The WTO and the global south: a brazilian perspective

Presentation made at the Centre for International Politics, Organization and Disarmament, at the School of International Studies Jawaharlal Nehru University in November 23, 2005, New Delhi, India.

It was Jawaharlal Nehru who observed, back in 1927and with great foresight, that in the years to come, American imperialism would be the major menace to the world, judging by developments in Latin America. To Nehru, it would either replace British imperialism as the major threat, or lead to the formation of a “powerful Anglo-Saxon bloc to dominate the world “. For many observers, the World Trade Organisation (WTO) is the instrument of this nightmare in the economic area.

The WTO was created and started operations in 1995 as a result of the treaties of the Uruguay Round of the General Agreement on Tariffs and Trade (GATT), in April of 1994, by the then 125 countries which had participated in the respective negotiations. At the time, it was heralded solemnly that a new era of world prosperity had started. In practically all the developing world, including in major developing countries such as Brazil and India , important political leaderships voiced great hopes in the results of the concluded round of negotiations of the multilateral trade system.

However, in reality, the Marraquesh treaties had formalised a great defeat to the interests of developing countries, whose interests had largely been represented during the Round launched in 1986 by the Group of 11, led by Brazil and India . In the Uruguay Round, developed countries wanted to include in the multilateral trade system the so-called “new areas”: services, investments and intellectual property. The Group of 11 opposed this agenda based on the argument that it would not make sense to include new areas in the system whilst the traditional ones of agriculture and textiles, of great interest to developing countries, remained excluded therefrom.

Furthermore, the Group of 11 argued that the insertion of the new areas would be made to the detriment of developing countries and to the almost exclusive benefit of developed nations. The resistance put by emerging countries, the first of the kind in the history of the multilateral trade system, collapsed after some 5 years, as a resulted of an unprecedented destabilisation campaign by developed countries with the assistance of some multilateral institutions, such as the International Monetary Fund (IMF).

Thus, the final phase of the Uruguay Round was characterised by a great omission on the part of developing countries, which permitted the hegemonic powers to mould the system to their interests and ultimate economic advantage. Whilst the new areas were included in the system with a framework designed to promote selective prosperity in the developed countries, agriculture and textiles were only nominally admitted, as massive subsidies and quotas remained in place.

An only apparent positive result of the negotiations occurred with respect to the dispute settlement mechanism, which was a depository of many hopes in the end of unilateralism and arbitrary action in the multilateral trade system. Those hopes would subsequently prove unfounded, as we will see later in the course of this presentation.

This imbalance is more acute in the new areas, but is to be found in every single treaty of the Round, as well as in the workings of the WTO, as we shall now see.

The Case of the General Agreement on Trade in Services (GATS)

The GATS was structured in a way to promote the international sales of services of developed countries in the areas of big business such as banking, financial services, telecommunications, etc. However, the individual provider of services, the mode of greater interest to developing countries, was excluded from the system, not only in the so-called mode 4 of rendering of services, but also in some professions regulated individually, such as the legal profession.

In addition, horizontal barriers, notably in the area of immigration, adopted in a consistent and uniform manner, time and format by developed countries based on immigration laws, have not permitted developing country service providers access to their markets. During the Uruguay Round, I had the opportunity to denounce this practice as the “cartel of shame” and to warn developing countries about its effects.

The provision of individual services is an area of potentially great benefit to developing nations. Today, in many countries, remittances from mostly illegal workers abroad account for more than foreign direct investments, which is clearly the case of Mexico, which received US$ 18 billion in remittances and US$ 14 billion in investments in 2004. In 2004, India received US$ 21 billion from its workers abroad and Brazil US$ 3.6 billion . The World Bank estimates the total amount of remittances of workers abroad in US$ 167 billion for 2005.

This discriminatory treatment permitted to developed countries’ access to the markets of developing nations and ultimately the domination of the world’s trade in services. According to data from the UNCTAD, developed countries today control more than 80% of the international trade in services. More worrying is the fact that the growth of international sales of services by developed countries is approximately 3 times that of developing nations, who risk being totally alienated from this important economic segment.

Such callous, egotistical and detrimental treatment of developing countries within the ambit of the GATS has now been widely perceived internationally and greatly contributed to the demoralisation of the WTO. Accordingly, the UNCTAD has called for “enhanced and predictable market access for developing countries, particularly Mode 4 “. However, the Doha ministerial declaration of 2001 only recognises the proposals submitted by certain members on the movement of natural persons.

It should also be remembered that the GATS does not contemplate the existence of safeguards in the area of services. Safeguards are trade remedies in place in the area of trade in goods to be used when there is a loss of competitiveness in the local sector, against foreign competition. The unjustifiable and inexplicable, from the perspective of logics, absence of safeguards in services makes developing countries not only more vulnerable to liberalisation but also without instruments to redress injuries deriving therefrom.

