The World Trade System - How it Works and What's Wrong with it

CONTENTS

10 reasons why the world trade system is bad for people and the planet
10 reasons why the World Trade Organization is bad for people and the planet

1. Introduction
2. Why do we trade?
3. What is 'free trade' and what's wrong with it?
4. The World Trade Organization - past, present and future
5. Corporate influence
6. Friends of the Earth's recommendations
7. Conclusion
   Key references and reading 30
   
   Other briefings in this series include:

The World Trade System: Winners and Losers
The World Trade System: an Activists' Guide
Food and Food Security: the Implications of Current Trade Negotiations
Forests: the Implications of Current Trade Negotiations
The WTO and Finance: Possible Investment Negotiations in the WTO

You are invited to reproduce information from this briefing, but asked to acknowledge Friends of the Earth International as the source of your information.

10 reasons why the world trade system is bad for people and the planet:

The principles on which the trade system is based are fundamentally flawed: The trade system pursues growth at all costs, through trade and investment liberalization, and sees economic growth and increasing consumption as ends in themselves. Key principles of free trade, such as comparative advantage and export-led development, have been discredited. The trade system ignores the fact that increasing consumption is depleting natural capital (the environment) on which the global economy is based. Increased trade also means more transport, leading to a loss of natural habitats and biodiversity and negative impacts on local communities. The trade system pays no heed to equity and distribution and does little to promote development and environmental protection.

The trade system is increasing economic instability: The deregulation of financial markets and the revolution in information and communication technology has stimulated massive growth in short-term capital flows, undermining countries' economies during economic crises and increasing the number of people in poverty. Trade and investment in least developed countries - particularly in Africa - has been concentrated on primary commodities. Because of fluctuating commodity prices in global markets this leads to increased economic insecurity.

The trade system is increasing inequality between the 'haves' and 'have-nots': The world trade system has increased the wealth of a narrow band of society. The winners have been both the developed countries and the wealthiest people, whilst poor countries and poor people have been increasingly marginalized. The impact of trade liberalization has hit subsistence farmers particularly hard. Trade liberalization does not benefit the majority of the world's population.

The trade system does not respect the environment: Trade and environmental policies have come into conflict at both the national and international levels. Trade policies are almost always given priority and environmental laws are frequently undermined as a result. The powerful influence of trade concerns has also permeated important climate change negotiations and blocked negotiations on a Biosafety Protocol to regulate the use of and trade in genetically modified organisms under the Biodiversity Convention.

The trade system is increasing inequality between the 'knows' and 'know-nots': Knowledge - particularly information, communications and biotechnology - is proving to be one of the key assets of a 'new' economy. This has marginalized the 'know-nots' who have been kept out of the knowledge sector and excluded those unable to share in the knowledge revolution due to difficulties relating to cost, language and literacy. The trade system protects the intellectual property of knowledge-rich companies rather than diffusing knowledge and transferring technology.

The trade system is increasing employment insecurity: The expansion of trade and the growth of incomes in OECD countries has not increased employment in developed countries. The globalization of the employment market and the mobility of companies and capital has also increased instances of firms moving to take advantage of lower wages and weaker labour laws. Threats to relocate also allow companies to force reductions in environmental and social standards around the world. Mergers, acquisitions and corporate restructuring are also increasing employment insecurity.

The trade system is bad for your health and safety: Companies are moving or expanding operations in developing counties where work force health and safety regulations are lower. Occupational disease, injury and death have taken a particularly heavy toll in developing countries due to globalization. Health and safety standards in industrialized countries have been successfully challenged through the WTO. Increased trade is also responsible for increased air pollution.

The trade system pits the weak against the strong: Small companies are expected to compete in the global economy along with the likes of Microsoft, Monsanto and Mitsubishi even though there is a massive difference in both wealth and economies of scale. The influence of transnational corporations in global trade policy is immense and growing.

The trade system has not advanced human development: Because of conflicts between trade and other policies and because Gross Domestic Product (GDP) calculations regard factors such as environmental damage, ill health and crime as positive contributions to the economy, the priority given by most governments to trade, globalization and the pursuit of growth in GDP is contributing to declining quality of life for many people. For example, over the past 25 years, there has been increasing job insecurity, growing global crime, spread of diseases such as HIV, increasing civil unrest, greater traffic and congestion and higher levels of climate changing gases in the air.

The trade system has not relieved poverty: As we reach the end of the Millennium, more than a quarter of the developing world still live in poverty and more than 100 million people in the developed world live below the income poverty line. The trade system is exacerbating this situation, particularly by marginalising the poorest and least influential communities around the world.

10 reasons why the WTO - which administers the world trade system - is also bad for people and the planet:

The WTO is undemocratic: In spite of the one-country one-vote structure of the WTO, powerful countries still wield enormous influence, often determining negotiating agenda amongst themselves, and putting pressure on smaller, poorly resourced countries to conform. The concerns of rich communities, rich people and rich companies all appear to be heard more readily by the WTO than those of the poor.

The WTO is untransparent and unaccountable: The WTO provides only very limited access for parliamentarians and civil society at large. Dispute settlements and the Appellate Body are conducted in closed sessions, with no public access or external input. The WTO is exempt from conventions allowing greater public access to information. In the past, there have been numerous reports of officials being unable to access information about the activities of their own trade negotiators.

The WTO is increasing inequality and food insecurity: WTO Agreements - such as the Agreement on Agriculture (AOA), TRIPs and the Sanitary and Phytosanitary Measures - are increasing global inequality and insecurity (particularly because of their impact on food production and consumption) and favour rich countries and big business.

WTO rules regard development and social issues as barriers to trade: For example, the EU's preferential import regime for Caribbean banana farmers - aimed at supporting small scale growers where costs are high because of steep terrain, poor soils and climatic hazards - was deemed incompatible with WTO rules. The long-standing Lome Convention between the European Union and African, Pacific and Caribbean countries is also likely to disappear in the near future, for exactly the same reason.

WTO rules regard environmental and health issues as barriers to trade: WTO rules conflict with many national laws and practices intended to promote sustainability and protect the environment. Most WTO agreements are based on the premise of sound, scientific evidence which severely limits the application of the precautionary principle. WTO rules have already been used to rule in favor of free trade and against various measures, eg hormone-treated beef and shrimps that are caught using turtle-excluder devices.

WTO rules regard labels and certification systems as potential barriers to trade: The certification and labeling of environmental and socially acceptable goods (such as timber or paper from well-managed sources and fairly traded products) and products that concern consumers (such as GM foods) could be undermined by WTO rules.

The WTO is eroding cultural diversity: The WTO TRIPs Agreement allows companies to expropriate knowledge from local peoples in developing countries who, in many cases, have been cultivators, researchers and protectors of plants for thousands of years. The Agreement permits (primarily Northern) transnational companies to claim traditional plant varieties or plant uses as 'inventions' that must be respected the world over. Culture could also be further eroded if issues surrounding the entertainment business - for example, films, broadcasting, music and publishing - are included in a new Round of trade negotiations.

The WTO could undermine multilateral environmental agreements: Multilateral Environment Agreements that have trade components - such as CITES, the Montreal Protocol and the Basel Convention on Trans-boundary Movement of Hazardous Waste - could be challenged under WTO rules.

The 'all or nothing' approach of the WTO: The last Uruguay Round of negotiations was dealt with as a 'single undertaking'. If the EU were to have its way, the proposed Millennium Round would also be negotiated as a 'single undertaking'. This means that many different sectoral negotiations would be linked together and the results either accepted or rejected in their entirety. This can put smaller countries, many of whom do not have the capacity or the opportunity to participate in the full range of negotiations at a severe disadvantage. Thus many developing countries who were opposed to the results of the agriculture and TRIPs negotiations in the Uruguay Round were still forced to accept them or risk being isolated in the global economy.

