Power Politics in the WTO

Author:Dr. Syed Wajid H. Pirzada

Power-Cracy in WTO
A Case Study: Arm Twisting of Pakistan
Challenging Power Imbalances
Power-Cracy in WTO
(i)
TABLE OF CONTENTS
ACRONYMS (ii)
EXECUTIVE SUMMERY (iv)
1. INTRODUCTION ---------------------------------------------------------------------------------- 1
2. THE MULTILATERAL TRADING SYSTEM ------------------------------------------------ 3
3. WTO PROCESS AND THE POWER POLITICS --------------------------------------------- 6
4. DISTRIBUTIVE JUSTICE ALONE CAN GIVEWTO A HUMAN FACE -------------10
5. A CASE STUDY ----------------------------------------------------------------------------------13
6. CASE STUDY: THE COTTON INITIATIVE ------------------------------------------------14
7. US THREAT TO SRI L ANKA ON GMOS BAN---------------------------------------------15
8. THE INSIDE OUT OF WTO --------------------------------------------------------------------15
9. JULY FRAMEWORK SERVES THE INTER ESTS OF TRADE SUPERPOWERS----17
10. WHAT PAKISTAN EXPERI ENCEDWAS NOTATHEATER PLAY BUTA
REAL LIFE ARM-TWISTING------------------------------------------------------------------18
11. INTERNATIONAL FINANCIAL INSTITUTIONS AND THEWTO: UNHOLY
ALLIANCE-----------------------------------------------------------------------------------------24
12. BURDEN OF NON- TRADE ISSUES ---------------------------------------------------------26
13. IMF ARM-TWISTING IN ARGENTINA -----------------------------------------------------27
14. THE CORPORATE INFLUENCE: A HI DDEN HAND IN ARM-TWISTING----------27
15. A CASE STUDY OF UNFAIR RESTRI CTIONS IMPOSED ON PAKISTAN----------28
16. PAKISTAN’S COMMITMENTSWITH TH E BWIs AND THEIR IMPACT: ----------30
17. UNILATERAL TRADE LIBERA LIZATION AND ITS IMPACT ON THE POOR. ---35
18. CONCLUSIONS-----------------------------------------------------------------------------------37
19. RECOMMENDATIONS -------------------------------------------------------------------------38
20. REFERENCES AND BIBLIOGRAPHY-------------------------------------------------------39
Challenging Power Imbalances
(ii)
Acronyms
AoA Agreement on Agriculture
ACP Africa Caribbean and Pacific
ADB Asian Development Bank
AMF Asian Monetary Fund
ASEAN Association of South East Asian Nations
BWI BrettonWood Institutions
BIT Bilateral Investment Treaty
CEC Cereal Experts Committee
CRCP Consumer Rights Commission of Pakistan
CAFOD Catholic Agency for Overseas Development
DDA Doha Development Agenda
DMEs Developed Market Economies
DFID Department for International Development
EU European Union
FTAs Free Trading Areas
ECO Economic Cooperation Organization
GIs Geographical Indications
GATT General Agreement on Tariff and Trade
GAFTA Grain & Food Trade Association
GOs Government Organizations
GM Genetically Modified
GoP Government of Pakistan
ISODEC Integrated Social Development Center
IMF International Monetary Fund
LMG Like- Minded Group
ICSID International Centre for Settlement of Disputes
MFN Most Favored Nation
MIA Multilateral Investment Agreement
NAMA Non-Agricultural Market Access
NT National Treatment
Power-Cracy in WTO
Challenging Power Imbalances
(iii)
PRGF Poverty Reduction and Growth Facility
REAP Rice exporters Association of Pakistan
RTAs Regional Trading Areas
SAFTA, South Asian Free Trading Area
SPS Sanitary and Phytosanitary Measures
SAPs Structural Adjustment Programs
TIFA Trade Investment Facilitation Agreement
TNCs Transnational corporations
TWN ThirdWorld Network
TBT Agreement on Techni cal Barriers to Trade
TRQs Tariff Rate Quota
TRIPs Trade Related Intellectual Property Rights
WCA West and Central Africa
USTR Us-Pakistan trade and investment relationship
UR Uruguay Round
US United States
VAT Value-Added Tax
UNCTAD Un Conference on Trade & Development
WFS World Food Summit
WFP World Food Program
WAPDA Water & Power Development Authority
WB World Bank
WWG WTOWatch Group
Challenging Power Imbalances
(iv)
Executive Summary
Globalization is pushing the world to a ruthless competition, where markets and economics have
become the denominators of success. Multilateral institutions’ policies have been instrumental in
shaping and speeding up the process, and the establishment ofWorld Tr ade Organization (WTO)
has given a fillip to the whole process. In fact, WTO has become a battlefield for capturing new
markets. Bretton Wood Institutions (BWI) name ly, the International Monetary Fund (IMF) and
the World Bank (WB), WTO along with Multilater al Investment Agreement (MIA) and military
colossuses is helping trade superpowers win more markets. Policy prescriptions of BWIs,
especially Structural Adjustment Programs (SAPs) and the trade regimes of WTO are helping
developed market economies to regain the lost ground, and are thus further marginalizing the
marginalized.
The multilateral institutions are thus staging a comeback for colonialism in a new shape, for
which terms like neo-mercantilism and neo-colonialism have been coined. The Least Developed
and Developing Countries (L/DCs), which got rid of colonization since mid 40s, are again
succumbing to hegemonic designs of their colonial masters. Squeezing policy space under
international policy framework, like the one provided by WTO coupled with tutelage of
international monetary and financial institutions like BWIs and the Asian Development Bank
(ADB), even the elected national governments seem handicapped in pursuing welfare policies.
This is tantamount to undermining national sovereignty.
The multilateral and international monetary and financial institutions are overstepping their
mandated charter, directly interfering in matters which either fall in the purview of national
governments or are subject related to other regional or international agencies. Constructive
ambiguity of WTO regime, peripheral role of the majority membership of WTO in negotiations,
hidden-hand of transnational corporations (TNCs), greater cohesion of BWIs and WTO, green
room diplomacy, mini-ministerials, bribery and threats by the trade superpowers have become a
daily experience for L/DCs, and have led to distortions both in the WTO and multilateral
trading system. The L/DCs feel pressurized because of this brutally competitive and unilateral
trade liberalization.
Like many other L/DCs, Pakistan has been subject of arm-twisting at the hands of BWIs and two
major trading partners, the US and EU, in order to take its position in WTO aligned with these
superpowers, especially after 9/11. September 11, in fact, has fueled this process. Pakistan has
witnessed -- rather has become victim of -- all tactical moves from threats to bribery. Direct and
indirect interference of multilateral institutions in the state’s affairs have shaken the confidence
of common man. Rampant reforms at the dictates of international monetary institutions, such as
under SAPs/PRGF, and now under pressing demand of the WTO-the Rich Men Club, the state
policies have lost national flavor.
Pakistan’s once independent stance at WTO has weakened since September 11, and apparently it
is losing confidence of DCs as a dependable coalition partner in WTO. On the other hand, as a
front line in the war against so-called terror, the coalition has not helped Pakistan win any
additional markets. It is rather facing more internal and external pressures for siding with the US
and EU in the so-called war against terrorism.
A three-pronged engagement, detailed in the following recommendations, at domestic, regional
and international levels, can help Pakistan counter this pressure and secure its national interest.
Power-Cracy in WTO
Challenging Power Imbalances
(v)
The L/DCs in general and the countries in South in particular should strive for building their
negotiating capacities on complex issues, related to negotiations in WTO.
They should also avail technical assistance in enhancing their negotiating capacity, promised by
theWTO and United Nations system.
Efforts to build effective and sustainable coalitions in WTO, involving real stakeholders, should
be made.
Problem-solving agenda needs to be research-based, and efforts should be made to bring in stake
of the major players by forging coalitions among the L/DCs, as trade politics today is governed
by tangible economic interests.
National policies should be tailored in a way to minimize the role of BWIs in influencing state
sovereignty.
Proactive engagement in good governance, social compliance, environment friendly policies and
integration with standard economy can help protect countries from the onslaught of arm-twisting.
Before entering in to FTAs, stock taking exercises need to be undertaken at home, for without
material infrastructure, political stability and political will, such arrangements are not likely to
benefit L/DCs.
Preferential treatment is not going to help in the long run; It is likely to be eroded under WTO
regime, as being recently experienced by Pakistan in the case of textile regarding the Anti
Dumping Duties imposed by the EU. Strategic weight, in this context, needs to be used for
securing longer-term gains by building trade capacity.
Participatory planning and development involving all stakeholders, including NGOs, GOs and
private sector, shall help national governments take informed decisions. This shall also help
mobilize political support both at national and international levels.
For integration of economies at international level, starting point is integration at regional level.
Regional Trading Areas [RTAs] like SAFTA, ASEAN and ECO provide such an opportunity for
sustainable trade development, as well as for developing alternate mechanisms to cope with the
possible fallouts of trade liberalization at global level.
The WTO needs to offer some level of protection through its rules to L/DCs against pressures on
multilateral and bilateral levels, because of existing power imbalance.
The WTO rules are to be reformed to make the negotiating process more transparent and
inclusive, by resorting to voting rather than so-called consensus building.
Distributive justice needs to be ensured by WTO, if trade has to serve the common man.
Development dimension in trade needs to be integrated in this context and with the view that
development and peace are mutually dependent and reinforcing.
Green room and mini-ministerial business needs to be banned altogether.
Development cooperation should provide trade-related capacity building support to help DCs
identify their trade interests and incorporate them in multi and bilateral negotiations.
The WTO should sharply focus on its core mandate of trade-liberalization with built-in agenda of
Special & Differential Treatment for DCs, and should not indulge in other issues, which are not
directly related to the trade. It is because of these peripheral issues that industrialized countries
are able to exploit the L/DCs, and make them yield to their stance.
WTO-BWI nexus has created doubts and mistrust among L/DCs. It would be in the interest of
WTO system itself, if it can work independently of BWIs. The latter should strictly adhere to
their respective mandate, rather than working as implementing arms ofWTO.
Finally, an attitudinal and policy shift is required on part of the industrialized countries in
general and the US and EU in particular, with regard to their hegemonic agenda.
Challenging Power Imbalances
1
Introduction
Today national policies are embedded deeply in the framework of international treaties,
agreements, covenants and understandings reached with multilateral institutions. The limitation
on policy space undermines states sovereignty on one hand, and compromises the interests of
their citizens on the other. One such framework, of multilateral trading system, being crafted by
theWorld Trade Organization (WTO) agreements, is heralding a new era of international trade.
WTO has emerged as a powerful multilateral institution, for its regimes are not only affecting
markets but national policies and lives of the pe ople. In this context, Clare Short, Britain’s
International Development secretary, has argued that the principle of non-discrimination on
which WTO rules are based needs to be changed. For, the principle can be anti development in
practice – it requires that a country “should not discriminate between its own and foreign
products, services or nationals.” It means that DCs cannot take measures which they believe
would help their development efforts and might be challenged by other countries as restraint on
their trade. They cannot insist that foreign investors use local materials and nationals. This
principle ties hands of poor countries, making their own development policies subservient to
trade issues.1
It is a common knowledge that multilateral system pressurizes the national governments to
accept the agenda set by these institutions. The (L/DCs) have been repeatedly voicing concerns
regarding non-democratic working, role of different pressure groups, and the hidden hand
operating in theWTO.
In this backdrop, it is pertinent to understand the working of WTO with the view that in the first
place efforts should be made for securing a participatory and democratic dispensation that would
only be possible if the shortfalls of the present WTO system are understood properly and
addressed for just dispensation. The research study seeks to address this goal, help understand
the nature of power politics inWTO, and the role arm-twisting plays in its working.
WTO System
Understanding the current multilateral trading system and the lobbies working in the
WTO
The Organization
The Uruguay Round (UR) of multilateral trade negotiations under the General Agreement on
Tariff and Trade (GATT), established in 1947, le d to establishment of the WTO in 1995. The
former ad hoc setting was incepted after the World War-II as an associate of the Bretton Woods
System, established in 1944 at a Conference in Bretton Woods New Hampshire, US. The other
Members of this System were the International Monetary Fund and the International Bank for
Reconstruction and Development – TheWorld Bank.
WTO Agreement, establishing WTO embodies all Agreem ents, decisions and Understandings
reached under GATT; and sets the following basi c directions for international trade regime:
Developing requirements to lower and eliminate tariffs, and creating obligations to prevent and
eliminate other types of impediments or barriers to trade (non-tariff barriers).
The UR-GATT was premised upon, “ the UR will strengthen the world economy and will lead to
more trade, investment, employment and income-growth throughout the world.” (Ministerial
Declaration, April 1994).
Power-Cracy in WTO
Challenging Power Imbalances
2
The WTO Agreement in this regard provides the legal ground-rules for international commerce;
and deals with subjects like agriculture, textile & clothing, banking, telecommunications,
government’s purchases, industrial standards, food sanitation regulations and intellectual
property. The rules framed under this Agreem ent, the WTO Rules, are binding on 147 WTO
Members including Pakistan. As against GATT, WTO rules are enforceable, for Members can
impose sanctions. -------------------------------------------------------------------------
* Chairman Roots Pakistan- a grass root development action-seeking partnership among GOs-
NGOs-commercial sectors.
The purpose:
According to official version, WTO is the only international body that deals with the rules of
trade between nations. At its heart are the agreements, negotiated and signed by the bulk of the
world’s trading nations. These documents provide the legal ground rules for international
commerce.
The WTO sees its role to help trade flow as freely as possible, and its proponents claim that
WTO is run by its Member governments, and all major decisions are made by the Membership
as a whole, either by Ministers (who meet at least once every two years) or by officials (who
meet regularly in Geneva), and that decisions are taken by consensus. Further, WTO system
allows Members to ensure that their interests are properly considered even though, on occasion,
they may decide to join a consensus in the overall interest of multilateral trading system. Where
consensus is not possible, the WTO Agreement allows for voting- a vote being won with a
majority of votes cast and on the basis of “one country, one vote.”
TheWTO Agreement in this regard envisages four special situations involving voting:
An interpretation of any of the multilateral trade Agreements can be adopted by a
majority of three-quarters ofWTO Members.
The Ministerial Conference can waive an obligation imposed on a particular Member by
a Multilateral Agreement, also through a three-quarter majority.
Decisions to amend provisions of the Multilateral Agreements can be adopted through
approval, either by all Members or by a two-third majority, depending on the nature of
the provision concerned. But the amendments only take effect for those WTO Members
which accept them.
A decision to admit a new Member is taken by a two-third majority in the Ministerial
Conference, or the General Council in between Conferences.
The main functions ofWTO
To oversee implementation and administration ofWTO Agreements;
To provide a forum for negotiations; and
To provide a dispute-settlement mechanism.
The WTO, thus, oversees implementation of more than 29 Trade Agreements, which cover a
vast range of trade issues, like goods, services, agriculture, textiles and Intellectual Property
Rights.
TheWTO Agreement identifies following goals, guiding towards its functions:
Raising standard(s) of living;
Ensuring full employment; ensuring large and steadily growing income and demand; and
Expanding the production of, and trade in, goods & services.
Challenging Power Imbalances
3
The Multilateral Trading system
The core principles
Non-discrimination: Most Favored Nation (MFN) clause, the principle of not discriminating between one’s
trading partners, and National Treatment (NT) Clause - the principle of giving others the same treatment as one's
own nationals.
