The Developing Countries and the Millenium Round of the World Trade Organisation

Speech given at Indian Institute of Foreign Trade, New Delhi, India, November 05, 1999.

1.- The Uruguay Round was the only of the seven rounds of negotiations of the General Agreement on Tariffs and Trade (GATT), since its original execution in 1947 that, rather than promoting the general prosperity of the signatory parties by means of the increase of international trade, was followed by an economic and social crisis without precedents for developing countries, in spite of the massive propaganda effort that indicated a specious priority to them. Such propaganda was believed by developing countries in general. In India, the then minister of commerce, Mr. Pranab Mukherjee, made a statement to the parliament on December 16, 1993, estimating an increase of India’s exports from US$ 1.5 billion to US$ 2 billion annually, in addition to the normal growth.1 In Brazil, the president, Mr. Itamar Franco, promised congress an era of prosperity.2

2.- Accordingly, in the five years that followed the foundation of the World Trade Organisation (WTO), in 1995, the world prosperity was more than ever circumscribed to the developed countries, particularly the United States of America (USA) and the European Union (EU). After more than 50 years of a rhetoric of free trade in the GATT and, subsequently, in the WTO, the world agricultural sector, the most traditional economic activity and the one on which developing countries are very dependant, continues to be totally administered and distorted by the mountains of subsidies disbursed by the UE, USA and Japan. The textile sector, of similar importance to developing countries, also continues to wait for liberalisation.

3.- As a result, in the past five years, there has been an increase of the concentration of income in the developed countries; an increase of the share of developed countries in international trade; and a major growth of exports by developed countries. At the same time, the developing countries were plagued by a major financial volatility; a diminished growth of exports; economic crisis and despondency. According to WTO figures, both Asia and Latin America had a worse performance in trade in goods in the four years after 1995 than in the same preceding period.3 Prices of agricultural commodities have fallen consistently since 1995 and 30% since 1998, of which 16% in 1999.4 According to the WTO, African and Latin-American countries have in agricultural commodities 19% and 36% of their exports, respectively.5

4.- Such economic crisis was followed by social and political instability in large parts of the world. In Russia, barter became the principal means of trade. The African picture continues dramatic, and even the well succeeded institutional experiences, such as the case of South-Africa, failed to have greater access to its products and services to the markets of the developed nations. The situation in Latin-America became critical, with armed insurgency movements in Mexico, Peru, Colombia and, up to a point, Brazil. The Southern Common Market (MERCOSUL), a meritorious initiative, is at present foundering, as a result of the bi-lateral disagreements between Argentina and Brazil, which followed the massive exchange devaluation occurred in Brazil in 1999. Paraguay, Colombia, Venezuela and Ecuador are going through major institutional crisis. In all of South-America, the economic growth will be negative in 1999: -6.5% in Venezuela; -3%

in Colombia; -6% in Ecuador; -1% in Brazil; -2% in Chile; -1.5% in Paraguay; -2% in Uruguay; and –3% in Argentina. Unemployment in Argentina and Brazil exceeds 20% and in Ecuador has reached the staggering number of 70%.

5.- On the other hand, Asia has also been adversely affected by the troubled world economy, starting with Japan, which faced a prolonged recession after the end of the Uruguay Round of the GATT. It is still worthwhile to mention that the recent international financial crisis affected even the Asian countries with balanced fiscal policies, such as South-Korea; the Philippines; Thailand; Indonesia and Malasia. China continues to be outside the WTO, in spite of its expressive economy and large population. On its turn, India failed to benefit from the Uruguay Round in a significant manner.6

6.- Thus, under the perspective of the developing countries, up to the moment, the experience of the WTO has not been a positive one, as the concentration of riches and world trade increased in favour of the developed nations. Accordingly, the modest concessions made in the agricultural and textile areas were not sufficient to give a competitive advantage to developing countries, as they were either based on very comfortable thresholds of protection margin and/or deferred for the long term basis. As a result, developed countries “arrived at a compromise in which the USA and EU retained protection of their agriculture as well as sensitive labour-intensive sectors..”7. The inclusion of the new areas in the multilateral system permitted to the developed countries the access to the services markets of the developing countries, but did not allow to the developing countries access to the market of the developed trade partners, closed by means of horizontal barriers with common immigration policies.8 The agreement on trade-related investment measures (TRIMS) failed to address the important question of the scandalous complicity of the developed trade partners with the tax fraud in the developing world, by means of the services provided by their financial services sector with tax-haven status.9

7.- The agreement on trade-related intellectual property rights (TRIPS) subordinated the national authorities of the developing nations to the developed countries by means of the concept of the “pipeline” protection. The agreement on rules of origin (ROOs) allows

for the institutionalised protectionism in the free trade areas and its use to divert traditional currents of commerce, such as the case of the North-American Free Trade Agreement (NAFTA), which increased the dependency of Mexico to the US market and had a devastating effect in the Caribbean.10 The agreement on subsidies is neither just nor fair with the developing countries. The agreement on antidumping has not prevented the arbitrary use of municipal law, notably in the USA, but also in some developing countries. In addition, financial and technological dumping has not been prohibited. Such practices are extensively used by developed countries to ensure market dominance, in that their companies have access to cheap sources of financing and often license technology for free to their respective subsidiaries.