Influence at the WTO can be 'bought': Subsequent to a $500,000 company donation to the US Democratic Party, the US Government lodged a dispute in the WTO over the EU's banana import regime. Some of the world's largest companies are paying hundreds of thousands of dollars in the hope of gaining privileged access to key ministerial and other negotiators at the Seattle Ministerial Conference through the Seattle Host Organization. They expect to be able to attend receptions and dinners for heads of states, ministers and delegates with preferential seating.

INTRODUCTION

A number of influential world leaders are planning to expand the world trading system by initiating a comprehensive new Round of trade negotiations in the World Trade Organization (WTO), frequently called the 'Millennium Round'. They are rejecting calls for a review of the social and environmental impacts of the last 'Uruguay Round' of negotiations; and ignoring a wealth of evidence showing that the current trade system promotes inequality, is undemocratic, and degrades the environment, social structures and cultural diversity.

It is the underlying principles on which the free trade system is based that are fundamentally flawed. 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.

Trade rules and trade flows have already had severe, negative impacts on a broad range of environmental and social issues of concern to Friends of the Earth International's member groups, especially in the areas of agriculture, food, forests and investment. A Millennium Round would compound these difficulties.

The proponents of the 'Millennium Round' are pursuing an aggressive marketing strategy, waving economic 'sticks' at developing countries and dangling environmental and labor 'carrots' in front of civil society. Yet past experience and the current negotiating positions of a number of WTO members indicate that a Millennium Round will not address the environmental or developmental failings of the world trade system in any meaningful way.

The problems with the international trade system cannot be addressed by tinkering with the structure and/or regulations of the WTO. The time has come to reflect on deeper, more systemic changes to the trading system.

For these reasons, Friends of the Earth 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.

Specifically, Friends of the Earth International is calling on governments meeting in Seattle for the World Trade Organization's Third Ministerial Meeting in November 1999 to:

1. Cease negotiations to initiate a comprehensive Round of negotiations which would bring new issues into the WTO.
   
2. Agree to a retrospective review of the WTO's impact on development, democracy, environmental sustainability, health, human rights, labor 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.
   
3. 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 recognize 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.
   
4. 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.
   
5. Acknowledge that multilateral treaties on the environment, development, health, labor 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.
   
6. Oppose investment negotiations in the WTO and commit to the initiation of negotiations under the United Nation's for a binding code of conduct for transnational corporations.
   
7. Reject the 'liberal free market' principles behind export-led development and place more emphasis on policies that prioritize subsistence needs; 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; and
   
   Improve the democracy and transparency of the trading system.

 
A new and sustainable framework for the regulation of trade for the twenty-first century needs to be based on the principles of democracy, equity, reduced consumption, co-operation and caution. In order to achieve such a framework, broad reform of the global economy is a prerequisite.

This briefing explains the myths, impacts and institutions of world trade, outlines current proposals for new trade negotiations in various different sectors and examines the influence of transnational corporations.

WHY DO WE TRADE?

What is trade?
Trade affects almost everything we do. Put simply, it is the buying and selling of goods and services. It does not have to involve a monetary transaction. It might, for example, involve a simple exchange of goods or services of mutual value between two people living locally. However, as the volume of goods and services traded internationally increases, we tend to associate the word 'trade' more closely with global commerce and long distance transport. Many of us think particularly of shipping, which has been used to move products between nations for thousands of years.

More often than not, it is individuals or companies that trade with each other. However, governments have played a particularly significant role in international trade over the centuries, since they have used either force or taxes (tariffs), subsidies and regulations to control it. Government policies that intervene in the trade system and support domestic industries are known as 'protectionism'. Policies that deregulate trade and aim for non-intervention are referred to as 'free' trade policies or trade liberalization.


Why trade?
" I think we ought to continue to expand tradeI do not believe that a country with 4.5 percent of the world's people can maintain its standard of living if we don't have more customers. " The President of the United States, June 1999.

People, communities and nations have traded with each other for centuries in order to fulfil a number of goals. These include:

Local scarcity. Few, if any countries in the world can produce all of the goods and services that their populations need or desire.

To increase national influence. Governments may have many different motives: to increase power, to promote foreign policy, to influence economic and political decision-making in other countries, to foster economic links, or to encourage international security and promote a 'way of life'.

For cultural and social reasons. Trade may be a way of maintaining or reinforcing social bonds.

Economic development. Trade is most often promoted as a means of increasing economic growth and wealth. Since this strategy is also being promoted by the most influential international financial institutions - the World Bank and International Monetary Fund - it effectively determines the economic policies of many developing and developed countries.

However, in practice, the most important influence on international trade is probably the internal political and economic circumstances of the largest trading blocks, the US and the EU.

Take the US, for example. Economically, the US is currently very strong in a time of global weakness and is absorbing production surpluses from elsewhere. As a result it is also running a trade deficit that could reach $200 billion for 1999 (the figure for the first six months of 1999 was $118 billion). This is causing tensions internally and - with presidential elections looming - is influencing the US's position on forthcoming negotiations. The US's absolute priority must be to open foreign markets and increase exports. This is also the reason why the US is keen for China to join the WTO (China is negotiating to join before the Seattle Ministerial).

Trade flows

Goods and services

International trade in products and services (see Tables 1 and 2) is currently dominated by Western Europe, Asia and North America (particularly, the EU, Japan, Canada and the USA, collectively known as the 'Quads'). Western Europe has a particularly large slice of the trade cake, although the USA is the single most powerful trading country in the world.

By the mid-1990s, world trade amounted to some $5,900 billion annually, about $4,900 billion being merchandise and $1,000 billion being services. By 1998, these figures had increased to $5,300 billion and $1,300 billion respectively. The vast majority of the value of world merchandise trade (about 75%) is accounted for by manufactured goods, particularly transport machinery and electronic equipment. Minerals and agriculture - the 'staples' of the developing world - together constitute just 22% of merchandise trade.

International trade is also dominated by major transnational corporations (TNCs), almost exclusively based in the industrialized world, with some 40% of international trade taking place within these companies.

Investments

In addition to trade in goods and services there are now increasing flows of 'foreign direct investment' or FDI. Basically, this means that instead of or as well as trading, businesses are actually moving to foreign countries and establishing or buying into operations in those countries. This can provide them with a number of benefits, including better access to raw materials, new and easily accessible markets and cheaper operating costs.

FDI is measured in inflows and outflows. In 1981 world FDI outflows were some $48 billion. By 1995 this had risen six-fold to $318 billion and in 1997 it reached $424 billion.

WHAT IS 'FREE TRADE' AND WHAT IS WRONG WITH IT?

The history of 'free trade'

Towards the end of the Second World War, a number of governments gathered at Bretton Woods - a town in the USA - and agreed to set up the International Bank for Reconstruction and Development (the World Bank) and the International Monetary Fund (IMF). The basic idea was to set up an international monetary system, designed to help countries with balance of payments problems and to avoid the sort of protectionist measures and competitive devaluations which had been held largely responsible for the 1930s depression.

A third pillar of the system - proposed by the USA - was the formation of an International Trade Organization (ITO) designed to liberalize international trade. However, disputes arose between the United States and the United Kingdom as to the form it should take. The ITO eventually emerged in a significantly revised form as the General Agreement on Tariffs and Trade (GATT) in 1947.

The GATT was a simple agreement designed to reduce and bind (not increase) customs tariffs (border taxes). In the four decades that followed, the GATT became the spearhead for international trade liberalization, through its negotiations to reduce tariffs.

Since the formation of the GATT in 1947 there have been eight 'rounds' of trade negotiations. The first six 'rounds' concentrated exclusively on tariff reductions. But the seventh 'Tokyo' Round (1973-1979) coincided with a changing approach to trade liberalization.