Freer Trade : through reduction of trade-restricting barriers.
Predictability: through removal of tariffs and non-tariff barriers.
Competitiveness: through removal of market-distorting factors, like subsidies (and consequently
dumping below market prices).
Special Treatment: for developing countries, by giving them more time to adjust, and by
extending special privileges and flexibility in implementation.
The Binding Agreements:
Some of the Agreements and understandings, reached underWTO are:
The General Agreement on Tariff and Trade-GATT 1994.
The Agreement on Agriculture (AoA).
The Agreement on Technical Barriers to Trade (TBT Agreement).
Agreement on the application of Sanitary and Phytosanitary measures (SPS Agreement).
The Agreement on Trade-Related aspects of Intellectual Property Rights (TRIPs
Agreement).
The Agreement on Subsidies and Countervailing Measures (Subsidies Agreement).
TheWTO Understanding on Settlement of Disputes.
Besides aforementioned Agreements and Understandings, host of new issues like multifunctionality
of agriculture, Trade & Environment, Trade & Labor, and Trade & Social
Standards including Human Rights, animal welfare and rural development are being agitated to
make L/DCs trade off.
The proponents of WTO (one in former WTO Director General Mike Moore) have [always]
maintained that the WTO is a democratic, rules-based and member-driven organization. At a
conference on democracy and free trade, he stated:
The WTO system is built upon the rule of law and respect for the sovereign equality of nations.
Ultimately, it is an open, rules-based multilateral trading system, built on democratic values. It is
the most democratic international body in existence today...The transparency and inclusiveness -
which is to say the ‘legitimacy’ of the process helps to explain why Member governments are
more prepared and more willing to reach agreement when they gathered in Doha...Opponents of
the W TO, who sometimes claim that, the system is ‘undemocratic’, start from a basic fallacy.
The WTO is not imposed on countries. No country is forced to sign our agreements. Each and
every one of theWTO rules is negotiated by Member governments and agreed by consensus.
The fact, however, remains that different pressure groups operate in WTO and their trade and
economic weight affects the outcome of negotiation. For instance, the QUAD [US, EU, Japan
and Canada] group, for economic reasons, is a key player. The US and EU, having major trade
interests, aggressively pursue their trade agenda by influencing the WTO negotiations. The socalled
consensus is brought about by the “green room” operation, involving the Quad Group and a few developing
countries, while majority of the members are denied access to this consultation process.
Power-Cracy in WTO
Challenging Power Imbalances
4
Decision-making essentially takes place in “concentric circles.” First, the US and the EU decide
on a common position. The circle is then expanded to Japan and Canada. The circle is enlarged
to include other developed countries, followed by friendly developing countries (South Africa,
Chile, Singapore etc). This group is sometimes known as “Friends of the Chair.” And finally,
other influential developing countries, such as India and Malaysia, are brought on board2.
In the context of negotiations on agriculture, CAIRN group is also playing important role.
Recently countries like Brazil, China and India too have emerged as a strong group along with
other 17 L/DCs, of which Pakistan is a part. Ye t Pakistan’s role in the G-20 club has been of
peripheral nature; rather it has been indecisive since Doha Ministerial.
The Counter Argument: Facts and the fallacy
Might is right
Commenting on raison d’etre of WTO, Gupta (1998) argues that what prompted the US to
oppose the formation of ITO in the late 1940s and to promote WTO in 1990s is the changed
international political landscape since 1991, and the opportunity it created for the US to play a
hegemonistic role, as the single superpower in the world.2. The accident of September 11 hast
given a fillip to the whole process and, in the new world order, “Might is right.” The nexus of
trade-foreign policy and military might is quite visible.
Despite all tall claims of transparency, DCs have repeatedly protested over highhandedness of
the developed countries, multilateral and international monetary and financial institutions in
general, and the role of Developed Market Economies in WTO system in particular. Many of the
independent writers have also endorsed this concern of DCs, and have criticized the
undemocratic process entrenched deeply in the multilateral institutions like WTO. Some of the
reflections in this regard are summarized below:
Green Room Diplomacy:
You have heard of the “Green Room” politics at Seattle WTO Ministerial and subsequently at
Doha. The “Green Room” diplomacy prevails in almost every major international conference. It
is in the Green room that economics is pushed aside, and politics takes over the control. It
becomes the question of what you are forced to give and what can be traded off. At the recently
concluded World Food Summit (WFS), “Five Years later”, at Rome, the “Green Room
Diplomacy” was clearly evident and that too in its aggressive avatar. The drafting Committees,
just prior to the final declaration being signed by the Heads of the States, were locked over the
inclusion of seemingly harmless clause-The Right to Food.
The US objected to it and saw to it that the world accepts the doctrine. The world and that
included representatives of democratically-elected governments, agreed to ignore the principles
of democracy and bent forward to accept the ruling of the world’s only superpower. So much for
governance and democracy, and the global efforts being made to “deepen democracy.”
Democracy is slowly and steadily being turned in to façade for pushing in the commercial
interests of the multinational corporations [MNCs].
The politics that went in to the play over right to food pushed in genetic engineering as the savior
for the hungry world3. In this context, it is worth noting that US is aggressively pursuing the
agenda of trade in biotech. In the WTO as well, as would be evident from the case study on Sri
Lanka’s ban on GM food, that follows.
Challenging Power Imbalances
5
The whole truth: intimidation, threat and bribery is the rule of the game
Crises of legitimacy
The WTO proponents paint a rosy picture of WTO and din the mantra of WTO being a rulebased,
member-driven organization and that WTO business is carried out in a transparent way.
Alineen Kaw4, however, paints a real picture of WTO. “The World Trade Organization (WTO)
has often been portrayed as the pinnacle of the multilateral system of global economic
governance. Why it has achieved this reputation is puzzling since it is one of the most
undemocratic organizations around. Formally speaking, the WTO is a one-country, one-vote
system. Yet a process called “ consensus does actual decision-making” in which the big trading
powers impose a consensus arrived at among themselves on the rest of the body. In the WTO,
formal parliamentary sessions where decisions are made in democratic institutions are reserved
for speech-making. Real decisions are made in backrooms through informal consultation,
involving participants [members] those are not determined by formal rules and votes, but by
informal agreement among significant players. This non-transparent, non-accountable system of
decision-making is one of the elements that have contributed to the crisis of legitimacy of the
WTO. After Seattle, there were expectations that reform of the decision-making process would
be at the top of the WTO agenda. Instead, the organization lurched into the 4th Ministerial
Conference of the WTO with its decision-making structure unreformed, and Doha has now
become a byword for the perversion of democracy and the thwarting of the will of the majority
via intimidation, threat, and bribery on the part of the strong4.”
Chair-driven or Coercion–driven Consensus
Although the decisions of the WTO affect the lives of people in all member states, the process of
decision-making, as indicated earlier, is quite arbitrary and dependent on the chair and those
countries that have influence over her/him (usually the QUAD). The process of manufacturing
consensus requires the developed countries to ensure that when the final package is brought to
the larger membership, the ground has already been prepared so that no matter, how unhappy the
majority is, no single country will formally reject the package. An elaborate mixture of tactics
achieves this strategies of marginalization, influence peddling and even outright coercion, made
possible by the huge differences in power between the players5.
Three key strategies employed by developed countries to pressurize L/DCs:
1) Institutional and procedural deficiencies that marginalize the majority.
2) Use of bilateral threats to silence developing country negotiators.
3) The bias of theWTO Secretariat.
Power-Cracy in WTO
Challenging Power Imbalances
6
WTO Process and the power politics
The ugly Secret
It has every thing but democracy. Despite long and convoluted process of consultation nothing
moves beyond the lip service. Some reflections on non-democratic working at WTO are quoted
below:
-The supposedly democratic nature of the WTO was exposed in Seattle in December 1999, when
member governments at the ministerial revolted. The ugly secrets of how the institution actually
functions became public6.
-The DCs rightly expected that as per understanding the successor of the 1st Director General of
WTO (Renato Ruggiero) would be from a DC. The way Mike Moore was installed was a clear
example how poor politics affected WTO business, for Mike Moore didn’t enjoy the confidence
of the majority but the United States pressurized L/DCs to accept the decision.
-Notwithstanding the fact, as against rhetoric of WTO proponents, that trade liberalization helps
economies grow and ultimate beneficiaries are the poor, trade was not an absolute value and only
those countries can benefit…In view of this the DCs (in gene ral and countries in South in
particular) have always argued that development prescription can only work if the development
is responsive to the need of the people, as was rightly pointed out by the Representative of LDCs
at the WTO7 stating, “We are simply asking for fair and equitable rules that would take into
account our development needs and allow us to participate fully in the trade system. But instead
we risk being pressured once again into accepting rules we don’t need and can’t afford7.”
.
-Since Seattle, South has been opposing launching of new round of multilateral trade negotiation
as the DCs in South feared that the implementation issues would be put on back burner, and like
UR they will be once again short changed. Despite this opposition from L/DCs representatives,
the developed countries continued working on the capital leadership, and the September 11
(incident) fueled the process. The developed countries succeeded in pursuing their aggressive
trade agenda through aggressive foreign policies and military might.
- In the process of negotiations, we (remarks of a South Asian delegate) would object to a text,
but it would still appear. We would state we wanted a text added in, and still it would not appear.
It was like a magic text.
-Immediately before Doha Round, pressure on the capitals mounted, and some of the leading
DCs ambassadors like Munir Akram from Pakistan, who not only led ably Pakistan’s Mission in
Geneva but also was esteemed high among L/DCs delegations for his leadership, lost their jobs.
Pakistan’s Minister for Commerce, Razzak Dawood, failed to support the Like- Minded Group
(LMG) and returned home and stated in a press conference that Doha was but a win-win
situation for DCs. Later, the civil society protested the outcome of Doha Ministerial, and
highlighted that the lollypop in the form of relaxed stance on TRIPS-related pharmaceutical
issues was a tactical move on the part of the developed countries, and once again the DCs got a
raw deal, as in the case of UR. The minister was unable to defend, and later admitted at many
fora that the DCs were the net losers.
Challenging Power Imbalances
7
Hoisting pre-cooked consensus on the L/DCs.
The abuse of WTO process has been discussed at length in the Cunning Bully 8 that states
“….power is best exercised in a situation of uncertainty and flexibility, that is why process issues
are so vague in the WTO (a comment by DC delegate). The failure of WTO to develop formal,
transparent and accountable internal procedures creates an environment conducive to
development of power politics.” It states some of the egregious examples of unclear internal
processes. These include inter alia the use of mini-ministerials, which are completely unofficial
meetings, among 15 and 30 WTO members, arranged presumably by the most powerful WTO
members, but often also attended by the supposedly neutral WTO Secretariat - to “pre cook” a
consensus which can later be hoisted on to the 100+members excluded from the process.
Another famous example cited in the document under reference was the spontaneous, unplanned
and illegal extension of the 4th WTO Ministerial Conference in Doha (Nov 2001) by an extra
day, which worked indisputably in favor of the WTO’s power players, with their large and wellfinanced
negotiating teams (as against DCs having handful of delegates at Doha, the combined
number of EC delegate was 508, far more even than the 51 US delegates and 159 Japanese
delegates). In fact, some of the DC delegates had already flown home on prearranged flights.
This extra day witnessed a marathon 36-hour meeting from which the vast majority of the WTO
membership was excluded.
A book, Behind the Scenes at the WTO, based on the interviews with people actually
participating lifts the shroud of secrecy surrounding WTO process, of ostensibly democratic
negotiations, and reveals:
The preferred mode of negotiations is behind closed doors.
Decisions are often being made without the full approval of the DCs.
The poorest and the smallest countries do not have the capacity to participate effectively.
Illegitimate pressures are brought to bear, and inducements offered, by the US and the
EU countries.
The LDCs have been stabbed in the back over crucial negotiating positions.9
In their reaction to the draft WTO Ministerial text released in July 2003, civil society groups
criticized the “Chair-Driven” drafting process, which they say flouts rules and procedures,
guaranteeing an inclusive and consensus-based process10.
The WTO process needed a great deal of transparency and it was a commonly held opinion
during Seattle Ministerial that WTO process was a rather exclusionary one...the WTO has
outgrown the processes appropriate to an earlier time. An increasing and necessary view,
generally shared among the members, was that we needed a process which had a degree of
internal transparency and inclusion to accommodate a larger and more diverse membership11.
Trade liberalization is not an end itself
The Indian minister for commerce and industry has very rightly underscored the need to make
WTO process equitable, participatory and fair, stating as globalization expands trade across
nations; there is an urgent need to ensure that the process is equitable, participatory and fair. The
ultimate objective of trade liberalization should be to raise the living standards of people,
especially those who are weak and the most vulnerable, through accelerated growth and income
opportunities. This needs to be done through continuous monitoring and research of the impact
Power-Cracy in WTO
Challenging Power Imbalances
8
of globalization on the poor in DCs; increasing participation of the economically disadvantaged
in the dialogue and formulation of policies; and effective communication of the agenda of trade
liberalization and globalization. Trade liberalization is not an end in itself. It must work as an
engine of growth and human development.”12
WTO served the interests of the Trade Superpowers
Many Third World countries at the UN Conference on Trade & Development [UNCTAD], held
in February 2000 in Bangkok, shared the view that the WTO has been dominated by the
developed countries, and that the current trade agreements are unfair to poor nations. They
complained that the WTO had left tariffs high on goods exported by many poor countries, such
as textile and farm products, while allowing rich countries to subsidize the agricultural exports.
The officials from poor countries also complained that the rich nations have failed to live up to
pledges to grant preferential access to goods from poor countries.
In this context, Sri Lankan Commerce Minister Kingsley Wickramaraine said, “a large number
of DCs…are yet to find any meaningful access opportunities for products of export interest to
them” because WTO agreements have focused on the products produced by the industrialized
countries13. It was in this backdrop that many of L/DCs have questioned as to whom WTO
serves?
Instead of ensuring effective participation of the marginalized and disadvantaged, the WTO
process in its present form, further marginalizes this group of countries, as is evident from the
following review.
The hidden hand: A structural element of the WTO chemistry
The unfortunate part of the story is that representatives of L/DCs, who at times would speak loud
and clear about marginalization of the group of the countries they belong to, in most of the cases
yield to the pressure from the hidden hand, which can’t be figured out from the anatomy of the
WTO but is a structural element in the chemistry of WTO.
The fact remains that because of multilateral institutions, even in democratic set ups of DCs,
there is little policy space left with the political leadership, and they finally succumb to the
power politics of the North. The dilemma has been highlighted by a former Indian ambassador to
GATT, who has pointed out how th e representatives of these countries are made to compromise
their national interests. “If (developing country negotiators) feel that any proposal is not in the
interest of their country, they oppose it. Their opposition is quite firm sometimes, and they stick
to their line almost till the very end. But finally when intense pressures are built up in the capitals
or if all other countries have acquiesced in the proposal, they also drop their objection and
remain sullenly silent. Decisions are taken, which they become parties, even though they had
earlier objections. And in this manner the obligations imposed by the decisions bind their
countries. The immediate political cost of withholding consensus appears to them to be much
heavier than the burden of these obligations in the future14.”
