Part 2 of 2 Trade -- a market fundamentalism

Yanuar Nugroho, Director, Business Watch Indonesia, Surakarta, yanuar-n@unisosdem.org

There is series of issues called the "Singapore Issues" or "New Issues" to be launched at Cancun, that consist of the issues of investment policy, competition policy, transparency in government procurement and trade facilitation.

Actually, investment policy will be the only new issue at Cancun. How important is this issue?

Investment negotiations at Cancun, if allowed to succeed, will create binding rules within the WTO on investments globally -- a multilateral investment framework (MIF). The concern of all those that are against negotiations on a MIF are that the outcome of the negotiations within the WTO would be unfair and against the interests of developing countries. Will developing countries go for that?

Although there are reasons for developing countries to maintain the position of "No to New Issues", before these reasons are listed it is important to note that, once negotiations begin, it is difficult to back-roll the process. Thus, negotiations will most likely lead to an agreement. Once this agreement is reached and signed by participating countries it is generally irreversible, becomes binding to the signatories regardless of the government of the day, and becomes subject to the dispute settlement and sanctions procedures within the WTO.

SEATINI put in its newsletter (July 2003) that most developing countries are not ready for an investment agreement and they should block the investment issue at Cancun, since there is a need for a full understanding of the development implications and clarification of the many questions that are being asked. Investment is not a trade issue and should not be brought under the remit of a trade body such as the WTO. Developing countries have not fully analyzed the implications of a MIF for their economies and for their policy options.

Nevertheless, the industrialized and the major developed countries are the advocates of a WTO investment agreement. At a recent meeting on June 10 and June 11 in Geneva of the WTO's Working Group on Trade and Investment (WGTI), the principal message from the major developed countries was that negotiations on investment should be launched at Cancun.

The argument for this position was that a WTO agreement on investment could complement the existing networks of bilateral investment agreements and other bilateral and regional agreements. It cannot be denied that a relationship exists among investment agreements, investment flows, trade flows and trade rules.

What should we (developing countries) do?

First, developing countries should play an active role in the remaining meetings of the working group and strongly voice their concerns over the issues listed for clarification. In Geneva, several developing countries maintained that there were many issues that were still unresolved and that they did not agree that negotiations should commence. Second, developing countries should insist that any investment framework -- whether inside or outside the WTO -- should have a fair balance between the rights and obligations of investors and host countries, and between the rights and obligations of host and home governments.

We are constantly told that the way to reduce poverty is through economic growth. Experience tells us this is not true. The UN's Human Poverty Index 1998 (HPI-2) for industrial countries showed that Sweden, with one of the lowest rates of economic growth per person, had the best record in human welfare. Whereas the U.S., with the highest rate of economic growth -- and a higher per capita GDP than Sweden -- had proportionally more people who were "functionally illiterate" (20.7 percent) than in any other industrialized country. Ten percent of the U.S. population depended on private charity for food and 44 million had no health coverage.

The WTO, with the absence of higher authority, treats free trade as an ultimate good and its experts are forced to make decisions on social and environmental issues that are outside their terms of reference and beyond their competencies. Economists still believe that further economic growth -- of course through trade -- will relieve poverty. This is how free trade or "market fundamentalism" has become the organizing principle of the world. Be careful of such fundamentalism. It is so subtle that we do not even realize we are part of it.