Since the 1970s, there has been a marked shift towards more open markets. In terms of GATT negotiations, the Tokyo Round saw the first negotiations to reduce non-tariff barriers (NTBs) which are actions by governments, other than tariffs, that can impact on trade. Since NTBs can include environmental and health standards this was, and still is, of great concern to civil society groups. The last Uruguay Round of negotiations (1986-1994) also expanded the scope of the GATT dramatically, bringing in agriculture and services for the first time, and - finally - creating the new and powerful World Trade Organization. The Uruguay Round was also exceptional in that it covered areas not normally associated with trade; these were termed 'trade-related' (and subsequently gave rise to agreements of trade-related intellectual property rights and trade-related investment measures).

Several of the agreements concluded during the Uruguay Round were notable for their exceptional bias towards rich countries and big business - in particular, the Agreement on Agriculture (AOA) and the Trade Related Intellectual Property Rights (TRIPs) Agreement (see below).


'Free trade' theory and its flaws

The current economic system is fundamentally flawed. It pursues profit via trade and investment liberalization at all costs, despite significant weaknesses in its philosophy, rules and operations. In particular, it focuses on constant economic growth based on ever-increasing (and thus unsustainable) rates of resource use; and pays little heed to the needs of the poor and disenfranchised of the world. It deals only with the monetary economy and fails to address a range of issues related to peoples' quality of life. How can a system that has so many apparent drawbacks have so many supporters?

One reason seems to be the faith that those supporters have in the theory underpinning free trade. Since the late 18th Century, various economists, businessmen and politicians have argued against intervention in international trade. Protectionism, they say, stifles international trade and is uneconomic, inefficient and leads eventually to job losses. Instead they argue for what they call 'free trade' or 'trade liberalization'. The theory of free trade was further developed by David Ricardo's theory of comparative advantage.

The theory of comparative advantage

This theory states that nations should specialize in producing what they are best at; and that they should then trade with other nations (see Box 1). Free trade theory has more or less become gospel amongst many economists, and the WTO calls it "..arguably the single most powerful insight in economics " (WTO, undated).

However, the theory is based on the fact that capital is immobile and will be invested domestically. This is patently untrue in today's globalized world of transnational corporations, international money markets and massive financial transactions, where capital moves to wherever products can be produced at the least cost - and does so at the touch of a button. For example, in 1997, total world cross-border investment flows amounted to over $400 billion. Short-term (often speculative) capital now totals more than $2 trillion annually.

Box 1: The theory of comparative advantage

If country A is better at producing food than country B, and country B better at producing clothes than A, both will be better off specializing in the production of those goods and trading with each other. This is known as 'absolute advantage'. If on the other hand country A is much more superior at food production and slightly more superior at clothes production than Country B, it might be expected that country B will 'lose'. However, comparative advantage theory says that, country A should invest in specializing in producing the good which it is comparatively more superior at making (food). Country B should still specialize in what it does best (clothes) and the countries should trade. It is beneficial for both countries because, the theory argues, it is more economically efficient.

Thus, it is now the case that some countries will have or can acquire absolute advantage; and that others will lose out completely. Thus, for example, the currency crisis that hit South East Asia in 1997 saw massive 'capital flight', resulting in, for example, the Malaysian stock market losing 40% of its value (some M$250 billion) in just six months. This can only lead to increasing economic insecurity; and the lowering of international standards as companies compete in the global market place.

Respected economists and writers Herman Daly and John Cobb (Daly and Cobb, 1989) have criticized academic economists and free market proponents for failing to re-examine comparative advantage theory saying: "They have suppressed recognition of the fact that the empirical cornerstone of the whole classical free trade argument, capital immobility, has crumbled into loose gravel" .

Measuring wealth using GDP

The 'freeing of trade' has been accompanied by global economic growth (albeit unevenly distributed) as measured by Gross Domestic Product (GDP). However, GDP is seriously deficient as a measure of 'social welfare' or 'development' because it reflects peoples' income rather than their real quality of life. GDP counts the cost of health care, pollution clean-up and the renovation of habitats as positive contributions to the nation's wealth. Thus GDP can continue to rise, yet peoples' quality of life can deteriorate. This helps to explain the apparent contradiction of rising GDP in many countries and the sharp increase in criticism being leveled at the WTO.

Level playing fields

One of the most oft-quoted phrases in the free trade lexicon is that it provides a 'level playing field' for international trade. This is highly erroneous. Level playing fields are only relevant in competition between equals - there is no point in Doncaster Rovers regularly competing on the same playing field as Manchester United, Barcelona or Flamengo. Yet small scale producers are expected to compete in the global economy along with the likes of Microsoft, Monsanto and Mitsubishi even though there are massive wealth differences. The WTO does nothing to correct these imbalances.

Other flaws

Free market theory is also based on the ideal of 'perfect competition' where, amongst other things, there is perfect knowledge about all products and markets, all prices reflect the true costs - economic, social and environmental - of a product and there are no monopolies, oligopolies or cartels. This just does not happen.

'Free trade', both on its own and as part of a wider free market economic paradigm, has become widely accepted the world over. Free market ideology stems very much from a 'western' view of the world which sees individual and/or private power as the most legitimate conception of freedom. A major part of this world-view is a belief that free market capitalism is the only viable socio-economic system and is thus 'right' for everyone. However free market ideology - a belief in competitiveness, market forces and private ownership - is very much rooted in western culture and psychology and is not necessarily applicable across the world.

The impact of 'free trade'
Trade liberalization does not, as is often claimed, benefit all. The main winners from trade liberalization so far have been developed countries (in particular the EU, the USA and Canada), transnational corporations, the already rich and wealthy, those with access to information and the owners of large farms. The main losers include developing countries, the poor, employees, subsistence and small farmers, women, and those without access to information (see The World Trade System: Winners and Losers , FOE for further details).

The current trade system, as administered by the WTO, has a wide range of negative social, environmental and developmental impacts. The following give a good indication of the scope and range of the problem.

Increasing inequality

Trade liberalization is associated with increasing inequality both between and within countries. United Nations Development Program (UNDP) figures show that in 1960, the 20% of the world's population living in the richest countries were thirty times richer than the poorest 20%. By 1997, they were 74 times richer (UNDP, 1999). According to UNDP: " The imbalances in economic growth, if allowed to continue, will produce a world gargantuan in its excesses and grotesque in its human and economic inequalities " (UNDP, 1996).

Trade liberalization directly benefits those already trading and enjoying economies of scale. There appears to be no evidence to support the 'trickle down' theory that this wealth is then passed onto the rest of society. As Michael Jacobs concludes: " The theory that wealth would automatically 'trickle down' from the rich to poor has been proved simply wrong: rather, it now appears that wealth can circulate and expand within geographical and economic class boundaries to the exclusion of those outside " (Jacobs, 1996). Shockingly, 1.3 billion people are still obliged to manage on less than one dollar a day.

According to UNCTAD: " The big story of the world economy since the early 1980s has been the unleashing of market forces ... The 'invisible hand' now operates globally and with fewer countervailing pressures from governments than for decades ... Since the early 1980s the world economy has been characterized by rising inequality and slow growth " (UNCTAD, 1997).

In fact, in the 1990s, the richest 20% of the world's population has 95% of all commercial lending, 94% of all research and development, 86% of world gross national product, 82% of world trade, 81% of all domestic investment, 81% of all domestic savings and 68% of all Foreign Direct Investment (FDI). In contrast, the poorest 20% has only 1% of world GDP and 1% of FDI (UNDP, 1999; Kocherry, 1999).

Economic and developmental impacts

The trade system has negative economic impacts that often appear to be completely ignored by governments. This is in addition to developmental impacts in poorer countries, despite the fact that supporters of the WTO promote the benefits that free trade will bring to developing countries. In particular, focusing on export-led development and attracting foreign investment has had extremely damaging social and environmental impacts that have affected large sectors of populations living in developing economies (even those countries where GDP has risen).

