Why the Poor Need the WTO

Image: Flickr, World Trade Organisation
Image: Flickr, World Trade Organisation

In Hong Kong in December last year, I watched as South Korean farmers, in a sophisticated military-style operation, engaged the police in a fierce melee outside the convention centre.

Their struggle, as Peter Mandelson reminded us later the same day (and he is well placed to understand such sentiments), is to maintain their privileges in the face of potential liberalisation through the Doha round. If some groups had their way, the multilateral trading system would be disbanded. Others purportedly represent poor countries: in their view, the developed world must open its markets and leave developing countries alone. Some just want to protect the privileges they have. If these ideas prevailed, would developing countries be better off?

Anyone with the vaguest sense of history knows why the World Trade Organisation (WTO), but especially its predecessor the General Agreement on Tariffs and Trade (Gatt), was established. Its primary purpose was to prevent a repeat of the 1930s Great Depression scenario of tariff and trade wars between the major Western powers. The Great Depression led directly to the rise of Adolf Hitler and the onset of World War II. The post-war architects of the multilateral economic system established an enduring system of mutual reciprocal bargaining through negotiating “rounds” designed to prevent such trade wars from destabilising global trade and endangering world peace. The West’s dominant power, the United States, underpinned the system through opening its market to Cold War allies.

For more than three decades, developed countries exchanged concessions, while developing countries, under the spell of import-substitution industrialisation and/or the Soviet orbit, excluded themselves. This began to change in the 1970s Tokyo round and gathered pace in the 1980s Uruguay round, when developing countries began to participate on a substantial scale. Even then it was primarily the early unilateral liberalisers (and most successful developing countries to date) in East Asia and Latin America that did so.

Not surprisingly, agriculture and clothing and textiles, the two principle concerns for developing countries, were only fully incorporated into multilateral disciplines (and on very unequal terms) at the end of the Uruguay round. The arrangement governing the latter expired at the end of 2004. Hence the Doha round is firmly focused on addressing structural imbalances in agriculture; the last bastion of Western, especially but not exclusively European, protectionism.

It is true that the WTO’s rules favour developed countries. This is scarcely surprising given that they built and guided the system for more than three decades.

And developed countries are selfishly protecting their own (domestic political) interests at the expense of developing-country growth, especially in agriculture. But to argue that developed countries are systematically marginalising developing countries is historically inaccurate. Worse, this argument shifts attention away from the often disastrous (including protectionist) policies that developing countries follow at home and that are of far more significance to their citizens than what happens in the WTO.

Development does not begin in the WTO, and the WTO is not a development agency. It is a club whose primary purpose is to negotiate international trade rules and to impartially settle disputes arising from interpretation of those rules. If this club were to disappear, the weak would be at the mercy of the powerful and the powerful would be free to pursue their own individual interest at the expense of collective rationality. To adapt Thomas Hobbes’s famous portrayal, “Life would be (even) nast(ier), brutish, and short”, especially for those in the developing world and the world as a whole.

Clearly the system is not perfect. The Doha round’s historic mission is to achieve more balance in the club’s rules, reflecting its expanded membership. But wherein lies the balance?

First, it is naïve to pretend, as the “guardians of development” do, that the developed world does not have interests of its own: after all, they invented the system. So denying developed countries the possibility of securing extension of multilateral rules into new areas will only push them to seek like-minded partners outside the WTO, through free-trade agreements. Developing countries would suffer more from power asymmetries in such negotiations. Furthermore, liberalisation in the developed world will also cause pain there and may entrench the strengthening anti-globalisation backlash. “Economic Patriotism” writ large threatens to undermine the very fabric of the multilateral trading system. In an increasingly multipolar world, this trend has uncertain consequences for global stability and peace.

Second, the entire system of rules cannot be renegotiated — that is a recipe either for unravelling decades of achievement or for paralysis. Neither would suit developing-country interests. So developing countries, with the exception of the poorest, have to do their bit in the Doha round. Furthermore, recent gains in south-south trade have been driven largely by developed country corporations and occurred despite existing barriers. One-sided liberalisation in the developed world will not unlock the potential for expanding south-south trade but will inhibit the growth prospects of developing countries. So the real issue is the extent, timing and sequencing of the latter’s commitments and domestic capacities to implement them.