Challenging Power Imbalances
9
Divide and conquer
An interview quotes a representative of a DC: “We do everything, including the impossible, to
meet the obligations that multilateralism demands of us — creating legislation, and even
mechanisms that protect the interests of others—but where are our rights?
My task, as well as that of my team, has been nothing more than to seek the benefits for a small
economy within the ‘norms’ of the World Tr ade Organization. However, it has not proved
possible. I say this not because we do not have the negotiating capacity with which to reach our
objectives, but to expose the different strategies that are used to keep us submerged in
underdevelopment. Within the World Trade Organi zation there are many developing countries
with different levels of economic activity, and regrettably, this ha s been turned into one of the
most powerful weapons used by the developed countries: to divide and conquer. The usual
practice is to make promises to a developing country so that it will defend the interests of a
developed country, with the result that the developing countries are pitted against each other.
Apart from that, developed countries use pressure tactics, for example, political pressures,
threatening to withdraw some type of tariff preferences and trying to discredit the people in
charge of small country delegations in Geneva. The examples are numerous: there are black lists
of enemy countries, and lists of people whose positions are contrary to their interests and who
therefore — thanks to political pressures and the use of personal attacks — are moved away. Is
this sovereignty or a new form of colonialism4?
Even that was not the objective, September 11th is an act to be lamented by all humanity, but
what gives cause for even greater regret, are the economic benefits that were extracted by the
industrialized countries out of this disaster. I would even venture to say that if September 11 had
not happened, the Doha Ministerial declaration would not have contained even half of its
obligations. We cannot deny that many countries that were making a difference in theWTO have
been undermined, and their officials even removed, simply for raising their voices in defense of
the interests of their countries. Their requests were simply to have justice, transparency and a
functioning system at the WTO. The result is that the WTO - a member-driven organization -
continues to be governed by bad practices and arbitrary decisions. These are being imposed on
others as a result of the supreme power of a few. As for the institution itself, we have a Director
General (Mike Moor) whose only interest is his personal agenda. He slavishly lends himself to
the interests of the powerful countries, and is not interested in the developing world, which he
treats with disdain and contempt. This is clear from the threats he has directed at various
representatives of small countries. This is no secret, its common knowledge for those who
monitor the WTO closely. What will happen now? At the moment, it is very difficult to predict
the future of the small economies, but what is certain is that we have been led in the direction of
slow destruction, of our customs, our economies and of the sovereignty of our countries.”
Since Doha Ministerial there has been no headway in terms of Doha Development Agenda
(DDA), and the developed countries kept pressurizing DCs through their capitals and in bilateral
negotiations, besides impacting the negotiation process at WTO. The DCs have been sidelined in
this process on two counts. First, they are unable to actively participate and table proposals, for
none of these countries have neither capacity to do so nor WTO or industrialized countries are
supportive of their efforts to contribute. The proposals made by DCs so far have not seen the
daylight in terms of tangible outcome. Even the DCs coalitions are under severe pressure that has
affected adversely their contribution. For example, the very survival of Like- Minded Group
(LMG) and G-20, as a coalition, has been at stake since their inception. The attempts especially
to break the coalition of G-20 immediately after Cancun have been quite visible. Similarly, the
Power-Cracy in WTO
Challenging Power Imbalances
10
trade representatives or ambassadors of the DCs at WTO continue facing pressure both directly
from the developed countries ambassadors in WTO and through their capitals. In certain cases
because of such pressures either they are “promoted” to change their positions or they are
replaced. For example, Pakistan’s Permanent Ambassador, Munir Akram, succumbed to such a
pressure. Known for his leadership, he was able not only to develop his own team at WTO but
also provided leadership to the DCs in many areas of common interest. He was removed from
this position by his Government through “promotion”, and was sent to the United Nations, where
he was first scandalized and had to chair two Security Councils meetings to watch the interest of
one superpower. Lately, as reported in the medi a, he has been shown his way out to UNCTAD.
Distributive justice alone can give WTO a human face
Unjust trade rules
In the context of the Cancun Ministerial, George Monbiot states: “I was wrong about trade. A
few years ago I would have raised at least two cheers. The US government, to judge by the
aggressive noises now being made by its negotiators, seemed determined to wreck one of the
most intrusive and destructive of the instruments of global governance: the WTO. A few years
ago, I would have been wrong. The only thing worse than a world with a wrong international
trade rule is world with no trade rules at all.
George Bush seems to be preparing to destroy the WTO at the next world trade talks in
September not because its rules are unjust, but because they are not unjust enough. He is seeking
to negotiate individually with weaker countries so that he can force harsher terms of trade upon
them. He wants to replace a multilateral trading system with an imperial one. And this puts the
global justice movement in difficult position15.”
WTO system needs to be reformed in a way that its secretariat should not be able to influence or
interfere in the negotiation process, and secondly it has to establish credibility of being unbiased,
for at present it suffers from credibility crisis. Major shift in this regard would, however, be
possible when the Developed Market Economies (DMEs) change their attitude towards the DCs,
and afford a distributive justice to the poor and the marginalized that alone will give WTO a
human face.
WTO and other multilateral institutions should stop arm-twisting, and help evolve just
multilateral trading system, which affords equal opportunities to all nations in terms of
sustainable development. This shall help countries grow economically, which in turn shall help
forge peace and progress among the ranks of comity of nations. The present multilateral trading
system helps few to grow and exploit the resources and opportunities at the cost of the majority,
for it benignly protects the markets in the North and refuses legitimate space to countries in the
South. The trade and growth paradigm has close analogy with the ideology and fate of cancer
cell-growth for the sake of growth that is doomed to destroy the whole body. Without
distributive justice, the dream of economic growth, prosperity through growth in trade, or global
peace can be realized for the unjust trade and growth paradigm breeds poverty, intolerance, and
fuels violence and crimes.
Germany’s federal minister for economic cooperation and development, in this context, has
rightly asserted before Cancun Ministerial that the “negotiations will only lead to a successful
conclusion if more than lip service is paid to the concept of a development round and adequate
account is taken of the DCs needs and interests. The ball here is in the industrialists nation’s
Challenging Power Imbalances
11
court and what they do with it will decide not our own future but also whether efforts to make
globalization fair work.”
She went on and added, “We can’t preach free trade and then withhold it from the developing
world, when it does not suit us16.”
It is normally given to understand that decision making process in WTO is consensus-based but
fact remains that economic and trade weight of negotiating members prevails, and they indulge
in arm-twisting. It is worth pointing that by composition some 74% of the WTO members
belong to L/DCs but the LDCs that represent 20% of world population only generate 0.03% of
global trade flow. .As a result, L/DCs block does not have a political clout and economic and
trade weight to muster necessary support to secure their economic and trade interests. This
imbalance has paved the way for informal consultation using selected lot of members, which is a
common practice in WTO, instead of resorting to broad-based formal consultation involving all
the members.
Marginalization and exclusion of South
John Madelley, 17 commenting on what happened in Seattle, states: “Inside the meeting rooms,
many delegates were finding things confusing rather than interesting. The United States and
European Union wanted the meeting to launch a wide ranging Seattle Round of talks to further
liberalize trade. Most DCs were less than keen on such a round, claiming that the 1994 UR
Agreement (which followed the last round of talks) has scarcely been implemented.
Working groups were set up to help the meeting make progress, but many delegates of DCs
claimed they were excluded. One told me that his group had met for just fifteen minutes; another
said that a paper produced by a Group’s Chairperson, after its discussion, did not reflect the
views of DC delegates. ‘Trade ministers were kept in the dark, their demands ignored’, said
Duncan Green of CAFOD. Delegates were even stopped trying to get in to press conferences to
find out what was going on. Latin American ministers and Caribbean trade ministers spoke of
their ‘profound surprise and anger’ at the organization of the conference. Walden Bello, cocoordinator
of a Philippines-based NGO, Focus on Global South, explained why he believed the
WTO was arousing so much protest. ‘I think marginalized and excluded’, said John Abu,
Ghana’s minister of trade on behalf of African Unity.”
The clout outweighs
A Caribbean delegate maintains that formally one can vote. But in the absence of one-countryone-
vote, and in the presence of a decision-making structure that is based on consensus and an
informal decision-making process, I will be ignored if I raised my flag. You will be ignored
unless you are a major trading country. The informality of the process means that, in fact, it is a
process of consultation and discussion behind closed doors. This means that those with clout will
carry the most weight. There are few countries that would challenge a decision that has been put
forward as a done deal. At the WTO, the tradition of not taking decisions based on one-countryone
vote weighs against those who are smallest and weakest. If we really want to make a start,
one area is to have elections concerning procedural decisions. A representative of St Lucia has
therefore underscored the need for a participatory decision-making and observed that “decisions
of the WTO have an impact on all members and this is why the rules based multilateral trading
Challenging Power Imbalances
Power-Cracy in WTO
12
system requires that the entire membership is given an opportunity to effectively participate
(Representative of St Lucia)4.”
In the prevailing system of informal consultation, opinion of the majority is not registered, for
they are not involved in the process, and secondly no voting is done, as during formal session in
most of the cases already agreed upon green room agenda is adopted, where the remaining DCs
and LDCs are mere spectators or at best the observers. Need for consultation with these countries
is never felt as if these countries have nothing to contribute. The undemocratic process defeats
the provision of WTO Agreement (Article IX) and tantamount to cajoling. It is understandable
that development needs of the DCs and LDCs cannot be addressed without their active
participation in the process. The presence of most of the L/DCs is ceremonial, and their
involvement at some stage of so-called consultation is but a cosmetic treatment in most cases
given by the chairperson of the respective committees who would read in the presence of L/DCs
the agreed upon agenda.
Experience shows that the developed countries have most often insisted on their positions
because of economic weight while pressing small DCs to give up their positions that tantamount
to arm-twisting. It defeats the argument that WTO is a member-driven and rule-based
organization.
In the euphoria following the conclusion of the Uruguay Round, the WTO was held out as a
member-driven organization in which the voice of small developing countries would be equal to
that of any developed country. Five years on, everyone knows and sees how we still have a long
way to go in this regard. In the Singapore Ministerial, a number of developed countries wanted to
initiate negotiations on the “new issues” (investment, competition, government procurement and
trade facilitation), including labor standards. The move was opposed by the developing
countries. However, a small group of ministers were assembled, and agreed on a compromise
that a study process be established.Without any debate in the Committee of theWhole and in the
plenary, the recommendation was adopted9.
Developing countries that got a raw deal in Uruguay have been demanding since then
implementation of what has already been agreed upon in UR. It was in this backdrop that the
DCs resisted bringing on the WTO agenda new issues, including inter alia the Singapore issues.
The opposition to new issues that started immediately after UR continued till Cancun. In Doha,
the DCs were opposed to the new issues, yet at the end have to yield to the “green room”
pressure, and some of their ministers ultimately consented to the agenda of the developed market
economies. In this way a new round – so-called Doha Development Round – was launched.
Since then, nothing has move d beyond lip service as far as implementation issues were
concerned, rather new issues became part of the expanded work program, which had never been
a priority for the DCs. In such circumstances it is difficult for L/DCs to voice their concern and
register their interests, which makes the whole process undemocratic and non-transparent.
Decapitation of Ambassadors
Federico Cuello, former ambassador of Dominican Republic, in a meeting shared his fist hand
experience of arm-twisting tactics at WTO. He said the DCs in WTO are neither free to speak
nor to associate. “Countries are penalized for speaking their minds or for building alliances with
like-minded countries. Countries are not free to promote their interests. Their issues are ignored
unless presented as group proposals. If these groups become effective their ambassadors are
removed. I should know this, as I, together with five other of my colleagues, was one of the
victims of collective decapitation of ambassadors that started at Doha18.”
Challenging Power Imbalances
13
A case Study
John Kakanade and Henry Mukasa from Kampala reported that a senior Ugandan diplomat in
Geneva, Nathan Irumba, nearly lost his job at WTO, for taking a position inimical to the US.
The Ugandan Parliament learnt on August 26, 2003. “Uganda has one of the best negotiators on
the African continent like Ambassador Irumba, in Geneva. He almost lost his job for taking a
position inimical to USA at theWTO, Aggrey Awori (Samia Bugwe) said while contributing to a
debate in the House on the report of the Committee on Tourism, Trade & Industry. Uganda and
the United States have become close allies over the past few years. Uganda is one of the few
African countries which has hosted two American presidents, and signed Non-Surrender
Agreement undertaking not to hand over American citizens to the International Criminal Court
for trial. Uganda was also among a handful of African countries which joined the US-led
coalition in Iraq war.
In its report presented by the chairperson Mugambe (Nakifuma), the committee argued that
Uganda was getting a raw deal in many agreements because it lacked good negotiators. This was
echoed by others19.
Fat cats pull the strings
Anuraddha Mittal of Food First reported from Doha: “To support the position of the Third World
nations, representatives of international civil society, around 40-50 of us, held a protest on
November 10, to tell the US delegation to stop its arm-twisting tactics. This morning, we added
good humor while exposing the lack of transparency and muscle-flexing by the US and the EU.
Protester theater, “Why the DCs love the E.U. and the U.S.”, was staged…While the NGOs
portrayed how the business fat cats are pulling the strings of EU Trade Commissioner Pascal
Lamy, Mike Moore and Robert Zoellick, they also ridiculed the WTO claim of having changed
its way by getting rid of the green rooms by replacing them with the facilitator, a “Green Man”.
Walden Bello, executive director of Focus on the Global South and a board member of Food
First, played the role of the third world delegate who is first threatened and then offered bribes to
agree to investment and to show no opposition to Trade Related Intellectual Property Rights
(TRIPs) 20.”
The book, Behind the Scenes, has backed the argument. “Arm-twisting through a combination of
threats and inducements to countries and ambassadors was a key feature of the process leading to
the agreement in Doha. Only the rich have real leverage, while most DCs are so desperate for
trade opportunities, aid, debt reduction etc that they have little choice but to succumb.”
There is need for a systematic change within WTO system. John Madeley, reporting his
weeklong experience in Seattle, says, “Everyone, governments and NGOs alike, agrees that the
WTO is in need of reform. Secretary of State for Trade & Industry Stephen Byers called for
overhaul of the WTO. He said that the WTO will not be able to continue in its present form.
There had to be fundamental and radical change in order for it to meet the needs and aspirations
of all 134 of its members. President Clinton told ministers that the “sooner the WTO becomes
more open and accessible, the sooner we will have fewer demonstrations, more constructive
debate.”
Similarly, in April 2000, Chair of the General Council Ambassador Bryn presented a discussion
paper, raising fundamental questions about the democracy of WTO decision-making processes
and proposing checks on the abuse of power by influential members21.
Power-Cracy in WTO
Challenging Power Imbalances
14
Dichotomy in what is preached and practiced
There seems to be, however, a clear dichotomy what the developed countries preach and what
they practice, and it is because of this reason that reform process is not moving ahead. For
example, the UK secretary of state in an interview22 said, “We need developed countries to take
seriously the specific trading needs of the LDCs. Firstly, we should all commit to duty free
access for exports from the LDCs by the end of the [Doha] Round. The 48 LDCs are the poorest
countries in the world. Together they make up a mere 0.4% of the world trade. Agreement on
this is best test of whether the wealthy countries want to give a fair chance to the poor…One in
four of the world’s population (2/3rd of them women) lives in abject poverty – without access to
adequate food, clean water, sanitation, essential healthcare or basic education services. That’s 1.3
billion people whose lives are blighted by poverty, robbed of their dignity, deprived of the
opportunity to fulfill.” Despite such loud talks on the development needs of L/DCs, the role
developed countries played during and after the ministerials was contradictory in nature.
