Blog: December 12, 2005 - Why Free Trade?

Blog: December 12, 2005 - Why Free Trade?

Daily Blog from the WTO Meetings in Hong Kong
Read the other Global Envision blogs from Hong Kong:
December 13, 2005 – Opening Session
December 13, 2005 – Aid For Trade
December 13, 2005 – Food Fight Breaks Out
December 14, 2005 – Results of Day One of WTO Negotiations in Hong Kong
December 15, 2005 – The Joy of the Press Conference
December 16, 2005 – The Word of the Day is Deadlock
December 17, 2005 – Wrapping Up in Hong Kong

As the Managing Editor of Global Envision, I usually sit at a desk in Portland, Oregon and read about global issues. This week I am across the globe with the opportunity to write about global issues. December 12th through the 18th I will be sending daily dispatches from the 6th Ministerial World Trade Organization (WTO) meetings in Hong Kong, China.

Day One, Monday December 12

I arrived in Hong Kong last night greeted by the enormous infrastructure prepared for these meetings. As quickly as we landed, we were ushered towards check-in by what seemed to be hundreds of young people in matching blue blazers. Then we boarded one of several luxury motor buses and were en route to our hotel. The billboards along the roadway featured products such as the official limousines of the WTO Ministerial meeting and Santa Claus in every joyful pose conceivable.

World Trade Organization:
The World Trade Organization (WTO) is the only global international organization dealing with the rules of trade between nations. At its heart are the WTO agreements, negotiated and signed by the bulk of the world’s trading nations and ratified in their parliaments. The goal is to help producers of goods and services, exporters, and importers conduct their business.
If this was the red-carpet treatment given to lowly Non-Governmental Organization (NGO) representatives to the WTO, government ministers will surely feel like visiting monarchs. But however nice the welcome, Hong Kong is full of skeptics this week. The trade ministers from developing countries doubt their bargaining chips will yield the compromises they deserve. The officials from the more developed countries will bargain hard so that their advantage within the current framework is not too heavily compromised. Then there is an enormous contingency of protesters who feel there is no decent compromise within the current global trading system. And lastly, the citizens of Hong Kong are anxious about how their own city will fare. Fears of disturbances have prompted heavy security and led to the temporary closure of an estimated 60 percent of schools and businesses in the area surrounding the Convention Center.

The tension in the air won't be released until the meetings end, but for them to be worthwhile, compromise will be necessary. The best-case scenario is a deal that truly yields freer trade –- which would benefit all 149 member countries of the WTO.

Free Trade/Fair Trade

Free trade is trade without taxes, tariffs or other barriers and restrictions. This is an idea I support, but I also recognize it as a complex issue due to the potential human and environmental costs. Free trade as an aspiration for allowing developing countries to help themselves out of poverty does not mean ignoring labor, ecological, social or cultural implications. Free trade in and of itself is not unfair trade, nor is it the race to the bottom that it is often labeled by its opponents. I think that the concepts and verbiage are often confused or over-simplified, whereas they should be broken down into their component parts.

Free trade is the untaxed flow of goods and services between countries. The free trade argument maintains that countries that have pursued unfettered trade have prospered, whereas countries that have maintained a protectionist stance on trade have suffered from both loss of opportunity and nepotism. On the other hand, the fair trade or trade justice argument argues that poor countries should be able to protect their economies until they are established enough to compete with the more developed countries. According to Oxfam, WTO rules should remove trade barriers in rich countries while allowing poor countries to protect their markets until they are strong enough to compete in the global market.

Clearly I am providing a very simplistic synopsis of the topic. But the central issue at hand is which side will emerge the winner. There is the "NO NO WTO" camp and the camp that is involved in the negotiated trade agreement. At stake is not only how we regulate trade, but also the standards by which trade will be regulated. In my opinion, the WTO currently does not have enough standards. But is it logical to eliminate the only forum for discussion that exists to formulate and pursue global cooperation on standards?

According to their literature, many of the protest groups present in Hong Kong this week support the global regulation of trade. They recognize that developing countries will suffer in bi-lateral and multi-lateral trade agreements where one side of the negotiating table is desperately looking for market access for their goods, while an economic powerhouse on the other side of the table does not need the agreement in any substantive way. It is clear which side in these negotiations will give the most concessions. However, these protest groups call for the dismantling of the WTO and the recreation of a trading system within the United Nations framework. Personally, I cannot see the benefit in taking apart one bureaucracy in order to create a new one. Reform of the current, established system seems to me a much more efficacious approach. The WTO has the potential of making trade both free and fair through the process of negotiations, especially now that developing countries have begun to work together to give their arguments more clout.

