CHAPTER I

INTRODUCTION
The WTO was born out of negotiations, and everything the WTO does is the result of
negotiations. The bulk of the WTOs current work comes from the 198694 negotiations called
the Uruguay Round and earlier negotiations under the General Agreement on Tariffs and Trade
(GATT). The WTO is currently the host to new negotiations, under the Doha Development
Agenda launched in 2001.
Where countries have faced trade barriers and wanted them lowered, the negotiations have
helped to open MARKETS for trade. But the WTO is not just about opening markets, and in
some circumstances its rules support maintaining trade barriers for example, to protect
consumers or prevent the spread of disease.
At its heart are the WTO agreements, negotiated and signed by the bulk of the
worlds TRADING nations. These documents provide the legal ground rules for international
commerce. They are essentially contracts, binding governments to keep their trade policies
within agreed limits. Although negotiated and signed by governments, the goal is to help
producers of goods and services, exporters, and importers conduct their business, while allowing
governments to meet social and environmental objectives.
The systems overriding purpose is to help trade flow as freely as possible so long as there are no
undesirable side effects because this is important for economic development and well-being.
That partly means removing obstacles. It also means ensuring that individuals, companies and
governments know what the trade rules are around the world, and giving them the confidence
that there will be no sudden changes of policy. In other words, the rules have to be transparent
and predictable.
TRADE relations often involve conflicting interests. Agreements, including those painstakingly
negotiated in the WTO system, often need interpreting. The most harmonious way to settle these
differences is through some neutral procedure based on an agreed legal foundation. That is the
purpose behind the dispute settlement process written into the WTO agreements.

While the WTO is driven by its member states, it could not function without its Secretariat to
coordinate the activities. The Secretariat employs over 600 staff, and its experts lawyers,
economists, statisticians and communications experts assist WTO members on a daily basis to
ensure, among other things, that negotiations progress smoothly, and that the rules of
international TRADE are correctly applied and enforced.

TRADE negotiations
The WTO agreements cover goods, services and intellectual property. They spell out the
principles of liberalization, and the permitted exceptions. They include individual countries
commitments to lower customs tariffs and other TRADE barriers, and to open and keep open
services MARKETS. They set procedures for settling disputes. These agreements are not static;
they are renegotiated from time to time and new agreements can be added to the package. Many
are now being negotiated under the Doha Development Agenda, launched by
WTO TRADE ministers in Doha, Qatar, in November 2001.

Implementation and monitoring

WTO agreements require governments to make their trade policies transparent by notifying the
WTO about laws in force and measures adopted. Various WTO councils and committees seek to
ensure that these requirements are being followed and that WTO agreements are being properly
implemented. All WTO members must undergo periodic scrutiny of their trade policies and
practices, each review containing reports by the country concerned and the WTO Secretariat.

Dispute settlement
The WTOs procedure for resolving TRADE quarrels under the Dispute Settlement
Understanding is vital for enforcing the rules and therefore for ensuring that TRADE flows
smoothly. Countries bring disputes to the WTO if they think their rights under the agreements are
being infringed. Judgments by specially appointed independent experts are based on
interpretations of the agreements and individual countries commitments.

Building TRADE capacity

2

WTO agreements contain special provision for developing countries, including longer time
periods to implement agreements and commitments, measures to increase
their TRADING opportunities, and support to help them build their trade capacity, to handle
disputes and to implement technical standards. The WTO organizes hundreds of technical
cooperation missions to developing countries annually. It also holds numerous courses each year
in Geneva for government officials. Aid for Trade aims to help developing countries develop the
skills and infrastructure needed to expand their trade.

Outreach
The WTO maintains regular dialogue with non-governmental organizations, parliamentarians,
other international organizations, the media and the general public on various aspects of the
WTO and the ongoing Doha negotiations, with the aim of enhancing cooperation and increasing
awareness of WTO activities.
The WTO agreements are lengthy and complex because they are legal texts covering a wide
range of activities. But a number of simple, fundamental principles run throughout all of these
documents. These principles are the foundation of the multilateral Trading system.

Non-discrimination
A country should not discriminate between its TRADING partners and it should not
discriminate between its own and foreign products, services or nationals.

More open
Lowering TRADE barriers is one of the most obvious ways of encouraging TRADE; these
barriers include customs duties (or tariffs) and measures such as import bans or quotas that
restrict quantities selectively.

