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WORLD: Multinationals and the World Trade Organisation

World Development Movement
September 1st, 1999

Governments of the rich countries, heavily influenced by corporate lobbyists, have given sweeping rights to multinational companies. These rights are being strictly enforced by the World Trade Organisation (WTO), with disastrous consequences for people around the world. Now governments are proposing to further expand the WTO's mandate giving unprecedented new powers to the corporate giants.

Again and again we hear homage to the 'free market'. 'Liberalisation' is the mantra of global decision making. Reduce government rules and the free market will bring about economic growth which benefits all, we are promised. But reality is very different. For most of the world, we are anything but free. The giant multinationals are concentrating power and wealth at an alarming rate. Just one man, Bill Gates, has as much money as 450 million of the world's poorest people. The WTO has become the vehicle for liberalisation, with the multinationals at the wheel. It has the power to punish governments who 'interfere' with free trade, leaving the field wide open for multinationals in pursuit of profit.

'More and more the WTO is under pressure to expand its agenda because more and more it is seen as the focal point for the many challenges and concers of globalisation'
--Renato Ruggiero, former WTO Director General.

Having failed poor countries in favour of the rich, the WTO is now failing citizens in favour of corporations. It has proved itself an undemocratic institution, incapable of responsible global governance. Yet far from reining it in, governments are planning to build an even bigger juggernaught when they meet this November in Seattle.

POOR COUNTRIES LOSE OUT UNDER 'FREE TRADE'

The WTO already has a poor record of increasing inequality between countries. In theory, the WTO stops governments interfering in the smooth running of free trade and everyone is meant to benefit from the economic growth which follows.

Reality is very different. Free trade pitches powerful rich countries against the Third World. Supposedly the playing field is made level, but nothing is done to address the unequal capacity of the teams. Developing countries are prohibited from nurturing their industries, in the way that industrialised countries did during their own development. Impoverished Caribbean farmers are left to compete with the multinationals who already control most of the banana trade.

And what's more, the playing field is far from level. Rich countries have the negotiating might to ensure developing countries open their economies, but they have reneged on their own obligations. Subsidies on OECD countries' agriculture are still twice the value of developing countries entire agricultural exports. Undercut by massively subsidised American corn, Oxfam estimates that half a million Filipino farmers will lose their livelihoods.

Over the last 20 years the share of global trade of the least developed countries has more than halved. At the time of the GATT deals in 1994 even the OECD predicted that Africa would lose out to the tune of $2.6 billion a year over the next ten years. Freer trade was predicted to push down prices for Third World exports like coffee and cocoa prices while the cost of things they import, like wheat and corn, would rise. Commodity prices have fallen even further than predicted.

It is already apparent that the winners are the rich countries and the losers are the poor in the Third World. UN reports have shown how free trade has lead to greater inequality both within and between countries.

Gender impact of free trade

Opening up trade affects men and women differently. In Ghana, women who had produced food for local markets came under pressure to give up their land for cash crops. The men then got the income when these crops were exported. Imported rice put many women farmers in the Philippines out of business. They had to take jobs on pineapple or banana plantations where they were exposed to pesticides and other dangerous chemicals.

MULTINATIONAL CORPORATIONS - THE REAL WINNERS

Five years ago, when the WTO was established, attention focused on the disparity of benefits between rich and poor countries. Now it is clear that the real winners have been the multinationals.

WTO rules mean that governments are not allowed to 'interfere' with trade. Increasingly this is being interpreted to mean that governments cannot even make normal domestic policy if it might have an impact on an overseas company wishing to sell its goods. Even government rules to protect the health of their citizens have come under attack. The battle is no longer between rich and poor countries, but between the demands of multinationals in pursuit of profit, and the duties of governments to govern.

Food safety under threat

  • GMOs: The US and Canada have complained about 'GM free' labelling.
  • Beef: An EU ban on hormone injected beef is WTO-illegal, despite scientific reports about its health risk.

Environmental protection outlawed

  • Oil: Laws on cleaner petrol in the US fell foul of complaints from Venezuela, whose exported fuel was too dirty.
  • Turtles: US not allowed to ban shrimp caught in ways which kill turtles.

Attempts to protect the poor thwarted

  • Bananas: EU prevented from providing preferential treatment to impoverished Caribbean farmers. US multinationals, with plantations in Latin America, felt they were being unfairly treated.
  • Burma: Massachusetts' right to penalise companies doing business with Burma under threat from EU.

Government economic policy undermined

  • India: Government not allowed to restrict imports even though it faced a serious balance of payments problem.

The implications are enormous. Governments are prevented from carrying out the will of their electorate and acting in a socially responsible manner. If EU governments are not allowed to protect the health of European citizens under the WTO, there seems little hope for developing country governments trying to protect the interests of the poorest people in their countries.

The WTO agreement on intellectual property rights (TRIPs) also benefits corporations. It imposes strict rules protecting patents, copyrights and trademarks -- most of which are held by multinationals. This increases the monopoly control some multinationals have, preventing local firms from developing similar products. It also allows multinationals to own rights to the use of plants and natural derivatives, like the natural pesticide from the Neem tree, which has been used for hundreds of years by farmers but has now been patented by a US corporation.

Commenting on the WTO's position Indian ambassador S. Narayanan said "The implication of this seems to be governments must give a higher priority to the profits of TNCs rather than the welfare and well being of their people."

THE MONSTER GROWS

With such a dismal record the WTO might expect some critical evaluation from its member governments. Instead they look set to increase its powers. Trade Ministers from all the member countries will meet in November 1999 in Seattle, USA. Believing they are losing out, many Developing Countries want to review past agreements before adding yet more. Agriculture and services are already on the agenda. Now the EU is proposing a new 'Millennium Round' which would include a whole host of goodies.