Between 1975 and 1997 (using 1987 US$), GDP per capita in industrialized countries increased by approximately 50%. Conversely, per capita GDP for least developed countries fell by approximately 15% (UNDP, 1999). Between 1970 and the mid 1990s, least developed countries (LDCs) suffered a cumulative decline of 50% in their terms of trade (which means that the revenue from a given volume of exports can now only purchase half the previous quantity of imports that could have been bought). LDCs have only 0.3% of world trade even though they have 10% of the world's population.

Agriculture: The increasing emphasis on international as opposed to local and national trade, is having an extremely severe impact in agriculture. Small farmers are being displaced (and at best taken on as small holders in poor conditions, with unfair contracts and without compensation) as land is increasingly turned over to production for export. For example, land under soya production in Brazil has jumped from 200,000 to 2 million hectares in Brazil in the last thirty years. Similarly, Indonesia plans to increase land under palm oil development from 2.5 million hectares to 7 million (and possibly even 9 million) hectares. In the US, the average size of a farm tripled between 1935 and 1987 and small farms are now disappearing at a rate of 30,000 per year.

The impact of the Uruguay Round illustrates well the cavalier treatment being meted out to many poorer countries. At the end of the last Round, WTO members knew that the least developed countries and net food importing developing countries (NFIDCs) would face problems because of the WTO's Agreement on Agriculture (because of higher food import bills, price instabilities and reduced availability of food aid). The FAO calculated that the food import bill for low-income food deficit countries would be $9.8 billion higher in 2000 compared to 12 years previously (an increase of 55%) and of this increase, $3.6 billion would be as a result of the Uruguay Round (FAO, 1995). More recent studies have confirmed the deteriorating position for NFIDCs; between 1993/4 and 1997/98, the cost of cereal imports increased by 47% (FAO, 1998). So, at the conclusion of the Round, member governments agreed to compensate affected countries. However, this promise has never been fulfilled.

The WTO's Agreement on Agriculture (AOA), established during the last Uruguay Round of negotiations, has exacerbated this problem, because it unashamedly pits small farms against larger, more 'efficient' agribusinesses in both the North and the South. This has had, and looks set to continue to have, disastrous consequences for existing small-scale agriculture and rural communities.

TRIPs, farm-saved seed and technology transfer: The WTO's TRIPs Agreement also prevents people from farming using seed saved from the previous year's crops. According to the UN, roughly 1.4 billion people around the world depend on farm-saved seed for their food security. Under WTO-enforced patent law Monsanto has the right to take farmers to court if they collect and use seeds from its patented plant varieties. In the USA, Monsanto has opened more than 475 such 'seed piracy' cases nation-wide. Monsanto's 'terminator gene' technology that makes plants sterile would have helped the company to enforce its patent rights. However, even if Monsanto keeps its voluntary pledge not to commercialize this technology, the promotion of patented varieties, backed by legal action, could pose a significant threat to food security in the developing world.

In addition, the TRIPs Agreement is also a significant barrier to securing technology transfer for the development of Southern farming or industry.

International competitiveness: Furthermore, obsession with 'international competitiveness' - the very basis of trade rules - threatens to increase job insecurity and undermine attempts to impose costs on national industries through regulation or taxes. The increasing ease with which companies can relocate means that they are also able to play countries off against each other, reducing costs and standards everywhere - often without relocating at all.

Trade sanctions: Current trade sanctions, as authorized by the WTO Dispute Settlement Body, are hitting small businesses very hard throughout Europe. The sectors targeted have nothing to do with the original complaints (about bananas and hormone-treated beef). For example, several small companies in the UK - including Beamglow and Arran Aromatics (manufacturing folding cartons and bath products respectively) - have been seriously affected by sanctions under the 'banana wars'. Turnover is down, jobs may well have to be lost and the situation is causing anxiety and uncertainty amongst employees.

In France, also hit by sanctions, farmers have responded furiously and demonstrations have involved damage to a half-constructed McDonalds restaurant and the imprisonment of several protesters. Moreover, the leader of the French farmers, José Bové, was released after a number of weeks to a chorus of sympathetic comments from French Ministers, including the Prime Minister Lionel Jospin, who is reported to have commented that " Mr Bové's cause is just ". The Agriculture Minister, Jean Glavany, who has invited Mr Bové to attend the Seattle meeting, reportedly said: " Today, for the first time, we are in step with public opinion. There's a national consensus about bad food. People realise we need a different international logic than the economic, social and environmental dumping of modern agriculture. We have to change the WTO so that it respects people's cultural choices, does not destroy the world's peasantry and guarantees fair trade for all " (Guardian, 1999).

Foreign investment as a contributing factor: There are increasing concerns that liberalization of the financial and investment sectors - and the increasing movement of short-term (often speculative) capital - does little if anything to contribute to the development of a country. The financial crisis in Asia, for example, precipitated massive and almost instantaneous capital flight. Not only were growth prospects severely reduced but there was a human cost as well; bankruptcies, suicides and prices for essential goods escalated. Spending on social welfare and environmental protection was slashed as well (see Box 2). Foreign direct investment (FDI), where companies actually move into or have significant share holdings in companies in other countries, is also having a marked, negative impact on local economies, small businesses and labor standards (see The World Trade System: Winners and Losers, FOE for further detail and case studies)

Box 2: All the World's a loser. The Asian economic collapse - a global crisis with global effects caused by a global trade system

Cause: Speculative capital poured into the relatively immature Asian financial markets to take advantage of the growth in the tiger economies. At the first signs of economic problems, this capital flowed out again almost overnight. This was made possible because of deregulated financial markets.

Effects: It is estimated that over 50 million more people in Asia fell into poverty In East Asia alone, unemployment increased by 3.3 million. The only growth economy in the world - the US - had to absorb surplus and cheap production from Asia causing unemployment and a very large trade deficit. Cheap exports from Thailand also caused the closure of a German Electronics company in the UK with the loss of 1,100 jobs.

Global economic growth slowed down to about 2%, the lowest level for five years. Export commodity prices have declined, with severe impacts on African countries dependent on primary raw materials. It was estimated that Zambia's copper exports would decline by 26% in 1998.

Source: UNDP, 1999.

Nevertheless, attracting inward investment is still regarded by many governments as being unquestionably good for development. The failed Multilateral Agreement on Investment (MAI), which was being negotiated in the OECD, and now the investment proposals before the WTO, are being promoted on the basis that, without an attractive (i.e. deregulated) investment regime, nations will not attract FDI and will not 'develop'. Not only is FDI not necessarily beneficial, it does not automatically lead to 'development' or increased employment. Second, there is no link between deregulating foreign investment rules and attracting FDI.

As Rubens Ricupero, Secretary General of UNCTAD recently commented: " So far there is no empirical evidence to suggest that developing countries are necessarily better off in terms of attracting and retaining quality FDI within the confines of multilaterally agreed disciplines in investment .. . What is evident is that the existence of investment rules will do little to tackle the problem of distribution of the potential gains from trade and FDI. Investment tends to concentrate where capital is already present. Thus, imbalances between and within countries - imbalances that have been sharply exacerbated as a result of globalization and liberalization - will not be affected by the absence of investment barriers, as some of its proponents have suggested" (Ricupero, 1999).

Box 3: Foreign direct investment (FDI)

Some 58 Per cent of FDI is accounted for by cross border mergers and acquisitions. These are renowned for job losses. Subsequent to one such merger (of BP and Amoco) 7,000 redundancies were announced. Moreover, in 1998 BP-Amoco axed a further 3,000 jobs because, despite the fact that it still made a massive $4.5 billion profit, this was a drop from $6.5 billion the previous year. In 1999, BP-Amoco acquired American oil company Arco resulting in a further 2,000 job losses.

