the emperor has no clothes: why it’s time to change the way we trade

This paper was  prepared for use during the Third Ministerial Meeting of the World Trade Organisation (WTO), Seattle, 1999

October 1999

Friends of the Earth International (FoEI) is one of the largest federations of organizations committed to the preservation, restoration and rational use of the environment. There are now 59 independent FOE Member groups all over the world, who campaign internationally, nationally and locally on the major environmental issues.

FOEI’s Trade, Environment and Sustainability Programme is coordinated by a Working Group currently composed of groups from England, Wales and N Ireland; Ghana; Europe; the Middle East; the United States; and Uruguay.

The fable of the Emperor Who Had No Clothes is the story of a vain Emperor who falls into a trap because of his desire to be thought both fashionable and intelligent. The Emperor, who is always looking for new and better clothes, commissions a pair of tailors to make him a splendid suit for a public parade. However, the tailors are actually confidence tricksters and plan to make the suit at no cost at all. To this end, they claim that the suit will be invisible to anyone too stupid or unfit for office. Thus, when the Emperor and his courtiers find they cannot see the suit, they all pretend that they can see the most beautiful garments. When the day of the procession comes, throngs of people line the roads, waiting to see the Emperor in his new clothes. They are shocked when they realise the Emperor is naked, but believing it to be their own fault, they all keep quiet. Except, that is, for one small child, who shouts "Look! The Emperor has no clothes! The Emperor has no clothes!". Eventually, the embarrassed Emperor and his citizens, admit the error of their ways and resolve to behave more honestly in the future.

Summary

Friends of the Earth International is calling for an evaluation of the impact of existing trade rules on sustainable development; a fundamental revision of the regulations governing world trade in order to promote sustainability; and the cessation of any proposals to expand the scope and power of the WTO.

The present trading system promotes the free movement of goods, services and capital as a goal in itself, rather than ensuring that international trade promotes sustainable and equitable development. As a result, current trade rules as administered by the WTO encourage unsustainable resource use and an inequitable distribution of resources; and can conflict directly with local, national and international environmental laws. In particular, trade rules and trade flows have an impact on a broad range of issues of concern to Friends of the Earth International's member groups, especially in the areas of agriculture, food, forests and finance.

The time has come to acknowledge the defects of the current trading system. A new and sustainable trading framework for the twenty-first century needs to be based on the principles of democracy, equity, reduced consumption, cooperation and caution. In order to achieve such a framework, broad reform of the global economy is a prerequisite.

Specifically, Friends of the Earth International recommends that governments meeting in Seattle for the World Trade Organization's Third Ministerial Meeting in November 1999:

• Cease negotiations to initiate a comprehensive round of negotiations which would bring new issues into the WTO.

• Agree to a retrospective review of the WTO's impact on development, democracy, environmental sustainability, health, human rights, labour rights and the lives of women and children. Such a review should assess the consequences of the WTO's refusal to adopt a precautionary approach; and consider the WTO's economic impacts at the national and local levels.
  
• Agree not to use trade rules to challenge laws designed to promote and protect development, environment and health. A moratorium should be put in place until governments recognise the existence and validity of the precautionary principle; environmental protection; high national and international environmental and health standards; and the benefit of operating in an open and transparent fashion.
  
• Protect local, national and international environmental and social laws from unfair challenges and weakening by trade rules, by ensuring that all relevant dispute fora are required to give a presumption of validity to national and local laws and policies; and may only find a violation if the challenged law clearly serves no legitimate purpose other than discriminating against imported products.
  
• Acknowledge that multilateral treaties on the environment, development, health, labour and human rights, take precedence over the WTO and amend global trade rules to reflect this point. In particular, acknowledge that the Convention on International Trade in Endangered Species (CITES) and the Convention on Biological Diversity are the multilateral agreements that govern trade in the products of biodiversity.
  
• Oppose investment negotiations in the WTO.
  
• Reject export-led development policies, forgive bilateral debt and agree to substantial multilateral debt forgiveness for the poorest countries by the year 2000. This will allow developing countries to pursue more sustainable development policies.
  
• Improve the democracy and transparency of the trading system.
  

Introduction

In November 1999, governments of the world will convene in Seattle, in the United States, for the World Trade Organization's (WTO) Third Ministerial Conference. Friends of the Earth International (FOEI), a federation of independent environmental organizations from 61 countries, calls on governments to use this moment to commit to reviewing and fixing the problems with the current trading system, instead of initiating a new round of trade liberalization negotiations.

