Changes that cost the earth

Making Global Trade Work for People - A World without Walls
June 27, 2003

Nigel Grimwade ponders the contradictory views of international trade policy

The publication of these two books on international trade policy comes at a fitting time, as the Doha Round of multilateral trade negotiations reaches a crucial stage and the ministerial conference at Cancún, Mexico, in September fast approaches. A World without Walls is written by Mike Moore, the former director-general of the World Trade Organisation, whose last task before leaving office was to ensure a successful launch of the round last November. Making Global Trade Work for People is the work of a team of writers and contributors who participated in a trade and sustainable development project, co-sponsored by a group of research institutions led by the United Nations Development Programme.

Both books provide valuable insights into the issues dominating the negotiations and the factors influencing the negotiating positions of some of the key participants.

As is to be expected, A World without Walls is in essence a treatise in defence of the work of the WTO, an answer to some of the critics and an advocacy of the benefits of globalisation. Moore is a strong believer in the virtues of a rules-based system of world trade, which he sees as protecting the interests of smaller and poorer nations from the retaliatory and discriminatory actions of larger and more powerful ones. Far from being the unmitigated disaster that it is made out to be by the critics, globalisation is seen by Moore as bringing untold benefits to mankind by opening up markets, raising living standards, combating world poverty and strengthening democratic forms of governance. The WTO, he argues, is not the evil supranational power eating away at the freedom of sovereign states it is often portrayed as by noisy demonstrators outside WTO meetings. It derives its power solely from the 145 nations that belong to it and acts only on the decisions that they have agreed to.

In the opening chapter, Moore tells his personal story of how he became a convinced internationalist. Coming from a comparatively poor and humble background with strong working-class roots, he rose to become a Labour prime minister of New Zealand. In view of his upbringing, his natural inclination was always to side with the weaker groups in society, the marginalised and the underprivileged. However, his experience as a politician showed him that the way to tackle the problems of poverty is not to pursue policies that lower everyone's income and reduce economic growth.

Globalisation makes it possible to redistribute wealth because it creates more wealth, but this will mean, inevitably, that some will be richer than others. Moore is not oblivious to the problems that globalisation may give rise to, but he is convinced that any attempt to reverse globalisation will harm the poorest most.

A World without Walls extols optimism throughout. Moore shows how, contrary to popular belief, life is getting better in the world, although the numbers of those who are poor and suffering are increasing. Life expectancy is rising, starvation and malnourishment are declining, education levels are improving and illiteracy rates are dropping, living standards are getting better and global poverty is falling, and the number of democracies in the world is higher than at any time in the past. However, Moore argues, there is still a lot to do. The spread of Aids, the problems posed by large-scale migration across borders, the plight of women in many poor countries of the world and the issues raised by the advances made in genetics and biotechnology are identified as the key challenges of the future.

A successful conclusion to the Doha Round is of crucial importance, he argues, largely because of the enormous gains this could bring both for the world as a whole and for developing countries in particular. Moore goes to great lengths to show why the attempt to launch a new round at Seattle ended in disaster. It was not because of the demonstrations that took place in the streets outside, but because insufficient work had been done beforehand to secure a consensus among the key players about the nature and purpose of such a round. By the time of the next ministerial conference at Doha, these difficulties had largely been overcome. An important change was a new awareness among the developed countries about the need to address the concerns of the developing world.

Moore believes strongly that the Doha agenda offers great opportunities for huge gains by developing countries. This is important, as the perception of many developing countries has been that they lost out in the Uruguay Round.

Moore is scathing about the wasteful and damaging effects of the subsidies that governments in developing countries pay to their farmers. Progress in this area offers, potentially, the greatest source of gain for developed and developing countries alike. Cutting tariffs, eliminating tariff peaks and reducing tariff escalation offer a further source of gain for developing countries in industrial goods. More controversially, Moore defends the decision to include the so-called new issues - competition policy, trade facilitation, foreign investment and government procurement - on the agenda of the Doha Round, arguing that developing countries stand to gain greatly from progress in these areas, although their concerns are understandable.

A less sanguine view is put forward by the authors of Making Global Trade Work for People . While expanding trade has resulted in faster growth, more employment and higher incomes, this has not always led to advancements in human development in those parts of the world where it is most needed. In some cases, trade liberalisation has been harmful to human development, increasing vulnerability and insecurity and widening inequalities. The authors want the trade policy regime to shift the focus from liberalising trade and promoting market access to fostering human development. While recognising that the absence of growth makes it extremely difficult to achieve human development objectives, the authors insist that no empirical evidence exists to show that trade liberalisation leads to faster growth. If faster growth and trade liberalisation appear to be strongly correlated, this could be because faster growing countries engage in more trade liberalisation and not the other way around.

Whereas economic growth is concerned with creating more wealth, human development is about enlarging choice for individuals. Economic growth, the authors argue, may contribute towards development, but it should be viewed as a means and not an end. Trade policy rules should be changed to fit this new perspective. While development economists will find this outlook an easy one to adopt, trade economists will question whether this is an appropriate objective for the WTO. The WTO is a trade body and not a development body, concerned with applying impartial trading rules and not with promoting development aims per se.

At times, it is not entirely clear whether the authors of Making Global Trade Work for People favour further trade liberalisation. The answer, it would seem, is yes, provided that trade liberalisation is compatible with the enhancement of human development. Thus, they clearly favour more progress to liberalise trade in agriculture, provided that it is the developed countries that make the tariff cuts and subsidy reductions. They argue that liberalisation in agricultural trade has been carried further in developing countries and that it is the turn now of the developed countries to make reductions. In their advocacy of asymmetric liberalisation, however, there is an implicit belief that protectionism in developing countries is helpful and not harmful to these countries. A similar hesitancy surrounds their proposals for further tariff reductions on industrial goods, where high tariffs in developing countries can often be as damaging to other developing countries as tariffs in developed countries.

However, the authors are as much concerned about issues of governance of trade as in negotiating agreements that promote human development. They are opposed to the notion of the WTO as a single undertaking, whereby member states must agree to and enforce all the rules and agreements and cannot choose between them. They want a clearer consensus to be agreed in CancNon on the importance of the principle of special and differential treatment in trade agreements. They want changes in the WTO's governance structure to increase the participation of poor countries in decision-taking. Lastly, they want changes to be made to dispute settlement rules so as to pay more attention to the weak position in which developing countries find themselves in retaliating against developed countries if panel reports rule in their favour.

All of these demands are already key elements in the negotiating position of the developing countries in the Doha Round. So, too, are the concerns expressed by the authors about a broadening of the Doha agenda to include the new issues. The ministerial conference at CancNon in September will have to decide whether these issues are to be included in the final stage of negotiations. Voicing the concern of the developing countries, Making Global Trade Work for People argues that the Doha agenda is already too full and the work of the WTO too overburdened for new agreements to be negotiated in these areas.

These two books provide insight into the different and often conflicting strands of thinking that are prevalent about trade policy and the future role of the WTO. A World without Walls is excellent at giving a glimpse of what goes on behind closed doors in the negotiating process, viewed from the position of an official mandated to bring together the different parties and to secure an agreement. Making Global Trade Work for People provides deeper intellectual penetration, albeit coloured by the viewpoint of development experts sceptical about the case for further liberalisation.

Nigel Grimwade is principal lecturer in economics, South Bank University.

Making Global Trade Work for People

Author - Kamal Malhotra et al
ISBN - 1 85383 981 7 and 982 5
Publisher - Earthscan
Price - £55.00 and £18.95
Pages - 341

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