In 1996, China attracted a staggering 40% of all FDI inflows to developing countries. China is not renowned for its deregulatory approach to investment or any other sector of its economy. FDI is much more likely to be attracted to countries with a basic infrastructure and skill base. Deregulating investment is a side issue.

Export-led development and debt as contributing factors: As a result of governments' wholesale acceptance of free trade theory as being in the public interest, the policies of the WTO, the IMF and the World Bank have focused on encouraging countries to follow a 'liberal free market' agenda. Export-led development - the (re)structuring of an economy towards producing goods for export markets in order to afford more imports and stimulate economic growth - is a further fundamental part of current western free market economic policy.

However, the empirical evidence in support of export-led development is poor. A focus on export-led development generally pushes countries into cash crops or increased mineral production with associated, severe negative impacts on the environment and on local communities. (see The World Trade System: Winners and Losers , FOE for further detail and case studies). In addition, not everyone can develop through the expansion of their export sector. One of the "unspoken truisms of international trade" is that " ...it isn't possible for every nation to export more than it imports. Where will the surplus go?" (Kierans and Stewart, 1989).

Box 4: Export led development - the experiences in Cote d'Ivoire, the Philippines, Ghana and Indonesia

Increasing exports does not necessarily lead to development. Cote d'Ivoire has increased its exports (from $3 billion in 1980 to $5 billion in 1995). However, Cote d'Ivoire's GDP has remained stagnant (the same $10 billion in 1995 as it was in 1980) and their external debt has skyrocketed (from $7 billion to $19 billion over the same period). Cote d'Ivoire is largely dependent on exports of primary commodities like coffee and cocoa yet, during the 1980s, the world market prices for these products collapsed. Cote d'Ivoire had to increase the volume of its exports to earn the same amount of revenue. With an external debt nearly four times as much as its export revenue, Cote d'Ivoire is not going to be able to export its way out of the debt crisis and into development.

In the 1960s and 1970s, the Philippines became one of the top four timber exporters in the world. In the process, 90% of its forests have been lost. The country is now a timber importer with 18 million impoverished forest dwellers, an external debt of nearly $40 billion in 1995 (up from $17 billion in 1980) and over one third of the population still living below the poverty line.

Ghana's Economic Recovery Program was launched in 1983 and has seen over US$2 billion of foreign investment in the mining sector. In the Wassa Fiase area of the country, said to have the single largest concentration of mines in the African continent, people have reported being evicted from their homes and farmlands by soldiers making dawn raids to claim land for use as mining concessions. They are paid little or no compensation, yet this primarily agrarian community has lost its main source of food and income.

In Indonesia, the operation of the Grasberg copper and gold mine has been described as representing one the world's worst known cases of environmental degradation and human rights' abuses. Over 100,000 tonnes of ore tailings are dumped into rivers every day. Villagers have been forcibly resettled including 2,000 people in 1998 alone.

The issues surrounding export-led development (vis-a-vis the experiences of Cote d'Ivoire, Ghana, the Philippines and Indonesia - see Box 4) and the role of the IMF and the World Bank in shaping trade policy confirms that the trade system cannot be divorced from the other variables such as structural adjustment, the vagaries of capital and commodity (speculative) markets, and the external debt of countries.

Furthermore, heavy debt burdens on developing countries encourage governments to agree to export-led development programs and to allow increased exploitation of natural resources for export in order to generate foreign exchange. The export-led development programs 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.

Environmental and health impacts

The current trade system has a wide range of impacts on the environment and health, including increasing resource use and pollution, and conflict with international, national and local laws and practices that promote sustainability and protect the environment (see The World Trade System: Winners and Losers , FOE for further detail and case studies).

Resource use: The trade system ignores the fact that increasing consumption is depleting natural capital (ie, the environment) on which the global economy is based. Increased trade also means more transport and thus more pollution. Since the economic system does not recognize limits to global resources or the pollution-absorbing capacity of the ecosystems, it is inherently and undeniably unsustainable.

UNEP has confirmed that tropical forests and marine fisheries have been seriously over-exploited and that globalization is also leading to species invasion. The global marine catch has nearly doubled between 1975 and 1995. Over-fishing for export-led development (see above) now means that 60% of the world's ocean fisheries are at or near the point at which yields start to decline (UNEP, 1999).

Similarly, 56 million hectares of forest was lost globally between 1990 and 1995. Demand for wood continues to increase; the global production of wood products is now 36% higher than in 1970. The recent analysis of the conservation status of 10,000 tree species (out of an estimated world total of 100,000) found that over half were globally threatened as defined by the International Union for the Conservation of Nature and Natural Resources (IUCN) (UNEP, 1999). The increase in global trade of wood products has stimulated the invasion of alien species often with dramatic ecological impacts; the US has recently restricted imports of packing materials due to the high occurrences of the destructive Asian long horned beetle. At the same time, timber certification designed to promote the production and consumption of sustainably produced timber could be constrained by WTO rules.

At the same time, road and air transport are major contributors to air pollution and climate change. Every year, nearly 3 million people die from air pollution globally. It has been estimated that truck transportation in North America is likely to increase seven fold between 1995 and 2005 as a result of the North American Free Trade Agreement (NAFTA) a rate of increase likely to far exceed any improvement in the pollution efficiency of truck engines. It has been suggested that the proposed Trans European Network will threaten the social integrity of 1,000 small villages throughout Europe.

Inequitable consumption: Global consumption (as measured by how much money is spent) has increased on average 3% annually since 1997, although this figure hides significant imbalances. Consumption in Africa is now 20% lower than it was in 1980. Basic needs - such as adequate nutrition, literacy and information - are not being achieved. For example in Sub-Saharan Africa, between 1970 and 1995, average per capita consumption of paper actually decreased from 2.2 to 1.6 kilograms per annum whilst calorie intake in 1995 was still below the daily minimum requirement of 2,300. By comparison, average per capita consumption of paper in industrial nations increased from 45.7 to 78.2 kilograms per annum over the same period.

Conflicting with international rules to protect the environment: In spite of claims that no multilateral environmental agreements have ever been challenged in the WTO, WTO rules have already had a marked effect on some international agreements and ongoing negotiations designed to protect the environment and promote development. These include the Biosafety Protocol, intended to regulate the transfer and handling of genetically modified (GM) organisms, which collapsed in February 1998, because of the objections of a small group of GM crop exporting nations led by the United States. Other multilateral environmental agreements (MEAs) that have trade components - like the Convention on International Trade in Endangered Species (CITES), the Montreal Protocol on Substances that Deplete the Ozone Layer and the Basel Convention on the Control of Transboundary Movements of Hazardous Wastes - would also appear to remain vulnerable to challenge through the WTO.

Conflicting with national rules to protect the environment: The WTO's dispute settlement system has also been used several times to overturn national legislation designed to promote environmental protection and health. Whilst the details of each case differ, an overall pattern has emerged - all decisions to date have favored the 'trade' interest over environment and health concerns. Disputes have overturned or imposed sanctions on national legislation in various countries concerning, for example, imports of dirty oil, hormone-treated beef, and shrimp caught without the use of devices intended to protect turtles. The imposition of punitive sanctions is fuelling public opposition to the WTO in countries such as France, the UK and the US (see The World Trade System: Winners and Losers , FOE for further detail and case studies).

Food safety: One particular WTO agreement, the Sanitary and Phytosanitary (SPS) Agreement has already been invoked by the WTO when ruling on food issues, most notably the EU ban on the imports of hormone-treated beef due to consumer and health concerns (see disputes, above). The SPS requires that appropriate risk assessment, involving an analysis of the available scientific evidence, must be undertaken before action (ie a import ban) can be taken. If the risks are unknown, and thus little or no scientific evidence exists, the precautionary principle - which the EU argued in the beef-hormone case - cannot be used despite the fact that the principle is now widely recognized in international law.