Trade rules and trade flows have an impact on a broad range of issues of concern to Friends of the Earth International's member groups, particularly in the areas of agriculture, food, forests and finance. The current trade system frequently results in profoundly negative environmental and social consequences. FOEI believes that this is because of fundamental flaws in the economic principles on which current trade rules are based.

Our present trading system promotes the free movement of goods, services and capital as a goal in itself, rather than ensuring that international trade promotes sustainable and equitable development. As a result, we have a system of international commerce that encourages unsustainable resource use and an inequitable distribution of resources; and can conflict directly with local, national and international environmental laws.

Because of these core problems, Friends of the Earth International is calling for an evaluation of the impact of existing trade rules on sustainable development; a fundamental revision of the regulations governing world trade in order to promote sustainability; and the cessation of any proposals to expand the scope and power of the WTO. Friends of the Earth is particularly concerned about proposals to incorporate investment, competition policy and government procurement as new issues in the WTO.

Friends of the Earth International believes that a credible and productive system of international trade would have to have as its goal the sustainable use and equitable exchange of the planet's limited resources. A sustainable trading framework of this nature would have to be based on the following principles:

• Democracy
  People must have the right, through democratically elected governments, tostrengthen protection of their local and national environments; to promote small-scale, sustainable economic activity; and to exert control over their local and shared natural resources. WTO rules undermine these processes; and the WTO's dispute settlement system has been used successfully to challenge domestic environmental, public health and development policies. In addition, the WTO's decision-making processes favour the wealthy and powerful over and above the weak; and the institution lacks transparency, providing limited access for parliamentarians and civil society.
  
• International cooperation to promote environmental sustainability
  Governments should be allowed and encouraged to cooperate internationally to promote development and solve common environmental challenges. The WTO presents an obstacle to such cooperation if that cooperation depends on the use of trade measures to promote environmental or developmental objectives. One current concern is that existing WTO rules could conflict with or prevent the establishment of multilateral environmental agreements that use trade measures. For example, the recent failure of negotiations to establish a Biosafety Protocol to regulate international trade in genetically-modified (GM) products can be attributed, in part, to the insistence of a few governments that trade in genetically modified products should ultimately be regulated by the WTO rather than the Convention on Biological Diversity.
  
• Reduced consumption and a fair distribution of resources
  Friends of the Earth International believes that sustainable production and consumption are essential elements in an environmentally and socially sustainable society. People should have the right to restrict the use and sale of their resources, in order to eliminate overconsumption and in order to ensure that people around the world have equal access to those resources.
  
  The rules of the WTO and the Bretton Woods institutions (the World Bank and the International Monetary Fund) work together to encourage the uncontrolled exploitation of natural resources for export, promoting the extraction of biologically-important natural resources that fuel over-consumption problems in the North and environmental degradation in both the South and the North. The WTO completely fails to address fundamental questions about the distribution of and access to these resources.
  

• Caution
  In a world in which resources are limited and production complex, it makes sense to take a cautious approach to commerce. Whilst technical progress can be beneficial, the burden of proof concerning safety and sustainability must rest with those responsible for developing new products and technologies; and liability must remain, ultimately, with producers.
  Most WTO agreements are based on the premise of ‘sound, scientific evidence' which has been interpreted by governments as limiting the application of the precautionary principle.
  
• Broad reform of the global economy
  Changes to the way in which the trade system operates need to be undertaken as part of a fundamental reform of the global economic system. Domestic and international economic rules and institutions currently favour short term profits and the inequitable accumulation of wealth over sustainable development. Such rules, including trade rules, need to promote better quality of life rather than increased consumption; fairer, more democratic economic decision-making rather than mergers and concentration; and stewardship of the natural world rather than exploitation.
  
  The WTO is one of the pillars of a globalizing economy. The ‘free trade' focus of the WTO is mirrored by the structural adjustment programmes of the International Monetary Fund (IMF) and multilateral development banks, which require developing countries to open their markets. Together, these trade and finance institutions protect the interests of multinational capital rather than the majority of the world's people and the environment.

There is no doubt that the current trade regime has a significant impact on people's quality of life and their environment; and on society's capacity to achieve sustainability. Furthermore, it looks as if proposed negotiations in the WTO could make the situation even worse.

