Hypocrisy: GATT style
International Viewpoint #258 July 1994
DOSSIER
A
FTER eight years of negotiations the latest
GATT agreement was
### GATT
With no choice due to their burdens of debt and the structural adjustment programmes imposed upon them by the IMF, Third World countries have had to open up their markets to import and investment from the industrial countries, with no benefit in exchange. In fact, in its 1993 report, the United Nations Development Programme (UNDP) states that the industrial countries exert twice the degree of protectionism against developing countries as against other industrial countries. In recent years, protectionist import tariffs have diminished. However, non-tariff import restrictions, such as import quotas and the introduction of hygiene or environmental requirements, have increased by
20 percent between 1987
1986, wheat exports grew by 38 percent, beef exports quintupled and, instead of importing sugar, the EU now provides the world market with 4 to 5 million tons a year.
As a result, it now has an enormous share of the world market in agricultural produce. Between 1971 and 1990 its share of the world market in wheat grew from seven to 22 percent, in beef from 0 to 25 percent, and in sugar it is almost 20 percent.3 This development had fiscal and competitive consequences.
Its agricultural budget makes up 60 percent of Eu expenditure, with 80 percent of subsidies going to only one-fifth of agricultural businesses. The numbers active in agriculture fell by 35 percent between signed in April. It is hardly surprising that the negotiations took so long. This time, not ANKA only reductions in import HIDGENS tariffs or import quotas were at stake. For the first time, agricultural liberalisation, the struggle for liberalisation in investment and the opening-up of the service sector were also in issue, together with the elaboration of an existing arrangement concerning rights in intellectual property. Due to the agreement's expansion to include these new areas, the power of the strongest has been similarly expanded — all in the name of free trade.
The scene is familiar. The signing of the Single European Act in 1992 led to "Europhoria" in which Europeans were promised an end to the economic crisis, including millions of extra jobs. Yet the year was not over before it worsened still
We could, perhaps, believe the study by the Organisation of Economic Co-operation and Development (OECD) which states that the new agreement will lead to a world-wide increase in wealth of US$200 billion a year and that there will be some kind of "trickle-down" effect. However, the truth is that extending the present method can only lead to a worsening of the already unequal distribution of wealth.
### Protectionism
The economically strong determine the rules of the world economy. Protectionism works against developing countries.! 10 and 1990. This uneven state of affairs served as the point of departure for negotiations. There was on average a reduction by 19 percent in import tariffs for products from the least developed coun tries while products from other countries had an average reduction of 38 percent.
The present international division of labour has not been touched and developing countries have been kept in their rôle of supplier of raw materials. These still represent more than 98 percent of Bolivian, Ghanaian, and Nigerian exports, while for the USA and Japan these represent only 24 percent and two percent respectively. If the developing countries wish to export processed goods, they are faced with import tariffs five times as high as for raw materials.2
When the least developed countries signed the agreement in Marrakech (Morocco), they did so with no alternative. It was either sign or become completely isolated on the world market.
When two elephants fight, the grass suffers
Due to the implicit recognition that agriculture is essential to countries' food provision, it was previously kept out of negotiations. By means of import restrictions and mechanisms for subsidy, the European Union (EU), at the beginning of the 1970s a net importer of agricultural produce, succeeded in becoming an important exporter. Between 1972 and
1975 and 1989 and during this period, their incomes hardly increased at all, although farmers received prices 35-45 percent higher than those in countries where they did not enjoy a protected market. The policy of production and expenditure control pursued since the mid-1980s was only partially and temporarily successful. Expensive stocks, butter mountains, milk lakes and so forth, continue to accumulate and expenditure is soaring. Not only did the EU realise that measures had to be taken to control expenditure but also the USA, its greatest competitor, wished to protect its own position.
The USA demanded that the EU cut up to 75 percent of internal subsidy and up to 90 percent of export subsidies. Agreement was reached in the "Blairhouse Text" during bilateral negotiations. This agreement has an impact on the entire GATT agreement and therefore on all signatories.