8.- Even the dispute resolution system, in which so many hopes were deposited, has left much to be desired in the years it has been functioning in the WTO. Many of its problems derive from the dearth of adequate procedural rules, which compromise the efficacy and juridicity of the system.11 The system lacks from adequate legal terminology to certain basic legal institutes such as cross-complaints or joinder of plaintiffs. The first omission requires the installation of one panel for the cross complaint of one part, and another, with different arbiters, for the cross complaint of the other, in a connected matter and the same parties. Such a situation creates the very tangible possibility that the awards of the two, three or even four different panels may be diverse and contradictory. On the other hand, the second omission may result in the formation of different panels, with different arbiters and different terms of reference, which may result in different decisions for basically the same matter of law. Another failing of the systems pertains to the failure of the Dispute Settlement Understanding (DSU) to allow for preliminary points of law, such as for example those pertinent to conflicts between treaties. This became a matter of importance for both India and Brazil in recent panels.12

8.1.- Another problem affecting the dispute resolution system of the WTO is the lack of transparency of the work performed by the secretariat, and its legal division, on behalf of the panels. The WTO has refused in writing to provide to non-governmental organisations the countries of origin of the members of its legal division. It is known that it has been heavily ethnocentric.

9.- For all that has been said so far, it appears clear that the results of the Uruguay Round of the GATT would need to be perfected thoroughly before the international community throws itself in the cold waters of another round, under pain of the irremediable loss of credibility of the system. Most developing nations are at present deeply suspicious as well as despondent of the WTO, as the perception is eminently clear that the old game of exploitation is still on. How could one then explain the reasons of the launch of a new round of negotiations of the multilateral system at this moment? Mike Moore, in his first speech as director-general of the WTO answer this query with an oxymoron, a fine contradiction in terms, with the following words: “As we can see from the agenda for Seattle, there is a lot of unfinished business and much fine tuning to be done. Many of us are disappointed that the Uruguay Round has not delivered the sort of results that we wanted. Many of us are concerned that the package has not been adequately balanced to reflect our needs. It is not surprising that five years after Marrakesh many of you are clamouring for changes and corrections. I agree. That is why we must have a new round.”13 Considering it is absolutely certain that the redressing of the greatest errors and omissions of the Uruguay Round agreements does not need a new round of negotiations, in view of the apposite review clauses, one can only speculate as to the motives of such statement.

9.1.- In fact, the built-in mandatory review of the Uruguay Round agreements encompasses the following:

a) operation of trade policy review mechanism;
b) notification procedures;
c) implementation and operation of the Agreement on Customs Valuation;
d) implementation and operation of the Agreement on Import Licensing Procedures;
e) implementation and operation of the Agreement on Subsidies and Countervailing Measures;
f) implementation and operation of the Agreement on Anti-dumping practices;
g) implementation and operation of the Agreement on Technical Barriers to Trade;
h) technical aspects of the Agreement on Rules of Origin;
i) pre-shipment inspection;
j) sanitary and phyto-sanitary measures;
k) dispute settlement rules and procedures;

n) Textiles;
o) Agriculture; and
p) air transport.

10.- At this juncture, it seems appropriate to mention that the EU was responsible for the original initiative for the launching of a new round of negotiations of the WTO in the ministerial meeting to take place in Seattle, Washington, USA, from November 29 to December 3. The EU’s main objective with the new round is the creation of new structures to ensure the maintenance of its relative competitiveness by means of compensating the effects of the fasing-out of agricultural subsidies over time and the smaller costs of the production of services, manufactured goods and agricultural products in developing countries, in great part as a result of the wave of recessions and currency devaluations in the past two years. The USA share the same general objectives of the UE and Japan intends to survive as an important trade force.

11.- In the Singapore ministerial meeting, the following issues were raised for a new round:

a) trade and investment;
b) competition policy;
c) government procurement;
d) trade facilitation;
e) labour standards; and
f) assistance to least developed countries.

11.1.- The issues of trade and environment and of electronic commerce have been raised separately by the USA. It is anticipated that the UE will delightfully agree.

12.- On the other hand, the Group of 15, as a result of a preparatory meeting held in Bangalore, India, in August 17 and 18, 1999, established three lines of action for the Millenium Round:

a) the removal of inequities and imbalances of the Uruguay Round Agreement;
b) revision of the pressing matters of agriculture and textiles; and
c) the creation of exceptions for the developing countries.

12.1.- At the moment, Brazil has apparently accepted the G-15 agenda with a very strong stance on the correction of the aberrations of the anti-dumping rules.

12.2.- India originally was against the new round but has now apparently accepted the G-15 agenda,14 with a very keen interest in the services areas.

12.3.- In my personal view, this is a very modest agenda for the enormous price of the acceptance on a new round of negotiations with such great risks.

13.- In any event, if developing countries must embark on such a dangerous voyage, in cold waters and in the midst of treacherous elements, this will be much better done with a close co-ordination of interests and actions.