Moving the Trade Debate Forward
My name is Peter Hardstaff and I am Head of Policy at the World Development Movement. I would like to thank Signs of the Times for giving me the opportunity to present a few ideas on 'moving the trade debate forward'.
While I don't claim to be making a purely objective, impartial presentation on this issue, I hope that even those coming from a different policy perspective will see the relevance of at least some of what I have to say.
I would like to structure my talk around three main themes, an understanding of which I believe is critical, if we are to change the nature of the trade debate.
Before I begin on these themes, I think it is worth, at the outset, just dealing with a few of the straw men that tend to appear on the trade battlefield. I'm afraid I have been in too many meetings, and seen too many exchanges in the media that have descended into characterising critics of World Trade Organisation rules as being anti-multilateralism, anti trade and anti rules.
First, the vast majority of those who criticise current trade rules are not advocating 'unilateralism'. Just because you don't like much of the content of World Trade Organisation rules and the way that they are negotiated, does not mean that you have abandoned the concept of international co-operation and negotiation. It just means you want it done differently. I don't know any critic of the WTO who opposes 'multilateralism'.
Second, just because you don't like the current rules does not mean you are 'anti-trade'. There are lots of forms of trade - from local up to international. I don't know anyone who opposes the concept of trade. I do know people who are opposed to the way current WTO agreements prioritise increasing international trade as an end in itself over and above any other kind of objective.
Third, just because you criticise current rules and the WTO's organisational set up, does not mean that you are anti rules. Its not about rules or no rules. Its about what rules and whose rules. Most individuals and organisations I deal with are very pro-rules - but they want different rules negotiated in a different way.
The issue of rhetoric is important because it provides the sound-bites and influences the received wisdom of the trade debate.
'Free Trade' and 'Protectionism'
Lets start with perhaps the most obvious, and most used bits of rhetoric - the wonders of 'free trade' and the evils of 'protectionism'.
When it comes to 'free trade', the problem I have with it is that nobody really knows what 'free trade' actually means. Is it getting rid of all tariffs, all quotas, every single subsidy, every single environmental, health and safety regulation that affects trade? Getting rid of every trade affecting qualification requirement and technical standard? Who knows? One person's 'free trade' is another person's 'protectionism'.
So, what I want to know is, how would we know when we had reached this mythical place called 'free trade'? Saying that our ultimate objective is to get to 'free trade' is like saying we want to get to Narnia or Middle Earth. Actually, I imagine most people have a better idea of what Middle Earth looks like than they do of what free trade looks like. At least Tolkien provided a map!
And what of the term 'protectionism'? Often incorporated into phrases like, 'we don't want to return to the dark days of protectionism' - which of course conjures up images of some kind of middle-ages plague scene or depression era dole queue.
Yet what exactly is it? One way of defining protectionism is "the defence or protection of the interests of a country's domestic industries". I would suggest that all governments do this - so it could be argued that, in fact, everyone is a protectionist.
This is because, especially for developed countries, protecting national industrial interests is now just as much about getting international rules or getting market access or seeking tariff reductions in certain sectors as it is about maintaining tariff or non-tariff barriers to defend other sectors.
So although all politicians say that they support free trade, I don't think any politician really believes in free trade. When it comes to international trade negotiations politicians and trade negotiators believe in national self-interest.
The problem for developing countries is that protecting the interests of their domestic industries is often in conflict with EU and US trade interests. Recent debates over agriculture, TRIPs, industrial tariffs, services, anti dumping, investment rules etc. are clear examples.
Now I'm not saying that the pursuit of national self-interest has no legitimacy. What I am getting at is that the phrase 'free trade' is just a convenient bit of rhetoric to defend the pursuit of these domestic industrial interests. Who, after all, could be opposed to 'freedom'?
So I would suggest that protectionism has moved on. It has modernised and adapted to the realities of the global market place - so that protectionism has become more than just defending a domestic industry at the border. It is also about pursuing domestic business interests by getting market access through the rules of the WTO. Protectionism is now also called 'free trade'.
If the trade debate is to move forward, we need to get off the simplistic "free trade - good, protectionism - bad" bandwagon. The world is too complex for such simplifications - and taking a more thoughtful approach to trade policy becomes more difficult once you have told the world that 'free trade now' is the only option.
A 'level-playing field'
Another very handy piece of rhetoric is the term 'level playing field'. According to its proponents, the rules of the WTO are simply about creating a level playing field for all countries.
But there are two problems with this. First the current rules have, in fact, created an un-level playing field that benefits the rich. The Agriculture Agreement, TRIPs Agreement, Services Agreement and Dispute Settlement enforcement system are all examples of this.
Second, in changing these rules we should not be aiming for a level playing field. We should be aiming for an un-level playing field that benefits the poor.
'Openness' and 'Integration into the World Economy'
My third and final bit of rhetoric that obstructs proper debate on trade is the word 'openness' and the phrase 'integration into the world economy'.