Predictable and transparent

Foreign companies, investors and governments should be confident that trade barriers should not
be raised arbitrarily. With stability and predictability, investment is encouraged, jobs are created
and consumers can fully enjoy the benefits of competition choice and lower prices.

More competitive
Discouraging unfair practices, such as export subsidies and dumping products at below cost to
gain MARKET share; the issues are complex, and the rules try to establish what is fair or unfair,
and how governments can respond, in particular by charging additional import duties calculated
to compensate for damage caused by unfair trade.

More beneficial for less developed countries

Giving them more time to adjust, greater flexibility and special privileges; over three-quarters of
WTO members are developing countries and countries in transition to MARKET economies. The
WTO agreements give them transition periods to adjust to the more unfamiliar and, perhaps,
difficult WTO provisions.

Protect the environment

The WTOs agreements permit members to take measures to protect not only the environment
but also public health, animal health and plant health. However, these measures must be applied
in the same way to both national and foreign businesses. In other words, members must not use
environmental protection measures as a means of disguising protectionist policies.

CHAPTER II
RECENT TRENDS OF WTO
Four recent trade trends

The first of the four trends highlighted in this report is the economic rise of developing and
emerging economies, which is explored in depth in Section B. Not co incidentally, the rising
living standards in developing regions since 2000 have gone hand-in-hand with rising shares in
world trade for these countries. By embracing a policy of trade openness and integration, these
countries now have access not just to the capital, technology, and resources needed to fuel rapid
industrialization, but to vast and expanding overseas demand for their surging exports.
The old patterns of world trade dominated by the advanced economies in the North are being
transformed as emerging economies in the South become new poles of trade expansion. Since
1990, South-South trade that is, trade among emerging and other developing economies has
grown from 8 per cent of world trade in 1990 to around 25 per cent today, and is projected to
reach 30 per cent by 2030. Trade corridors between Asia and North America, and between Asia
and Europe, now surpass the old transatlantic trade corridor, while trade corridors between Africa
and Asia or Latin America and Africa are growing in importance. Even as the Souths share of
world trade expands, world trade as a whole continues to grow, meaning that developing
countries have ever-richer and more diverse markets for their exports. In short, the rise of new
trade powers is a positive sum game.
But despite these gains, developing countries still have a long development path ahead of them,
since they fall short of industrial countries on a large number of important economic indicators.
Significant proportions of their populations still live below the poverty line. Incomes in emerging
economies are still a fraction of those in developed economies. While the export success of
todays emerging economies highlights new opportunities and paths for other developing
countries, the pace of growth among developing countries remains uneven. Some are
experiencing high and sustained growth, others are struggling to move beyond middle-income
levels, while still others may be falling behind. This report sheds light on the growing importance

of developing countries in the world trading system, and explores how the WTO can play an
increasingly central role in advancing their various development objectives.
A second, related, trend, explored in Section C, is the growing integration of global production
especially the rise of supply chains which is transforming the nature of trade and the way
developing countries connect to the global economy. A combination of reduced transport and
logistics costs, improved information technologies and more open economies have made it easier
to unbundle production, not only within countries, but across a range of them. Four-fifths of
world trade are now channelled through multinationals that locate various stages or tasks of the
production process in the most cost-efficient locations around the planet.
A second, related, trend, explored in Section C, is the growing integration of global production
especially the rise of supply chains which is transforming the nature of trade and the way
developing countries connect to the global economy. A combination of reduced transport and
logistics costs, improved information technologies and more open economies have made it easier
to unbundle production, not only within countries, but across a range of them. Four-fifths of
world trade are now channelled through multinationals that locate various stages or tasks of the
production process in the most cost-efficient locations around the planet.
While the average import content of exports is around 25 per cent and increasing over time
and almost 30 per cent of merchandise trade is now in intermediate goods or components,
increasing exports now directly hinges on increasing imports and on removing obstacles to
imported inputs. Since value chains involve the integration of production platforms, not just
cross-border trade flows, these obstacles can involve everything from tariff barriers and transport
bottlenecks to differing standards, investment restrictions and inefficient service suppliers. The
emerging world of unbundled production offers an important new channel for trade growth and
development, while at the same time highlighting differences in countries capacity to integrate
or in the quality of their integration as well as the costs of remaining on the margins.
A third major trend, examined in Section D, is the rising price of agricultural goods and natural
resources since 2000. With some of the fastest-growing developing economies in the Middle
East, Africa and Latin America recently having shifted from how developing economies can
diversify out of resources to how they can strengthen their comparative advantage in resources,
6