Opposition to any extension of the WTO's mandate is mounting. India, Malaysia, and Egypt among others feel cheated that the promised benefits have not materialised. A campaign is burgeoning among campaign organisations too. A joint statement against the new round has been signed by over 1,000 organisations from over 80 countries.

INVESTMENT ISSUES IN THE WTO

WDM is particularly concerned by the EU proposal that the WTO should set rules for foreign investment -- where an investor or company from one country wants to set up shop in another country.

Under the TRIMs agreement (Trade Related Investment Measures) some government regulations are already restricted, such as specifying that a foreign investor should export a proportion of their products (to protect domestic producers and ensure that they earn some foreign exchange). India wants this reviewed to give back some flexibility to developing countries so they can nurture their industries.

WDM fears the EU proposal would instead give multinationals even more power, just like its predecessor the Multilateral Agreement on Investment (MAI). Strong opposition halted the MAI, which proposed extensive rules to protect multinationals. Foreign companies would have been given the automatic right to set up in any country of their choice, the right to own 100% of the venture and the right to be treated 'at least as well' as any local enterprise. Governments power to make rules for foreign investors would have been curbed -- even if such rules were designed to benefit its citizens.

The EU proposal is heading in the same direction. WDM fears that an investment agreement in the WTO will only extend the power of the multinationals even further.

The UK Government appears to be taking a surprisingly complacent approach towards the WTO. When the MAI collapsed, then Trade Minister Brian Wilson appeared to have understood some of the concerns raised. He called for any new negotiations to start with a 'blank sheet of paper' based on objectives which should 'take full account of social and environmental concerns'. Yet despite these undertakings, the Government is pushing for the WTO to cover foreign investment according to the same principles. It is a driving force behind the EU proposal on investment. In doing so it is ignoring the widespread opposition to the MAI and the mounting evidence of the WTO's abject failings.

THE ALTERNATIVES

WDM argues that an investment agreement is needed, but one which provides protection for the poorest people, not for the richest companies. WDM believes the WTO has proved itself incapable of housing such an agreement. An International Investment Agreement should:

  • Allow developing country governments to regulate foreign investment in the interests of their own economic development, and implement high standards on health, working conditions and the environment
  • Set minimum requirements of multinational companies, and sanction them if they transgress.
  • Provide a predictable set of rules for foreign investors so that they are willing to investment in the Third World.

One proposal to mitigate some of the worst abuses by multinationals is for minimum labour and environment standards to be included in the WTO package. While this could bring some benefits it misses the central point: Third World governments need to retain the power to regulate foreign investment in a variety of ways to ensure it contributes to equitable development, not have standards imposed on them by international bodies.

LACK OF DEMOCRACY

Moreover, developing countries have made it clear that they do not trust the WTO to implement such standards fairly, and see it as a potential new form of protectionism -- where industrialised countries can ban imports from the Third World arguing that their standards are too low.

Mistrust of the WTO also stems from its lack of accountability and the lack of democracy for developing countries in the Geneva based institution. In theory the WTO is democratic. Each member has one vote and decisions are meant to be taken by consensus.

That's the theory. In practice developing countries are severely hampered in the negotiations which take place before the 'consensus' is reached.

  • Rich countries dominate decision making. The US has over 250 negotiators while 30 of the 134 countries cannot afford to base anyone in Geneva, one of the world's most expensive cities.
  • During the previous round of negotiations key decisions were taken behind closed doors with Third World representatives left in the coffee bar dependant on Western journalists for information.

Enforcement is similarly dominated by the superpowers.

  • There is a dispute panel which adjudicates, but it is then up to individual countries to enforce their decision by imposing trade sanctions. The US has little to fear if a small Third World country threatens sanctions, but could destroy an economy if the situation is reversed.
  • Developing countries constitute three-quarters of the membership but have made only one-fifth of the complaints to the dispute panel. The US has filed nearly 30% of all cases, and won 90% of them.

And again it is the multinationals who really win out.

  • Their corridor persuasion is infamous. Scandal already surrounds the forthcoming Seattle meetings where 'sponsorship' by corporations will buy them access to officials.
  • Settlement of disputes relies heavily on unaccountable committees providing 'technical' advice (such as the Codex Alimentarius Committee on food standards). These committees are packed with representatives of industry.

All the evidence suggests its time to stop and review the WTO, not rush headlong into yet more new agreements.

WDM is calling for

  • Fundamental review and reform of the WTO to ensure that it benefits the poorest people not the richest companies. There should be no new agreements until past ones have been fairly implemented and their impact fully reviewed.
  • An agreement on foreign investment which promotes the rights of people not corporations. In its current form, the WTO is not the appropriate forum for such an agreement.

 


 

The World Trade Organisation (WTO)

Set up in 1995 to liberalise trade

Successor to the 1947 General Agreement on Tariffs and Trade (GATT), which reduced tariffs (taxes on imports) and quotas (limits on the amount of imports).

Uruguay Round of negotiations (1986-93 ) expanded the mandate to just about anything which could affect free trade.

Unlike other international organisations the WTO has teeth. The victor in any dispute can bring sanctions. However sanctions imposed by the stronger countries are clearly a greater threat, giving them more power to use the dispute mechanism.

Supposedly each of the 134 members have equal say: in practice decision making is dominated by the 'Quad': USA; European Union; Japan and Canada.

Ministerial Conferences of Trade Ministers meets roughly every three years - the last one was in Singapore in 1996. The next is in Seattle, USA from November 30 to December 3, 1999.

A General Council of Member Representatives meets in between Ministerials.

The small secretariat is based in Geneva, with a Director General appointed by the members. A dispute panel of lawyers adjudicates over disputes.