TCS Daily

Trading Places?

By Alan Oxley - February 24, 2004 12:00 AM

Pascal Lamy, the EU trade commissioner, clearly did not enjoy the collapse of the World Trade Organization meeting in Cancun in September 2004. Has he finally decided to pay out the institution as a result? His latest idea of regulating trade according to "societal values" will certainly do that. It would deliver the coup de grace to the WTO which its anti-globalization NGO critics have been hankering after for so long.

The WTO was blindsided by developing countries at Cancun. The African group, now a caucus of 40 countries, opted to oppose negotiation on a set of new issues in the WTO as a matter of principle. This was a political position. They embellished it by declaring that only rich countries should cut trade barriers. Despite the fact that the EU and the US had put forward a proposal to get the agriculture negotiations back on track at the request of other WTO members, the radicals among developing countries blamed the EU and the US for creating the impasse at Cancun. The concocted reason was that the proposal did not go far enough.

Of course it didn't. It was a negotiating document. Those who wanted to negotiate understood that. If the leaders of the African group did, they did not show it. Instead they quickly adopted the anti-globalization NGO rhetoric that transatlantic obduracy was why Cancun stalled.

Lamy was understandably frustrated. He declared the WTO processes as "medieval." The Africans did not want to negotiate rules to free up foreign investment, something every one of them is desperate for, and then effectively declared that they were not in the WTO to cut their own trade barriers. Those barriers are significantly higher than in rich countries. The whole point of trade liberalization is to improve growth in your own economy by reducing your own barriers. Plainly the Africans do not think so.

On this they are at one with Oxfam, which also argues that economic development requires rich countries to cut trade barriers. It has its own idealized view of how poor countries should develop: production should be by cooperatives of independent farmers who sell only to ethical distributors at fixed prices, supplying higher priced products through ethical outlets endorsed by Oxfam. A lot of people would go hungry if world trade was organized this way. Starbucks offers "ethical" coffee for sale. It is expensive and not popular with consumers: they try it only once. But encouraging trade that will support growth in developing countries is less important to Oxfam than establishing a "politically correct" system of production and exchange.

It would be logical for the EU to take Oxfam aside and explain how its policies will not help poor countries. Instead, Lamy is fostering debate which supports the approach of anti-globalization NGOs. He has commissioned a study on the impact of controlling trade if it does not reflect "societal values" and the EU will hold a conference on this later in the year. The EU says it is not proposing this idea, just examining it.

Well, it has put up major proposals to restrict trade because of societal values, and it is already doing so. The EU wants the WTO changed so trade can be restricted if products are not "processed" according to acceptable environmental standards. It has also declared in a European Commission Directive last year that trade should be made conditional on observance of labor rights.

The EU has tried to win support for these ideas in the WTO and failed. Lamy admitted in a seminar at Cancun that the EU was "isolated" in the WTO on environmental issues and the Labor Rights Directive recognized that this approach was unacceptable in the WTO.

Undeterred, the EU has steadily imposed unilateral environmental trade restrictions over the last decade and announced that it would impose labor conditions in bilateral trade agreements. In the agriculture negotiations in the WTO, it has stated that there must be scope to restrict trade to meet consumer concerns, environmental standards and to protect animal welfare. These presumably represent "societal concerns".

This is mantra for anti-globalizers who have made a profession out of demonizing the WTO and free trade -- World Wide Fund for Nature, Oxfam, Greenpeace and Friends of the Earth. Instead of promoting international action in purposefully-designed international agreements to improve labor rights or protect the environment, they have sought to use the leverage of trade access to push their hobby horses.

Nothing would more effectively destroy the WTO. Its raison d'etre is to enable countries to reduce trade barriers in concert and build growth based on comparative advantage. The NGO prescription and the conditions prescribed by "societal concerns" would impose first world standards in third world economies, wrecking their chance to develop their comparative advantage. The cynical part of the strategy is that developing countries have little choice. If they want access to markets in rich countries, they adopt the standards required by the rich countries. While the EU cannot get this concept up in the WTO because it stringently limits the capacity of importer to do this, it can pursue the strategy in bilateral and regional trade agreements.

There is a delicious irony here. The self appointed proponents of the interests of the poor are using the economic leverage of the rich countries to secure their preferred social policies, all the while attacking the rich countries for being rich and proclaiming themselves to be high-minded.

Let us hope that Pascal Lamy can see his way through this fog of self-interest, misguided moralism and cynicism. He can't on the one hand despair at developing country obduracy, no matter how mistaken, and then give succor to those who fundamentally oppose the whole endeavor of development through free trade.

Or have we got it wrong? Maybe that is no longer a goal of EU trade policy.

Alan Oxley is former Ambassador to the GATT, the predecessor of the WTO. He last wrote for TCS about China's economic rollercoaster.


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