The General Agreement on Tariffs and Trade: General Agreement on Tariffs and Trade, which has been superseded as an international organization by the WTO. An updated General Agreement is now the WTO agreement governing trade in goods. GATT 1947: The official legal term for the old (pre-1994) version of the GATT. GATT 1994: The official legal term for new version of the General Agreement, incorporated into the WTO, and including GATT 1947.
For The Record

The World Trade Organization is an international organization that serves as a forum for negotiating international trade agreements as well as monitoring and regulating these agreements. Just ten years go, there was no such body as the WTO. From the end of World War II until 1995 world trade was negotiated and regulated through a framework called the General Agreement on Tariffs and Trade (GATT). This task was accomplished in “rounds” with certain issues being at the forefront of each round. If a country did not like a decision that was a part of any given GATT agreement, they simply did not abide by it. Within the World Trade Organization, member countries can certainly choose not to abide by a decision, but they will face fines, trade sanctions or other consequences.

The turtle example illustrates the issue. In early 1997 India, Malaysia, Pakistan and Thailand brought a joint complaint to the WTO against a ban imposed by the U.S. on the importation of certain shrimp and shrimp products. The protection of sea turtles was at the heart of the ban. The U.S. Endangered Species Act of 1973 listed as endangered or threatened the five species of sea turtles that occur in U.S. waters and prohibited their hunting, capture or killing within the U.S., in its territorial sea and the high seas. Under the act, the U.S. required that U.S. shrimp trawlers use “turtle excluder devices” (TEDs) in their nets when fishing in areas where there is a significant likelihood of encountering sea turtles. The U.S. lost the case, not because it sought to protect the environment but because it discriminated between WTO members. It provided some countries in the western hemisphere technical and financial assistance and longer transition periods for their fishermen to start using turtle-excluder devices. It did not give the same advantages to the four Asian countries that filed the complaint with the WTO.

Under GATT, the United States could have chosen to continue its discrimination against the shrimp products of these countries. Under the WTO, they faced fines and other penalties for such discrimination. I certainly am not in favor of the indiscriminate slaughter of turtles, but I would hope that the sanctions against the United States in this case would force the government to be equally discriminatory against all nations in the protection of turtles -– in essence raising the standards to be uniform. That is without a doubt an idealistic viewpoint, but a worthwhile cause to advocate nonetheless. In an effort to learn more about the issue, I have interviews lined up this week with the United States and the European Union official advisors on animal rights at the WTO meetings.

Recent History

The Uruguay Round of negotiations began in September 1986 and had the central mission of eliminating non-tariff barriers to trade, or in other words, the riddance of protective trade legislation in its member countries. The success achieved in this area is widely seen to have held more benefit for developed countries than for less developed countries.

While in the long run freer trade will provide many benefits to all countries in the trading system, it is undeniable that the lessening of these barriers does cause some disturbance as the changes are implemented. For example, freer trade can and will cause jobs to move from one place to another -– it leads to more jobs in some sectors and fewer in others. In a dynamic market economy, jobs are constantly being eliminated and created. The United States may lose manufacturing jobs and gain computer-and math-related jobs over the next decade. It may be because of changes in trade, technology, commodity pricing, supply or demand. Change can certainly be painful, but it is a necessary and natural part of innovation.

The elimination of agricultural subsidies at the Hong Kong WTO Ministerial Conference would:
--lower food prices for consumers,
--lower costs for industries that use the artificially inflated raw materials,
--save governments money that is vitally needed for other programs such as healthcare and education,
--benefit the environment by eliminating intensive farming techniques that encourage farmers with poor quality land to farm it anyway due to the subsidy benefit,
--increase the production of crops that are in demand versus those that will be in excess of market demands and,
--allow other issues on the Doha development Round agenda to be furthered.
The major accomplishment of the Uruguay Round was the transformation of the General Agreement on Tariffs and Trade into the World Trade Organization. In 1995, the 123 member WTO replaced GATT as an international organization, but the General Agreement still exists as the WTO’s umbrella treaty for trade in goods.

The Seattle Meetings

In November 1999 there was a major Ministerial meeting of the Uruguay Round negotiations in Seattle. A broad coalition of protesters accompanied these Ministerial meetings and brought the WTO meetings into the limelight with their complaints that the WTO only benefits the rich and powerful multinational corporations.

Inside the meetings there had been movement towards the idea that WTO regulations should allow for a bottom-up process in which countries liberalize their trade not merely to gain concessions from other countries, but principally to reap the economic rewards of their own liberalization. However, the chaos and contention in the streets resulted in a WTO failure at this meeting. Trade ministers did not adopt any resolutions or set an agenda for any future talks. In 2000 a deal was finally made that, according to the WTO website, did not go as far as many developing countries would have liked and went further than some developed countries thought was politically possible.