benefit more (and more widely) from them, and reduce the adverse impact of the boom and bust
cycles that typically characterize these markets. This section identifies a number of key issues to
be addressed if developing economies with actual or potential comparative advantages in
agriculture or natural resources are to exploit higher commodity prices. These include reducing
new and less transparent forms of trade protection, guaranteeing adequate rates of return on
natural resources and addressing the social and environmental issues critical to inclusive and
sustainable growth.
As the world economy has become more interconnected through trade, investment, technology
and people flows, it has also become more interdependent. This is the subject of Section E. Just
as the economic benefits of widening and deeper integration now spread more quickly across
countries and regions, so too do the economic costs, as exemplified by the way in which the
shockwaves from the 2008 financial crisis and the subsequent economic downturn reverberated
globally. Policy decisions in one country can have simultaneous and often unintended spill-over
effects in many distant countries. These spill-overs can become major setbacks for developing
economies, especially for the smallest and poorest countries, which lack adequate shock
absorbers and are the most vulnerable to economic volatility.
As the world economy has become more interconnected through trade, investment, technology
and people flows, it has also become more interdependent. This is the subject of Section E. Just
as the economic benefits of widening and deeper integration now spread more quickly across
countries and regions, so too do the economic costs, as exemplified by the way in which the
shockwaves from the 2008 financial crisis and the subsequent economic downturn reverberated
globally. Policy decisions in one country can have simultaneous and often unintended spill-over
effects in many distant countries. These spill-overs can become major setbacks for developing
economies, especially for the smallest and poorest countries, which lack adequate shock
absorbers and are the most vulnerable to economic volatility.
Sections B to E follow similar structures in examining the opportunities and challenges that these
four trade trends present to developing countries. They first provide broad, stylized facts about
these trends and their determinants. Subsequently, the development implications of the trends are
analysed, clarifying how participation in supply chains, increasing commodity prices and the
global recession have played a significant part in different development patterns across countries
7

in the last 15 years. Finally, the sections identify policies that have proved successful for
emerging economies. This highlights the obstacles that need to be removed if other developing
countries are to benefit from these trends, and the additional policies that may be needed to
maximize benefits and reduce risks.
Building on this analysis, Section F shows how existing WTO rules and practices address
development challenges, and how flexibilities currently available to developing and leastdeveloped countries in these trade rules can help facilitate their integration.
Expanding trade may be essential for development but it is hardly sufficient. Countries that have
succeeded in transforming trade and economic growth into inclusive, sustainable and broadbased development whether measured in terms of improving health, rising education, increasing
opportunities for women, or decreasing poverty have also pursued a range of policies that not
only share the gains (and costs) of trade openness but ensure that societies are equipped to
benefit from global economic integration. While such policies are largely beyond the scope of
this study, the report does consider income distribution not including income per capita and
environmental quality as dimensions of development. This broad perspective is also useful in
understanding how the multilateral trading system can contribute to creating a more thus
reinforce popular support for further trade opening and global economic cooperation.

CHAPTER III

IMPACT OF WTO PROPOSAL ON DEVELOPED COUNTRIES

WTO and Least Developed Countries
About two thirds of the WTOs around 150 members are developing countries. They play
an increasingly important and active role in the WTO because of their numbers, because
they are becoming more important in the global economy, and because they increasingly
look to trade as a vital tool in their development efforts. Developing countries are a
highly diverse group often with very different views and concerns. The WTO agreements include
numerous provisions giving developing and least-developed countries special
rights or extra leniency special and differential treatment. Among these are
provisions that allow developed countries to treat developing countries more favourably
than other WTO members.
THE LEAST DEVELOPED COUNTRIES (LDCS)
Members reaffirmed their determination to fulfilling commitments made at Doha
concerning LDCs. Various commitments have been made in respect of LDCs under the
Doha Ministerial Declaration (DMD). Indeed, the Multilateral Trading System (MTS)
must be sensitive to the special needs of LDCs. A key issue in this regard is the provision
of duty-free and quota free market access for products originating in LDCs as called for
in various international accords (Doha, LDC III, and Millennium Declaration). A report
by UNCTAD on A Trade Marshall Plan for LDCs notes that, significant commercial
gains would accrue to LDCs from the provision of bound duty free, quota treatment to
all exports of LDCs by developed countries. Such treatment is likely to bring welfare
gains of as much as US$8 billion and will add up to US$6.4 billion (10 per cent) per year
increase in LDC exports, which currently represent just 0.68 per cent of world trade
(Puri, 2005).