Both openness and integration into the world economy mean much the same thing. They mean how much a country is involved in trade. This is measured as the proportion that imports and exports contribute to GDP. The higher the proportion, the more open and integrated into the world economy a country is deemed to be.
That all seems clear enough. However, the first problem is the misconception that poor countries are poor because they are not integrated enough into the world economy.
How many times have we heard politicians say that poor countries need to 'integrate more' into the global economy.
Yet the evidence suggests otherwise. According to UNCTAD's recent 'Least Developed Countries Report 2002', Least Developed Countries (LDCs) are more open to trade than developed nations. Trade as a share of GDP in the 49 LDCs is 42.9%, compared with 40.2% in the high-income OECD countries. Increasing 'openness' (i.e. exports and imports) is clearly not a precondition for being a rich country. The poorest countries are more integrated into the world economy than we are.
The second problem is that these words are often used interchangeably with the phrase 'trade liberalisation' - and the UK Government is a serial offender.
This is deliberate misrepresentation of the facts. You don't need to liberalise to increase trade, yet the two are continually deemed to be synonymous.
For example, in what smacks of real desperation, in a speech two years ago, former WTO chief Mike Moore used the examples of China and South Korea as a justification for the benefits of trade liberalisation.
It is true that both these countries increased their exports. However, they did not do this through liberalisation. They did it through the use of selective industrial policy - through government intervention. China did it without even having to be a member of the WTO! It seems odd that the best example Mike Moore can come up with is a country that achieved growth and increased its exports whilst not being a member of his organisation.
To sum up on rhetoric, I think that the current use of the words and phrases I have described is a real blockage to progress on trade policy. I think that the public is, sometimes deliberately, being misinformed about the issues and we need to move away from such a highly simplistic view of the world.
In an ideal world, we would have a common understanding of problems and solutions based on a shared interpretation of the evidence. In the real world, there's ideology and there is politics.
I would like to cover one particular aspect of the evidence debate, which I think is a good example of a barrier to moving the trade debate forward.
That example is the increasing use of what is called Computable General Equilibrium modelling. CGE models are an attempt to create a model of how economies work and interact within each other so that variables - such as tariffs - can be altered to see what the economic outcome is.
These models tend to produce great figures that both Governments and NGOs have used in their arguments. In the past, WDM has been no exception.
So you get these fantastic figures such as market access will benefit the developing world by $700 billion dollars per year. Trade liberalisation by all countries would increase developing country income by $1.5 trillion dollars between 2005 and 2015. Agricultural market access would provide an extra $400 billion dollars for developing countries. Services liberalisation in developing countries will result in benefits of $900 billion dollars by 2015.
However, although these models produce figures that are great for pithy, publicly digestible messages, they end up obstructing debate on the complexities of trade. I am keen for WDM to become much more circumspect about using information from such models because they epitomise three critical tensions that we constantly encounter in discussions over 'the evidence'.
Assumptions versus the real world
In order for CGE models to work, they have to hold various factors constant, and make a range of assumptions to avoid dealing with the chaos of real economies.
For example, if you care to delve into UNCTAD's most recent analysis of market access, it is based on the following assumptions:
Now those in power tend to characterise the so-called 'anti globalisation' movement as being naïve and unrealistic - but this is pure fantasy-land stuff. How can you possibly claim to be making a prediction that is even roughly correct when your assumptions are so far out of line with real world conditions?
In consequence, the estimates produced by CGE models are likely to be inflated. At best, therefore a CGE can provide an indication of the direction of benefits (i.e. positive or negative). But to trust the figures as some sort of accepted truth - and more importantly to base policy on them - is highly irresponsible.
The theory has become so unchallenged that we have the bizarre situation where, if free market policies fail, Governments are blamed for not correcting the various market imperfections, rather than the economists being blamed for not taking into account market imperfections in their policy prescriptions.
Aggregation versus case specificity
CGE models are an attempt to aggregate broad economic impacts across countries, groups of countries or even the whole world. They do not, and cannot take into account differences between localities, regions or countries.
Case studies, on the other hand, can develop a more detailed picture of what can work in different circumstances. However, the message from case studies is often not popular. Case studies often show that the world is extremely complex and what works in one circumstance may not work in another.
The rise of CGE modelling as a tool to help define policy is dangerous because it tends to ignore complexity - which leads to simplistic policy solutions - such as all developing countries should liberalise their economies as soon as possible.
Analysis of the future versus analysis of the past
The 'end of history' - as proclaimed by Francis Fukuyama - was supposedly the final and eternal triumph of western style capitalism. However, the real triumph has been convincing people that rich countries succeeded in becoming rich through free markets and so-called 'free trade'.
The reality, of course, is quite the opposite. If we look back at the development history of the industrialised world, we see a process of economic advancement based on active industrial policy - including the selective use of tariffs, subsidies, industrial espionage, state trading enterprises and weak intellectual property laws - all aimed at boosting the competitiveness of domestic businesses.