Case Study: The Cotton initiative
During Cancun Ministerial, four African countries – Benin, Mali, Chad and Burkina Faso –
proposed to eliminate cotton subsidies worldwide in order to ensure the survival and
development of the cotton sector in West and Central Africa (WCA), where cotton accounted for
up to 80% of export earnings. Extensive cotton subsidies in rich countries, especially US, have
led to artificial increase of supplies on international markets and fall in export prices. The
development effects on small farmers losing their market shares have been devastating.
On September 9, 2003, the US met with the WCA countries. At the meeting, the US delegates
suggested that the countries focus on diversifying their economies away from cotton production
towards producing textiles, which could then be granted preferential market access to the US via
the US. It implies that the poor African countries should do away with their only source of export
to provide space to US growers, for such an approach fails to deal with the core issue of US
subsidies, which are the root cause of unsustainably low price23.
The four WCA countries, as well as their sympathizers, expressed their outrage over the new
draft Ministerial text (Paragraph 7) on the cotton initiative. Under the initiative, the countries
seek the total elimination of domestic support measures and subsidies for the production and
export of cotton, as well as compensation to LDCs for lost income, while subsidies are being
phased out.
Closely reflecting the US approach, the new draft instructed the Chair of the WTO Trade
Negotiation Committee (TNC) to consult with the chairs of the Agriculture, Non-Agricultural
Market Access (NAMA), and Rules Negotiating Groups to address “the impact of distortions
that exist in the trade of cotton, man-made fibres, textile & clothing to ensure comprehensive
consideration of the entirety of the sector.” The text instructs the WTO Director General to
consult with the relevant ‘international organizations” to effectively direct “existing” (rather than
new) resources towards economic diversification. In a sop to cotton producers, the draft would
have members “pledge” not to use the discretion allowed under the agriculture draft on domestic
subsidies to avoid making reduction in domestic support for cotton 24.
Challenging Power Imbalances
15
US threat to Sri Lanka on GMOs ban
Sri Lanka became one of the first countries that completely banned Genetically Modified (GM)
foods, from May 1, 2001, to avert suspected health risks. The new law was introduced by the
Health Ministry, banning all imports of raw and processed food in 21 categories, if they have
been genetically modified.
The category also included Soya beans and all other products that contain its derivatives,
including Soya milk, soy sauce and Soya flour, as was told by the Health and Indigenous
Minister, John Seneviratne.
To comply with the legislation, importers must obtain official proof from exporting country’s
health authorities or accredited laboratories, confirming their products are non-GM.
Ceylon Chamber of Commerce spokesman Stanley Jayawardena had said, “The products
themselves have not been banned, only the method of production.”
The United States, in response, not only criticized Sri Lanka’s decision to ban all GM foods but
also threatened Sri Lanka, maintaining that the move would trigger an inquiry by the WTO.
Weyland Beeghly, the agricultural counselor of US Embassy in India, told a news conference in
Colombo: “We know of no credible scientific evidence justifying Sri Lanka’s ban. We believe it
is totally unwarranted.” He added, “There is a view in some circles that this is very risky
technology and that the US is testing it on the poor populations of DCs. This is both false and
offensive.” Beeghly said the WTO had already called on Sri Lanka to provide scientific evidence
to support its decision, and added that he saw little evidence the other countries in the region
would follow suit. In response, the Sri Lankan officials held that they wanted the ban to give
them more time to find out if GM food were dangerous25.
The inside out ofWTO
Peripheral role of weak states in negotiations
Conventional wisdom holds that a multilateral setting is more favorable than a bilateral one for a
single state dealing with a great or hegemonic power like the United States. Multilateral
negotiations usually take place under an international regime that in different ways constrains the
great power, hence preventing from using all its power resources. It is believed that a
confrontation between a great power and a small state will be less brutal if it takes place in an
international organization, rather than in an ad hoc situation that is not regulated by international
rules or norms. The argument seems to imply that distributive bargaining embodies the most
difficult part for a weak state negotiating with stronger parties, as DCs do in the WTO
negotiations. It may be very well be that for weak states problem solving is the most problematic
dimension of the negotiation.
In multilateral negotiations, however, a small state is typically confronted with a small stake
problem. What is important issue for the small state typically presents a small stake for greater
power that in reality controls the whole negotiation process? The trade talks under GATT and in
WTO are an illustrative example to a large extent the negotiations have concerned issues of
dispute between the United States and the European Union. Many of the issues of trade
negotiations were in reality framed in the Organization for Economic Cooperation and
Development (OECD), where industrialized countries let the Secretariat develop a single
negotiating text that was later transformed to the trade talks in GATT. Until the Doha Round,
16
most DCs had a very weak or peripheral role in the multilateral negotiations, particularly with
regard to agenda setting and other activities related to problem solving. Thus although weak
states have been relatively vulnerable with regard to direct coercion in a multilateral setting as
compared to a bilateral situation, this advantage has not itself given them a capacity to promote
or defend their own trade interests. Great problems of small states representing small stakes of
big players will not be considered unless they happen to fall in to the boxes set up by the latter26.
It is in this context that although the DCs, in an unprecedented show of strength, banded together
successfully to defend their trading interests at the 5th Ministerial, repeated attempts by the
world’s richest countries to force through their agenda-aided by a series of procedural abuses,
ultimately led to the Ministerial collapse27.
A Rich-Men Club
The DMEs were themselves responsible for the collapse of the Cancun Ministerial, as rightly
reported by the Financial Times: “The luddites are at it again. As ministers prepare to descend
next month to Cancun to launch the Doha ‘Development round’ of trade negotiations, the WTO
is under concerted attack. Small group of dedicated, well organized and ruthless activists are
plotting to sink the Round, striking at the heart of the rule-based trading system.
The wreckers in question are not balaclava-dad representatives of the anti-globalization
movement but men in suits representing the governments of the world’s richest countries.
Second, failure at Cancun would accelerate the trend towards regionalism, bilateralism and
unilateral power politics, triggering a protectionist backlash in the process. The refusal of the
industrialized countries to listen to the DCs opinion threatens to damage the credibility and
legitimacy of the WTO. This, after all, is supposed to be a consensus-based group, not a richmen’s
club28.”
Fat cats and shifting positions of L/DCs
The power politics of fat cats make WTO members change their position using power tactics and
bribery. As reported in Power Politics in WTO4, a difference in some developing countries’
positions started to emerge as Doha approached. Developed countries were responsible for a
frenzy of activity – bilateral, regional meetings, and contact with key leaders. There was greater
involvement of some capitals and key ministers in the process. All this had quite a bit to do with
why positions changed. When Doha came closer, negotiations were more concentrated at capital
level. There was also the psychological and public relations spin on the consequences of failure.
That was trumpeted all the time in capitals.
Just before Doha, ministers from the African countries that are part of AGOA (the African
Growth Opportunity Act) went to Washington. When they came back, some countries’ views on
the issue of the TRIPs Agreement and public health had taken a shift towards the US position.
However, the majority of the African counties were able to see that the US wanted to divide the
developing countries by giving a moratorium to sub-Saharan Africa on the implementation of
TRIPS. Some of the pressure came from the supposedly neutral WTO Secretariat itself. It was
followed by arm-twisting as the ministerial approached. This was done by the US, EU and the
WTO director general (Mike Moore). The DG started calling individual ambassadors on
Saturdays and Sundays, asking them for their cooperation, because he needed a new round. The
Secretariat was also playing the EU role. Within the Secretariat, it was not only the DG. The
Secretariat was championing a “Round” all throughout.
Challenging Power Imbalances
17
July Framework serves the interests of trade superpowers
Focus on Global South, on July 27,2004, asked for rejection of the July Framework, released by
chairman as draft text in preparation for the WTO General Council meeting on July27-28, 2004,
which they considered was flawed. The Focus maintains that the July Framework is being
projected as penultimate effort to bring the derailed organization back on track. The framework,
however, does not address the demands of DCs. The text is so unbalanced in favor of the
interests of the trade superpowers that one wonders if these governments have been listening at
all to the rising crescendo of protest from DCs that culminated in the rebellion, resulting in
collapse of the 5th Ministerial in Cancun in September last year 29.
The example alone suggests that WTO continues to advance the interests of industrialized
countries, where the Secretariat is used by fat cats for arm-twisting of the weak and
marginalized, through instruments like the flawed July Framework.
The Mini –Ministerials and the strong-arm
Micro-structure and Macro-agenda
Since the beginning of Doha Round, mini-ministerial meetings were organized in different
places. One such ministerial was held in Sharm-ul-Sheikh, Egypt. Trade ministers from 31 WTO
member countries (out of 147 members) attended the mini-ministerial. These micro-ministerials
provide a congenial environment for arm-twisting.
Reportedly, the ministers met to seek solutions to the current deadlock under the Doha Round of
multilateral trade negotiations. WTO Director General Supachi Panitchpakdi expressed his
concern over the lack of movement and political will in negotiators, especially with regard to
agriculture. He told the ministers time was running out for a deal. The mini-ministerial in fact
focused on paving the way for the 5th WTO Ministerial that was subsequently held in Cancun.
The Mini-Ministerial took place in the context of a meeting of EU ministers that had failed to
approve reforms of the EU Common Agricultural Policy (CAP) and postponed negotiation to a
later date30.
Similar mini-ministerial meetings were also held in Sydney (November 14-15, 2002), Montreal
(July 28-30, 2003), Tokyo, London (May 1, 2004) and Paris (May 14,2004).
In mini-ministerial it is [usually] the key players in international trade that discuss issues of their
common interest. For example, in informal mini-ministerial held in Sydney and hosted by
Australian Government, 25 ministers from QUAD (Canada, EC, Japan and US),Brazil, India,
Hong Kong, Indonesia, Japan, Kenya, Korea, Malaysia, Mexico, New Zealand, Nigeria, Senegal,
Singapore, South Africa, Lesotho, Switzerland, Thailand, one representative from Caribbean,
and director general WTO were on board. On their agenda were issues like contentious issues of
Doha mandate.
Despite the presence of the WTO director general, the mini-ministerial was being conducted
outside the auspices of the WTO. The NGOs called on the ministers to reject such miniministerials,
or so-called “green room style” meeting. On ground they -- strong-arm -- allow a
small coalition of countries to collaborate and agree to certain positions before the actual
ministerial sessions. NGOs, including the Global South and Geneva-based Trade Information
Project, instead called on WTO members to pursue more transparent and inclusive process that
will promote consensus building among the entire organization.
Power-Cracy in WTO
Challenging Power Imbalances
18
Similarly, the Paris Mini-Ministerial was hosted by OECD and Mexico, and some 30 countries,
including India, Brazil and China, were on board. The meeting came just weeks before the expiry
of end-of-July deadline, for re-launching of multilateral trade negotiations underWTO31.
Non-Group of Five: Pressure on G-20
On July 11, 2004, LDCs Ministerial Conference [G-90] started in Mauritius. The WTO director
general, who was scheduled to attend the meeting, cancelled his visit, to “concentrate in Geneva”
on a much delayed draft framework for the July 26, the General Council meeting.
In this backdrop, the trade chiefs of the US, the EU, Australia, Brazil and India – the so-called
“Non-Group of Five” met for two days of informal negotiations. It is worth pointing that the
latter two are the leading members of G-2032.
In certain circles, concern has been voiced that by bribing few members of G-20 together in a
Non-Group, and by bribing in the form of certain quotas, such as that of sugar, their position is
being weakened. The tactic apparently worked as one could see from the outcome of
negotiations in the form of July Package.
.
What Pakistan experienced was not a theater play but a real life arm-twisting
i. Singapore Ministerial
A former finance minister of Pakistan (Zubair Khan), in a seminar on WTO held in Islamabad,
Pakistan, organized by Consumer Rights Commission of Pakistan(CRCP) in collaboration with
DFID, said that he was asked in the Singapore Ministerial by his US counterpart to agree to the
agenda, and in return was offered a sort of lollypop. The same tactic was applied to other
participating members from the DCs. According to Khan, he declined to accept the offer and
insisted on not agreeing to the New Issues. On this, his US counterpart went on to threaten him.
ii. Doha Ministerial
The so-called war against terror and the aggressive trade agenda
Qatar was selected because of convenient repressive laws about the right to demonstrate and
protest (even some of the marines had been deployed in Qatar). Building up to the meeting, the
round was claimed by some leaders to address the current global recessions and further economic
turmoil exacerbated by the September 11 terrorist attack on the US, and the subsequent so-called
war waged on terror. Taking advantage of the s ituation, where criticism of trade rounds could
amount to being against freedom, the DCs were pressurized to accept the New Round.
Yet, as Food First reported, “Given the experience of the last six years in the WTO, any
economist knows that presenting the launch of a new round as a solution for global recession is a
tactic to pressurize countries at this sensitive time….Disguised as the fight against terrorism,
Robert Zoellick, US Trade Representative, has shamelessly tried to push fast track authority past
Congress prior to Doha and has failed thus far. His delegation is expected to use the same tactic
with trade ministers at the meeting33.”
Some of the world’s poorest nations have complained that they were browbeaten by developed
nations in to accepting sweeping free trade talks.
Challenging Power Imbalances
19
The world’s largest trading powers have issued an implied threat that failure to strike a deal at
the WTO conference on the shores of the Gulf in Doha could deal a shattering blow to the global
economy.
Clare Short, Britian’s International Development secretary, in this backdrop, issued a stark
warning that with the world economy in a fragile state, the WTO could not afford a repeat of its
disastrous Seattle meeting two years ago. “For any country to blow it [the talks] apart at this
stage would be very serious,” she added. The DCs complained that they were being pushed in to
signing up to a deal by the threat that failure would destroy the WTO and damage the world
economy. Some delegates have told the development lobby groups that the EU and the US are
threatening most recalcitrant DCs with losing access to western markets under the established
trade deals, if they continued to oppose the deal34.
Just at a distance of a telephone call
Pressures mounted as the heads of states were contacted. According to an African delegate,
Africa stood together. What broke Africa in the final two days was when the US and the EU
contacted presidents and prime ministers of some African and Asian countries. Delegations in
Doha started receiving calls from their capitals. The US exerted pressure on the president of
Pakistan, who gave instructions that the ambassador softens his position. Pakistan played a
meeker role than it would have otherwise done.
At one stage in Doha, when Pakistan and India were pushing on the issue of textiles, Pettigrew
was almost shouting at them. “We have given you almost everything. You guys are blocking
things. You have to be reasona ble....” Another delegate confirmed: At the last night, the
pressures were tremendous. It came at the highest level, right from the top in capital, and it was
specific. People were being targeted by name.
A frequently asked question after Doha was why the developing countries agreed to such a bad
deal. Ambassador Chidyausiku explains: “They said that if you don’t agree to the inclusion of
new issues, you don’t get the TRIPs and Health Declaration and the ACP-waiver. The other
source of pressure was that no minister was prepared to be blamed for the failure of Doha, and
standing in the way of fighting terrorism. There was so much pressure during negotiations that
they did not have the guts to say, as far asmy national position is concerned, this is not in our
interest.”
Even India felt that it could not afford the price of sanctions that would have otherwise resulted.