The Agreement on Agriculture

The Agreement of Agriculture condoned the maintenance of illegal and legal subsidies extensively practised by developed countries to the tune of US$ 1 billion a day. Those subsidies distort the prices of agricultural commodities and impede the access of the produce of developing countries, not only to those markets subsidising, but also to the market of third parties and, in certain cases, threaten to or devastate the emerging producers in their own markets.

The United States of America (USA), for instance, has today more than ten direct agricultural subsidies` programmes and more than ten of an indirect nature. In terms of absolute volumes, US subsidies have today reached the astounding volume of US$ 150 billion, for a total agricultural production of US$ 128 billion. Subsidies thus correspond to 115% of the value of the effective production. Some of those subsidies are disbursed under “green box” programmes, but no less illegally because of that. In some areas, like cotton, the market distortions have become grotesque and the damage to developing countries massive. Those extraordinary numbers demonstrate that the USA ceased being a market economy in the agricultural area.

The situation is not different in the European Union (EU), Japan and Switzerland. The Common Agricultural Policy (CAP) of the EU is one of the most devastating programmes of subsidies to free markets and to the chances of economic development of emerging countries. Thus, developed countries place their agricultural commodities abroad with dumping practices characterised by prices that are, in average, at least 1/3 lower than local costs.

Such a scandalous practice provoked uproar in the international public opinion. Accordingly, for the Doha Round of the WTO, the UNCTAD has urged the “elimination of export subsidies and substantial trade-distorting domestic support in agriculture, by a credible end date “. In addition, the UN agency supported the “urgent elimination of trade-distorting subsidies for cotton and a development package for cotton producers “.

One of the more clearly perceived obstacles, but by no means the only, to the overcoming of the current impasse in the present negotiations of the Doha Round is precisely the agricultural sector. Disgracefully, the Doha Ministerial declaration put the objective of liberalisation of the agricultural sector in the “long-term”.

The Agreement on Trade Related Aspects of Intellectual Property Rights (TRIPS).

The inclusion of the issues of intellectual property rights in the multilateral trade system represented another victory of the international oligopolies to the detriment of the interests of the developing countries, as I pointed out early in my 1995 book on the WTO treaties . The WTO became an agency in charge of ensuring the receipt of payments on such rights. The subject matter had been, of course, already regulated by another specific international organisation, the World Intellectual Property Organisation (WIPO).

As very well pointed by Australian professor, John Ralton Saul: “if the creation of the WTO in 1995 was the last clear victory for Globalisation, the specific point of farthest advance was probably the inclusion of intellectual property inside the trade regime.. The structure of intellectual property, now consecrated at the international level, creates cliffs of knowledge that newcomers to research are legally discouraged from scaling. This is a sign of an effective oligopoly system .”

Within the ambit of the WIPO, a balance was always sought between the monopoly of patents and the social impact of their use . This is not so in the case of the TRIPS. It is worthwhile noting that, at the end of the Uruguay Round, five developed countries had nothing less than 84% of the new patents .

In addition, the TRIPS subordinated the intellectual property authorities of domestic law in developing countries to those of the main developed nations. This was achieved by means of the institutionalisation of the concept denominated “pipeline”, by which the first application made automatically grants international protection. An important omission in the TRIPS agreement is the lack of treatment of the traditional knowledge, particularly in the area of medicine.

Furthermore, the TRIPS failed to treat the important matter of implementation of policies of public health, a dismal failure that affects adversely the human rights of billions of people and, specifically cause the continuing dispute between Brazil and the USA in the matter of pharmaceutical patents, which remains fundamentally open.

It is also worthwhile mentioning that there are in the WTO agreements no provisions for the treatment of conflicts of pacts like the TRIPS with other international treaties, in particular those regulating the matters of development and human rights, which occasionally occur.

Having been granted a situation of oligopoly in the area of intellectual property rights, developed countries soon erected an enormous structure of subsidies oriented towards assisting companies involved in the research and the development of patents.

In view of such serious problems, UNCTAD recognised the need to find, within the ambit of the Doha Round, an expeditious and permanent solution on TRIPS and public health to facilitate access to essential medicines .

The Agreement on Trade Related Investment Measures (TRIMS).

The TRIMS agreement addressed the desires of developed countries in derogating a number of policies allowed by international law in order to foster economic growth and social development, many of which had been devised and/or recommended by UN or other multilateral agencies. Among those practices made illegal, one would find import substitution requisites such as obligation of local content, restrictions to financial remittances, obligation as to the necessity of exports, necessity of the participation of domestic capital, etc.