The Doha Development Round

Although most of the issues of the Uruguay Round were left unresolved, the brokered deal allowed the WTO to move on to the next round of discussions, launched in Doha, Qatar, in November 2001. Currently the 149 member countries of the WTO are participating in the “Doha Development Round” discussions. The task that is at the forefront of this round is widely referred to as “development” because it promises to place the development of poor countries at the heart of trade regulation by making trade rules fairer for developing countries.

Some of the milestones of the Doha round include the 2003 Cancun talks—intended to forge a concrete agreement on the Doha round objectives—which collapsed after four days because the members could not agree on farm subsidies and access to markets. The developing countries were seen as finally having the confidence to reject a deal that they viewed as unfavorable. Twenty countries joined together to form a trade bloc of developing and industrialized nations called the G20. Since its creation, the G20 has had fluctuating membership, but is spearheaded by the G4 (People's Republic of China, India, Brazil and South Africa), and overall accounts for approximately 65% of the world population, 72% of its farmers and 22% of its agricultural output.

The August, 2004 Geneva talks achieved a framework agreement on opening global trade. The U.S., EU, Japan and Brazil agreed to end export subsidies, reduce agricultural subsidies and lower tariff barriers. Developing nations agreed to reduce tariffs on manufactured goods, but gained the right to specially protect key industries. The agreement also provides for simplified customs and stricter rules for rural development aid. However, the detailed work of specifying exact target numbers was not completed.

Nor did this occur in November at the 2005 Paris talks. It was hoped that trade negotiators would make tangible progress in Paris prior to the December 2005 WTO meeting in Hong Kong. One reason for this is that in 2007 the U.S. fast-track trade negotiation legislation will expire. Without fast-track, it will be much harder to get ratification of a trade deal from the U.S. Senate that is not protectionist of U.S. interests. The talks failed to make progress when France protested moves to cut subsidies to farmers, while the U.S., Australia, EU, Brazil and India failed to agree on issues relating to chicken, beef and rice. Most of the sticking points are small technical issues, making trade negotiators fear that agreement on large politically risky issues will be substantially harder.

That brings us to this week's talks, officially known as the the 6th WTO Ministerial Conference. Ministerial conferences are the WTO’s highest decision-making body, meeting at least once every two years and providing political direction for the organization. The Doha Development Agenda is already four years in the making. If there is no movement here in Hong Kong, it is unlikely that the round can be successfully completed in 2006.

Hong Kong

This week, I'll be writing about the latest from the meetings. Please send me any comments or questions and stay tuned for the inside scoop on negotiations. I have interesting interviews lined up, passes to the plenary sessions and a bird’s eye view of the protesters.

The central issue at the Hong Kong WTO Ministerial Conference is the elimination of agricultural subsidies. This would lower food prices for consumers, lower costs for industries that use the artificially inflated raw materials, save governments money that is vitally needed for other programs such as healthcare and education, benefit the environment by eliminating intensive farming techniques that encourage farmers with poor quality land to farm it anyway due to the subsidy benefit, increase the production of crops that are in demand versus those that will be in excess of market demands and allow other issues on the Doha development round agenda to be furthered.

The United States has recognized that realistic negotiations on the cutting of agricultural subsidies lie between the U.S. proposal and the G20 proposal -– but will the EU engage on the issue? Will they consider the current proposals, table a new resolution or not budge at all?

Only if the question of agricultural subsidies is resolved will the WTO be able to move on and address some of the trade injustices that exist. Making trade freer is not the problem; it is how much freer the developed world will allow it to get at this point. And if rich countries are not willing to go very far on this issue, why should the poor countries compromise on anything else? Negotiations at the WTO work in a certain way –- specifically, they work through the issues on the table first. The agendas have been laid out in advance on issues of central importance to all members. Only after the sticking points on lowering trade subsidies are resolved will it be possible for countries to negotiate environmental standards, labor standards and other essential factors to fair trade.

Hopefully I will be able to report some good news before the week is over.

Photo credit Laura Guimond, Mercy Corps Director of External Relations.

Blog by Erin Thomas, Managing Editor Global Envision. Erin and Laura are in Hong Kong with other global NGOs advocating for free trade policies that are fair. Please send them any comments or questions and stay tuned for the inside scoop on negotiations.

Read the other Global Envision blogs from Hong Kong:
December 13, 2005 – Opening Session
December 13, 2005 – Aid For Trade
December 13, 2005 – Food Fight
December 14, 2005 – Results of Day One of WTO Negotiations in Hong Kong
December 15, 2005 – The Joy of the Press Conference
December 16, 2005 – The Word of the Day is Deadlock
December 17, 2005 – Wrapping Up in Hong Kong

Take a look at the WTO Timeline.

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