For developing countries, the reduction by the EU in internal subsidy and export subsidies, would seem to be positive, in that both have led to dumping on the world market, threatening the agricultural production of developing countries. The agreement states that industrial countries are to reduce internal subsidies by 20 percent and export subsidies by 36 percent within six years. Developing countries are to reduce internal subsidies by 13.8 per-
1. Here, we are using expressions which are presently used in the Third World movement, even if we realise their theoretical limitations.
2. SUNS (Special UN Service), 7 December 1993.
3. Brian Gardener, The GATT-Uruguayround, implications for exports from the agricultural superpowers, CIR and SAFE-Alliance, December 1993, p. 1.
International Viewpoint #258 July 1994 cent and export subsidies by 24 percent in ten years. However, due to lack of money, external subsidies in developing countries have never reached any significant extent and further, in recent years, as a result of structural adjustment programmes, the internal subsidies which did exist have been largely cut back. The "preferential treatment" of the South does not make up for this.
Furthermore, subsidies which are not directly linked to farmer-produced quantity, such as "top-up" and USA compensation to its farmers for the low prices received from the food multinationals, are not included. In the USA, minimum prices are fixed by the government. They are based on what the large grain concerns regard as competitive, and so are far below the actual costs of production. The OECD estimates that these contributions allow the EU, USA, and Canada to subsidise their agriculture by 49, 30, and 41 percent respectively.4 Developing countries cannot afford to subsidise agriculture by either method.
However, in future it will be impossible for them to restrict imports in order to protect their own agriculture, a measure which has hitherto been within their reach. All countries, except the very poorest must now throw open their markets. While in developing countries "only" at least two percent of food produce must be imported, as opposed to three percent in industrial countries, this percentage will affect them more. Secondly, more calories and proteins by the year 2000, but that food consumption itself will decrease by some 26 percent. An increase in trade will only advantage multinational companies (MNCs). Again to take India as an example, farmers are already cultivating maize by contract for the food MNC, Cargill, while in the Punjab one is growing tomatoes and potatoes for Pepsi-Cola. Investment — the same war by other means
The GATT agreement also covered new ground by agreeing TRIMs — Trade Related Investment Measures. These cover all regulations on investments which could have an effect on trade transfers.
By and large there are two types of TRIMs being applied by developing countries, the first aimed at attracting foreign investors and the second at imposing conditions on them. The aim behind them is to provide for:
• Foreign investment corresponding to the needs and priorities of the country in question;
• The country's balance of payments not being affected by repatriation of profits and payment for goods and services;
• Control over the commercial practices of MNCs and restriction of their negative impact on the national economy.
• Demanding transfer of technology as a pre-condition for investment;
• Restricting repatriation of profits;
• Setting a minimum level for national capital investment.
For the industrial countries, not least the USA, unlimited investment abroad and repatriation of profits has always been a major concern. Throughout history, the USA has tried to protect American investment whether by violence or by way of bilateral treaties. However, it has never succeeded in having free import and export of capital recognised as a right by the United Nations.S
For capitalist companies, important recent developments have further increased their need to invest freely. Firstly, economic growth has slowed in the non-planned economies. In the 1960s, the capitalist world witnessed growth of 4.9 percent. In 1970 it slowed down to 3.8 percent, and fell back to 2.9 percent in the 1980s.6 Accordingly it now wishes to subject other countries to the rules of the free market.
A second reason is the explosive growth in the number of MNCs. From no more than 7 thousand MNCs in 1970, numbers rose to 35 thousand in 1990. They now account for 70 percent of world trade and control 75 percent of investment. More than 40 percent of trade is carried out by MNC subsidiaries and the fifteen largest MNCs have a turnover higher than the Gross National Product (GNP) of 120 countries. More than half the MNCs are based in only four countries: USA, Japan,
Germany and Switzerland.7
Liberalisation of the food while far more of the developing countries"
trade will not result in an budgets are spent on increase in wealth, but in agricultural-produce they already spend one third of their export an increase in food food receipts on imports. Thirdly, insecurity for the poor while they export
"luxury" goods such as coffee and cocoa, the agricultural produce exported by the North is basic produce, which compete directly with national production of food crops.
