Setting the record straight: free trade, NGOs and the WTO

One of the more striking features of recent anti-globalisation demonstrations has been the range of accusations levelled against the World Trade Organisation (WTO) for its part in the globalisation process. Yet the complaints from non-government organisations (NGOs) show little or no knowledge of the WTO agreements or how they operate. Worse, inconsistencies among the NGOs amount to serious contradictions in the anti-globalisation coalition.

Environment lobbies regard trade and economic development as a threat to nature conservation and fear that their single-issue solutions will be rejected when governments are exposed to the benefits of global arrangements. Trade unions in manufacturing industries that have come under cost pressure from newly industrialising economies want to preserve their old jobs and privileges and, above all, wage relativities. This is their argument for ‘fair’ trade.

Attempting to enforce universal labour standards by applying trade sanctions, however, could increase poverty in countries where labour productivity is still low. The poorest developing countries would thus be deprived of the opportunity to develop economically and to compete internationally.

Oddly enough, this danger does not even seem to concern the development NGOs. Doubts about the justification for forcing outside standards on developing countries are absent. But the economic costs could be significant and could bring the present global prosperity to an end. Look what happened the last time sanctions and trade wars were practiced in the early decades of the 20th century. What began with protectionism ended in the world economic crisis of the 1930s, mass unemployment and world war.

The WTO is built on the foundations laid by the General Agreement on Tariffs and Trade (GATT 1947). This was a contract (among 23 governments originally) to eliminate non-tariff barriers to trade and to liberalise tariffs progressively by negotiating reductions (concessions) based on reciprocity. The principal rules since 1947 have been transparency of trade policies and non-discrimination in trade among members.

The WTO is an intergovernmental agreement and decision making is based on consensus, which is more demanding than majority decisions. The rules agreed upon constrain nationalist economic opportunism of the sort that did so much harm in the first half of the 20th century.

WTO dispute settlement

The dispute settlement understanding (DSU) has given real meaning to WTO agreements, because violations carry consequences for offending economies.

The environmental NGOs and the labour unions have taken a special interest in the WTO since they became aware of the DSU, as they see WTO rules as opportunities to introduce new international standards for the environment, labour and other social issues.

The allusion to international law also attracts NGOs, who cannot obtain sufficient support through legitimate political processes, notably parliamentary elections. International agencies allow them to seek power over national governments.

The use of trade sanctions to enforce DSU rulings has alerted NGOs to new opportunities to interfere in trade. Environmental groups and labour unions (plus some human rights activists) see scope for using discriminatory trade sanctions against countries failing to meet what they regard as appropriate ‘standards’. Advocates of international labour standards, for example, aim to use trade sanctions to enforce compliance with ‘international standards’. However, no OECD government has yet been prepared to confront the 100 plus developing countries in the WTO.

At the Singapore Ministerial Council in December 1996, member governments agreed that International Labour Organisation (ILO) ‘core’ labour standards should be observed. But it was also recognised that economic growth and development, fostered by increased trade and trade liberalisation, would promote these standards. The Ministerial Council therefore rejected the protectionist sentiment behind calls for labour standards and agreed that the comparative advantage of developing countries in labour-intensive production should be safeguarded.

Developing countries are also opposed. They do not want first world standards for the environment, labour, intellectual property, industry, and social welfare if the cost is deeper poverty, slower growth and more dependence on OECD charity.

Anti-globalisation NGOs express concerns about the political rights of minority groups, including citizens of developing countries, yet the standards they demand are seldom helpful to the poor in non-OECD countries. Mexico’s former President, Ernesto Zedillo, expressed this concisely after the Seattle meeting when he said:

"A peculiar alliance has recently come into life. Forces from the extreme left, the extreme right, environmentalist groups, trade unions of developed countries and some self-appointed representatives of civil society, are gathering around a common endeavour: to save the people of developing countries from—development." (quoted in Lukas 2000)

The environmental lobby

Punitive trade policies designed to punish developing countries that do not adhere to the standards of high income countries would only increase the very gap between rich and poor nations for which the NGOs blame the WTO.

Uniform standards would not allow for differences in income levels, cultural and community priorities, climate and geography, demographic structures, industrial structures, etc. They would erode national sovereignty.

Legitimate transnational environmental differences should be addressed through global environmental agreements. Imposing trade sanctions on poor countries that do not comply with prescribed production methods or environmental standards would divert resources from development, which, perversely, would increase pressures on the environment.

As economic progress raises living standards, it also tends to raise national environmental standards as more resources can be devoted to reducing environmental degradation. Using trade sanctions as a punitive instrument would reduce trade and growth, and probably increase environmental damage.

The labour lobby

Linking labour standards—i.e. uniform conditions of employment—to WTO sanctions would increase protectionism. Labour unions in rich countries with declining industries do not try to disguise this basic fact.

Since the ILO is already charged with raising labour standards around the world, the only reason to introduce labour standards into the WTO is to gain additional leverage through trade sanctions.

Implementing labour market reforms (minimum wages, health insurance, limits to working hours, rights of association, use of child labour, etc.) depends on raising living standards and productivity. Only that way are surpluses produced to finance social reforms.

The safest and surest way to promote labour standards in non-OECD countries is for OECD countries to remove all trade restrictions on labour-intensive imports. Yet these are the sectors where tariffs (and quotas) are still the most restrictive, because liberalisation would require adjustments from the workers and the unions. To prevent such structural adjustments, unions pursue labour standards in the WTO.

Introducing the ‘precautionary principle’ in WTO deliberations on the environment or attempting to find a new agreement on biodiversity would also be unwise when so many questions remain unanswered. In any case, developing countries have other priorities. Moreover, the ‘precautionary principle’ would be a blank cheque for opportunistic interventionism by NGOs, which would quickly undermine WTO agreements.

NGOs favour bureaucratic approaches. After all, lobbyists do not thrive in transparent markets. The larger the negotiating group, the greater their chance of being included. This is consistent with their commitment to ‘global governance’ built around the UN model.

The present agenda of the WTO is loaded with issues that lend themselves to the bureaucratic approach and large committees. This alone should convince WTO supporters that the agenda needs to be pruned and some subjects diverted elsewhere. The first task should be to remove outstanding weaknesses already identified in the multilateral trading rules and to improve enforcement procedures for dispute settlement.