An LDC delegate said: “My perception is that some had instructions not to stand in the way.
Many were honest enough to say, we can press, but we were told not to stand in the way, Kenya
and Pakistan, for example. Some could only go up to a certain point. Technical assistance was
offered to the losers. This supposedly is to compensate for the weak bargaining position of
developing countries4.”
Preferential treatment and arm-twisting
The instruments of power politics used by the industrialists nations range from threats to stop
development aid and preferential treatment in trade to attempts to bring individual delegation in
Doha in to line by making phone calls to their state presidents. Pledges of money for the antiterror
coalition (e.g. Pakistan), and itching the WTO conference to the train of anti-terrorists
fervor in the wake of September 11 were also useful in breaking resistance to the North’s
agenda35.
Power-Cracy in WTO
Challenging Power Imbalances
20
September 11th was not the only factor that may have softened up the position to the Doha
Round. While Pakistan continued opposing a new round, its position on launch of investment
talks seemed to have become more nuanced post September 11. This came at the same time
when intense talks were held on what Washington termed “One Billion Dollar Plus” aid package
to reward Pakistan’s support of the US in Af ghanistan. The package was concluded and signed
on November 15, a day after the conclusion of the Doha Ministerial. President Musharraf was in
Washington, while the ministerial was under way. In addition to the offerings by the US, the EU
too offered to match their concessions to Pakistan in the area of textiles. The EU removed all
tariffs on apparel, and increased quotas for Pakistani textiles and clothing by 15% until 2004. In
addition, Musharraf, of course, also received recognition and political legitimacy by the
international community as the legitimate leader of the country.
According to Pakistani sources, however, the US inflated the package which may only amount to
US$146 million per year for three years. An analyst said, “Washington is inflating the figure to
impress Pakistani people. The Pakistani minister in fact publically announced that he was
extremely disappointed with the outcome of the package4.”
The so-called “package”, at least in the case of EU worked as an arm-twisting tool, for since then
Pakistan has faced anti-dumping duty on bed-linen, and tariff barriers against Pakistani Basmati
rice, thus denying the preferential access promised in the package.
iii. Cancun Ministerial
In Cancun too, early indications of the importance which the US attached to the strategy of
breaking down the G-20 came with the reports that US President, George Bush, had personally
telephoned the heads of the states of Brazil, India, Pakistan, South Africa and Thailand on the
eve of the ministerial, putting pressure on them to abandon the G-20’s strong stance on
agriculture27. This paved the way for visit of WTO director general, who immediately after the
ministerial, in the first leg of his visit, landed in Pakistan.
Besides meeting with the concerned ministers, Supachi Panitchpakdi also called upon President
Pervaize Musharraf to impress upon the government Pakistan’s support for putting WTO back
on track. On October 2, 2003 he said that President Musharaf has assured him of full support of
implementation ofWTO regime.
In the first week of October 2003, during his visit, he called upon Dr. Abdul Hafeez Sheikh,
federal minister for Privatization & Investment, who later said, “Pakistan is determined to play a
realistic, practical and constructive role in WTO.There was a need to build proper and effective
alliances among different groups to reach consensus for achieving the set targets. Domestic
subsidies and high tariffs were the major concerns of Pakistan, and we are in the process of
injecting clarity among the Parliament, business group and opinion makers in this regard.” He
added: “The promotion of trade was the most important component and in WTO a complete
setback was not acceptable for any country.”
On this occasion DG, WTO said, "Pakistan, being one of the constructive member countries in
putting WTO back on track, has played vital role at Cancun Conference.” He termed his visit to
Pakistan in continuation of discussions prior to the General Council meeting of WTO scheduled
in Geneva by the end of the year36. It was a common impression in Pakistan that in his visit the
DG WTO pressurized the GoP not to support G-21 (Is it not G20).
Challenging Power Imbalances
21
And it worked
On July 12, 2004, G-90 sought support from G-20, on their stance on cotton, as a “stand-alone”
issue in DDA negotiations, and not an element of agricultural negotiations. The G-90 countries
wanted the “July Package” to include a clear commitment to speedily and substantially address
the trade-related initiatives by treating it as “stand-alone” issue. Despite promises by the EU and
the US to make the “cotton initiative” a high priority in the agricultural negotiations, the G-90
draft negotiating platform on Doha Work Program calls for its immediate harvest in the July
package.
While many G-20 members sided with the G-90 on cotton, Pakistan declined to extend support
maintaining that the issue should be part of the agricultural negotiations. WTO Watch Group
(WWG), in its communication of July 13, 2004, said that the position of Pakistan was exactly in
line with the US position. According to WWG, Pakistan, right from Cancun, has been trying to
weaken the Group’s [G-20] position, and has always been pushing G-20 to accept either EU or
US position. WWG views that it does not see any logic in Pakistan’s taking such a divergent
position, being a part of G-2037.
iv. FTAs-instruments of arm-twisting
The US has agreed to sign an FTA with Pakist an. The US Trade Representative in the latest
communications to the government informed that the US is ready to sign FTA, but it would be
inked after the materialization of the Trade Investment Facilitation Agreement (TIFA), which
was signed on June 25, 2003 during the visit of President Musharraf to US. Pakistan and the US
in this context are likely to hold talks in Washington some time in August or early September
2004. Meanwhile the GoP would try to pass bill through the Parliament to set up Pakistan
Intellectual Property Rights Organization (PIRPO) so that US concerns could be allayed with
regard to the functioning of the PIPRO. The latter has started functioning under the Cabinet
Division of Pakistan, after the approval of the PIPRO bill by the Parliament38.
Some news report suggest that the US has asked Pakistan to pay damages to US companies for
their future investment in case of the infringement of intellectual property rights and unilateral
cancellation of licenses.
If the government fails to immediately compensate affected US firms, the World Bank will pay
the compensation and consider the amount as a loan given to Pakistan. This demand has been
proposed in the draft of a proposed Bilateral Investment Treaty (BIT) by the US, an official of
the Law Ministry told Daily Times. He said that the World Bank, under its arm of the
International Centre for Settlement of Disputes (ICSID), would pay the damages to US
investment in Pakistan in the case of violation of intellectual property rights and the unilateral
cancellation of licenses. The demand is unacceptable for Pakistan, and the law ministry is
working to counter the proposal during crucial talks between Pakistan and US on the proposed
treaty to be held in London from February 7 under a Trade Investment Facilitation Agreement
(TIFA) signed between the two countries, the official said.
He said that keeping in view the US’ unjustified demands, talks on the BIT are likely to remain
inconclusive. Under the BIT, both countries would protect the investments of each other’s
investors. Pakistan's delegation for BIT talks will comprise Jehangir Bashr, secretary of the
Board of Investment, Makhdoom Ali Khan, attorney general of Pakistan, the additional secretary
of the commerce ministry and a representative of the Central Board of Revenue.
Power-Cracy in WTO
Challenging Power Imbalances
22
Both countries had developed differences over the issue during the first formal TIFA talks held
in the US. However, both sides decided to hold further talks in London to solve their disputes.
The official said that during the first formal TIFA talks, the US had demanded the protection of
investments that it had made so far in various sectors in Pakistan, and demanded that the ICSID
be the arbitrator in the case of any disputes over the implementation of intellectual property
rights in Pakistan. Pakistan declined protection to existing investments by US companies, saying
it would only protect and provide guarantees to investments that came in after the signing of the
treaty, he said.
Effective arbitration system: The official said the US had also demanded an effective system of
arbitration in the case of disputes after the investment was made, and termed Pakistan's judicial
system very poor and ineffective. However, Pakistan's attorney general did not agree with the US
officials, and said that the existing commercial court system in Pakistan would be sufficient in
this regard.
The official said both sides would once more take up these issues during the talks in London to
seek a solution so the BIT draft could be developed with consensus, ensuring future US
investment in Pakistan. “We are currently formulating our modus operandi to negotiate the BIT
talks and safeguard Pakistan’s interests,” the official said. On violation of intellectual property
rights in Pakistan, which has been a grave US concern, the official said Pakistan had effectively
banned the export of pirated CDs and DVDs. He said eight known facilities in Pakistan had
produced 180 million discs in 2003, nearly all illegal, which were exported to at least 46
countries around the world.
Companies in the US and other developed countries, which are members of IIPA, suffered a loss
of US$68.5 million in 1999. This swelled to US$126 million in 2003. Over 12,000 retail outlets,
kiosks and stores remain in operation all over Pakistan, selling pirated products for a fraction of
the cost of the genuine articles, the official said, quoting IIPAs petition.
Markets like Rainbow Centre in Karachi and Hafeez Centre in Lahore still contain hundreds of
retail outlets filled with pirated products. Even the duty-free area of Karachi International Airport
has a retail shop filled with pirated CDs and DVDs (Source: Daily Times, Pakistan).
Whereas investment-related issues have been dropped from the list of Singapore issues and thus
DDA, FTAs are being used for arm-twisting of the poor states, and delicate issues such as
investment and IPRs to protect the interest of MNCs/TNCs.
Pakistan’s FTA with the United States
Pakistan has been engaged in concluding an FTA with the US and as a first step has signed a
Trade and Investment Framework Agreement with the US39. TIFA is seen as a step towards the
signing of FTA between the US and Pakistan. It , however, requires a lot of monitoring of
different trade conditions and laws. The GoP needs to meet several conditions, including
implementing the Intellectual Property Rights before Pakistan is able to sign an FTA with the
US, sources in Pakistan's Ministry of Commerce were quoted as saying40. This amply guides us
to the strings attached, such as investment framework and IPRs related issues, with the FTA’s
signed with the industrialized countries.
In fact, GoP has started implementing these conditional ties, and the pressure for securing IPRs
is building. GoP on more than one occasions has indicated that to enforce IPRs, its infringements
Challenging Power Imbalances
23
would be monitored through raids. Pakistan’s commerce minister has been quoted as saying,
“We are ready for the compliance with the WTO Agreement on TRIPs and that substantial
progress has been made in this field41.
The US, however, later ruled out FTA with Pakistan as proximate possibility. During his visit to
Pakistan, AshleyWills, assistant US trade represen tative, rebuffing official hopes, clearly said, “I
want to be very honest with you, I do not see this as a proximate possibility”, and added that this
is not going to happen in the next few years. “We do not need to have an FTA to improve and
liberalize trade between United States and Pakistan. Eventually, at a distant point, who knows,
perhaps we could do FTA.”
The message was loud and clear that TIFA was used simply as a lollypop to make Pakistan
accept the conditions US wanted. As the US assistant secretary of trade added that he observed
that there are many changes that can be done in the context of the TIFA. He said that the United
States has expressed concerns about certain issues, particularly on the issue of Trade Related
Intellectual Property Rights. In this context, he added that the US believes Pakistan would attract
more investment, especially in the knowledge industry, if it can improve and enforce legislation
regarding TRIPs. He endorsed the fact that he raised the issue during his meetings in the capital
during last couple of days. Some reports, on this occasion, suggested that the US wanted
Pakistan to make quick progress on TRIPs and liberalize its markets for US products. Similarly,
there were some reports suggesting US pressure against Pakistan’s grouping with G-2042.
FTA: bit by BIT.
As indicated above negotiation on FTAs have been linked with Bilateral Investment Treaty
(BIT), Pakistan’s federal minister for commerce was reported as saying during his visit to US in
September 2004, “We are ready to negotiate such a treaty (BIT)”, and indicated that US has
officially announced holding of negotiations with Pakistan on BIT. He disclosed that the
secretary Board of Investment (GoP) has started negotiations on BIT. The commerce minister
said the Joint Council extensively deliberated daylong at its maiden meeting. The Joint Council
was set up under TIFA, signed on June 15, 2003.
Robert B. Zoë lick, USTR on this occasion, said, “We focused on the issue that US-Pakistan
trade and investment relationship should not only be looked at commercially, but since USA and
Pakistan are strategic partners, this relationship should also reflect the strategic aspect.”
When Pakistan’s commerce minister was asked, what was the difference between BIT and FTA,
he replied, “It is an important ingredient in moving just like signing of TIFA, which was
important for moving towards an FTA*.”
It is explicitly clear that on one hand US has indicated it was ruling out FTA with Pakistan as
proximate possibility and on the other was pulling investment string bit by BIT.
The GoP has finalized a draft bill seeking protection of foreign investment. The sources said that
the Bill was finalized in the light of the forthcoming negotiations to be held with the United
States and Germany to separately sign investment agreement with them, for which dates have
already been firmed up.**
*The News (2004).BI a step forward in boosting Pak-US trade, Sept.30
**WTR (2004).Government moves to protect investment,16-30 Sept.
Power-Cracy in WTO
Challenging Power Imbalances
24
International Financial Institutions and the WTO: Unholy alliance
WTO also sees as its mandate to cooperate with the Bretton Wood Institutions – IMF, the World
Bank and other multilateral institutions – to achieve greater coherence in global policy-making.
A separate Ministerial Declaration was adopted at the Marrakech Ministerial Meeting in April
1994 to underscore this objective. The declaration envisages an increased contribution by the
WTO to achieving greater coherence in global economic policy-making. It recognizes that
different aspects of economic policy are linked, and it calls on the WTO to develop its
cooperation with the international organizations responsible for monetary and financial matters –
The WB and IMF43. The Doha Declaration reiterated the resolve of WTO, of working closely
with BWIs.
Both of these Bretton Woods brothers, as these are called, were established in 1944. With their
headquarters inWashington, the aim of the institutions as envisaged was:
TheWorld Bank:
Aim:
To lend funds to DCs, in the form of loans for long-term development projects.
To provide economic advice and technical assistance.
The International Monetary Fund:
Aim:
To promote international monetary and exchange stability.
To lend money to countries to tide over balance of payment crises.
Role of BWIs in arm-twisting
BWIs, overstepping the envisaged role, have been frequently incriminated of pressurizing DCs
for opening trade, and for being responsible for economic crises most of the DCs face today.
Terms like “global governance” and “global economy” have gained currency within the neoliberal
diktat. Yet calls for trade liberalizati on, repeatedly stressed by IMF, World Bank and
WTO pundits, are premised on a contentious claim that reducing trade barriers in poor countries
has beneficial effects on growth and poverty reduction.
The IMF and the World Bank are often been cr iticized for causing the East Asian Financial
Crises by pressurizing the countries to open local financial markets to large inflows of portfolio
investment that flowed out rapidly, causing in its wake the currency collapses and financial
panics that threw the whole region in to a downward spiral. The human costs of such financial
crises are painfully evident. The Asian financial crises alone threw tens of millions of people in
to poverty44.
Pakistan’s former foreign and finance minister, Sartaj Aziz, in a televised talk (Business Plus:
facing (WTO, Oct 2004) also endorsed the pressure tactics of multilateral institutions.
Case study: Ghana faces IMFArm-twisting
After the IMF intensified retaliatory measures on Ghana for failing to comply with its
requirements, the country appears eager to appease the Washington institution, probably at a
high social cost. Having been portrayed as an adjustment success story in the 1990s, Ghana was
denied renewal of IMF financial assistance at the end of 2002, after failing to implement
conditions in its Poverty Reduction and Growth Facility (PRGF) agreement. Now to get the
funding renewed, the government is implementing conditions, for which Ghanaian people will
have to pay a high price.
