaves you subjected to bilateral and unilateral trade pressure, with no protection at all. And of course the point about a multilateral trade system is that it is supposed to protect the weak against the strong – if you don’t have rules, the strong will prevail. I think that walking out is not the answer – changing the system is the answer.

child labour
No experience necessary

JPL – We agree here. I think that there is something wrong, not just for the reasons that have been given, but also in terms of the general ambience. If we go back and look at the reasons why the GATT was established, most of us would have great difficulty recognising what is going on today. Here, we have this institution that is supposed to be committed to improving the trade environment, and which is supposedly based on certain principles, but where the behaviour is mercantilist (5).

There is a very wrong message out there – that I will only do this if I can get this concession out of you.

I think the other thing is that this means that those who win are those who have the strongest number of lawyers. Trade and economics are supposed to be able to provide win–win solutions, and legal disputes do not. The word reform has been used, and we would like to see some very radical reform. A lot of the problems have to do with the fact the system has become dominated by negotiators, who use jargon that is especially incomprehensible to anyone else, and this in itself constitutes an absolutely huge barrier.

Wanted: not trade-offs but fair trade

open – What are some of the reforms that you would like to see?

JPL – I think they have to be dramatic reforms in the way that the negotiations are conducted, in the accountability of the negotiations. I think that one of the things that is important – and here I agree with Kevin – is, with all of the money going into capacity building, we have to ask capacity building for what? Is it really a priority for poor countries to be using scarce funds of money to be developing legal negotiators, rather than the other skills that are more needed? This will be extraordinarily difficult to achieve, but I think that a campaign must occur to try and change the basis on which the negotiating system exists. I agree also on the point that, if this fails, the WTO will become another institutional white elephant – if indeed it survives.

One of the things that we have been arguing is that there should be a round – limited, manageable, yet ambitious – with a core emphasis on market access for developing countries. Then go to other issues, when they are necessary. This should be the top priority. It requires political pressure.

We have to have a round that focuses on access for developing countries, and we have to achieve this in two to three years. If we keep loading on to the existing agenda, it will make it an impossible vehicle to drive. And we were saying this even before the Bush administration starting imposing new protectionist policies on steel, farming and textiles.

KW – I think the reason that this is difficult to answer is that it goes to the heart of economic power relations, and to the influence of vested domestic interest over the trade policies in the WTO. Maybe this is a fallback position, but I stand by the view that public pressure is the key to change here.

Take the one area of a fundamental shift in the WTO with respect to developing countries – in the area of TRIPS, where the developed countries agree to a ‘pro-public health’ interpretation of the TRIPS agreement. This is to say that they wouldn’t place the claims of the patent holders over and above the claims of the people who need access to the medicine. Now this seems like just a form of words, but it is an important form of words, and we need to see it enshrined in the agreements, in the form of an amended text that allows for compulsory licensing to override patenting. But I think it does illustrate that change is possible.

“I believe that if most Europeans knew what their governments were negotiating in their names, they would be outraged, and I think this is also true of most Americans.”

It seems to me that the problem here – and I think that Professor Lehmann is right – is that these negotiations are so opaque, there are so many acronyms, and it is so hidden from public view that it is difficult for most to get a grasp on it. I believe that if most Europeans knew what their governments were negotiating in their names, they would be outraged, and I think this is also true of most Americans.

The problem is not just extending the agenda. A deeper problem is that we are seeing issues such as procurement and competition on the agenda. And all of the issues that should have been tackled years ago, such as market access for developing countries, are now being traded off against developing countries making concessions in these areas; in the spirit of “you give us access for our banks, and we’ll give you access for your bananas”. This is not an appropriate way to run a trade negotiations show.

What we need to see is this whole agenda rolled back. There may be a case for liberalisation in many countries in areas such as procurement and competition, but WTO blueprints are not the way to do it. The same applies to foreign investment. What the WTO should be doing is going back to its core business, which is improving market access, but with a clear focus on developing countries, and on rich countries catching up with poor countries in terms of liberalisation. What we’ve argued for is that there should be a commitment to providing duty-free access to all low income countries in rich countries, there should be a clear rule signalling the end of agricultural export dumping, and rich countries should deliver on their commitments to phase out protectionism on garments and textiles, which are major exports for poor countries. If we had some delivery in these issues, it might restore a level of credibility to the WTO that it currently lacks.

JPL – I fully agree and endorse all that has been said. I would add that the way I approach this is by looking at the demographics – and I don’t think that this happens enough in general, not just with reference to the Oxfam report. We need to consider the environment that we are living in now, and the one we are going to be living in over the next decade.