John Block, USA Secretary of Agriculture put it like this: "The idea of the developing countries feeding themselves is an anachronism of days long gone".
Liberalisation of the food trade will not result in an increase of wealth, but in an increase in food insecurity for the poor.
The OECD calculated that the liberalisation imposed on India by structural adjustment programmes, will lead to production of
Some of these measures are:
• Imposing a minimum percentage for exports, in order to compensate for the deficit in foreign currency and to prevent transnational companies dividing markets amongst themselves;
• Production involving at least some local products;
The MNCs ensured that they had a large say in the GATT negotiations. A number of them placed advertisements in economic reviews and daily newspapers to state that the agreement was of vital importance both to the business community and developing countries. MNC representatives formed part of the
USA negotiation team. The
EU negotiator, Ray McSharry, works as a commissioner with Cargill.
4. The Ecologist, vol. 23, no. 6, Nov/Dec. 1993, p. 220
5. C. Raghavan, The future of the Third World and the
GATT negotiations', Harmattan (Paris), p. 12.
6. Lang and Hines, The New Protectionism', Earthscan, p. 26
7. Ibid, p. 34.
11
URUGUAY
International Viewpoint #258 July 1994
GATT Director,
Peter were opposed to this unlimited interference with their national policies and demanded that they should first be able to develop their service sectors. Because Third
Sutherland, demonstrating to the poor
ROLLA what they
World countries again lag behind in this sector, liberalisation at this stage would bring few benefits. The EU explicitly opposed free circulation of workers, and without this the Third World will not gain will get if they don't
MULTIL shut up any advantage. The United Nations Development Programme (UNDP) cautiously estimates that cancelling restrictions on immigration could increase these coun tries' receipts by 20 percent.
Because the service sector in Third World countries is still young, only two jobs in ten are in this sector, as opposed to six in ten in the industrialised countries,? and so few barriers have been raised to investment. GATT wants to freeze this situation, which again will be to the detriment of the Third World. Know-how is private property
While the Third World was only exploiting its work force in the raw mate-
CHAIRMAN
T HE industrial countries, as
capital exporting countries and home of the MNCs, defended attacks on the TRIMs. Developing countries resisted cutting back of the right to control investment, but their view was not taken into account. The MNCs have not been subjected to any restrictive regulations. In the Act presented for signing in Marrakech, the least developed countries have seven years in which to cut back restrictions on investment, while other countries have five years. The United Nations (UN) "code of conduct", formulated some twenty years ago, calls for MNCs to respect the host countries' econgmic priorities, stop price policies which deprive countries of income, protect the environment and promote international environmental and consumer standards. This will now have even less importance than before.
The service sector
It was the USA which first raised the issue of the service sector, on the basis that since the end of the 1970s there has been enormous growth. In 1978, commercial services were worth some US$50 billion. By 1990, they were worth US$770 billion, and trade in services now constitutes 20 12 percent of world trade. Services being commercialised world-wide include tourism, telecommunications, the legal, banking and financial sectors, advertising, transport, construction, and labour itself.
Services make up 22 percent of exports from the South, mainly originating from tourism, air and shipping traffic and emigrants wages. In 1990, the South received US$213 billion from export services while importing services worth US$299 billion.
The USA argued (and was later supported by other industrialised countries) that the growth of trade in services demanded that this sector should also become subject to GATT. The GATT agreement had to reflect the new realities of world trade. Trade in services had to be liberalised Barriers had to be removed and foreign companies treated the same way as national ones. Furthermore, it demanded an international structure of inquiry into national arrangements concerning services, whether or not they applied to trading. This inquiry was to examine the consequences of restrictions on the market in services and on treatment of foreign suppliers, and governments should be compelled to publish and adjust all regulations if assessed as being incompatible with free trade. Third World countries rials' sector, there was no protest against inhuman wages and labour conditions, either from employers or from trade unions in the North. The share of developing countries in the export of processed goods, predominantly in textile, leather, iron, steel and chemical products, increased between 1955 and 1989 from four to 19 percent, 1° although this growth is concentrated in only a few countries.
