NEW BATTLES BEGIN SOON IN THE WTO:

by Martin Khor Director, Third World Network*

Even as the financial crisis places a heavy burden on the affected 
developing countries, a new challenge is emerging at the World Trade 
Organisation (WTO). The developed nations are piling on the pressure to 
launch a new Round of trade negotiations during the WTO's Ministerial 
Meeting at the end of November in the United States. They are now planning 
their strategy to get developing countries to agree to putting more issues, 
such as investment, competition, government procurement, environment and 
labour standards, onto the WTO system. This will put developing countries 
into deeper trouble.

The European Union (EU), backed by Japan, Canada and other developed 
nations, have announced they want to launch a new "Round" of trade 
negotiations at the Ministerial meeting.

In such a Round, several issues will be made the subject of negotiations 
for new multilateral Agreements that will be legally binding on WTO 
members.

For example, the Uruguay Round (1984-90) concluded with many new Agreements 
covering services, agriculture, intellectual property rights, investment 
measures and other issues. It also created the WTO to replace the old GATT 
(General Agreement on Tariffs and Trade).

The developing countries were generally against these new issues entering 
the trade system, as the Agreements legally oblige them to change their 
national policies and laws so as to open up their economies further to 
foreign goods, services and companies.

There is a deep fear that when these Agreements are implemented (after a 
grace period of five years or so), the developing countries will face a lot 
of problems.

Cheaper goods or services may swamp the market, replacing what is locally 
made. Bigger foreign firms with the latest technology or with marketing 
outreach will increasingly take more market share away from the local 
sector.

This may well cause retrenchment and dislocation, especially in the less 
developed of the Third World countries. The least developed countries are 
understandably most worried.

Even before these problems arising from the Uruguay Round have been 
understood (let alone dealt with), the big companies are once again pushing 
their governments to open up yet more areas in the developing countries for 
them to enter.

The EU proposed launching a new round of negotiations, on which it even 
conferred the glamorous term "the Millennium Round".

It wants to pursue "new issues" such as international investment rules, 
competition policy and government procurement.

Most developing countries were against having any negotiations for 
Agreements on these issues, but the pressure from the developed countries 
was so strong that they compromised and agreed to taking part in "working 
groups" to discuss the issues.

The developing countries made it clear that the working groups had the 
mandate only to discuss the topics in a sort of academic way, in what was 
called an "educative process". They had no mandate to start negotiations 
for Agreements.

The three working groups have now gone through two years of discussion, 
during which the developed countries made it clear they intend to "upgrade" 
the talks into negotiations.

Their plan now is to use the device of the Millennium Round to make the 
three issues (investment, competition, government procurement) the subject 
of talks for new Agreements.

Some of the rich nations also want other issues like "trade and 
environment" and "labour standards" to be part of the new proposed Round.

The governments of these countries want to placate the environmental groups 
and labour unions who have been protesting about the negative effects of 
free trade.

If the environment and labour standards are also thrown into the pot of the 
New Round, the influential civic groups may then be won over, or at least 
they may not campaign so hard against the proposed Round. Or so the 
establishment thinking goes.

The US, meanwhile, is very keen that the Uruguay Round issues of services, 
agriculture and intellectual property rights be revisited and revised so 
that its corporations will have yet more market openings or advantages.

However, it is far from certain that there will be a new Round.

Many developing countries are against it. Their position is that the WTO 
should allow developing countries (who after all are the majority) the time 
and space to tackle the problems of implementation of the existing 
Agreements.

That is cause for enough headaches and economic dislocation. The present 
financial crisis and its bad impact on trade and growth has now magnified 
the problem.

How then can they cope with negotiations on yet more new issues, which are 
certain to cause another round of new and potentially disastrous problems 
or crises?

A new Round of multilateral trade talks under the WTO, now being advocated 
by the rich countries, would push developing countries to give up more and 
more of existing policies that protect their domestic economies, and allow 
foreign firms the right to take over their national markets.

The Japanese Government has already marked out nine areas for the proposed 
new Round, according to a Kyodo News report. They are agriculture, 
services, tariffs on industrial products, investment rules, anti-dumping, 
competition policy, electronic commerce, intellectual property and 
government procurement.