The problem is that such historical economic analysis seems to play no part in decision-making. Our governments have reinvented development as a process that can only be achieved through free market reforms and trade liberalisation. They support this with the so-called evidence of CGE models that attempt to predict the future by assuming that economic textbooks are a decent proxy for reality.
In summary, I think that if we are to move forward on the trade debate, we have to develop a much more critical and balanced view of the evidence. While modelling can have a place, we need to be aware of - and publicise - its limitations, we need to use case studies and more qualitative evidence, and we need to look at the past to see what has worked and what has not.
The more these models are used without explaining their limitations, the more they become accepted as gospel truth. And the harder it is to have a sensible trade debate.
If the trade debate is to progress, then policy making has to become more transparent and democratic. There are four key issues within this overall theme:
Developing country participation in the WTO
A great deal is made of the fact that the WTO has lots of developing country members and that decision-making is by consensus. However, the way the WTO operates in reality is to do with economic and political clout. The process of negotiations is skewed in favour of those with the biggest delegations, the most lawyers and the greatest economic and political power. For example, at least 24 poor countries still don't have a permanent office in Geneva and thus cannot take a regular part in WTO discussions. How can you be part of a consensus if you're not even there?
Those that are there don't necessarily fare any better. Anecdotal reports from developing country delegates continue to filter out of the WTO, on how their concerns have been ignored or sidelined and even that they have been prevented from attending meetings.
On average, small developing country delegations have to contend with over 40 important meetings a week on a whole range of different issues. The worst of it is that this has been happening for over decade with little obvious movement for change.
And in the new round of negotiations, our Government is keen to add even more issues to the agenda and set impossibly short negotiating deadlines. Such a strategy is guaranteed to ensure less effective participation by poor countries.
We need to learn the lessons from past negotiations, otherwise - as is happening in the current talks - we will keep on revisiting previous agreements because countries think they were conned.
Corporate influence over policy-making
When it comes to the issue of corporate influence over trade negotiations, those of us concerned about the issue seem to be viewed as slightly wacky conspiracy theorists. Yet the evidence is striking.
For example, according to David Hartridge, former Director of the WTO Services Division, "Without the enormous pressure generated by the American financial services sector... there would have been no services agreement." Further, WDM's work on the General Agreement on Trade in Services (GATS) has demonstrated extremely close links between government and business both in the UK and in Europe. Ongoing GATS policy making is dominated by corporate interests.
It is also well known that the WTO's Agreement on Intellectual Property Rights - the TRIPS Agreement - was practically written by US businesses.
But if you think this is 'typical NGO exaggeration', you don't have to take my word for it. The new Director General of the World Trade Organisation, Dr Supachai Panitchpakdi, has called the TRIPs Agreement a glaring example of corporate pressure and has called for some kind of regulation of corporate lobbying.
If the public interest is to be served, there needs to be tighter control over, and greater scrutiny of, corporate lobbying. We need standards of public engagement and consultation on trade policy. And we need access to information on who the government is meeting and what is said at meetings.
Public information
If we are even to have a trade debate - let alone move it forward - the days of doing trade deals in smoke filled rooms far away from the public gaze need to come to an end. The creation of a body as powerful as the WTO, and the 'mission creep' of the WTO into more and more areas of public policy mean that the WTO and its member Governments can no longer expect to do deals behind closed doors. It is clear from recent public demonstrations that public interest in trade issues is increasing.
Yet Governments and trade negotiators are still trying to pretend that its business as usual. In WDMs GATS campaign, we've been demanding that the EU releases the service liberalisation requests that it makes of other countries. But the European Commission is refusing to give us the information because, they say, it's their property and its none of our business. They're like a kid with a football - 'its my information and its my game and you can't play'.
But this has to stop. Its everybody's information and its everybody's game. Real transparency involves allowing the public to know what is being negotiated and what our governments are saying in the WTO.
Parliamentary scrutiny
In June this year, some twelve thousand people came to London to talk to their MPs as part of the Trade Justice Movement Mass Lobby. And we must hope that this demonstration of public concern over trade policy, will make MPs investigate the issue further - including their own role in trade policy decision-making. Because if they do, they will find out what little say they really have.
Again, I'll use the WDM GATS campaign to provide an example. The original GATS did not include 'water supply'. But in the current negotiations, the European Union's agreed position is to insert 'water supply' into the GATS and then to push for liberalisation in other countries water service sectors. This could have profound implications for water supply the world over.
One would have thought that such an important issue would have been subject to Parliamentary Debates, Select Committee Inquiries, Prime Ministers Questions, Party Conference Motions. But not a bit of it. I can find no evidence that this issue was addressed in the UK Parliament prior to the EU negotiating position being agreed.
This just highlights the fact that MP involvement in trade policy decision-making is currently limited to a few token debates and rubber-stamping exercises. I think MPs need to look closely at whether and how they are involved in trade policy decisions and start demanding a bigger say.
Conclusions
In summary, I hope that I have given some food for thought on a number of important issues, but just as a reminder of the key points, if the trade debate is to move forward:
By Peter Hardstaff