Tue, 09 Nov 1999

The new millenium: Time for a tariffs' bonfire

By Kevin Watkins

LONDON: The problem with the specialized division of labor between nations, wrote the Uruguayan historian Eduardo Galeano, "is that some nations specialize in winning and others in losing". He might have added that the winners specialize in fixing the rules to ensure the losers stay where they are -- and nowhere more effectively than in international trade.

Next month in Seattle, trade ministers hold a "millennium round" of trade talks under the auspices of the World Trade Organization (WTO). The air is already thick with rhetoric stressing the virtues of free trade, level playing fields and the role of the WTO as an impartial trade "policeman". In reality, the WTO displays all the integrity of a bent cop with friends in high places.

In the industrialized world, it is the WTO's elevation of corporate over public interest that has attracted condemnation. The overturning of laws designed to protect the environment, ban growth hormones and restrict genetically modified foods have been recent flashpoints. Third world poverty attracts less interest. But here, too, trade rules are inflicting damage.

While rich countries may preach the free trade gospel, they remain staunch protectionists. They cut their tariffs by less than poor countries during the Uruguay round of trade negotiations, which ended in 1993. As a result, tariffs facing developing countries are about a third higher than those facing industrialized countries. Ever more elaborate ways have been found to exclude third world imports. The United States has been particularly adroit in slapping anti-dumping duties on imports deemed too cheap.

Protectionist measures bite deepest in areas where developing countries are most competitive, such as textiles, footwear and agriculture. In each of these sectors, industrialized nations have made an art form of going slow on trade liberalization. Take the case of textiles, which account for about a fifth of all third world manufacturing exports. Under Uruguay round agreements, the industrialized countries should by now have removed more than a third of restrictions on imports. In fact, the EU and the United States will have removed about 5 percent.

The world's 48 poorest countries account for only 0.4 percent of world trade and their share is shrinking. For developing countries as a whole, export earnings could rise by US$700 billion a year if rich countries opened their markets, raising GDP by about 12 percent. This is around 10 times what the developing world receives in aid. Unlike aid, trade generates the self-reliant growth, employment and investment needed to reduce poverty.

Nowhere is the hypocrisy of world trade rules more evident than in agriculture. The industrialized countries subsidize their farmers to the tune of $251 billion a year, around half the value of agricultural output. The EU and the United States, the agricultural superpowers, stringently restrict imports. Meanwhile, the over-production generated by subsidies is dumped on world markets, depriving developing countries of market share.

In a new perversion of free market principles, the United States is demanding that developing countries open their markets to American food exports. This threatens the livelihoods of millions of food producers, who will be unable to compete with subsidized imports. The WTO-sponsored "free market" in agriculture will pitch American maize farmers who receive on average $20,000 a year in subsidies against rivals in the Philippines surviving on less than $200 a year.

While the industrialized world protects with impunity, one recent WTO ruling decreed that India had no right to use protectionist measures for balance of payments purposes. Meanwhile, many of the poorest countries are liberalizing at breakneck speed as a result of IMF loan conditions, such as those which have opened up markets in East Asia for U.S. banks, insurance companies and car manufacturers.

There is one issue on which the industrialized countries are unashamedly protectionist: intellectual property. The WTO regime has strengthened and internationalized the U.S. patent protection system, massively increasing royalty payments to the northern translational companies. The flip side is that the poorest countries will be unable to afford the knowledge-based technologies essential to successful participation in the global trading system.

So, what needs to be done to restore the credibility of the WTO? The millennium round could start with a "tariff bonfire", the richest countries dismantling the bewildering array of tariffs and other trade barriers facing the poorest. It could then establish the principle that trade liberalization should not compromise human development objectives. Finally, it should assert the public interest in equitable access to knowledge-based technologies.

-- Guardian News Service

Window: ...what needs to be done to restore the credibility of the WTO? The millennium round could start with a "tariff bonfire", the richest countries dismantling the bewildering array of tariffs and other trade barriers facing the poorest.