Officials from Japan, the EU and the US have agreed that they should 
conclude the next round of talks within three years, compared to the eight 
years for the Uruguay Round, according to Kyodo News.

The above reports show that the major trade powers are confident they can 
push through a decision to start a new Round, although many developing 
countries (who form the majority of the WTO's 130 members) are against it.

The three issues that should especially worry developing countries are 
investment, competition policy and government procurement. If there is a 
new Round, it could lead to new WTO Agreements on these topics.

The following is a summary of how these issues will affect the developing 
nations:

* * *

** On the INVESTMENT ISSUE, the rich countries are pushing to introduce new 
rules that make it mandatory for all WTO countries to give foreign 
investors the right to enter and establish themselves, with 100 percent 
ownership.

Foreigners and foreign firms should also be treated as well (or better) 
than locals, and restrictions on the free flow of capital into and out of 
the country (and on the foreign firms' operations) would be prohibited.

In discussions so far at the WTO working group on investment, the rich 
countries have sought to give a wide scope to the definition of foreign 
investment.

It would include not only foreign direct investment but also portfolio 
investment and purchase of property.

Needless to say, if such an agreement were to be passed within the WTO, 
developing countries would no longer be able to give preferences or 
protection to local investors, firms or farmers.

They would face the threat of having their products wiped out by 
competition from the bigger foreign firms, or of being taken over by them.

Also, the kind of restrictions that some countries place on inflow and 
outflow of portfolio or loan capital from abroad, and on foreign ownership 
of land and houses, may come under question or be banned.

* * *

** On COMPETITION POLICY, the EU and US are advocating a new agreement that 
would look unfavourably on domestic laws or practices in developing 
countries that favour local firms.

For example, if there are policies that give importing or distribution 
rights to local firms (including government agencies or enterprises), or if 
there are practices among local firms that give them superior marketing 
channels, these are likely to be called into question.

The rich countries would argue that such policies or practices create a 
barrier to foreign products or firms, which should be allowed to compete on 
equal terms as locals.

Developing countries may argue that only if local agencies or firms are 
given certain advantages, or if they have built up distribution systems 
over the years, then they should be allowed to keep these advantages.

Providing the giant international firms equal rights would overwhelm the 
local enterprises which are small and medium sized in global terms.

However, such arguments will not be accepted by the rich countries, which 
will insist that their giant firms be provided a "level playing field" to 
compete "equally" with the smaller local firms.

* * *

** On GOVERNMENT PROCUREMENT, the rich countries are actually casting their 
eyes on the lucrative business of providing supplies to and winning 
contracts from the public sector in the developing countries.

At present, government expenditure is outside the scope of the WTO, unless 
a member country voluntarily joins the "plurilateral" agreement on 
government procurement.

The aim of the rich countries is to bring government spending policies, 
decisions and procedures of all member countries under the umbrella of the 
WTO, where the principle of "national treatment" will apply.

Under this principle, governments in their procurement and contracts for 
projects (and probably also for privatisation deals) would no longer be 
able to give preferences or advantages to citizens or local firms.

The bids for supplies, contracts and projects would have to be opened up to 
foreigners, who should be given the same (or better) chances as locals.

It is proposed that foreign firms that are unhappy with the government's 
decisions can bring the matter to court in the WTO.

Since government expenditure in some countries is bigger in value than 
imports, such an agreement to bring procurement under the WTO rules would 
tremendously enlarge the scope of the WTO.

As most developing countries would object to having their public-sector 
spending policies changed so drastically, the rich countries have a two-
stage plan for this issue: firstly, have an agreement only to bring in 
greater "transparency" in government procurement; secondly, to have a 
broader agreement that would cover the national treatment principle.

All three issues have very serious implications for national economic 
interests.

It is certainly not inevitable that these and other new issues will be 
brought into the WTO, since there is not yet any decision or consensus that 
there will be a new Round.

But the negotiations towards the November Ministerial Conference have 
already started, and policy makers and the public in each WTO member 
country should discuss and debate these issues so that the developing 
countries can take a clear and strong position.

Otherwise developing countries are in danger of once again being run over 
by the mighty trade negotiating machine of the rich nations.

* * *

*The Third World Network is an international organisation based in 
Penang, Malaysia, that deals with economic, environmental and development 
issues from a Third World perspective. This article has been abridged for 
reasons of space.