Negative impacts are particularly clear in the areas of food, forests and finance. Unwanted supplies of genetically modified food and low commodity prices due to over-supply are obvious examples. Less obvious, perhaps, is the fact that the trade regime also threatens the labelling and certification of food and forest product imports; and the ability of governments to regulate inward investment (which raises further serious concerns about corporate behaviour and the power of the private sector).

Food

Friends of the Earth is working to ensure that all people of the world have enough to eat; and that they have access to safe, healthy food produced locally and organically in ways that protect the planet and rural communities. Friends of the Earth is concerned that the current economic system undercuts food security by promoting the use of arable land for crops for export, rather than for meeting local needs; and permitting the dumping of heavily subsidised crops on world markets. The fact that women around the world are finding it increasingly difficult to feed their families as a result of these developments is a particularly pressing concern.

Trade rules also pose a growing threat to food safety laws and policies designed to promote local, sustainable agriculture. This is becoming increasingly evident as WTO disputes concerning beef and bananas intensify; and as trade disputes over genetically modified food loom on the horizon.

Forests

Forests are under severe pressures worldwide. Just over one fifth of the world's original forests remains in large, relatively undisturbed ecosystems. These large boreal and tropical forests, along with remaining forest lands in other countries, are vital sites of biological diversity. Many indigenous peoples also depend on intact forests for their traditional livelihoods.

Trade-related activities such as logging, mining, and large-scale energy and infrastructure projects are the leading threats to these frontier forests. Trade and investment liberalization in the forest sector can also increase deforestation. For example, current US proposals on eliminating tariffs on wood and paper products in the WTO have been predicted, by industry, to increase consumption by 3-4%. Trade rules can also interfere with forest protection policies such as preferences for local ownership; labelling of sustainably cut timber; and controls on the introduction of invasive species that threaten forests.

Finance

The financial crisis of the past two years provides clear evidence that sustainable development is impossible in a climate of boom and bust economic instability. Economic liberalization and speculative investment flows set the stage for crises in which poverty has increased and government spending on social welfare programmes and environmental protection has been slashed. In this context it is disturbing that some Northern governments are seeking to negotiate an investment liberalization agreement in the WTO. Such an agreement could interfere with the development of regional economies; reduce the responsibilities of investors at the local level; and further reduce the South's bargaining power.

There is a pressing need to change the rules governing international trade and investment to ensure that they properly reflect society's basic requirements and values. Trade and foreign investment are not and cannot be goals in themselves. Rather they are parts of a greater system, which, in order to be effective, needs also to be equitable, secure, sustainable and transparent.

In practice, this means that trade objectives, structures and rules need to be reviewed and revised forthwith. Governments meeting in Seattle should commit themselves to such a review, rather than trying to expand the power of an institution that is fundamentally at odds with society's requirements. For this reason, Friends of the Earth International and its 59 national groups oppose a comprehensive round of WTO trade and investment liberalization negotiations.

The 1999 WTO Ministerial presents an opportunity for governments to stake out a new approach to trade. FOEI therefore calls on governments to:

1. Cease negotiations to initiate a comprehensive round of negotiations which would bring new issues into the WTO

The time has come to review and revise trade rules, in order to develop a system of commerce that benefits people, their livelihoods and the resources upon which they ultimately rely. A number of developing countries are still struggling to implement the results of the last Uruguay Round of negotiations; and some of them have publicly stated that "A new comprehensive round would entail an unsustainable burden and should not include new issues" (statement from The Second Southern and Eastern African Trade Information and Negotiation Initiative (SEATINI) Workshop, Kampala, Uganda, 4 to 9 March 1999).

Such a review should address the WTO's impact on development, democracy, environmental sustainability, health, human rights, labour rights and the lives of women and children. It should also assess the impact of the WTO's refusal to adopt a precautionary approach; and reconsider the impact of a system which undermines economic self-determination by prioritising international trade over and above local and national trade.

2. Agree to a moratorium on WTO challenges to laws designed to promote and protect development, environment and health.

Governments are increasingly using (or threatening to use) the WTO to challenge legitimate existing and proposed domestic and international laws as "barriers to trade". They are able to do this because the WTO prioritises trade above all other societal values; and has a strong dispute settlement system with which it can enforce its priorities. This practice must stop.