At least 700 million young people will come on to the labour market in developing countries in the next ten years and, depending on what kinds of policies will be adopted, this could be a generator of fantastic vitality and wealth for the world economy, or it could be a disaster. If jobs and wealth are not created, there will be high levels of disaffected youth who will be more prone to engage in violence. We have to have a reality check on the present and on the future.

Uganda youth
700 million young people coming onto the labour market in the next decade - including these Ugandans

I do think that a lot can be done – and I agree that I don’t think a lot of Europeans and Americans realise what their trade negotiators are doing because they don’t understand and, in many cases, they don’t really care. Until they are confronted with what is going on one has to appeal to their enlightened self-interest.

We have to get away from the idea of philanthropy. I do agree with the report that aid is important, but – at least in terms of the constituencies I have to convince – I stress opportunity. I speak with people in Senegal and see young people with fantastic energy, and there is opportunity for everybody there. I agree also that we will not get change without pressure and campaigns, but a lot of time is wasted in disagreement rather than on focusing on two or three priorities for the future.

Trade and the environment – tension or partnership?

open – In May, the UN Environment Programme launched its Global Environmental Outlook 2003 (GEO 2003). This lays out some scenarios for the coming years. One of the scenarios is a ‘market-led’ world with good levels of economic growth and prosperity through market-driven models. I believe that the UNEP report suggests that this will lead to serious consequences for the environment on which the world economy depends, amongst them the very high and rising level of greenhouse gases, which could lead to the destabilisation of the climate. If you credit UNEP’s analysis, there are real dangers that the current kinds of economic growth we have are not sustainable. Using similar arguments, Oxfam’s report has been criticised by some environmentalists (6) and by those who want to see much more localised economic activity and less international trade.

JPL – Concern about the environment is legitimate. But it comes down to a question of priorities. As has been pointed out, we have about 1.2 billion people who live and die in poverty – with all that implies in terms of inadequate food, lack of safe water and medical care. We have another 1.2 billion who live in slightly but not much better conditions. In total, about 40% of humanity are living in dire poverty. I think that for global governance poverty reduction is the key priority, and in ways that must not be accomplished at the expense of future generations. I have doubts that this development round will do what it is supposed to, but I am happier that it is a development round rather than an environment round, simply because I think that this is a greater priority. We need to eradicate poverty to save lives, and in so doing, be conscious that the environment must not suffer.

KW – Environmental concerns are imperative. If we are looking at areas such as ozone depletion and global warming, these are too important to be brought down to the base of economics. Some things have to override economics. Our take on some of the concerns in the UNEP report is that what it is highlighting is the failure of market price to reflect underlying environmental costs, and this is a problem that we have to acknowledge.

There is a specific case cited in the report, on the destruction of mangrove areas. It suggested that about half of this destruction is attributable to the development of intense shrimp farming in South-East Asia and South Asia, and, of course, most of that is directed towards supplying markets in industrialised countries. In some of these areas, if that type of analysis is right, then governments in these countries have to think very carefully about the application of taxation policy to production in those areas, or to export prohibition. We have to acknowledge that.

My deeper concern is in the way that this has been taken up by some parts of the localisation movement, who are using these legitimate environmental concerns to set out the case against trade as such and to say that trade is the primary driver of environmental degradation – that we need less trade, and to go back to localised economies, in order tackle these problems. I think that this argument is specious and unsubstantiated by the evidence.

“I think that the argument for using the environment against trade per se is a deeply flawed one.”

It is specious because there are intense environmental problems associated with production for local markets, for example the iron and steel industry in India and China. The real challenge is to find new forms of energy, with more efficient forms of energy use, and to ensure that market prices reflect environmental costs.

I think that the argument for using the environment against trade per se is a deeply flawed one. People who say, for example, that the failure of India to tackle poverty, or the deepening environmental crisis in Northern India, is all the result of India’s transition from an inward-looking to an export-oriented economy, are not giving the whole picture. India exports about 0.1% of its agricultural production. So this is a nonsensical argument that does not deserve to be taken seriously. We need a serious debate, but let’s have it on proper terms.

JPL – Today, with the end of the cold war and the ‘victory of capitalism and liberalism’ pretty much throughout the world, we stand at the threshold of truly remarkable opportunities. There is every reason why the 21st century should be a fantastic era of prosperity, progress and peace. Yet the omens are not good. The advantages gained from the end of the cold war are being irresponsibly squandered. There is a terrible leadership deficit at all levels.

