Free trade is not a problem - but poverty is

April 11, 2003

Mike Moore, former director-general of the World Trade Organisation, sat down with LSE economist David Held to discuss the market's role in helping poor countries, the shameful protectionism of rich nations and the need to reform global governance institutions

DH: How did you become director-general of the World Trade Organisation?

MM: I was approached by friends as to whether I would be interested. I said no. I saw my future in New Zealand politics, but the New Zealand public and the Labour Party eventually took a different view, so I went for the WTO.

There have been a lot of myths written that I was the American candidate or that I was the trade union candidate. Well, it is true and I'm proud that the US supported me. But I'm never called the Bolivian, French, German, Swedish, Italian, Nigerian or Uruguayan candidate, and we actually had a majority of developing countries.

DH: What was it about your background that made trade your professional area?

MM: Ever since I went into politics in New Zealand, I was interested in prison reform, education and housing. Housing was my passion. I thought if you give a fella a home, everything else falls into place. Then we were defeated as a government, and I had a rethink. We had plenty of lawyers and teachers, but nobody was focusing on the economic stuff. We were "new Labour" when Tony Blair was at school, and we had to focus. One of the turning points in my life was negotiating a closer economic relationship with Australia. I was lucky enough to be trade minister, and I could see how important it was for my own country.

DH: You had a reputation at the WTO of being a very tough manager. Were you?

MM: I think I am, but I don't know if tough is the right word. I am determined and focused, and I don't really seek approval. I was rather flattered to be told by some of the staff that I was the most unpopular director-general ever. So what?

DH: Your book A World without Walls could be read as a celebration of globalisation and open borders. Is that fair?

MM: With conditions. I am for globalisation. I am an internationalist. I think globalisation can be an important engine of development - it is marginalisation we need to worry about. Why has London got more cell phones than all of Africa? Why has it got more internet connections than Singapore? How come Singapore gets more investment than all of Africa? I just wish we didn't have that word "globalisation".

DH: Should we say free trade?

MM: I always say free trade and that infuriates people. That word has been demonised, too. But it shouldn't be. It doesn't take away sovereignty. It enhances sovereignty. A multilateral trade system gives the little guy a chance. That's why I believe in the WTO so deeply. It is the only international institution that has a binding set of dispute mechanisms, so Costa Rica can defeat the US under the rule of international law. It is the only place where your agreements have to be ratified by parliaments and congresses. I think that's pretty democratic.

DH: You argue that for many parts of the world, economic development in the past 15-20 years has been hugely beneficial, but let me put a counter argument to you.

The absolute gap between the world's richest and poorest countries is now at historic levels. Large swaths of Africa are more impoverished today than they were 20 years ago. Deteriorating terms of trade have hit sub-Saharan Africa particularly hard. I needn't remind you that Aids/HIV has become a tragedy of biblical proportions, while the right drugs are not available to the poorest at the right price. And there is no evidence that economic globalisation and global energy use is sufficiently tamed to prevent the acceleration of global warming. I could go on.

MM: The reality is that global trade is not yet fair nor free, and it is a matter of enormous shame that rich countries have blocked poor countries where they have competitive advantage. If Organisation for Economic Cooperation and Development countries removed their protectionist barriers in agriculture, you could do four or five times more for Africa than existing official development aid. If you got rid of the cotton subsidies, it would generate a $250 million boom in West Africa.

Coffee is a disgrace. What is wicked is a thing called tariff escalation.

You can't put that on a placard. But if a grower in Ethiopia, where coffee accounts for 70 per cent of exports, wants to roast his beans, grind them and put them in boxes, with all the jobs that involves, his tariffs go up.

So he has to sell the raw product, and those other jobs go to Europe and the US. I think that's something we could fix in a future trade round.

DH: Oxfam produced a very sophisticated report last year on trade ( Rigged Rules and Double Standards ). Basically, they argue that trade rules today are still structured in favour of the rich. It seems to me to some extent you don't contest that.

MM: No, I agree with a lot of what Oxfam says, and it is good that they have moved in the past three or four years from saying trade is a bad thing to saying it can be good if managed fairly. By and large, I think the accusing fingers should point at the rich countries.

DH: Do you think the political will exists to remove the huge protectionist walls in the north and west, especially in agriculture, textiles and clothing? Do you think the political will exists to aid and support the most economically vulnerable countries in the south and east to develop their capacity to participate in the global economic system?

MM: We are in the post-industrial age, and protectionist mechanisms are not really in a country's interests. Trade simply offers the gift of opportunity. And the WTO can enhance this opportunity by focusing on fair rules and helping to ensure that the infrastructure of trade (transport, customs and so on) is also sound and effective.

