WTO : Free Trade or Fair Trade?
Ideally, free trade means allowing cross border exchange of goods and services including investment with no or little tariff and non-tariff barriers on the basis of reciprocity. It is not compatible with discriminatory or unfair trade practices. It puts manufacturers or service providers to open competition which forces them to be efficient. Fair competition is allowed to play its natural roles. Economists have prescribed free trade for most efficient allocation of resources globally. Trade barriers lead to inefficient allocation of resources and thereby slow down the global growth, the argument continues.
Economic Arguments Ignored
The GATT was created to reduce / eliminate trade barriers. Ironically, although claims for free trade have been going on for long, no country has ever fully opted for free trade. The talk on free trade gains or loses momentum or changes its dimensions depending on the interests of the countries which dominate the world trading system. Historically, all the rich industrialized countries including the United States initially developed their manufacturing and technological bases under highly protectionist regime. When only they became strong enough to dominate the world trading system did they start insisting on free trade.
Under the hegemony of the industrial powers, GATT framed the "codes of conduct" for regulating international trade. Through different GATT Rounds including the Uruguay Round (UR) trade liberalization has been emphasized: a mandatory and gradual reduction of tariff and dismantling of non-tariff barriers (NTBs) were in focus. Until the UR, the earlier Rounds mostly concentrated on the reduction of tariff barriers to cross border trading of manufactured items. Textile and apparels were made an exception under Multi-Fibre Arrangement (MFA) which was a derogation to GATT principle of non-discrimination. MFA allowed industrialized countries like USA to use discriminatory measures, viz. quotas, etc. to protect their domestic textile and apparel industries. The MFA provided a privileged status to the least developed countries as far as market access is concerned. This means that the principle of free trade was applied in a restricted sense only. However, under the pressure of the NICs and the developing countries, the Final Acts of UR envisaged the phasing out of MFA by the end of 2004. This is an attempt to remove the discriminatory element in the world trading system. Besides, UR integrated into the GATT or WTO system the trade in agricultural products, trade in services (GATS), trade related aspects of investment measures (TRIMS) and trade related aspects of intellectual proprietary rights (TRIPS).
Through all these, globalization of trade liberalization policy is emphasized. The basic assumption is that free trade or trade liberalization will benefit all countries, i.e., each country, rich or poor, will get its due share. Unfortunately, the WTO rules related to these, particularly GATS and TRIPS work primarily in favour of the rich and against the interests of the poor countries. This makes GATT/ WTO less than ideal.
In the world trading system, the trading partners can be divided into three groups, namely, (1) developed countries: more than 67 per cent of the world trade occur between these countries; (2) developing countries including NICs: they trade mostly ( some 80% of their total trade) with the developed countries; and (3) the least developed countries (LDCs). The LDCs including Bangladesh mostly trade with the developed countries; intra-group trade between the LDCs is insignificantly small. This means that world trade will continue to be dominated by the big multinational corporations (MNCs) of the developed countries, although larger markets are emerging in the developing countries. Given this, logically the incidence of free trade is bound to be different for each of these groups. In other words, the WTO rules for free trade that benefit the developed countries may not benefit, in fact may harm, the least developed countries, if Special Treatment of the latter by the former is not made effective.
WTO Bends its Own Rules
Free trade under the rules of WTO is not really free trade. The decision making process in WTO is not democratic. It is highly dominated by the industrial powers. Often, the rules are bent to suit the interest of the interest groups in the developed countries. One example is MFA. There are many others. For example, in the recent Seattle meeting an attempt was made to include non-trade aspects like human rights, labour rights, environment, etc. as a condition of trade negotiations. (There is no provision in the Final Acts of UR which permits such inclusion). Inclusion of such non-trade aspects may create grounds for them for being used as NTBs. Although the LDCs have protested against this proposal, it is not yet clear whether the coalition of 48 least developed countries will eventually be able to stall this attempt of the developed countries.