Trade, biotechnology and eco-labels: It is fully expected that forthcoming negotiations will focus on biotechnology. Various countries - at the behest of their biotechnology industries - want the WTO to consider rules and regulations, particularly in relation to the SPS agreement, that would prevent national legislation restricting or discouraging the import of biotechnological products, and for challenges in the WTO to be made easier. It is also possible that rules governing the use of eco-labels will be reviewed in favor of trade concerns (for further discussion of both see 'new issues' below).


THE WORLD TRADE ORGANIZATION - PAST, PRESENT AND FUTURE

The last Uruguay Round of negotiations led to the formation of the WTO. Whereas the GATT was an agreement with 'contracting parties' and served as a negotiating forum, the WTO is a recognized international body with 'members', which is responsible for monitoring and enforcing the World Trade Agreement (WTA) which sets out the legal basis for trade policy. The Uruguay Round was the longest, most tortuous and most controversial set of negotiations in the GATT's history. The Uruguay Round was concluded in 1994 and the WTO formed in 1995. By 1999, the WTO's membership stood at 134.

The WTO is responsible for administering these agreements and, according to the WTO Secretariat, it has three main objectives; "...to help trade flow as freely as possible, to achieve further liberalization gradually through negotiation, and to set up an impartial means of settling disputes" (WTO, undated) .

Principles

In terms of helping trade flow as freely as possible, the WTA is founded on two fundamental principles, that of Most Favored Nation status (MFN) and National Treatment (NT), both of which are designed to act against trade discrimination. There is also a set of further 'annexed' agreements that deal with potential trade barriers in more specific aspects of trade policy.

Most Favored Nation Status (MFN)

Although the phrase 'most favored nation status' suggests some kind of special treatment for one particular country, in the WTA it means non-discrimination - treating all countries equally. Each member is bound to treat all the other members equally as 'most-favored' trading partners. If a country improves the benefits that it gives to one trading partner, it has to give the same 'best' treatment to all the other WTO members so that they all remain 'most-favored'. There are a few exceptions allowed (such as the Generalized System of Preferences or GSP) but, in general terms, MFN is intended to ensure that each WTO member treats other members equally.

National Treatment (NT)

National treatment means that imported and locally-produced goods should be treated equally. The same applies to foreign and domestic services, and to foreign and local trademarks, copyrights and patents. National treatment only applies once a product, service or item of intellectual property has entered a market. This means that charging customs duty (tariff) on an import is not a violation of national treatment even when locally-produced products are not charged an equivalent tax. However, whilst such tariffs are permitted, members negotiate their reduction and 'bind' them at the WTO. After tariffs have been reduced or bound, raising them unilaterally is prohibited, other than in exceptional circumstances such as a balance of payments crisis.

Content, structure and processes

Content - the annexed agreements

As well as the main text of the GATT 1947, the WTA comprizes a number of further 'annexed agreements'. The most basic function of these agreements is to incorporate the principles of national treatment and most favored nation status into other, more specific, areas of trade policy. These include:

1. Agreement on Technical Barriers to Trade (TBT)
2. Agreement on Sanitary and Phytosanitary Measures (SPS)
3. Agreement on Trade-Related Investment Measures (TRIMs)
4. Agreement on Trade-Related Intellectual Property Rights (TRIPs)
5. Agreement on Subsidies and Countervailing Measures (SCM)
6. General Agreement on Trade in Services (GATS)
7. Agreement on Agriculture (AOA)
8. Agreement on Textiles and Clothing (ATC)
9. Agreement on Government Procurement (GPA)

The last of these agreements, the GPA, is currently a 'plurilateral' or voluntary agreement, signed up to by some, rather than all the members.

Structure

The WTO is an intergovernmental organization with a secretariat based in Geneva. The Director General is appointed by the members (governments) while the rest of the staff are employed as in any other organization. Its highest decision-making body is the Ministerial Meeting which takes place approximately every two years. Within the WTO is a General Council made up of member representatives that meets periodically to discuss issues that can be referred to the Ministerial Meetings.

Processes - trade negotiations and monitoring

The WTO acts as an international forum for trade negotiations. This takes place mainly through the General Council of the WTO, through Ministerial Conferences and through periodic 'rounds' of multilateral trade negotiations. The WTO also has a variety of committees and councils at which particular aspects of trade policy are discussed and recommendations to the General Council are made.

The WTO believes that those involved in trade have to know as much as possible about the conditions of trade. It therefore stipulates that regulations and policies should be transparent. The WTO tries to achieve this transparency in two ways. Firstly, governments have to inform the WTO and fellow members of specific measures, policies or laws through regular 'notifications'. Secondly, the WTO conducts regular reviews of individual countries' trade policies and compliance with WTO rules - the trade policy review mechanism.

Dispute settlement

Perhaps the most important function of the WTO is its dispute settlement role. The rules are administered by the Dispute Settlement Body (DSB). In the event of a dispute between two Members, the DSB initially attempts to solve the problem through consultation, mediation and conciliation. If a settlement has not been reached after 60 days a Dispute Settlement Panel (DSP) can be requested. A DSP then holds hearings and produces a panel report which goes to the DSB for adoption unless an appeal is lodged, in which case the Appellate Body (AB) produces a further (and final) report for the DSB.

One of the critical differences between the GATT and the new WTO is that no one country can hold up a dispute panel decision in the WTO. Thus the WTO is much more powerful than the old GATT.


The Third Ministerial Conference, Seattle

At the end of November 1999, the heads of state of WTO members will meet in Seattle, USA for the next major WTO Ministerial Conference. A number of these world leaders are planning to initiate another 'Round' of trade negotiations. Either as part of such a new 'Round' of negotiations, or separately, they will also agree to discussions on the WTO's already agreed 'built-in-agenda' - a range of reviews of, and further negotiations on, existing trade agreements.

The WTO's 'built-in agenda'

There are a number of WTO reviews and negotiations due in 1999 and subsequent years that will take place whether or not there is a 'Millennium Round'. Governments signed up to these commitments during the last Uruguay Round of trade negotiations and are unlikely to back down now. This 'built-in' agenda includes reviews of:

1. the Agreement on Trade-Related Intellectual Property Rights (TRIPs);
2. the Agreement on Trade-Related Investment Measures (TRIMs);
3. the Agreement on Technical Barriers to Trade (TBT);
4. the Dispute Settlement Understanding (DSU);

and further liberalization negotiations within:

1. the Agreement on Agriculture (AOA); and
2. the General Agreement on Trade in Services (GATS).

All of these reviews/negotiations could have outcomes that impact negatively on the environment or society, in both the North and the South. For example, TRIPs impacts on peoples' ownership of, and access to, food and seeds and has the potential to significantly reduce genetic diversity; TRIMs restricts governmental control on inward investment; and the TBT Agreement deals with eco-labeling. It is by no means a foregone conclusion that discussions on 'built-in-agenda' issues will lead to further liberalization. It is in fact possible that a review of the TRIPs Agreement, for example, could result in the rolling back of some of its rules. However, the big trading powers like the EU and USA will be using the 'built-in-agenda' to pursue their own self interests and increase market access for their TNCs so further liberalization is on the cards.

Agriculture: In agriculture, the US and the Cairns group of agricultural exporters plans to target agricultural subsidies in Europe, which is likely to trigger intense opposition amongst European farming and rural communities. (The Cairns group consists of Australia, Canada, New Zealand and a number of developing countries including Argentina, Brazil, Malaysia and Thailand, all of whom operate without agricultural subsidies). In addition, there are bound to be disagreements about whether agricultural trade should be completely liberalized or whether exemptions for food security or environmental purposes are permissible (see Food and Food Security: The Implications of Current Trade Negotiations, FOE for further details).