Friends of the Earth International urges governments not to use current trade rules to challenge and weaken legislation on development, the environment and health. A moratorium should be put in place until governments recognise the existence and validity of the precautionary principle; environmental protection; high national and international environmental and health standards; and the benefit of operating in an open and transparent fashion.

3. Protect local, national and international environmental and social laws from unfair challenges and weakening by trade rules

Trade rules should not override laws designed to protect local communities, the environment and public health. In particular, countries need to retain the ability to protect farming and rural communities, secure food supplies, control inward investment, and insist that imports are properly labelled. FOEI recommends that governments give significant deference to national and local environmental and health laws.

Of further concern is the fact that decisions from WTO dispute panels often seem to imply that social and environmental laws have been introduced solely for ‘protectionist' purposes. To reverse this bias, all relevant dispute panels, in whatever fora, should be required to give a presumption of validity to national and local laws and policies.

Dispute settlement systems should be amended to indicate that when considering complaints concerning environmental, health, labour and consumer protections laws, panels may only find a violation if the challenged law clearly serves no legitimate purpose other than discriminating against imported products.

With regard to international environmental law, governments should agree, as part of the proposed review, that multilateral treaties on the environment, development, health, labour and human rights, take precedence over the WTO. Global trade rules should be amended to reflect this point.

In particular, the Convention on International Trade in Endangered Species (CITES) and the Convention on Biological Diversity must be acknowledged as the multilateral agreements that govern trade in the products of biodiversity; and the patenting of life forms should be banned.

4. Oppose investment negotiations in the WTO.

The sustainable development of economies requires the careful direction and management of both domestic and inward investment. The WTO is thus the wrong place to deal with international investment issues, since it deals primarily with deregulation and is unlikely to be the source of a suitably balanced agreement. The WTO is also the wrong forum in which to consider the critical, related issues of producer liability; and the rights and responsibilities of investors. A binding code of conduct for corporations, governing the way in which they deal with human rights issues and the environment, would be more appropriately negotiated within the United Nations.

5. Develop a democratic and transparent trading system.

The WTO is undemocratic. If international trade is really to benefit all participants, it is vital that all stakeholders - including governments, parliamentarians and civil society - have access to information on trade negotiations; and the ability to participate in decision-making processes, in order to develop sustainable trade policies.

It is critical that all relevant negotiations, in the WTO and elsewhere, are fully and accurately minuted and that these minutes, and other working papers including governmental position papers and draft negotiating texts, are promptly de-restricted and released to the public. Trade fora must be directly accountable to citizens and their elected representatives.

6. Agree to immediate debt relief and reject export-led development

The 1992 UN Conference on Environment and Development identified the need to transfer financial resources from developed to developing countries to help pay for sustainable development. Unfortunately, Northern governments have not lived up to this commitment. Instead, repayment of debt has resulted in a tragic 'reverse Robin Hood' transfer of wealth from poor countries to rich Northern creditors.

Heavy debt burdens on developing countries encourage governments to allow increased exploitation of natural resources for export in order to generate foreign exchange. The export-led development programmes of the Bretton Woods institutions have reinforced this short-term and damaging approach, creating a vicious circle in which world markets are oversupplied, commodity prices tumble, and poverty-stricken countries are forced to increase exports. Thus rich, importing countries have ready access to cheap supplies of natural resources and have, in fact, incurred an ecological debt to the countries of the South which far outweighs the official financial debt of the South.

In addition, heavily indebted countries are often forced to slash environmental and social spending, making it difficult for governments to pursue sustainability objectives.

Friends of the Earth International calls upon governments to reject export-led development policies, forgive bilateral debt and agree to substantial multilateral debt forgiveness for the poorest countries by the year 2000. This will allow developing countries to pursue more sustainable development policies.

As we approach the 21st century, the world needs trade rules that reflect society's current values and needs. Our existing trade rules and institutions and indeed the current global economic system are out of date and do not do this. Instead, they undermine biological and cultural diversity. They are still based on the pursuit of profit regardless of social and environmental costs; and inequitable access to and the overuse of limited natural resources. Critically, current rules also prevent the maintenance and development of locally-appropriate and sustainable systems of commerce.

For these reasons, it is vital that governments reject proposals to expand the mandate of the World Trade Organization. They should agree instead to review and rectify both the current trade system and the economic context within which that system operates. As the new Millennium approaches it is time to develop a system of international trade that promotes self-determination, environmental protection, sustainable livelihoods, equity and cultural diversity, amongst all nations and people.