LDCs have called for duty-free and quota free access for ALL their products and for such
treatment to be BOUND under the WTO. For example, the Fourth LDC Trade Ministers
Meeting in Livingstone (June 2005) called on the 6th WTO MC to agree on Binding
commitment on duty-free and quota-free market access for all products from LDCs to be
granted and implemented immediately, on a secure, long-term, and predictable basis,
with no restrictive measures introduced. Both issues remain outstanding in that not all
WTO members provide LDCs with fully free trade treatment, apart from EBA and AGOA
and some GSP schemes, and all such treatment provided so far are not bound in the
WTO. Such treatment is sanctioned by Part IV of GATT and the Enabling Clause. In
terms of similar treatment that could be provided by developing countries in a position
to do so, some progress is taking place, mostly within the context of South-South
regional trade agreements. In terms of legal coverage for South-South preferences, a
waiver has been provided.
A related issue is for LDCs to be granted exemptions from tariff and subsidy reduction
commitments. Addressing the deeper end of Trade Related Technical Assistance (TRTA)
is also a key concern of LDCs in view of diversifying their production and improving
competitiveness in traditional areas as well as emerging areas of comparative and
competitive advantage; developing human, institutional, regulatory and R&D capacities
and infrastructures; and achieving greater technology-intensity, value-added, value
retention and diversification of products and competitiveness.
SOUTH-SOUTH COOPERATION
Trade among countries of the South, by offering manifold opportunities to developing
countries to increase their profile in international trade, can have a decisive influence in
shaping any new trade geography. Today, South-South trade accounts for just over
one tenth of total world trade, and is growing at double the rate. Moreover, over 40 per
cent of developing country exports are to other developing countries, and trade among
them is increasing at double-digit annual rates (UNCTAD, 2003b as cited in
Puri,2005:43). South-South trade in services is also on the rise and has substantial
possibilities. LDCs also need to take advantage of the opportunities offered by South
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South trade cooperation and integration. The share of LDC exports to other developing
countries has shown a robust growth from 22 per cent in 1998 to more than 31 per cent
in 2003. South-South economic and trade co-operation therefore offers additional
opportunities to LDCs for assured development gains from the trading system
(Puri,2005:43).
In terms of trade or tariff preferences, many developing countries have been providing
special tariff concessions for LDCs, including Duty-Free, Quota-Free Treatment
(DFQFT) elements, as part of regional trade and economic cooperation agreements.
Whilst it is true those developing countries with high level of poverty and populations
engaged in similar economic activities may not be able to afford duty and quota free
market access across the board for LDCs, those in a position to do so could take recourse
to the Generalized System of Preferences (GSTP) multilateral route. Several developing
countries have granted preferential market access for LDCs and many others are willing
to do more so under the GSTP. The GSTP has been conceived as the cornerstone of
economic cooperation among developing countries and has been designed to give
concrete expression to their political commitment. Estimates suggests that, if
developing countries agree to reduce the average tariffs applied to each other by 50 per
cent in the current GSTP round, this would generate an additional $15.5 billion in trade.
This is not an alternative to, but a complement to the multilateral liberalization process
(UNCTAD, 2003a; Puri,2005:43).
The situation in which LDCs find themselves today is similar to that of Europe in the
aftermath of the Second World War. At current conversion levels, a Trade Marshall
Plan for LDCs should deliver development gains in the range of $62.5 billion per year.
Bound DFQFT and preferential access on services could yield almost half of the amount.
Additional aid for trade funding at, say $1 billion for 50 LDCs would be a small-ticket
item compared to the original Marshall Plan outlays and might have a multiplier effect
on trade and supply capacity in LDCs. It would have the advantage of covering most
aspects of the trade-related enabling and empowering that LDCs require in order to reap
real development benefits. It would cushion adjustment shocks and build productive
capacity, competitiveness and critical infrastructure. It would stimulate export
11