Challenging Power Imbalances
25
Whereas the Government of Ghana seemed reluctant to implement conditions that included
increasing petrol prices and the Value-Added Tax (VAT) rate, petrol prices in Ghana almost
doubled overnight when the government announced it could not finance the debt of national
refinery and had to end fuel subsidies.While acknowledging the need to raise national revenue to
avoid excessive dependency on external aid, a Ghanaian NGO, ISODEC, urged the government
to consider alternative measures such as improving tax collection. ISODEC warned that a VAT
increase could lead Ghanaian to streets in IMF riots45.
An eyewitness of East Asian Economic crises, the former Malaysian prime minister, Mahatir bin
Mohammad, while underscoring the need for an alternate monetary institution, independent of
the IMF, said, “We are not cows to be led by th e nose, we are not the children led by the hands.
This is a journey we must make with our own two feet. We have to have the Asian Monetary
Fund (AMF) simply because the IMF is not as independent as it should be. As we know there are
other hands which are controlling it and those hands having other ideas contrary to the prosperity
of the East Asia46.”
The tutelage of BWIs is most of the time unfounded. For example, the World Bank has estimated
that the annual welfare gains from eliminating barriers to merchandise trade range from US$ 250
billion to US$ 620 billion. Many poorer countries have seen little of the expansion in world
trade. Whereas the DCs share in world population grew during 1970-91, their share of world
trade, according to UNDP-OUP, 1998, scar cely changed. WTO, IMF and WB are
commandeered for arm-twisting, to ensure hegemony of capitalism.47
WTO-BWIs alliance moves towards greater cohesion
This concern of L/DCs carries weight, for the WTO-BWIs alliance continues working closely.
On December 17, 2002, the WTO Working Group on Tr ade, Debt and Finance met in Geneva to
discuss coherence between the multilateral trading system and international financial institutions
such as WB and IMF. The participants considered, on this occasion, a background paper entitled,
“Towards Greater Coherence”, presented by the Secretariat. The paper outlined the prospective
areas of coherence, including investment, government procurement, competition policy, good
governance and business environment48. This is an explicit example of the fact that BWIs have
become the implementing arms ofWTO, which are used for arm-twisting of L/DCs.
WTO –BWIs and international institutions alliance keeps mounting pressure on L/DCs:
through new issues
The ultra-liberal Cato Institute in Washington trumpets the same clarion call as NGOs, rejecting
any extension of the WTO agenda to other issues. It advised the WTO to refocus on its core
competence (reduction of trade barriers at borders)49.
Unfortunately, WTO and other multilateral institu tions continue to add new issues on agenda,
which have killing effect on already fatigued DCs. Some examples of such initiatives are given
below.
The Asian Development Bank[ADB] Factor:
The DCs were forced to abolish their subsidies and to reduce their tariffs for cheap exports from
the North not only through a flawed Agreement on Agriculture, but also through arm-twisting
and through international financial institutions (as was happening in Pakistan under ADB’s
Agricultural Structural Reform Loan)50.
Power-Cracy in WTO
Challenging Power Imbalances
26
In this context ZNet comments that the “ADB in adopting a policy of governance in October
1995, claims to be the 1st international financial institution to have a board–approved official
position on ‘good governance’.
‘Good governance’ is a serious contender for a prize for the best example of Orwellion
doublespeak. It has nothing to with democratization, humanitarianism or support for the people’s
right. It is euphemism for a limited state designed to service the market and undermine popular
mandates. The term is explicitly linked to the kinds of structural adjustment measures promoted
by the ADB-measures for which there is little popular support, and which are rapidly increasing
inequalities. This holds true in case of ADB prescription for Pakistan51.
Burden of non- trade issues
Gender & Trade
A new UN inter-agency task-force on gender and tr ade held its first meeting from July 17-18,
2003 in Geneva, Switzerland. Created in February 2003 by the Inter-Agency Network on
Women, Gender Equality and Trade reportedly aimed at sensitizing policy-makers to gender and
trade issues, to promote gender perspective in national trade and international policy, global
economic processes, and trade agreements.
Guidelines on Human Rights
On August 13, 2003, the UN Sub-Commission for the Promotion and Protection of Human
Rights adopted a set guidelines for business worldwide, to ensure compliance with international
human rights. It includes principle of equity and non-discrimination, rejection of hard labor, and
respect for environment. Whereas it calls for monitoring and verification of TNCs in this regard,
these norms should also apply to private business52.
Notwithstanding the importance and need for gender integration in development, and promotion
and reverence of human rights, linking these issues with trade, especially in the context of
L/DCs, simply implies impacting trade flow from these L/DCs.
If half of these models of globalization, such as the one being imposed by BWIs through their
policies, the world today would be much more open, free and balanced place, where the disparity
between the developed and the underdeveloped, and between the rich and the poor would be
much less. In reality the divide has never been more pronounced than today. The more
institutions are developed to facilitate the free trade flows become distorted and politically
maneuvered.
As economist, Ha-Joon at the University of Cambridge, points out the industrialized countries’
push for accords like the planned WTO investment agreement to try and prevent the DCs
employing the very economic strategies that served the industrialized countries themselves well
in the past. In his book “Kicking away the Ladder”, Chang elaborates this thesis in a very
instructive review of economic history: “From the US to the industrialized countries of Europe,
to Japan, Korea and Singapore, successful economic development has always been based on a
strategic policy involving restrictions on investment and preferential treatment for domestic
companies. But this is precisely, what DCs are denied by an investment agreement based on
WTO standards and by otherWTO, IMF andWB requirements35.”
As Pakistan has been forced by IMF to reduce subsidies under its Structural Adjustment Program
(SAP), the country finds itself trading with the biggest trade manipulators – EU and US.
Pakistan’s inability to diversify its trading partners and failure to increase the variety and quality
Challenging Power Imbalances
27
of its exportable products has brought it to a stage, where it is at the mercy of the policy whims
of the two powers. Time and again imports have been restricted by these powers, as they impose
expensive standards and unfair quotas, which tend to create bottlenecks for our exporters25. This
role of BWIs as implementing arms of WTO has been discussed at length in Action Aid
Pakistan’s publication, “Impact of trade liberalization on Pakistan’s agriculture53.”
IMF arm-twisting in Argentina
When the universal result is low resource export prices and increased poverty, the
IMF/WB/GATT/NAFTA/WTO/MAI/military colossus can hardly claim their intent was to
develop those countries. Just as the proto-mercantilist cities of the Middle Ages controlled the
countryside’s production and trade to lay claim to their wealth, and mercantilist and neomercantilist
empires claimed the wealth of their colonies (their countryside), the DCs today are
the dependent countryside, producing cheap resources of emerging corporate mercantilists.
SAP (demanded by the IMF) can be best summed up in four words: earn more, spend less. While
such advice may be valid if given to only a few countries at once, dozens of debtors are now
attempting to earn more by exporting whatever they have at hand; particularly natural resources,
including minerals, crops, timber, meat and fish. With so many jostling for a share of limited
world markets, prices plummet, forcing governments to seek ever higher level of exports in
desperate attempt to keep their hard currency revenue stable. The “export-led growth model” on
which the Fund and the WB insist is a purely extractive one, involving more the “mining” than
the management – much less conservation of resources.
The IMF has repeatedly stated that it is not, and never intended to be, a development institution.
“Neither the WB, the fundamental goal of creating markets for the industrialized countries’
exports was written in to [their] Charter, 139 that means that debt traps and mercantilist
dependency were the goal all along54.”
A clear example of this strategy of BWIs is the Argentina. Since collapse of its economy few
years back, IMF was blamed for its tutelage that made Argentina default. Since then, tension
between Argentina and the IMF has mounted. The country president lashed out at the global
lender for trying to force economic change. President Nestor Kirchner, of Argentina, said he
would not bow to IMF arm-twisting, especially over debt restructuring talks with private
creditors, adding, “Just let us get to work….just as we are recovering, they want to drown us. But
we won’t let them.” Currently at stake is a 330 million US$ IMF loan tranche to Argentina,
which first needs to be approved by the IMF 24-member Executive Board. Delays of that
payment, on part of IMF, would mean setbacks too for loans from other multilateral institutions
like WB, which is considering lending Argentina US$ 5 billion over 4-1/2 years for development
and infrastructure projects55.
The corporate influence: A hidden hand in arm-twisting
Twenty-nine of the world’s largest economic en tities are Trans-National Corporations (TNCs),
according to UNCTAD (2002) list that ranks both countries and TNCs on the basis of valueadded.
One of the 200 TNCs, with the highest assets abroad in 2000, Exxon is the biggest in
terms of value added (US$63 billion). It ranks 45th on the list, making it comparable in economic
size to the economies of Chile and Pakistan.(Pakistan had value added economy of US$62
billion). The size of large TNCs, usually measured by sales, is some times compared to that of
national economies as an indicator of corporate influence over the world economy.
Power-Cracy in WTO
Challenging Power Imbalances
28
The value-added activities of the 100 largest TNCs have grown faster than those of the countries
in recent years, accounting for 4.3% of the world GDP in 2000, compared with 3.5% in 1990. It
suggests that relative importance of TNCs in the global economy is on the rise56.
The concentration ratio of the largest 100 TNCs in the world’s GDP, 1990 & 2000
(percentage)
No. of TNCs 1990 2000
Top 10 TNCs 1 0.9
Top 20 TNCs 1.8 1.5
Top 30 TNCs 2.9 2.8
Top 50TNCs 2.9 2.8
Top 100 TNCs 3.5 4.3
Source: UNCTAD, Database on largest TNCS
A case study of unfair restrictions imposed on Pakistan
The name of the game is harassment
EU imposed anti-dumping duty of 13.1% on imports of bed linen from Pakistan, which was
notified on March 5, 2004. It became effective on March 17, 2004. The EU move is the
continuation of the now much familiar strategy of Brussels to discriminate against DC exporters,
particularly those from the South Asia.
Pakistan is the EU's largest supplier in volume, and had supplied 98,000 tons in 2002 under H.S.
number 6302 (bed linen) and has about 25% share of the EU market. From January to November
2002 alone, Pakistan had exported US$312 million worth bed linen to EU, showing an increase
of 27% over the same period in the preceding year.
The name of the game is harassment, which must go on by one means or the other, and the
dumping being the easier tool, whose initiations bring about declines in import share of the
targeted countries.
Earlier, the EU have imposed anti-dumping duties on bed linen from Pakistan in 1997 and had to
withdraw in January 2002, after conducting its own investigations. The declines in imports were
estimated at over 20% in case of cotton fabrics during 1994-98. Hence, the question arises, as to
who is dumping whom? To be precise, the anti-dumping drama is the best way to disguise the
policy of protectionism, and also force the DCs to open their markets to the textile products of
the European firms57, which is yet another example of arm-twisting using the instruments of
trade barriers.
Yet another example of using trade barriers alternat ing with political bribe, a strange cocktail of
politics and trade, in the backdrop of EU pledge to grant special trade concessions – market
access -- following Pakistan’s decision to join the so-called war against terrorism, is the EU new
trade regime on rice.
Challenging Power Imbalances
29
Change in EU’s trade regime on rice and its impact on Pakistan’s rice exports
Issue: In August 2003, the European Union’s Council mandated the EU Commission (EC) to
open negotiations with its trading partners to restrict the import of rice in to the markets of EU
member countries. At that time, it was understood that EC would try to limit the flow of rice
import in to EU member countries by imposing Tariff Rate Quota (TRQs).
EU’s regime on rice was accordingly modified on the approval of Cereal Experts Committee
(CEC) of the EU in a meeting held in Brussels on November 20, 2003. The proposal of
withdrawal of abatement of duty concession was presented by EU’s Farm Commissioner Franz
Fischer. Resultantly, abatement concession of Euro 250 per ton on the import of Pakistan’s Super
Basmati, was withdrawn from January 2004, maintaining that Pakistan’s Super Basmati was not
a pure Basmati. Consequently Pakistan’s export of Super Basmati was subject to total import
duty of 264 Euro per ton. The abatement concession will, however, continue on the import of
“Kernel’ Basmati and “Basmati 370” from Pakistan which do not have significant share in
exports.
Why the abatement was allowed earlier: The purpose was to help EU millers polish the brown
rice and thus compete with white Basmati in the market.
The Impact: The Super Basmati is the core Pakistani variety exported to EU, and according to
an estimate Pakistan used to export 50-60 thousand tons of husked Basmati rice annually under
EU abatement scheme. Consequent upon withdrawal of abatement, bound tariff rate of 264 Euro
per ton as against 14 Euro under abatement concession would be applicable to Pakistani husked
Super Basmati, making it uncompetitive. Since 80% export to EU is of Pakistan’s Super
Basmati, technically Pakistan has been practically ousted from the European rice market.
The reaction:
a. Government of Pakistan: Pakistan’s Commerce Minister, Humayun Akhtar Khan,
assured Pakistani rice exporters that Pakistan would oppose any amendment in the rice
import regime that would impact Pakistan’s export of Super Basmati to EU member
countries. During his visit to Brussels, after withdrawal of duty abatement, he asked EC
trade Commissioner Pascal Lamy to seek Pakistan’s opinion before making any changes
in the rice import regime. Reportedly EU’s trade Commissioner assured his counterpart
that EC would further consult Pakistan in the matter before any final decision was taken.
b. Private Sector: The Rice exporters Association of Pakistan (REAP) in its formal
reaction said that the move of change in EU regime on rice would affect Pakistan’s
exports to EU, and asked for status quo unless Pakistan was adequately compensated.
REAP deemed the proposal a violation of the Code approved by the Grain & Food Trade
Association (GAFTA) of UK, at a meeting where it declared Pakistani Basmati variety as pure
rice. They were of the view that Pakistan would not be in a position to receive substantial quota
under TRQs system that is worked out on the basis of previous export performance, which in
Pakistan’s case stood at 20-30% only.
Power-Cracy in WTO
Challenging Power Imbalances
30
WTO Law: Under GATT Article XXVIII, it was obligatory on part of EU to go for
negotiations with the WTO member countries, expected to be affected, before making any
change in rice import regime.
The Outcome: On bilateral basis, both EU and Pakistan continued interacting formally and
informally, and through exchange of letters have agreed on transitional arrangement through
which Pakistan’s Super Basmati would resume from the beginning of EU fiscal year –
September 1, 2004, as the latter has decided to re-include Super Basmati variety in its duty
rebatement list with a condition of DNA test till June 30, 2005. By that time both countries
would agree to a definitive arrangement. The EC has asked Pakistan to protect its Basmati
rice through Geographical Indications (GIs) as well. Further, the EC has indicated that even
during transitional arrangement, if the imports from Pakistan of Basmati rice leads to
disturbance in the EU market, they will consult Pakistan and may, in eventuality, impose
normal duty on Basmati. On one hand, it tantamount to creation of uncertainty in trade in
rice, and arm-twisting on the other.
Likely Implications: The imposition of DNA test itself is an explicit example of creating
bottlenecks and unjustifiable trade barriers for rice exporters of Pakistan, who may face
difficulties in securing necessary certification, and in case of dispute Pakistan’s export of
Basmati may be affected adversely in the long run. Keeping in view the fact that small
farmers of Pakistan eke out their existence from agriculture, such trading practices cannot
help improve welfare of the poor as suggested by the World Bank, rather would further
marginalize them.
Whereas temporarily the issue has been resolved between Pakistan and E.U, such tactical
move inflicts at times irreversible damage to countries like Pakistan, which have little
economic resilience to adjust to such shocks.