WTO Protects Monopoly Interests
The WTO provisions on TRIPS, as alleged by the protesters in Seattle are very protectionist (against free trade). The protesters alleged that WTO simply advances the corporate interests of the developed countries when it insists on implementing the copyright and patent protection clauses in the developing and least developed countries. Copyrights and patents are basically rent seeking devices and are enormously costly forms of protectionism.
A good example is the patented drugs sold by large pharmaceutical companies. Patents often raise the price of such drugs by several hundred or even thousand per cent compared with their free market price. In many cases, the people of the LDCs cannot afford to use lifesaving drugs because their prices are too high. By contrast, protection in the form of tariffs or quotas will rarely raise the prices of goods by more than 20 per cent after trade liberalization has been in place.
This is a dilemma. The pharmaceutical companies, and similar other corporate capitalists invest lot of money to invent new drugs, etc. Therefore they must get the return through high prices which are guaranteed by copyrights and patents. But under this situation, free trade does not have any role to play; it becomes the monopoly game.
WTO must devise rules that end monopoly of the large drug companies and prevent them making exorbitant socially unacceptable profits. However, they must get their "Due Share". Let the benefit be enjoyed EQUITABLY by all countries (trading partners). One way may be, as the protesters in Seattle suggested that the developing and the least developed countries be given the same status as was enjoyed by United States during its early stages of industrialization: the US ignored English copyrights and Patents!
Until the US reached a certain level of development, it did what it needed to do or it did what was fair for it to do.
There are numerous other examples. This means free trade must be replaced with fair trade. Fair trade will ensure each party involved its due share. Admittedly, it is difficult to determine what is the "due share" for each party. WTO must address this problem.
WTO Prefers Selective Application of Free Trade
As a result of implementation of the WTO rules, the manufacturing workers, including garment factory workers in the United States are in direct competition with the cheapest labour anywhere in the world. They lose their jobs when cheap imports from LDCs force their employers to close down the factories. In response the US government imposes tariff or non-tariff barriers on imports under reference. This is not unfair and the US is justified in doing so. But in the process free trade loses its meaning.
Why should free trade be limited to goods and only some selected types of services like banking and insurance? Why not free trade in professional services? Under free trade physicians, engineers, accountants, professors from Bangladesh should have equal chance to take up jobs in India or United States. In practice, it has not happened, it will not happen primarily because it is against the interest of the "interest groups" of the more powerful trading partners. For example, insurance companies, American Medical Association (AMA) and pharmaceutical companies of USA will not allow foreign doctors to be admitted freely based on open world competition, although this will benefit the US consumers enormously. According to an estimate published in In These Times, (a Journal published in Chicago, vol. 24, No.3, January 2000, p-21), if free trade is allowed in the movement of doctors' services, and as a result doctors' salaries in USA could be brought down to the level of Western Europe, it would save consumers more than $70 billion a year. In fact, if the question of efficiency is highlighted, the free trade in professionals services should be at the top of the agenda. Why should the highest paid professionals like doctors, lawyers, accountants, benefit so much from protectionism when ordinary factory workers lose their jobs due to relocation of factories from USA to some developing countries?
WTO does Not Ensure Level Playing Field
Trade liberalization emphasizes free access to each other's market. But in reality, even in case of merchandises, market access has been very selective. For example, Malaysia, Thailand, India and other countries have almost free access to the Bangladeshi markets because of its rapid implementation of trade liberalization policies. But due to lack of reciprocity, Bangladesh does not have free access to Indian markets. Therefore most of the benefits of trade liberalization goes to more powerful partners, and not to Bangladesh. In fact, open competition makes a weak partner like Bangladesh vulnerable when it is forced to compete with trading partners like India, Thailand, Malaysia or USA. It is argued that if Bangladesh is forced to compete openly without any support, it will be efficient in the long run. But it is unlikely to happen if one partner is too large and strong and the other is too small and weak. Free trade must provide level playing field. This can be provided through the application of Special Treatment provisions of WTO rules.
All these imply that it is not free trade, rather it is fair trade which should be emphasized by WTO to create an WIN-WIN situation for all countries, rich and poor.
The author is Pro Vice Chancellor, North South University, Dhaka
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