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International alert series: The BIG Issues

Free and Fairer Trade: Can trade be both free and equitable in a global economy

Patricia RanaldTuesday 6 June 2006

What changes are needed for a fairer global trading system?

Dr Patricia Ranald
Principal Policy Officer at the Public Interest Advocacy Centre (PIAC)
 

Dr Patricia Ranald, Principal Policy Officer, Public Interest Advocacy Centre, host organization to the Australian Fair Trade and Investment Network of 90 community organizations concerned about the impact of trade on social policy and human rights website www.aftinet.org.au

Thank you for the invitation to speak tonight.

I believe that fair trading relationships can contribute to economic growth and development, and that we need international regulation of trade to ensure fairness and restrain the most powerful governments and corporations. I also support more effective implementation of human rights, labour rights and environment standards through the United Nations and the International Labour Organisation. In theory, multilateral trade arrangements (involving many countries) are preferable to bilateral arrangements (involving only two countries) because the weight of numbers of smaller countries has the potential to moderate power inequalities. But for this theory to work in practice, there must be a multilateral framework that is open and accountable, guarantees the interests of less powerful nations and respects UN agreements on human rights, labour rights and the environment. The current trade framework does not meet these goals. I want to discuss both the process and the content of trade agreements and what changes could be made in the directions of meeting these goals.

Trade agreements are negotiated in secret, labeled “commercial in confidence” and we don’t discover the results until the deal is done. This has always been the case, but the social impact was less when trade agreements just dealt with tariffs or taxes on imported goods. Over the last decade, trade agreements have been strengthened in two ways that can have negative impacts on both democracy and our daily lives.

Firstly they have expanded in scope, and now include areas like trade in services, rules about intellectual property rights and other “non tariff barriers” which can mean many kinds of public interest regulation. Trade agreements now reach into health services, education services, water services, cultural policies, quarantine and food regulation. For example, the recent Australia-US Free Trade Agreement made changes to our medicines policy that give more rights to pharmaceutical companies to pressure for higher prices for medicines and sets up a joint committee with the US government to discuss future medicines policy. These issues should be decided by parliament, not by trade deals.

Secondly, trade agreements have developed much stronger dispute processes through which governments can challenge the law or policy of other governments, on the grounds that they are barriers to trade. The dispute findings are heard by trade tribunals and enforced by strong penalties in the form of trade sanctions. You have to obey the rules or your products are banned or taxed. Trade disputes have challenged laws about access to affordable medicines, genetically engineered food labelling regimes and restrictions on Internet gambling. All of these disputes were about social policies but the decisions of trade tribunals only consider whether there is a restriction on trade, not whether the law or policy reduces social harm or protects human rights. Social policies should not be decided by trade tribunals.

So trade rules have been globalised but democracy still only operates at the national level. Decisions that will profoundly affect social policies are being transferred to international agreements that judge social policies by the rules of the market and are beyond the reach of democratic accountability. In Australia too, trade negotiations are secret. There is extensive consultation with business groups. More recently, because of community campaigns, there is some consultation with community groups. Trade agreements are not made public until after the deal is done. They are ratified by Cabinet, not by Parliament. They are reviewed by a parliamentary committee that has limited time and resources. The committee's recommendations are not binding on Cabinet and indeed the Cabinet decision can and has been taken before the committee reports. Parliament only votes at the end of the process on the legislation required to implement the agreement, not on the whole agreement, so for example does not debate what limits it may place on future legislation.Note 1

The World Trade Organisation: Process and content

The WTO has 149 member countries that negotiate reductions in trade barriers through successive negotiating "rounds" named after the cities in which they began. Ministerial Meetings set the agenda every two years, with trade negotiators meeting in between. The current round, called the “Doha Development Round” began in Doha, Qatar, in 2001. It includes negotiations in on trade in agriculture, goods and services.