Services: As far as services negotiations are concerned, it is not yet clear which sectors governments will decide to include. There has been a suggestion from the United States that all service sectors should be considered. This could have extensive environmental and developmental implications, with areas such as health, education, tourism, and energy and water services being liberalised and brought under the umbrella of the WTO.

Intellectual Property Rights (IPRs): The Agreement on Trade-Related Intellectual Property Rights (TRIPs) impacts on peoples' ownership of and access to food and seeds and has the potential to significantly reduce genetic diversity. It permits northern TNCs to claim traditional plant varieties or plant uses as 'inventions' that must be respected the world over. TRIPs was first brought into the GATT in the Uruguay Round and implemented in a way that favored large Northern corporations. TRIPs and the use of patents expropriates knowledge from farmers and indigenous peoples in developing countries who, in many cases, have been cultivators, researchers and protectors of plants for thousands of years. This practice is commonly referred to as 'biopiracy'. Biopiracy is not the result of the absence of IPR systems in the developing world but a direct consequence of the imposition of western style IPR systems (based on the US patent regime) through the TRIPs Agreement.

Technical Barriers to Trade (TBT): The Technical Barriers to Trade (TBT) Agreement covers any procedures or standards that might be deemed to interfere with international trade. This includes packaging, marking and labeling standards, and thus eco-labels. The Confederation of British Industry urges WTO members to establish that TBT rules apply to eco-labeling and to clarify the extent to which private eco-labeling rules should be covered by the agreement (which would bring well-established initiatives such as the Forest Stewardship Council scheme under the remit of the WTO). Similarly, in the run up to Seattle, the International Chamber of Commerce has lobbied against eco-labeling requirements, arguing that they hinder free trade.

Investment: Investment may be dealt with under the built-in agenda and as a new issue. So, even if investment is rejected as a new issue it is still possible that investment policy may be dealt with under the built-in agenda, where it appears as the Agreement on Trade-Related Investment Measures (TRIMs). The TRIMs Agreement bars countries from imposing several kinds of performance requirements (conditions) on foreign investors. Under TRIMs, governments can not require corporations to export a minimum percentage of finished products, or to use a minimum percentage of domestically-produced components.

TRIMs obligations start applying to developing countries in 1999/2000. Already, countries such as India and the Philippines have sought additional waivers, arguing that domestic content requirements are important development tools.

Friends of the Earth is concerned that this review could be used to introduce an agreement similar to the Multilateral Agreement on Investment into the WTO by a less obvious route, particularly if investment per se is rejected as a 'new issue' (see below) (see also The WTO and Finance: Possible Investment Negotiations in the WTO, FOE for further details).

Sanitary and Phytosanitary Agreement (SPS): The SPS deals with food safety and standards and permits the WTO to determine what international and potentially even domestic measures are necessary to protect human, animal or plant life or health. Members are 'encouraged' to use international standards where they exist, although they are allowed to maintain higher domestic standards if there is 'scientific justification' or as a consequence of an 'appropriate risk assessment'.

The SPS has already been used by the WTO in rulings on food issues, especially the European Union's ban on the imports of hormone-treated beef (imposed due to consumer and health concerns). The SPS requires that appropriate risk assessment, involving an analysis of the available scientific evidence, must be undertaken before action (ie a import ban) can be taken. If the risks are unknown, and thus little or no scientific evidence exists, the precautionary principle - which the EU argued in the beef-hormone case - cannot be used despite the fact that the principle is now widely recognized in international law. The WTO Appellate Body ruled that the precautionary principle cannot be used to override the risk assessment clauses in the SPS Agreement. Therefore, at best a limited precautionary approach can be adopted within the scope of the SPS; 'provisional measures' can be adopted where information is not sufficient provided that the additional scientific evidence for a more objective risk assessment is obtained in a reasonable period of time (Article 5.7).

The beef-hormones case is being seen as a 'dry-run' for a potential dispute over genetically modified organisms (GMOs) where the same issues of scientific uncertainty, corporate interest and public taste would once again arise.

Whilst the US has affirmed five basic principles behinds its policy on biotechnology - an arm's length regulatory process, consumer acceptance; fairness to farmers; corporate citizenship; and fair and open trade (Glickman, 1999a) - it is clear that its (unofficial) position is that it will not let other nations hide behind unfounded scientific claims to block further commerce in agriculture (Glickman, 1999b). Central to this position is the SPS Agreement. US Industry lobby groups are also firmly behind this position. The US believes that biotechnology and the SPS will be the most difficult stumbling blocks in the next round. The US (with Canada) opposed at the recent G8 the setting up of a Global High Scientific Council for Food Safety arguing that food safety should be negotiated within the WTO. It now appears likely that the US will not seek to address biotechnology within the SPS Agreement; they are keen to preserve the 'science-based focus' of the Agreement and thus limit further application of the precautionary principle.


A new 'Millennium Round'?

The proposed 'Millennium Round' is an attempt to have another comprehensive round of trade negotiations which would add new issues and negotiations to the 'built-in agenda'. 'Comprehensive Round' is government-speak for an integrated negotiation across a number of sectors (e.g. agriculture, investment etc) which permits countries to make concessions in certain sectors and gain benefits in others.

The 'Millennium Round' was initiated and is being promoted by the EU, although other countries (eg Japan, Canada and some Latin American countries) are also broadly supportive. The USA is more reserved in its support for a comprehensive new Round due to domestic political pressure and the difficulty of getting 'fast-track' negotiating rights for the President and his delegation.

Nevertheless, the main reason for having a new Round of negotiations is to push the liberalization agenda of the rich northern countries. This includes the further reduction of industrial tariffs (border taxes on imports) plus liberalization (i.e. deregulation) in a number of other 'new' areas.

These 'new issues' could include:

1. Investment
2. Government Procurement
3. Competition Policy
4. Electronic Commerce
5. Trade Facilitation

Also up for discussion are two non liberalization-related 'new issues':

1. Environment
2. Labor Rights

Attempts are also being made to reach sectoral agreements on various products - forests being one - at the Conference.

Investment

Investment is obviously a contentious issue after the demise of the Multilateral Agreement on Investment. Investment discussions are likely to focus on stripping away the controls that countries place on inward investment (like joint venture requirements) rather than allowing the kind of latitude needed to pursue a range of goals (e.g. environmental, social or developmental).

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 programs 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 further interfere with the development of regional economies; reduce the responsibilities of investors at the local level; and further reduce the South's bargaining power to obtain developmental benefits from inward investment.

Furthermore, deregulating foreign investment is not necessarily the key to attracting foreign direct investment (FDI). China, for example, attracted a staggering 40% of all FDI inflows to developing countries in 1996. China is not renowned for its deregulatory approach to investment. FDI is much more likely to be attracted to countries with a large market, basic infrastructure and good skills base. Deregulating investment is a side issue as far as attracting investment is concerned.

Trade flows are currently valued at around $7 trillion annually, whilst foreign investment generates $9.5 trillion in annual sales by overseas affiliates of multinational corporations. Thus an agreement on investment would have the affect of substantially increasing the power of the WTO, cementing its transformation from a body dealing mainly with trade to an institution with oversight of many economic, social and environmental decisions. Friends of the Earth believes this would be highly inappropriate given the WTO's track record in terms on the environment and development. Investment should not be addressed as a new issue.

It is vital to regulate international investment, but the WTO is not the appropriate forum. National governments should do more to ensure that inward and outward investment promote sustainable development. In addition, governments should jointly initiate negotiations within the more open forum of the United Nations for a binding code of conduct. Such binding rules should require investors to protect the environment and respect the rights and interests of local communities.