However, the TRIMS agreement did not address the effects on international competitiveness of access to cheap lending sources, as available to companies based in developed countries, against expensive credit, if available at all, to companies originating in developing countries. It also failed to address the payments and facilities granted by developed countries to business, which are real subsidies but have yet to be legally qualified as such.

The Agreement on Subsidies and Countervailing Duties.

This Agreement deals with the subsidies practised by developing countries, but eschews dealing with those put in practice by developed States. In addition, it fails to allow even basic alternatives for developing countries to protect nascent industries with a view to permitting them to one day become competitive.

Of course, the Agreement failed to deal with the matters of cheap credit, export credit, cheap technology, research grants, etc. These practices are put in place by developed countries to achieve competitive advantage and to alienate other players from the markets.

The Anti-dumping Agreement.

The Anti-dumping Agreement has permitted the maintenance, by the USA of its idiosyncratic domestic legislation, contrary to the most basic principles of international law, which inter alia allows that country to impose anti-dumping rights to any import against which its industry cannot compete in market terms.

This was aggravated in extremis by the obligation for the dispute settlement system of the WTO to defer to domestic laws and regulations in matters of anti-dumping, which is a dramatic violation of very fundamental principles of international law.

Of course, developing countries are the greatest victims of unilateralism of the great powers, because they are most vulnerable and cannot resist properly. Thus, anti-dumping rights have been the source of the so-called tariff peaks that represent one of the major obstacles for the access of otherwise competitive products from developing economies to developed markets.

The Dispute Settlement Understanding (DSU)

Even the WTO’s system for the resolution of disputes, that so many hopes had brought at the close of the Uruguay Round, has been a complete disappointment from the perspective of the rule of law and its application. Whenever the awards of the Dispute Settlement Body (DSB) were not against developing countries, they could not be enforced against developed countries, because the system does not provide for means of respective execution. Conversely, whenever the awards were in favour of developed countries, the political pressure of the strong against the weak ensured enforcement.

However, this is precisely what the DSB has been doing over the years and very often against the interest of developing countries. It does not help the fact that largely members of developed countries have composed the legal division of the secretariat of the WTO, with a strong background on North-American law. The predominance of officials from developed countries is a rule in the WTO. In the beginning of 2005, of the 601 members of the secretariat, not less than 360 came from the EU. Another 95 officials came from third developed countries .

The DSB has been perceived as manipulated by the large developed countries, particularly the USA, and some of its awards have been accused of being written by the legal division of the secretariat of the WTO, always controlled by the hegemonic powers. Today, the lack of credibility of the DSU is such that, for the revision presently being undertaken under the Doha Round of the WTO, suggestions of modifications thereof were presented by the member states with respect all of its 24 articles and two annexes.

According to the Doha Ministerial Declaration, the revision of the DSU was to have been finalised not later than May 2003. Up to the moment, a consensus has not been found with respect thereto.

Concluding Comments

It appears eminently clear that the legal order of the WTO has been highly detrimental to the cause of Justice and to the interest of developing countries. We have seen that the new framework of the multilateral trade system has promoted the logic of the selective prosperity of a few to the detriment and exclusion of many.

Nevertheless, the heralds of imperialism have tried to promote the specious rhetoric of free trade. Behind this message, however, the international public opinion has clearly perceived that this travesty of free trade is, in reality, a right of developed countries to be enforced against developing nations, exercised whilst they maintain the sensitive areas of their economy closed by several different means. Those include horizontal barriers, tariff peaks, non-tariff barriers, unfair laws, unilateral action and unequal treaties.

For developing countries, the hegemonic powers reserve the grotesque equation to the effect that the most miserable their population is, the most competitive their industrial sectors will become. Developed countries manipulate several multilateral agencies in order to try to impose policies founded on this sophistic premise.

In this respect, the UNCTAD established the so-called São Paulo consensus in 2004 to the effect that international trade is not an end in itself, but a means to achieving economic development objectives, including poverty reduction.

So far, the multilateral trade system of the WTO has failed miserably in this task and has thus fallen in disrepute. By the end of this year, the world will account for more than 300 different preferential trade agreements. They include one signed in January of 2004 between the States Parties to MERCOSUR and the Republic of India, in which the signatories recognise that trade agreements between developing countries promote the social and economic development of their peoples.

The development of trade and relations amongst developing countries has been at the core of Brazil’s external policy. As a result, the country’s trade with other developing countries now exceeds 50% of its total of US$ 210 billion. Due to the lack of tangible progress in the negotiations of the multilateral trade system, it is my personal view that developing countries should try to increase their networks of preferential trade agreements with other developing nations.

As to the multilateral negotiations, I believe that developing countries should resist any agreement that does not redress the fraud that was perpetrated against them during the Uruguay Round.