Now that these countries have won a share in the processed goods markets, the industrial countries have decided that urgent action must be taken on "unfair competition" based on low wages, by the introduction of "social paragraphs". In commercial agreements imports of these goods are prevented. International rules for protection of intellectual property are aimed at preventing developing countries from catching up, despite the fact that the know-how capable of contributing to each country's development should be accessible to each. Using the pretext of the protection of brand names, the GATT agreement will concede far-reaching monopolies on products and production processes to the MNCs.
This will enable, for example, a multinational pharmaceutical company to appropriate therapeutical plants in a given country, and then to charge it heavily for medicines derived from their extracts,
8. Madder and Madeley, Winners and losers", Christian Aid, 9 December 1993, p. 20.
9. Ibid, p. 20.
----- pull-quotes on this page -----
25
----- photo credits and running heads -----
E
Hypocrisy: GATT style
International Viewpoint #258 July 1994 while, through the protection offered by patent rights, it will be prevented from producing them itself. The extension of monopoly rights will result in huge price rises. To give another example, until recently it was forbidden in Italy to claim patents on medicines and their production processes, while in Britain, this protection did exist. As a result the British National Health Service was sold by Roche-Products, the British subsidiary of the Swiss MNC, Hoffmann-La Roche, two products for a price forty times as high as that paid by Italy.!! The extension in patent rights is not only important in relation to crops and medicines, but also to production and items which may increase productivity, such as computers. The Third World will have to pay hard currency for all this.
The Multifibre Agreement
One of the few sectors in which developing countries could gain advantage through liberalisation of trade is the textile and clothing industry; yet more than half of this is subject to import quotas, fixed in the Multifibre Agreement (MFA). The MA was conceived as a temporary settlement to give the industrial countries time to adjust to increasing competition from the South, but has now been in force for over twenty years. The latest GATT agreement has prolonged it for another ten years and under certain circumstances, industrial countries can prolong this for a further eight years. The EU is still the world's largest clothing and textile exporter. Whose the discussion documents. For instance Tanzania had not received the text on agriculture and even Japan had not received all the documents.
• In 1991 and 1992, many informal negotiations took place between the large economic powers. An African delegate who wished to participate in the drafting of the agreement on intellectual property rights (TRIPs) was rebuffed on the basis that Africans had nothing to do with TRIPs. 12
A new World Trade Organisation
With the signing of the GATT agreement, there is now a new international institution with exceptional powers. The Word Trade Organisation (WTO) will have legal status and will be able to intervene in all spheres of trade. Just like GATT, it will function on the basis of consensus.
Countries which do not comply with wTO rules in one sector can be hit by punitive measures in another sector which is of greater importance to that country. For example, if India produces a medicine developed by Hoffmann-La Roche, there could be a doubling of tax on Indian towel exports. Countries with little economic power will never be able to mete out sanctions to other countries and therefore rules in their favour will not be respected.
Hypocrisy
This GATT agreement
The legislation on patent rights development receives preferential treatment in this case?
will prevent third world countries from producing their
Deprived of any democratic leanings
Aside from some "hot" issues such as agriculture and the cinematographic industry, the GATT negotiations attracted very little public or political attention. The complexity of the issues played a part in this, but more important was the way in which negotiations were carried out. To give two examples:
• By the start of the so-called final phase of negotiations in December 1991, not all countries concerned had received is catastrophic for Third
World development and any plea for insertion of social paragraphs so as to improve the situation of workers in the South smells suspiciously of hypocrisy. A campaign for the right to use technological know- how or restriction on repatriation of profits, to give just two examples, would be both more sincere and more useful. * own medicines
10. The New Protectionism', p.17.
11. The future of the Third World and the GATT negotiations', p. 112.
12. Vander Stichele, 'The democratic deficit in the
Uruguay round, European Ecumenical Organisation for
Development, 1992, p. 6.
13