Investment plans at the WTO have been influenced by the fate of a parallel investment process at the Organization for Economic Co-operation and Development (OECD), a grouping of 29 of the world's industrialized nations. In 1995 the OECD started negotiating an investment liberalization agreement called the Multilateral Agreement on Investment (MAI). MAI supporters, especially the US, believed that the OECD could produce a stronger investment agreement (in terms of protecting corporations) than was possible at the WTO. MAI negotiations ceased in 1998 due to disagreements between governments and pressure from civil society groups. The end of the MAI gave proponents of investment negotiations at the WTO, such as the European Union, Japan, and Canada, new energy.

Currently, the strongest proponents of WTO investment negotiations include the European Union, Japan, Canada, Switzerland, Hong Kong, and Korea. Switzerland has proposed broad negotiations that could lead to an agreement like the MAI. The other governments that have proposed negotiations have suggested less ambitious objectives. Less ambitious in the sense that they would be 'bottom up' (countries commit some sectors for liberalization) rather than 'top down' like the MAI (where liberalization covers all sectors except where a government takes a specific reservation.) Most current proposals would also exclude investor-state dispute resolution.

However, investment negotiations are opposed by a number of developing countries, including India, Egypt, and many African countries. In the middle are many Latin American and Asian Countries, which may be willing to negotiate on investment but have not prioritized it. The US is so far undecided. The US may prefer to negotiate limited rules on transparency, and to expand the TRIMs Agreement to outlaw more kinds of performance requirements. However, the US could agree to broader negotiations on investment as part of a deal over the negotiating agenda (see The WTO and Finance: Possible Investment Negotiations in the WTO, FOE for further detail).

Competition policy

Friends of the Earth is concerned that any new negotiations on competition will actually focus on 'fair' market access for foreign firms, rather than beginning to control the current spate of mergers and acquisitions which are concentrating and consolidating power within transnational corporations. In other words, competition could simply be another means of introducing investment-related issues into the WTO, with consequences that would be likely to benefit rich Northern TNCs rather than enterprises in the South and consumers world-wide.

'Competition policy' may turn out to be a deceptive term for the proposed negotiations. Competition policy for the developing world means international rules to stop the mega-merger-mania that has recently been sweeping the globe and placing larger amounts of trade into the hands of a smaller and smaller number of giant transnational corporations. This they rightly see as anti-competitive. The industrialized countries on the other hand see competition policy discussions focusing on the internal rules and regulations (e.g. investment rules, again) of the developing world. In other words, they see it as a market access issue for their TNCs. If competition policy is discussed as part of a new round of negotiations, it is highly likely that the latter interpretation will win-out.

The process of trade liberalization so far, has facilitated what is in our view 'unfair competition', pitting local producers against TNCs in areas where the capacity to pay for advertisers, marketers, lawyers, lobbyists and other such services determines success. In other words, 'liberalization' has in reality facilitated the extension of monopolistic economic environments. Thus rules to rein in the power of monopolistic TNCs, and ensure truly fair competition would, in theory, be desirable.

Government procurement

There are two moves underway regarding government procurement. The first is the expansion of the plurilateral Government Procurement Agreement that is currently only signed by less than 30 WTO members. Secondly, the US wants a multilateral Agreement on transparency in Government Procurement to be signed in Seattle. This could open the door for further extension of the Agreement as a later date.

Government procurement is particularly significant for some of the poorest developing countries, where the government is the main economic agent (a significant proportion of GDP is being handled via government contracts). Developing countries are suspicious of any discussions that could lead to deregulation and the prohibition of their right to control government procurement. However, the industrialized countries are keen to gain market access for industry in the developing world by forcing government procurement decisions to be 'non-discriminatory' and subject to the WTO's binding dispute resolution system.

Government procurement could also be an issue of concern for local authorities in many different countries. For example, binding WTO rules on procurement could discourage officials from promoting 'green procurement' that favors environmentally beneficial products (such as certified wood from sustainable sources, minimum recycled content in paper or energy efficient vehicles). Whilst it is difficult to predict the precise nature of investment liberalization or government procurement negotiations, should they go ahead, there is certainly a possibility that any such negotiations could eventually undermine local or national government mechanisms to protect local economies and the environment, including procurement conditions. At worst, there could be a risk of local authorities being drawn into international legal disputes and massive compensation payments, which would undoubtedly see off all but the bravest of legislators.

Electronic commerce

Similarly, electronic commerce negotiations will focus on duty-free market access for products sold via the Internet, favoring the high-tech industrial North but disadvantaging importing countries (who won't be able to raise revenue / protective taxes on the back of imports). Also, if e-commerce is made duty-free this will be the first time a mode of trade exchange has been deemed to deserve special rules. There are no particular rules for goods exchanged via road, rail, sea or air.

Trade facilitation

Trade facilitation negotiations are intended to dismantle the bureaucratic hurdles importers have to jump. Whilst this sounds reasonable, from the environmental perspective, such negotiations could be significant if they focus on removing 'bureaucratic' health and environmental regulations enforced at borders.

Environment and labor rights

These are being pushed strongly by the US (labor rights) and the EU (environment). The EU has also commissioned a high-profile Sustainability Impact Assessment.

However, there is every possibility that 'environment' will end up in a bin. It will face staunch opposition from a number of developing countries and it could simply be used by the EU as a negotiating 'chip' to be discarded when convenient. Should 'environment' make it into a new 'Millennium Round' it can be expected to focus on multilateral environmental agreements; the relevance of processing and production methods; eco-labeling; and the precautionary principle. There would be no review of fundamental conflicts and no guarantee that negotiations would improve the status of the 'environment'. On the contrary, any WTO negotiations on environmental issues could be used to reinforce the primacy of global trade rules.

Current negotiations to include labor as an issue are in flux at present. Labor's champion, the United States has proposed establishing a working group on labor issues. The EU favors increased co-operation between the WTO and the International Labor Organization. Both the US and the EU are torn between avoiding a battle with developing countries over the inclusion of what they see as a protectionist 'social clause' in the WTO yet needing to give the impression of listening to their trades unions

A forest-products (and other sectoral) agreements

It has been reported that, in order to demonstrate a 'win' to the US Congress before the vote on whether to give the President 'fast-track' rights for WTO negotiations, the US administration is seeking a pre-Seattle agreement on forest products liberalization. The US Government is therefore in the process of pushing sectoral negotiations to reduce tariffs on forest-products to zero and discuss non-tariff barriers like certification. This is a potential threat to schemes like the Forest Stewardship Council (FSC) if discussions on non-tariff barriers encompass eco-labeling (a long-standing target of the US forest products industry). There is also the possibility that the eradication of tariffs may lead to increased wood consumption and the prohibition of new government tariff schemes to promote more sustainable forest management.

Forests are under severe pressures world wide. 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. Many of these projects are effectively subsidized by export credit agencies in the North in the interests of Northern-based TNCs' exports of machinery, technology and in some cases, arms.

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 government studies to increase timber harvests in a number of countries, for example by 4.4% in bio-diversity rich Indonesia by 2010. Trade rules can also interfere with forest protection policies such as preferences for local ownership; labeling of sustainably cut timber; and controls on the introduction of invasive species that threaten forests.

Even if a deal is not struck in Seattle, the inclusion of forests in a new and comprehensive round would be a serious problem for environmental groups, since it is much harder to persuade governments to drop an issue if they are under pressure to conclude an entire round of trade negotiations without rocking the boat (see Forests: The Implications of Current Trade Negotiations, FOE for further detail).

Biotechnology and other issues

It is a fair bet that trade in biotechnological products will be on the WTO's agenda following:

1. this year's collapse of the Biosafety Protocol, which was intended to regulate the handling and transfer of genetically-modified organisms (or 'living modified organisms', in the view of those governments that scuppered the negotiations);
2. ongoing transatlantic hostility over trade in bananas, hormone-treated beef and genetically-modified organisms and products; and
3. Canada's recent October 1999 proposal to set up a WTO working group on trade and biotechnology (indeed, the revi