In agriculture, we are seeing changes. The European Union farm commissioner, Franz Fischler, is looking at ways to pay farmers not based solely on their production, while the US, which spends a lot of money on agricultural support, now says it would reverse that policy if a new trade-round package was wide enough. So I think the political will and the logic is there.

DH: Many of the world's poorest countries depend on primary commodities for their export earnings. Yet today's low and unstable prices are a major factor hindering trade working for those nations. Must this be accepted? Put another way, some non-governmental organisations are proposing new institutional structures to ease shifts in global commodity prices. Is there mileage in such suggestions?

MM: I think they've analysed the problem right. But the world doesn't need another institution and taxpayers' money trying to manage a market. The market has never been properly tried in these areas. We need to give it a go and see what happens. I suspect we'd surprise ourselves. If Ethiopia or Colombia were able to export their products in an unsubsidised market, I believe they would do very well.

DH: The human development index shows that ten countries suffered a qualitative deterioration over the past decade, eight of them in sub-Saharan Africa. These countries are extraordinarily poor. Now they are also devastated by Aids/HIV. They are in danger of just dropping out of the world trading system.

MM: They just about have.

DH: Is that an issue for the WTO? Or for global aid and investment decisions that have to come through countries meeting their obligations under aid agreements plus making sure the UN targets for development are met, and so on?

MM: It is a bit of both. I'll be politically incorrect here as well. Some of the countries we are dealing with, if they choose to spend their money on their military, to be corrupt and steal or try to sell drugs, there is little the world community can do about it. We should try to provide the skills for young officials and the infrastructure for them.

But you will not risk your old-age pension (investing in such countries), nor will your pension fund take those kind of risks. They'll invest in Singapore or Switzerland instead, where they feel safe.

DH: You argue strongly throughout your book for the reform of global governance institutions, not just for the WTO but for the broad spectrum of our current multilateral organisations. What do you think is wrong with our postwar institutional legacy?

MM: I am a true believer in the United Nations. I'm not giving it a kick because that seems to be a blood sport at the moment. But the UN institutions are middle-aged. They ought to go to a doctor for a check-up.

Mandates vary, responsibilities overlap, even the geographic location of some agencies are based on cold-war decisions. They are organised for an industrial world, and we are in a post-industrial world. There needs to be a re-examination of what they do by way of coherence as well as in pure management systems.

DH: In your book, you seem to accept the NGO complaint that many of these large multilaterals are not sufficiently transparent or accountable to diverse stakeholders. They are in some respects undemocratic. Is this surprising? Democracy was born for cities and nation-states. Now we have these extraordinary substantial and powerful international organisations.

Yet we don't have a politics for them or even a political theory of them.

MM: I am a believer in the nation-state. It is the basic institution of government. But these governments democratically contracted out certain things, evolving international systems and creating agencies, and there hasn't been a corresponding political involvement. The foreign affairs committees of all the parliaments should be discussing these various agencies, holding them to account. You need a security council, you need a general assembly, now go through the agencies and ask what you need. Start with a blank piece of paper: if we were doing it again, what would we do?

DH: That suggests you've got something to write on it.

MM: I'm not giving specifics because I have another book in me. But I'd love the chance to do something about it. What is central to success? Legal systems, honest police forces, accountable politicians, central banks, treasuries and, above all, skilled and trained people. We've got to create an international public service where people's skills will be portable. But I can be politically incorrect again. I think the officials who go through expensive courses ought to be bonded to work in their home nations for a period of time. If we give you these qualifications, we expect you to give at least five of the next ten years to your country. Then you are free.

This is, I think, a harsh love. Otherwise, it won't work.

DH: It is very dangerous to overgeneralise from the present, but I want to ask you about the impact of 9/11 and the war in Iraq on the world trading system and the future of the Doha round of trade talks. Are these events major setbacks from the point of view of multilateralism?

MM: Is there a setback to globalisation and economic integration? Yes. But we've had setbacks called Stalin and Hitler. We will overcome. It may slow it down or it may take regionalism to an extreme. That's the worst-case scenario. And the leaders of the G8 will be discussing security and not development issues when they meet this year.

It is going to be a cost, but it also provides, surely, a determination that we are going to do something about terrorism and the poverty in which it breeds. A more just world can do that, and trade has a significant role to play in this. But I've no illusions. This is probably the most substantial challenge we've had. I hate to say it, but it is the biggest challenge since the cold war.

David Held is professor of political science at the London School of Economics and co-author of Global Transformations .

A World without Walls: Freedom, Development, Free Trade and Global Governance by Mike Moore is published by Cambridge University Press (£20.00).

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