The Bush administration is undoing all the advances of recent years in trade liberalisation through appalling protectionist policies. The EU and Japan are not much better – especially in the field of agriculture, which is so detrimental to the interests of the developing world. Meanwhile, governments in developed countries are myopic, corrupt and irresponsible. Every effort is needed to turn things around. To be pessimistic is, I believe, to be realistic. But we cannot afford to be defeatist.


FOOTNOTES:

1. “About 40% of the total tariff imposed on manufacture, or $80 billion, was levied on manufactured exports from developing countries. $57 billion, or just over 70%, of this burden was imposed by developing countries themselves”. Thomas Hertel et al, Agriculture and non-agricultural Liberalisation in the Millennium Round, 1999

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2. LETTERS TO THE EDITOR: Oxfam’s campaign is counter-productive

Financial Times; May 14, 2002

By Jean-Pierre Lehmann

Sir,

Martin Wolf is right about Oxfam’s report on trade (Doing more harm than good, May 8). But the situation is even more deplorable than he realises.

I was in Dakar, Senegal, last week and to my dismay found the city plastered with huge Oxfam posters that read: “Oxfam for equitable trade: for each dollar given in aid to poor countries, two are taken back because of the inequities of the global trading system – a loss of Dollars 100bn per year”.

From Dakar I sent an e-mail to Oxfam, saying this was precisely the wrong message to be spreading and it contrasted with the new realism I found among a number of my Senegalese interlocutors.

At a presentation I gave to doctoral candidates and young faculty at the Centre for Applied Economic Research at the Cheikh Anta Diop university, I suggested one useful question to consider is why 40 years ago South Korea and Senegal had roughly the same gross domestic product per capita, whereas today South Korea’s is about 20 times higher.

There are of course many reasons but one cannot be the “inequity” of the international trading system, as it was the same for South Korea as it was for Senegal.

One difference, however, may be that whereas in South Korea they just got on with it and focused energy on forcing their way into the system, in Senegal, as in many other African countries, encouraged by the Oxfams of this world, they wasted a lot of energy grumbling, complaining and finding external causes for internal problems.

The mood has changed a lot, which is very encouraging, hence the feeling of discouragement in seeing Oxfam’s counter-productive campaign.

This is, of course, not to deny that the international trading system is iniquitous. The Evian Group has been for many years putting pressure on the governments of the European Union, Switzerland, Norway, Japan and the US to end subsidies and dismantle barriers that discriminate against developing economies.

But as my Senegalese friends also pointed out, surely it is not the streets of Dakar that Oxfam should be plastering with its posters but Washington, New York, Brussels, Geneva and Tokyo.

It may be more expensive to do so – but surely Oxfam would not stoop to inventing its own version of a “race to the bottom”?

I have, incidentally, not received any replies from Oxfam to my e-mails, so if any of your readers know anyone from Oxfam, perhaps they would be kind enough to pass this message on.

Jean-Pierre Lehmann

Professor of International Political Economy, International Institute for Management Development, Founding Director, Evian Group, 1001 Lausanne, Switzerland

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3. Prof Lehmann’s letter followed an 8 May article by FT columnist Martin Wolf. Wolf wrote: “Oxfam’s fundamental charge, that the falling shares in world trade of many developing countries are the result of rigged rules, is wrong. As the report notes, developing countries increased their shares in world exports of most significant categories of manufactures in the 1990s. Where countries have failed to break into world markets, the constraint is deficiencies in supply far more often than protectionism. To describe such unsuccessful countries as ‘excluded’ is to confuse symptom with disease” (Doing more harm than good, 8 May).

Kevin Watkins responded to Martin Wolf’s article in a letter published on 13 May. Watkins wrote: “the type of ‘big bang’ liberalisation promoted through IMF loan conditions is perpetuating poverty and inequality. In countries such as Peru, Jamaica and Haiti, the livelihoods of rural smallholders have been destroyed by a rapid influx of cheap produce, often marketed with hefty export subsidies. The more successful globalisers highlighted by Mr Wolf – such as China – have liberalised on a far more cautious and selective basis”.

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4. Writing in the New York Times, Paul Krugman (a distinguished economist who spent a year on the staff of the President’s Council of Economic Advisors during Ronald Reagan’s administration) said:

“The reason we manage to have fairly free trade is that the world — under US leadership — has evolved a system that pits the self-interest of exporters against the power of industries that would prefer not to compete with imports. Each country agrees to accept the exports of other countries in return for access to their markets. In the language of trade negotiations, the parties to such an agreement make “concessions”; but the real purpose of those concessions is to protect ourselves from our own bad instincts.