Pakistan’s Commitments with the BWIs and their impact:
The Structural Adjustment Programs (SAPs)
Dasgupta (1998), while linking the discussion on the global trade regime with the structural
adjustment, concludes that the WB, IMF and the WTO – the Holy Trinity of the contemporary
world economy – share a common economic philosophy on trade issues. They project the image
of world trade as one where prices are determined by forces of demand and supply, and these can
be taken as the objective ones for deciding what to and what not to produce and export.
World Trade is far from free and competitive, and the prices ruling in the world market are tradedistorting,
and therefore, cannot be taken as bases for deciding on goods in which a country
enjoys a comparative advantage. Distortions are principally due to two factors: massive subsidies
and protection given by the rich countries to their own production and exports, and the fact that a
large proportion of what passes as international trade is intra-company transfer by MNCs at
book-keeping prices that have no bearing on demand and supply for the goods in question14. The
analysis guides us to the fact that the alliance forged by multilateral institutions only advances
the agenda of MNCs owned by the industrialized counties, and is in reality an unholy alliance.
The SAP came in to its own in 1982 debt crisis when Mexico declared it was going to default on
its debt payments. The IMF forced it to accept a program that would give supreme importance to
debt payment over other national expenditure, ensuring Mexico diverted its energies towards
exports and the foreign currency it would earn from them - which could be then channeled back
to its creditors, the banks.
Challenging Power Imbalances
31
SAPs then became the common condition for developing countries, like Pakistan, requiring loans
from IMF and World Bank. To cater to SAPs re quirements, countries had to devalue their
currency to make their exports cheaper and more attractive, and must convert much-needed
domestic consumption to produce to cater to the needs of the foreign markets.
Besides the commitments under SAPs 1993, 1994 and 1995, Pakistan government also
committed itself to further liberalize the trade regime in compliance with IMF/World Bank
Policy Framework Paper of December 1998. Consistent with this component, on March 31, 1999
the maximum import tariff was reduced from 45 to 35%. Pakistan government has also
committed conditionally to reduce further the maximum import tariff to 25-30% by June 2000
(Report of US Embassy Pakistan, on Foreign Trade Barriers). In fact Pakistan has already
brought the applied tariff to 25%, and it is likely that tariff be further reduced in couple of years.
Declining agricultural productivity, growing consumption of agricultural products as a result of
policies pursued under SAP prescription can potentially make Pakistan a dumping yard for
produce from other countries. This in turn can thus set a vicious circle of poverty in Pakistan.
According to Economic Survey 1999-2000, Finance Division, Government of Pakistan,
“declining economic growth, persistence of several macroeconomic imbalances, lack of social
safety nets, and poor governance in 1990s have had adverse effects on the country’s poor and
most vulnerable. The incidence of Calorie–based poverty has increased from 17.3% in 1987-88
to 22.4% in 1998-99. In other words, the number of poor people who cannot meet their daily
minimum nutritional requirements and fall below the poverty-line, increased from 17.6 million in
1987-88 to 44 million in 1998-99. It is well known that entrenched poverty and rising income
inequality can themselves be impediments to growth.” What the survey couldn’t reveal was the
implicit reality that it was the tutelage of IMF and World Bank which led to those
macroeconomic imbalances and poor social safety net. A recent study on stat e of food security in
Pakistan by the United Nations World Food Program (WFP) has explicitly reported growing
poverty and hidden hunger, behind food insecurity in Pakistan.58 It amply suggests that the
reforms carried out under SAP, especially in th e area of agriculture, were counterproductive.
Pakistan and PGRF
To ensure immediate concessional lending under the so-called Poverty Reduction and Growth
Facilitation (PGRF) from the BWIs, the government as a precondition had to submit Poverty
Reduction Strategy Paper (PRSP). The military government in Pakistan prepared and submitted
interim PRSP-1 in November 2001, to qualify for concessional lending under the PGRF. The
PRSP-1 emphasized the twin objectives of rapid economic growth and poverty reduction. The
economic growth strategy outlined in the PRSP-1 was based on stabilization measures and
structural adjustment reforms, including debt management strategy, privatization of public
enterprises, withdrawal of price support and subsidies, construction of mega development
projects, especially new water storage projects, reforms in banking sectors, comprehensive
liberalization of economy to attract foreign investment, tax reforms, corporatization of
agriculture, etc*.
* Taking the poor for a ride: Critique of Pakistan’s PRSP
Pakistan, which is now implementing the 3rd yet renamed version of SAP, the PRGF, is
undergoing painful transition from a quasi-command to a market economy. Despite the lending
institutions prescriptions, more than 34% of the country’s population lives below the poverty
level, most of them in rural Sindh, Southern Punjab and most of the Balochistan.
Power-Cracy in WTO
Challenging Power Imbalances
32
Unemployment and underemployment are the most crucial problems faced by the Pakistani
youth. Previously, public sector jobs were considered more secure, and individuals from ordinary
backgrounds could find jobs in the public sector. The WB and IMF policies, especially during
the past decade, has downsized public sector organizations, wiping out hundreds of job
opportunities and making hundreds of public sector workers redundant. The present waive of
privatization in Pakistan has also heightened unemployment, as against PRGF prescriptions cited
by the IMF to bring in foreign investment to reduce poverty59.
The Impact: Rising Poverty
Donor-driven economic reforms may have spurred growth in the seven South Asian countries,
that are home to 22% of the world’s population, but they failed miserably to cut poverty levels
and increase employment, said the Human Development in South Asia 2003 a report released by
Mahbub-ul-Haq Development Centre, Islamabad, Pakistan. It adds that the region witnessed an
average growth rate of 5.5% in 1990-2001, but employment grew by a paltry average of 1.5%.
On an average 23.6% of the urban population and 31.6% of those in South Asia’s rural areas
remained below the poverty lines during 1995-2000. The report observed that though these
countries remained donor-driven in 90s, they blindly followed the donors’ requirements in a bid
to obtain loans60.
For 1987-88 to 1998-99, both the urban and rural sectors contributed to increase in aggregate
poverty in Pakistan. The quantitative loss to the urban population is notable. About 86% of the
aggregate increase in poverty was due to higher prevalence of poverty among the rural sector
(which accounted for about 68% of the total population). About 13% of this increase was due to
the higher urban poverty (as compared to urban sector population share of well above 30%) 41.
Trends in income inequality, real GDP growth and poverty in Pakistan
Period Household
Gini coefficient
% Real GDP Growth Head Count index
1979 0.373 5.5 30.68
1984-85 0.369 8.7 24.47
1987-88 0.348 6.4 17.32
1990-91 0.407 5.6 22.10
1992-93 0.410 2.3 22.40
1993-94 0.400 4.5 28.70
1996-97 0.400 1.9 29.80
1998-99 0.410 4.2 30.60
Source: Amjad & Kemal (1997) and economic Survey43
Challenging Power Imbalances
33
These facts about Pakistan’s social sector have been endorsed by a Division’s chief (Middle
Eastern Department) while reporting in an official information organ of the Fund, maintaining
that the average rate ,of unemployment, for the seven largest non-oil producing or diversified
economies (MENA 7), that includes Pakistan, rose from 12.7% in 1990 to 15% in 2000.
Unemployment Trends in MENA and Pakistan
Country 1990 2000
Algeria 19.8 29.9
Egypt 8.6 7.9
Iran, IR of 11.6 15.8
Jordan 16.8 13.7
Morocco 12.1 13.7
Pakistan 3.1 7.8
Tunisia 16.2 15.9
Average (MENA7) 12.7 15.0
Source: IMF/world Bank [F&D, March, 2003]
Moreover, according to the IMF underemployment (lack of adequate job opportunities for
workers) in the MENA remains pervasive. It adds that bleak job picture is one of the region’s
most urgent and destabilizing problems, fueling social tensions and migration, and making jobcreation
a top priority. It, however, insists that labor market surveys indicate that rising
unemployment has hit mostly first-time job seekers, particularly those with a secondary
education. According to Fund, this suggests that unemployment is predominantly the result not
of economic restructuring but, rather, of the countries’ inability to create jobs fast enough to
accommodate new entrants in to the labor force61. The argument, of shifting responsibility of
inability to national governments, is incredible, for these governments have done nothing but
accepted the reforms of the BWIs since early 90s.
SAPs/ PRGF, WTO and Pakistan :
Pakistan’s Commerce Minister, Humayun Akhtar Khan, was quoted as saying that presently
Pakistan was under the IMF conditional ties, and was bound to have low bands of custom duties
with minimum at 5% and highest at 25%. The minister clarified that the WTO did not lay down
any conditions on tariffs, and it was only because of IMF’s PRGF, which ends by September
next year, we have to keep the present duty structure.
The commerce minister said, “Once the PRGF comes to an end, we can fix any duty rate,
especially we are in an urgent need to allow import of capital goods at zero rated duty, which are
presently being imported at 5% 62.
Power-Cracy in WTO
Challenging Power Imbalances
34
WBAgreement with GoP on privatization of water
The WB has demanded Pakistan to privatize irrigation system, maintaining that the proposal
aims at ending the interference of the irrigation department and the Punjab Irrigation Authority
(PIDA) and eliminate corruption in them. The WB in this regard is providing Rs 60 billion for
the water sector to the Punjab government, and is demanding to increase water charges 63. Since
water is an important input in agriculture, higher water tariffs can further increase the cost of
production and make agricultural production inefficient and less competitive. Resultantly,
farmers will be displaced.
Reforms inWater & Power Sectors
Privatization of irrigation system and the WTO General Agreement on Trade in Services:
BWIs through their policy prescription are securing implementation of WTO General Agreement
on Trade in Services (GATS). Th e latter covers basic services like water (drinking water and
sanitation comes under the environment services, health and education). In fact, there is no legal
requirement or compulsion under the WTO and its current round of services negotiations for
DCs to commit themselves in GATS to liberalize their service sectors.
Since the services are basic necessities, and not things that can be left to the market, it is the duty
of the national governments to ensure that even the poorest have access to such services, whether
or not they can afford to pay. Yet water supply in DCs, like Pakistan, appears to be a major target
for European companies in the current negotiation inWTO64.
Martin Khor of Third World Network (TWN) argue s that in addition to the contribution to GDP
and jobs, the services sector needs, such as health care and water, had a major effect on financial
stability and the balance of payments. He cautioned that the DCs are facing some serious
problems relating to the GATS and the current negotiations. The NGOs community, he said, was
concerned over the combination of privatization (often under the local conditionality), and
liberalization was leading to higher prices for essential services, thus hampering the people’s
access to water, electricity, health care etc65.
In view of the above, IMF and WB have been advised by the former UK cabinet minister, that
they should recognize that trade liberalization is the responsibility of the WTO, where it can be
considered in the overall context of achieving poverty reduction, and that it is inappropriate to
include trade liberalization as part of loan agreement. Currently, conditions are placed by BWIs
loans, forcing countries in to rapid trade liberalization, with little to regard to the impact on the
poor66.
Reforms inWater & Power Development Authority (WAPDA)
Despite the fact that over last one-and-a half decade BWIs reforms could not help Pakistan in
improving the welfare of a common man, pressure for reforms continue to mount. IMF released
Pakistan-specific Country Report on July 21, 2004. The report was based on the 8th review under
the 3-year PRGF arrangement.
It disclosed that the government was working with the WB on a medium-term adjustment
program to reduce the fiscal burden imposed by the power sector and to achieve expanded
access, increased reliability, and lower costs.
Urgent short actions include the completion of a transparent tariff settings mechanism and
subsidy policy, and development of structural recovery plans for the individual enterprises67.
Fact remains that electric tariff in Pakistan are very high, compared to other countries such as
Challenging Power Imbalances
35
India, that raises the cost of production both in farm and non-farm sectors. Pressurizing Pakistan
to further raise the electric tariff shall imply adding more burden on farm and industrial sectors.
Realizing the public sentiment the report admits poor performance on the basis of social
indicators, and maintains that Pakistani authorities are trying to balance these pressures with the
need to raise social spending, and continue to reduce Pakistan’s still substantial debt burden. It is
now a common knowledge that SAPs, and for that matter PRGF, aimed at debt servicing through
cuts on social spending that has adversely affected the welfare, especially access to health,
education and food in Pakistan.
Governance in Pakistan and multilateral institutions
In Pakistan political process could not sustain for untold reasons, and non-political set-ups were
encouraged by external forces to advance their trade, economics, and political agenda. In this
backdrop, financial managers were installed in key public sectors, which were supported to make
their way to power corridors, and at times they were taken to the top.
Moeen Qureshi, Pakistan’s former interim prime minister, Dr. Mabub-ul-Haq, late finance
minister, and Dr Hafeez Pasha, former,chairman Planning Commission/minister were employees
of BWIs/multilateral institutions. The sitting privatization minister has worked for the WB for 18
long years. Prime Minister Shaukat Aziz, who has also remained finance minister,has been a
career employee of a multinational bank. It is logical to understand how the multilateral
institutions penetrate in to the national decision-making, and affect the public sector policies on
sensitive issues like investment, privatization etc. It creates doubts and suspicion in the mind of
common man, who seems to distrust the leadership, installed in undemocratic way, and views it
tantamount to neo-colonialism.
Unilateral trade liberalization and its impact on the poor.
The Annual Human Development report released in July 2003 maintains that b boom bubble of
1990s leaves 50 nations poorer than they were ten years earlier, jeopardizing pledges by world
leaders to cut poverty by half by 2015 – The Millennium Development Goal. The report argued
for a broader view of how to lift the least developed nations out of extreme poverty, rather than
the Washington Consensus of the WB and IMF that included budget discipline, deregulation,
liberalization of trade and finance. It contained a single set of policies for all countries could do
more harm than good, stating, “The IMF andWB should no longer set these kinds of ceilings68.”
A new WB study has challenged one of the bank’s most cherished ideas about the virtues of free
trade and investment. “Globalization,” the study argues, “generally widens the income gap
between the world’s poorest people and the richest.”
The study, based on a review of national surveys of household income in 88DCs, concludes that
trade and investment liberalization promotes income equality only among middle-income and
rich countries. Among poor countries, those with per capita income of less than US$5,000 a year
(that includes Pakistan), it simply increases income inequality. At very low income level, it is the
rich who benefits from openness, said the study, and concluded by Branko Milanovic, the bank’s
top economic researcher on matters involving poverty. The bank, however, for the last two
decades has vigorously advocated trade liberalization, often making it a condition for loans to
poor countries and the bank’s commitment to freer trade hasn’t wavered69.
As we have seen in foregoing discussion that industrialized countries, BWIs and arm-twisting in
WTO is compelling the DCs to open their markets unilaterally, without affording reciprocal
access to them. As a result, poverty in many countries, including Pakistan, is on the rise .
Power-Cracy in WTO
Challenging Power Imbalances
36
An Action Aid Pakistan’s study reports that according to latest WB report on Poverty in
Pakistan, the poverty has steadily increased in Pakistan, whereas between 1984-85 and 1987-88
substantial poverty reduction took place, as a result of strong growth performance, which led to
sizeable increase in mean consumption, along with reduced inequality in rural area. From 1987-
88 to 1990-91, lower growth rates combined with slight worsening of inequality, led to smaller
gains in poverty reduction. This pattern was carried into 1990s, when large variation in growth
rate led to fluctuations in consumption poverty. On balance, the incidence, depth and severity of
overall poverty remained almost unchanged between beginning and end of decade (1990-91 and
1998-99). Disaggregating by region, while urban poverty fell between 1990-91 and 1998-99,
rural poverty held at 36%, widening the rural-urban gap. This is of particular concern because
71% of Pakistan’s population lives in rural areas. Since agriculture is major income source in
rural Pakistan, it was evident that structural reforms in agriculture sector did not contribute
towards the envisaged goals, rather these helped in widening the social gap, which was a critical
long-term, constraint on sustainable development and poverty elevation in Pakistan53.
