SANE Views

Vol.6 No.15, 19 April 2006

Keep a Beady Eye on the World Trade Organisation

Margaret Legum

As the current negotiations under the World Trade Organisation get under way, we need to ask why liberalized trade policies have mostly deepened global squalor for poor people.

Only in East Asia in the 1990s did trade-related growth produce more formal jobs. That was the result of intense government intervention so that trade took place in labour intensive sectors; and domestic market expansion was deliberately managed. Even so, most of the new jobs were desperately poorly paid. In other developing countries, the effect of trade-led growth on job creation has been marginal or negative. Meanwhile jobs created by outsourced production from the richer to poorer countries has steadily reduced the quantity and quality of jobs in developed nations, because they have to compete with cheaper and more docile labour in the East. Hence the industrial deserts in Europe and the US. Hence the globalization of squalor.

Why should liberalized trade have this effect? Surely trade should advantage everyone. Certainly the theory is that growth is driven by trade – and the theory is so apparently logical that it is profoundly believed, and its failure blamed on a lack of rigour in applying it. But the theory is wrong for two reasons.

First, if you have ever tried to trade with a bully who is out of your league, you will know that trade benefits everyone only if the relative bargaining power of the parties is roughly equal. Not the trade itself, but the terms of trade are crucial. The rich countries have always had the power to define the terms of trade in their favour: the result is that poor countries have opened their economies to the rich economies well before reciprocity was introduced. But a couple of years ago the developing world – led by eleven middle-income countries, including South Africa – refused more liberalization until the rich seriously changed their practices to liberalise in our favour.

The World Trade Organisation is currently seeking to break the deadlock in terms of an end-April time-table it set itself. Its somewhat desperate D-G, Pascal Lamy, makes a number of false claims. He says that poorer countries would be the biggest losers if the negotiations break down. IF that were so the richer countries would be less worried than they obviously are. His argument is that, without the WTO, poor countries can be picked off one by one for disadvantageous deals – whereas under the WTO there is some negotiating clout. There is no evidence that such solidarity under the WTO has worked so far; and the richer nations have done particularly well under it. Beware crocodile tears shed by rich nations over the sad fate of poor nations.

Lamy also says it has been agreed that this round is ‘developmental’, meaning ‘redressing imbalances in multilateral trade relations’. If only. IF it were serious it could be done by the developed nations without negotiations. They could simply rectify the imbalances from their end. Instead what is proposed is another trade off. Developing nations must accept a long-term unenforceable commitment by the US and Europe to cut their agricultural subsidies, by an unspecified amount, by 2013, starting in 2010: this would allow our agricultural goods, in which we have an advantage, to compete in their markets. On the basis of that unsupported commitment in the future, we are asked to reduce tariffs on their industrialized goods ‘in a manner suited to (our) needs and interests’

COSATU has made a detailed study of the effect in our economy of such tariff cuts on a huge range of consumer goods, the production of which constitutes our industrialized sector. The cuts are hardly ‘suited to our needs and interests’. Ranging from clothing and TVs to furniture and auto components, the proposed tariff cuts would range from 40% to 50%. Does anyone need persuading that that would slash employment?

The truth is that all industrial nations, without exception, have protected their industry until it is ready to compete globally. Global free trade removes governments’ right to develop an industrial strategy, and a trade policy to match. The state of Africa’s poverty is testament to its governments’ being forced into industrial suicide, thence to perpetual colonial backwardness and thence to the status of beggar. And still they expect us to conform.

Second, the theory is wrong because it fails to notice who actually does benefit from global trade. It is, as usual, global capital. South Africa is no exception. It is not about growth and development. It is about enlarging the profits and incomes of the already resourced. Our reluctance to take perfectly legitimate measures against China’s flood of cheap imports, for instance, is because our capital-holders - our shareholders who invest in global markets - do very well there. And they have inordinate influence with government, because they are mobile. The lower the costs of labour, the higher the profits. Global trade suits the rentier class; and the rentier class gets what it wants. It also gets to justify its preferred policies as being especially good for poor people.