The system depends on the proposition that a deal is a deal…When the Bush administration nonetheless decided to give the steel industry the protection it wanted, it was in effect saying — as it has in so many other areas — that the rules don’t apply to yours truly”. (from ‘America the Scofflaw’, New York Times, May 24 2002)

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5. Mercantilism: an economic doctrine that flourished in the 17th and 18th centuries. Primarily concerned with international trade, mercantilism attempted to maximize national wealth, which it identified with a nation’s bullion reserves. To this end, tariffs were applied to imports in the hope of creating a balance of trade surplus and adding to bullion reserves. Mercantilism was discredited by Adam Smith and others who showed that it served the self-interest of the merchant classes, but did not benefits nations as a whole.

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6. OXFAM’S JEKYLL AND HYDE APPROACH TO TRADE WILL WORSEN THE LOT OF THE POOR.

From Colin Hines

The first thing I should make clear is that I am admirer of much of Oxfam’s work, and in particular the writings and efforts of Kevin Watkin’s to improve the funds spent on education in developing countries. I have however always been disappointed by the blind spot that he and Oxfam have had about how increased market access to the North by exports from Southern countries should be a priority for those wanting to benefit the poor. This blind spot has now sadly been elevated to the full blown three year campaign priority.

Having read the summary and the entire 272 page report Rigged Rules and Double Standards I was reminded of the Dr Jekyll and Mr Hyde story in which the good doctor is converted into the fiend Mr Hyde by swallowing a potion.

OXFAM AS THE GOOD DR JECKYLL

The report has usefully updated and provides recent case studies illustrating the numerous adverse effects of the present trade system on the poor of the South- in the manner of countless other books and reports before it. (But being a development NGO Oxfam’s report rarely mentions the adverse effects of this system on workers and the poor in the North. The report also has no suggestions for helping those that will be increasingly be made unemployed by the rising penetration of Northern markets by cheaper third world imports that Oxfam makes its priority)

It makes many of the usual demands for a fairer trading system which are the staple fare even of those of us that Oxfam dubs ‘globophobes’ eg:

An end to IMF/World Bank programmes that pries open poor country markets and undermine poverty strategies.

Ban on agricultural export subsidies in rich countries which destroy poor people’s farming livelihoods

Action to stabilise prices for primary commodities at higher levels and pay more to small farmers

Radical reform of global patent rules which currently block development and particularly access to medicines

Strong enforcement of core labour standards, especially for women, and anti-trust rules

Major reform of the World Trade Organisation to make it more democratic and focused on poverty reduction

However it again it fails to recognise the adverse effects of trade on for example small farmers in the North by making a ‘one sided protectionism’ call for

WTO and IFI recognition of poor countries’ right to protect their agriculture for food-security

OXFAM’S DANGEROUS MR HYDE

However it is when it swallows the potion marked ‘Complete market access to rich country markets for low income countries’ that its analysis becomes destructive. The critical analysis of what is wrong with trade then seems to give way to what reads like a bland script unquestioningly accepting the trade theory of comparative advantage, when it comes to considering exports from the South to the North. Thus we are told that the Oxfam campaign will ‘unleash the potential of trade to reduce poverty’ that ‘when rich countries lock poor people out of their markets, they close the door to an escape route from poverty’.

The fundamental flaw with the Oxfam approach is that it overlooks utterly the three Cs of competition, control and climate change.

COMPETITION: The crucial factor that is hardly mentioned in the report is the devastating effects on poor exporters of South-South COMPETITION for the more open markets of the North that Oxfam prioritises. It mentions how Bangladesh women can be helped by textile exports and calls for more backward linkages with local firms to increase the range of people employed in such an export orientated emphasis. What happens to this dependency when China (which is expected in some quarters to take over between a half to 100 % of world textile exports) undercuts Bangladesh. China is an increasing threat to competing third world exporters in a range of areas eg Indian’s software exports, Sri Lanken organic tea production and textile exporters in general. This position can only worsen now that China is in the WTO and at a time that the adverse domestic effects of its increasing involvement with trade liberalisation are becoming ever clearer. Around a hundred million are leaving rural areas seeking urban work and they will be joined by the many tens of millions to be made redundant in existing Chinese industries that are unable to compete with foreign imports. This growing reserve of cheap labour queues for work at global rock bottom wages.

None of Oxfam’s proposals address this problem instead they simply assert that Northern barriers cost developing countries ‘$100bn a year- twice as much as they receive in aid’. Implicit in this is the naïve idea that if these barriers are simply reduced, then somehow this sum will spread round the world as diffusely as aid is.