Challenging Power Imbalances
37
Conclusions:
The World Trade Organization today faces legitimacy crisis because of multiple factors,
including inter alia constructive ambiguity of WTO agreements, Lack of transparency in WTO
negotiation process coupled with tactics like intimidation, bribery and arm-twisting being used
by the trade superpowers because of their trade and economic weight
The so-called chair-driven consensus based decision-making, green room operation, miniministerials,
threats, bribery and arm-twisting have become a part of WTO process. Especially
small states have been excluded from the process, because of smaller stakes in their problems of
trade superpowers and limited problem-solving capacity of these countries. Multilateral
institutions, especially Bretton Woods and Asian Development Ba nk, through their structural
adjustment programs have paved the way for unilateral trade liberalization and for arm-twisting
of fat cats in WTO. In fact, the institutions have become implementing arms of WTO. Whereas
rising poverty and unemployment levels provide evidence that BWIs prescription have failed to
improve the lot of the poor in the developing countries, WTO reiterates its resolve for working
closely with the BWIs and other financial institutions like ADB.
In this backdrop, in Pakistan, which has implemented Structural Adjustment Programs since
early 90s, poverty is increasing, and since September 11, Pakistan has succumbed to continued
arm-twisting. Indulgence of multilateral institutions in issues related to governance to influence
national policies had led to distrust and confidence in the system that was not a good omen for
socio-economic stability of the country. and political
Since September 11, Pakistan has experienced all tactics, including threats, bribery and pressure
tactics. The so-called strategic weight, being front-line state in the so-called alliance against
terrorism, has not helped Pakistan in gaining preferential access to the markets of industrialized
countries .On the other hand, the performance of agriculture sector, major employer contributing
up to 25% to national GDP, has manifested signs of deterioration since mid 90s. It can further
marginalize the poorest strata of the society, especially landless and small farmers, women and
the children, with long-term socio-economic and political implications.
Pakistan’s position in G-20 alliance too is weak and continued arm-twisting on part of the
developed countries, especially the US and EU, which has impacted national sovereignty, could
lead to socio-economic and political instability in the country.
There is urgent need that Pakistan realizes attending risk, and to avoid the possible onslaught,
gets proactively engaged with G-20 in reforming WTO system, and embarks upon an informed
policy of disengaging BWIs, especially IMF, and of managing change at the domestic front.
Political stability, development of material infrastructure and orientation to standards economy
through tech-based development can help Pakistan develop economic resilience to counter armtwisting,
and to better the lives of its people. Regional integration, especially at the level of
SAFTA, ASEAN and ECO, and participatory cap acity-building initiatives at home involving key
stakeholders from non-governmental, public and private sectors, can help government face armtwisting
squarely.
Power-Cracy in WTO
Challenging Power Imbalances
38
Recommendations:
The L/DCs in general and countries in South in particular should strive for building their
negotiating capacities on complex issues, related to negotiations inWTO.
They should also avail technical assistance in enhancing their negotiating capacity,
provided byWTO and United Nations system.
Efforts need to be made to build sustainable coalitions in WTO, involving real
stakeholders.
Problem-solving agenda needs to be research-based, and efforts should be made to bring
in stake of the major players by developing coalitions among the L/DCs, as trade politics
is governed by tangible economic interests.
National policies should be directed in a way that role of BWIs in influencing state
sovereignty is minimized. Open discussion in the Parliament shall provide government
some leverage to negotiate things more effectively.
Proactive engagement in good governance, social compliance, environment friendly
policies and promotion of standards economy can help protect countries from the
onslaught of arm-twisting.
Before entering in to FTAs, stocktaking should be done at home, as without material
infrastructure, political stability and political will to manage change, these arrangements
are not likely to benefit L/DCs.
Participatory planning and development involving all stakeholders, including NGOs,
GOs, Parliament and private sector shall help national governments take informed
decisions. This shall help mobilize political support both at national and international
levels.
Lastly, for integration of economies at international level, starting point is integration at
regional level. SAFTA, ASEAN and ECO are an opportunity to trade as well as develop
alternate fora to cope with the fallouts of trade liberalization at global level.
The WTO needs to offer some level of protection through its rules to L/DCs against
pressures on multilateral and bilateral levels, because of existing power imbalance.
The WTO rules are to be reformed to make the negotiating process more transparent and
inclusive, by resorting to voting rather than so-called consensus building.
Distributive justice needs to be ensured by WTO, if trade has to serve the common man.
Development dimension in trade needs to be integrated in this context and with the view
that development and peace are mutually dependent and reinforcing.
Green room and mini-ministerial business needs to be banned altogether.
Development cooperation should provide trade-related capacity building support to help
DCs identify their trade interests and incorporate them more fully in multi and bilateral
negotiations.
The WTO should sharply focus on its core mandate of trade-liberalization with built-in
agenda of Special and differential Treatment for DCs, and should not indulge in other
issues, which are not directly related to the trade. It is because of these peripheral issues
that industrialized countries exploit the DCs and make them yield to their stance.
WTO needs to revisit its policy of working closely with BWIs, and BWIs to restrict to
their respective mandate.
Finally, an attitudinal shift is required from industrialized countries in general and the US
and EU in particular, with regard to thei r attitude towards countries in the South, if
multilateral trading system underWTO is to sustain.
Challenging Power Imbalances
39
References and Bibliography
1. Short, Clare (UK Secretary of State) 2001, address at World Trade organization Symposium
in Seattle.
2. Dasgupta, Biplab 1998. Structural adjustment, global trade and the new political economy of
development, Vistaar publications New Delhi.
3 Environment Observatory, 2002.Arm-twisting the world over food rights, July 10.
(http:/www.environment observatory.org/).
4. Power Politics inWTO
5. Kwa Ailneen, 2003, Power Politics in the WTO: Focus on the Global South, CUSR,
Chulalongkorn, and Bangkok 10330, Thailand.
6. Summary: The Cunning Bully-EU Bribery and Arm Twisting at WTO, Corporate Europe
Observatory (CEO) (http//www.corporateeurope.org/cunningbulley/CunningBullySummary.pdf.)
7. Ambassador Nathan Irumba, Mission of Uganda and Representative of the LDCs at theWTO.
8. Jawara Fatouma, The Cunning Bully-EU Bribery and arm twisting at WTO
(http//www.corporateeurope.org/cunning bulley/CunningBullySummary.pdf.)
9. Jawara Fatouma and Kwa Aileen, Behind the Scenes at WTO: The Real World of
International Negotiations ZED Books (http/www.eubookshop.com/)
10. BRIDGES, 2003.Civil Society Groups criticize monitoring process…, ICSTD Trade Digest,
Vol.7, # 27, July, 28. (http:/www.ictsd.org/weekly/).
11. Press briefing, Seattle, 2 December, 1999.
12. .Arun Jaitley 2003, Quoted in Trade, globalization & Development, Vol.1, #1, 2004.
13. Thurber, David, 2000.The Associated press, Feb.15. (http:/seattlepi.nwsource.com/business/wto).
14. Das, Bhagirath Lal, ‘Strengthening De veloping Countries in the WTO, Trade and
Development Series No.
15. The Guardian, 2003. I was wrong, June 24, from George Monbiot’s book: The age of
Consent: A manifesto for a new world Order, Flamingo ( http://www.monbiot.com).
16. Wieczorek-Zeul Heidemarie,2003.On the road to Cancun-taking the development round
seriously, Development & Cooperation(D&C) Vol. 30#8/9.
17. Madelly, John, 2002. The International Development Magazine ‘Developments’ issue 9,1st
quarter.
18. Suri Sanjay, 2004.WTO-Cancun: Call to end arm twisting, IPS (http//www.ipsnews.net/)
19. Kakande, J and Mukasa, H, 2003. Diplomat nearly axed over position on U.S.A., New
Vision, and Kampala.
20. Mitta Anuradha, 2001.The Doha report, Nov.11, 2001(http//www.foodfirst.org/)
(http://www.csmonitor.com/2003/
21. JOB (00)/2551 26 April 2001, ‘General Council
22. Press briefing, Seattle, 2 December, 1999.
23. BRIDGES, 2003.The Cotton Initiative, ICTSD, Issue 2, Sept.11. (http://w.w.w.ictsd.org )
24. BRIDGES, 2003.The Cotton Initiative, ICTSD, Issue 5, Sept.14. (http://w.w.w.ictsd.org
25. Agence France Press/Reuters/Sri Lanka Daily News, 2001.U.S. officials slam Sri Lanka ban
on GM food, May 10 (http://www.organicconsumers.org/organic/
26. IIASA, 2004.Sience and problem solving in multilateral talks: A we ak state problem,
Options, summer.
Power-Cracy in WTO
Challenging Power Imbalances
40
27. Action Aid international 2004.Divide and Rule: The EU and US response to developing
country alliances at theWTO
28. Watkins Kevin, 2003.The rich Wr eckers of the WTO Round, August 5.
(http://www.tradeobservatory.org/News/ )
29. Focus on Global South, 2004.Flawed July Framework must be rejected, July 27.
30. BRIDGES, 2003.WTO Members fail to make progress at Min-Ministerial, ICTSD Trade
News Digest, Vol.7, # 23, June 25. (http:/www.ictsd.org/weekly/).
31. WWG, 2004. Min-WTO meeting to be held in mid-may, April, 16.
(http:/groups.yahoo.com/group/wto_watchgroup/).
32. Washington Trade Daily, 2004.Pressure points for DDA/WWG, July12.
(http:/groups.yahoo.com/group/wto_watchgroup/).
33. Free trade & Globalization, 2001. (http:/www.globalissues.org/).
34. Denny, Charlotte, 2001.Developed world accused of bully-boy tactics at WTO, The
Guardian, Nov. 12. (http:/www.gl obalization.guardian.co.uk/).
35. Fuchs Peter, 2003.Development & Cooperation (D&C), Vol.30#8/9.
36. The Daily Times, 2003.Pakistan to play a constructive role in WTO: Hafeez, Oct.39
(htttp:/www.dailytimes.com.pk/).
37. WWG, 2004.Cotton at forefront f G-90 agenda, July, 13.
(http:/groups.yahoo.com/group/wto_watchgroup/).
38. PROACT, 2004.Monthly News Letter, Vol.2, Issue 9, July.
39. The News, 2004. Text of trade policy, 2004- 5, July 23(http:/www.jang.com.pk/thenews/).
40. Business Recorder, 2003.Pakistan to meet terms before signing FTA, June 26
(http://brecorder.com/).
41 Azhar, Shan Ali, 2004.Revising the downward spiral, The News, June
6(http:/www.jang.com.pk/thenews/).
42. The New, 2003.U.S. rules out FTA with Paki stan, Oct.18 (http:/www.jang.com.pk/thenews/).
43.WTO, 2001.Introduction to the WTO, Trading in to the future, 2nd Edition
44. Ali, Syed Mohammad, 2003. Trade liberalization doesn’t bring prosperity, The Daily Times,
#0th Dec. (http://www.daily times.com.pk/)
45. Global Policy Forum 2003.Ghana faces IMF arm-twisting, April 1
(http://www.ghlobalpolicy.org/
46. The Nation, 2003. Mahatir backs regional trade bloc, monetary fund, August 5.
(http://www.nation.com.pk/daily/august-2003/5/business/
47. Globe, 2000.The myth and reality of globalization, Feb.
(http.//www.paksearch.com/globe/2000/Feb/)
48. BRIDGES, 2002.WTO Working Group on Trade, Debt and Finance discusses coherence
among IMF and the World Bank, ICSTD Trade Digest, Vol. 6# 43, Dec.20
(http:/www.ictsd.org/weekly/).
49. Leibeg Klaus, 2003.Quo vadis WTO? The Doha Development Round between wishful
thinking and political reality, D&C, Vol.30, #8/9
50. Suleri, Abid Qaiyum, TheWorld Trade Review (http:/www.worldtradereview.com).
51. Choudry, Aziz, 2002.The Asian Development bank- “governing” the Pacific? ZNet
Commentary(http:/www.arena.org.nz/).
52. BRIDGES, 2003.New human rights norms for TNCs, ICTSD Trade Digest, Vol.7, # 28,
August 21. (http:/www.ictsd.org/weekly/).
53. Pirzada, Wajid H.2004.Impact of trade liberalization on Pakistan’s Agriculture, Action Aid
Pakistan
54. Smith, J.W. economic Democracy: The political struggle of the 21st century and the world’s
wasted wealth2. The Institute for Economic democracy (http://www.slonet.org/
Challenging Power Imbalances
41
55. The News, 2003.Tension rise for Argen tina to stick to IMF pact, Dec.21
(http:/www.jang.com.pk/thenews/).
56. UNCTAD, 2002. Are Trans-nationals bigger than countries? TAD/NFR/PR47
(http:/rO.unctad.org/).
57. Bokhari Ashfaq, 2004.Bedlinen: The anti-dumping game, daily Dawn, March
29(http://www.dawn.com/2004/).
58. PirzadaWajid H. and Sahib Haq, 2004.State of food Insecurity in Pakistan, WFP Pakistan (in
press).
59. Nosheen Tallat, 2003.South Asia: The IMF and Pakistan, Asia Times, Nov.12
(http://www.atimes.com/atimes/south_Asia/).
60. PROACT, 2004.Poverty levels stunt South Asia ’s growth graph, Vol.2, Issue 6, April.
(http:/www.sawtee.org/).
61. Gardner Edward, 2003. Wanted: more Jobs, Finance & Development (F&D) March
(http:/www.imf.org/fandd).
62. The Dawn, 2003.Developed states may misuse non-tariff barriers: WTO regime, July 23
(http://www.dawn.com/).
63. WB wants farmers to control canals, The Daily Times, Nov.11, 2003,
http://www.dailytimes.com.pk/)
64. World Development movement: in whose service? The threat posed by the GATS to
economic development in the South, WDM: GATs campaign-in whose service
(http:/www.wdm.org.uk/).
65. Yen Goh Chien 2003.Developing Countries cau tioned against service liberalization
commitments in GATS/WTO: Report on th e UNCTAD Commission on Trade meeting in
Geneva 3-6 Feb.2, 2003.
66. Byers Stephen, 2003. I was wrong, free market trade policies hurt the poor: The IMF and
WB orthodoxy is increasing global poverty (http.//www.arena.org.nz/tradelib.htm).
67. The News, 2004. Pakistan’s macroeconomic performance strong: IMF, July
23(http:/www.jang.com.pk/thenews/).
68. The Reuters, 2003.Boom Bubble of 1990s leaves 50 nations poorer, July
8(http://www.tradeobservatory.org/ ).
69. Rebello Joseph, 2004. World Bank study contradict s its free trade income theory, Dow Jones
News wiresWashington, June, 16(http:/www.arena.org.nz/).
Power-Cracy in WTO
Challenging Power Imbalances