In theory all member governments are equal and decision-making occurs through consensus. But scholars of the WTO processes have analysed how in practice the WTO is lobbied by transnational corporations and dominated by the most powerful trading nations, the US, Canada, Europe and Japan. Their dominance of the WTO informal power structure is recognised in WTO jargon, which calls them ‘the quad’ Note 2. They initiate much WTO policy and their endorsement is required for any agreement in the WTO. They conduct ‘informal’ meetings with up to 30 other governments, mostly from industrialized countries, previously known as the ‘green room’ process and more recently as informal ‘Mini-Ministerial’ meetings. Some larger developing countries like Brazil and India are now included in these meetings. But over 100 smaller and developing countries are still often excluded from the decision making process, and are pressured through aid and other forms of economic influence to join the consensus Note 3.

Developing country governments, often supported by civil society, are striving to redress the power imbalance in the WTO. In Seattle in 1999, supported by mass demonstrations that delayed the meeting, they refused to agree to an agenda imposed by the US and EU. Again at the Cancun Ministerial Meeting in 2003, supported by civil society groups, they insisted on fairer terms for agricultural trade and rejected proposals for new WTO agreements on Investment, Competition Policy and Government Procurement Note 4. At the Hong Kong Ministerial Meeting in 2005, details of agreements on key issues like agriculture were postponed because developing countries would not accept unfair deals. The negotiations missed another deadline in April 2006 and are still deadlocked. Studies by the World Bank and others show that WTO agreements have not delivered the benefits that were predicted for poorer developing countries, and that the so-called development round will deliver very little benefit to developing countries Note 5.

I will now discuss examples of WTO agreements in three areas, trade in agriculture, trade in goods and trade in services.

The WTO Agreement on Agriculture has reduced tariffs in developing countries but has not effectively reduced export subsidies to farmers in the EU and the US. Developing countries have been flooded with unfairly subsidized cheap imports that destroy local food production leading to unemployment and poverty. Neither the EU or the US have yet addressed this issue effectively. The current promised reductions in export subsidies are phased in slowly and there is capacity to continue the subsidies under other names. Developing countries are also seeking special measures to recognize issues of food security. These are still being resisted despite the fact that WTO rules allow for special and differential treatment for developing countries.

In negotiations on trade in goods, industrialized countries, including Australia, have supported a tariff reduction process that will mean larger reductions for developing countries. Developing countries are seeking smaller reductions, and recognition that some tariffs are needed to develop industries, as they were used in industrialized countries. As Joseph Stiglitz says in his latest book, Fair Trade for All, absolute free trade theory assumes that there is full employment and capacity in the economy to invest in new industries as tariff reductions destroy old ones. On the contrary, rapid tariff reductions in low income economies with high unemployment, in the absence of specific measures to develop new industries, simply cause more unemployment.

The negotiations on the General Agreement on Trade in Services (GATS) can potentially apply to all services, from banking, transport and telecommunications, to health, education and water. GATS treats services as traded commercial goods, ignoring the social aspects of many services. GATS has been promoted by transnational services corporations that want to expand their markets, especially into services previously provided by government or the non-profit sector.

Listing of services in the GATS reduces the ability of governments to regulate essential services in the public interest. Transnational companies must be given ‘full market access’ meaning no requirements to have joint ventures with local firms, no limits on the number of service providers, and no requirements on staffing numbers for particular services. Qualifications, licensing and technical standards for services cannot be too burdensome for business.

For example, water is a crucial community resource that requires extensive public regulation to ensure equitable access, water conservation and environmental sustainability. But transnational water corporations see water as a traded good and a source of profits. As Forbes business magazine put it, “Water is the oil of the twenty-first century” Note 6. If water services were included in the GATS, regulation of water services could be challenged as too burdensome to business. Community campaigning has kept water for human use off the agenda, but water treatment and sewerage services are still there. With waste water recycling increasingly needed, it is difficult to see how these services will remain separated.

These issues are vital for developing countries. At the World Water Forum in March, 2006, Argentina, Bolivia, Brazil, Uruguay and Venezuela joined together to call for an end to all trade negotiations on drinking water and basic sanitation Note 7. Most developing countries have so far refused to list water and other essential services in the GATS They are now resisting the pressure “purilateral” GATS negotiations, which allow groups of mostly industrialized countries to exert more pressure on developing countries to list in the GATS services like education, environmental services including sewerage treatment, postal, telecommunications and energy services. The Australian government is supporting this process.