CONTROL: Oxfam’s discussion of social improvements such as education is couched in terms of how ‘education is perhaps the single most important pre-requisite for successful participation in world trade’. Indeed when the report isn’t analysing how bad today’s trade system is for the poor, the rest of its discussion is dominated by the idea that depending on others markets outside developing countries own borders, and therefore outside their CONTROL, is the major route for their exit from poverty. Of course dependence on exports today has been mostly a disaster as the report well documents, but instead of drawing the conclusion that more control over the domestic economy is the best way to ensure poverty reduction, it calls for countries to increase dependence on exports.

Finally nowhere in the report are the implications for CLIMATE CHANGE addressed. This is a huge omission given the increase in long distance trade inherent in the idea that the North should reduce its levels of domestic production and instead import cheaper goods from the South. International freight is projected to grow by 70 per cent between 1992 and 2004. Trade-related transportation is one of the fastest growing sources of greenhouse gas emissions and is therefore highly significant in terms of climate change. (Andrew Simms, ‘Collision Course: Free Trade’s free ride on the global climate.’ New Economics Foundation)

It is no surprise that the likes of the WTO, the EU and the UN have welcomed the pro open market priority inherent in Oxfam’s report.

I however agree with Martin Khor of the Third World Network’s comment that:

‘What is more important is production by local people and especially the small farms, small firms and cooperatives through local investment for the domestic market, supplemented by exports where possible and where beneficial (and that is a very big “where”).’

And with Walden Bello of Focus on the Global South’s comments:

‘A focus on market access for agricultural products from the South in the North will also increase pressures on developing countries to open up their markets as the quid pro quo for the accelerated opening of markets in the North. Thus, this strategy simply undermines the effort of many small-holder-based agrarian movements in the South to reorient production from export agriculture based on big landed and corporate interests to small-farmer based production systems producing principally for the local market and protected by tariffs and quotas from unfair competition by subsidized products dumped by the Northern countries.’

And with Anuradha Mittal of Food First’s comments:

‘Oxfam’s approach, which ignores the solutions offered by farmers movements around the world. The first priority of farmers is to produce for their families, the to seek access to the domestic market, before seeking to export.’

Indeed the solution of prioritising increased self reliance is utterly absent from the Oxfam report. Those with such an approach seem to be deemed guilty of ‘a retreat into isolationism (which) would deprive the poor of the opportunities offered by trade’...

Virtually none of the reports voluminous references cover the alternative to globalisation ie localisation. This has the policy priority of local production and the rebuilding and rediversification of local economies. (It is the opposite of Oxfam’s emphasis on the path of ruinous competition with other countries to gain market access.) Under localisation international trade would be governed by ‘Fair Trade Miles’ rules. These would cover the trade in what can’t be obtained domestically (the original purpose of long distance trade).

The principle of ‘Fair Trade Miles’ combines the requirements of ‘fair trade’ with ‘food miles’. (The former covers goods produced predominantly by small farmers for a fair price and in a way that furthers environmental protection. The latter means producing as closely as possible to the market in order to minimise transportation and hence the carbon emissions that contribute to climate change.)

‘Fair Trade miles’ would also to be linked to a guaranteed quantity of goods to be purchased by each buying country, within a guaranteed range of prices. This would allow the exporting nations to have as secure a level of earnings as is feasible with which to contribute to the overriding goal of re-diversifying local production

Localisation is now the policy of the Green Party of England and Wales, and their contribution to the Doha process – Time to replace Globalisation – is available on their website. Another alternative that features localisation is the International Forum on Globalisation’s summary report ‘A Better World is Possible! Alternatives to Economic Globalization available on www.ifg.org. Finally the actual detailed policies that could replace globalisation with localisation are to be found in my book Localization - a Global Manifesto (Earthscan, London, 2000).

I suppose that the best that can be said for the Oxfam report is that it will hopefully start a debate around this divisive and wrong headed (to my mind) emphasis on market assess. If that results in an increased emphasis by the development NGOs on self-reliance rather than Oxfam’s priority of market reliance, then it will have served a useful purpose.

Finally the most succinct Third World criticism of Oxfam’s approach that I remember was voiced in Seattle when a northern development NGO member at a public meeting asked whether the path to poverty alleviation for the south lay in being granted maximum market access to the north. Sara Larrain, a Chilean grass roots environmentalist who stood for President on a manifesto based on a two year community consultation process, responded exasperatedly ‘why is it that people from the north think exports benefit us? They are wrecking our environment and increasing inequality’.

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