If a service is listed in the GATS, governments can complain about the regulation of that service on the grounds that it is a barrier to trade. Recently the WTO disputes panel heard a complaint against the regulation of public access to Internet gambling services by US state governments. The US government argued it had not intended to include gambling in the category of “recreational services” and that the regulation was necessary to reduce social harm from gambling. Although the US won the case on technical grounds, many trade analysts were surprised that the disputes panel found that the GATS agreement could in principle remove the power of state governments to regulate internet gambling Note 8.

The crisis in the WTO has led some governments to advocate bilateral free trade agreements, especially the US, and the Australian government.
These benefit the most powerful economies even more, exclude the poorest developing countries, and do not address unfair agricultural subsidies. If we look at the example of the Australia-US Free Trade Agreement (AUSFTA), a public opinion poll by the Lowy Institute in February 2005 showed that only 34% thought it was a good deal for Australia . Trade analysts also agree that Australia gained very little increased market access for agricultural or other goods, and traded off regulation of medicines policy and Australian content in new forms of media. Although the AUSFTA has a clause saying that each government should support International Labour Organisation conventions on labour rights, the only enforceable legal obligation is for them to abide by their own labour laws. The International Labour Organisation has found that aspects of the Australian government’s Work Choices legislation are contrary to some conventions, but no actions can be taken about this under the AUSFTA.

A Fairer trade system

The Australian Fair Trade and Investment Network of 90 community organizations, supports changes for a more open, democratic and fairer multilateral system of trade negotiations that could mitigate the influence of the most powerful national economies and of transnational corporations, and give more voice to developing countries. Some of the suggested changes are:

We also support a more democratic and accountable process for trade negotiations and ratification in Australia.

Such a process should include the following principles, endorsed by the 2003 report by the Senate Foreign Affairs, Defence and Trade Committee

Notes:

1:  For further detail on the Australian Trade Policy process see Ranald, Patricia, (2004) “Trading Away Social Policy? The impact of the Australia-US Free Trade Agreement on Australian domestic law and policy,” 26th International Trade Law Conference, September 23, and Senate Committee on Foreign Affairs, Defence and Trade, (2003) Voting on Trade: the General Agreement on Trade in Services and an Australia-Us Free Trade Agreement, Canberra, November.

2:  John Braithwaite and Peter Drahos, Global Business Regulation, Cambridge University Press, Cambridge, 2000, pp 198-201.

3:  Fatoumata Jawara and Aileen Kwa, Behind the Scenes at the WTO: the real world of international trade negotiations, Zed books, London, 2003.

4:  Stiglitz, Joseph, and Charlton, Andrew, Fair Trade for All, Oxford University Press, Oxford, 2005

5:  For discussion of over-estimation of growth outcomes from trade liberalization see Stiglitz (2006), cited above and World Bank, (2005) Assessing World Bank Support for Trade 1987-2004: An IEG Evaluation, New York. This study concluded that ‘bank advice was too optimistic about the benefits of trade liberalisation for growth in the short run” and that it “underestimated the complexity and sequencing of complementary policies” including “ the interaction among growth, trade and distributional outcomes, and the country-specific context” (p xvi). See also Oxfam, (2005) A recipe for disaster: Will the Doha Round fail to deliver for development? London.

6:  “Today companies like France’s Suez are rushing to privatize water, already a $400 billion global business. They are betting that water will be to the 21st century what oil was to the 20th” Forbes Magazine, May 15, 2000, p. 55.

7:  The declaration reads in part “We declare our profound concern regarding the possible negative impacts that international instruments -- such as the free trade and investment agreements -- can have on water resources, and reaffirm the sovereign right of every country to regulate water and all its uses and services”.  Declaration by Argentina, Bolivia, Brazil, Uruguay and Venezuela Mexico City, March 22, 2006

8:  Richard Mills, US Trade Representative Spokesman, “Statement Regarding the WTO Gambling dispute with Antigua and Barbuda,” 11/10/2004, US Trade Representative website

9:  Cook, Ivan, (2005) Australians Speak 2005: public opinion and foreign policy The Lowy Institute, Sydney, p.25.

10:  Senate Committee on Foreign Affairs, Defence and Trade, (2003) Voting on Trade: the General Agreement on Trade in Services and an Australia-Us Free Trade Agreement, Canberra, November.

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