expansion and improve terms of trade; spur economic growth, employment generation
and poverty reduction and gender equity; and register efficiency gains. In a symbiotic
response, these LDCs in turn will become new and viable markets for other countries,
including the developed ones, and contribute to the sustainability of the global
enterprise.
Developed countries tended to argue that it was important to agree on a coherent vision
on especially the principles and objectives of SDT before engaging in negotiations on
agreement-specific issues. They argued that the deliberations should proceed first with
clarifying the purpose of SDT and other crosscutting systemic and institutional issues
before discussing agreement-specific proposals. This raised the very difficult
differentiation debate i.e., tailoring SDT to those developing countries that need them
the most and to move away from generalised SDT, and graduate those developing
countries that would not need them owing to their competitive trading situation (Third
World Network, 2005: 32).
Developing countries, in contrast, tended to favour the resolution of agreement specific
considerations first rather than engaging in a debate on principles which in any case are
already well established in Part IV of the GATT and the Enabling Clause. Developing
countries were also resistant to the notion of differentiation and graduation in relation
to beneficiaries of SDT provisions, and definition of developing countries (Third World
Network, 2005: 33)
A year later, in October 1997, six international organizations the International
Monetary Fund, the International Trade Centre, the United Nations Conference for
Trade and Development, the United Nations Development Programme, the World
Bank and the WTO launched the Integrated Framework, a joint technical assistance
programme exclusively for least-developed countries. In 2002, the WTO adopted a work
programme for least-developed countries. It contains several broad elements: improved
market access; more technical assistance; support for agencies working on the
diversification of least-developed countries economies; help in following the work of the
WTO; and a speedier membership process for least-developed countries negotiating to
12

join the WTO. At the same time, more and more member governments have unilaterally
scrapped import duties and import quotas on all exports from least-developed
countries.
It can be viewed that developing countries should have freedom in fixing tariffs in
agriculture, especially in the face of high Northern subsidies. Trade liberalization cannot
set the determining framework for how food is produced and how agriculture is
organized. Countries cannot ignore the issues of economic, social, and environmental
sustainability. One can find a fault with WTO is that it has externalized these basic
issues in the AoA (Rena,2006b:75).
It can be viewed that developing countries should have freedom in fixing tariffs in
agriculture, especially in the face of high Northern subsidies. Trade liberalization cannot
set the determining framework for how food is produced and how agriculture is
organized. Countries cannot ignore the issues of economic, social, and environmental
sustainability. One can find a fault with WTO is that it has externalized these basic
issues in the AoA (Rena,2006b:75).
Role of WTO A Critical View
Ten years ago, a new World Trade Organisation that put developing country needs at the
centre of the international trade negotiation agenda was proposed. The Ministerial
Declaration adopted at the start of the Doha Development Round of trade negotiations,
on 14 November 2001, was a promising response to the anti-globalisation riots of the
1990s. But the WTO membership has failed to deliver the promised pro-development
changes. Finding "development" in the Doha Development Round today is like looking
for a needle in a haystack. Developing countries have been completely sidelined by the
economic and political interests of global powers. According to the Guardian1
,here are 10 examples of how the WTO has failed the poor:
1. Cotton: the Fair trade Foundation revealed last year how the $47bn in subsidies paid
13

to rich-country producers in the past 10 years has created barriers for the 15 million
cotton farmers across west Africa trying to trade their way out of poverty, and how 5
million of the world's poorest farming families have been forced out of business and into
deeper poverty because of those subsidies.
2. Agricultural subsidies: beyond cotton, WTO members have failed even to agree
how to reduce the huge subsidies paid to rich world farmers, whose overproduction
continues to threaten the livelihoods of developing world farmers.
3. Trade agreements: the WTO has also failed to clarify the deliberately ambiguous
rules on concluding trade agreements that allow the poorest countries to be
manipulated by the rich states. In Africa, in negotiations with the EU, countries have
been forced to eliminate tariffs on up to 90% of their trade because no clear rules exist
to protect them.
4. Special treatment: the rules for developing countries, called "special and
differential treatment" rules, were meant to be reviewed to make them more precise,
effective and operational. But the WTO has failed to work through the 88 proposals that
would fill the legal vacuum.
5. Medicine: the poorest in developing countries are unable to access affordable
medicine because members have failed to clarify ambiguities between the need for
governments to protect public health on one hand and on the other to protect
the intellectual property rights of pharmaceutical companies.
6. Legal costs: the WTO pledged to improve access to its expensive and complex legal
system, but has failed. In 15 years of dispute settlement under the WTO, 400 cases have
been initiated. No African country has acted as a complainant and only one least
developed country has ever filed a claim.
7. Protectionist economic policies: one of the WTO's five core functions agreed at
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its inception in 1995 was to achieve more coherence in global economic policy-making.
Yet the WTO failed to curb the speedy increase in the number of protectionist
measures applied by G20 countries in response to the global economic crisis over the
past two years despite G20 leaders' repeated affirmations of their "unwavering"
commitment to resist all forms of protectionist measures.
8. Natural disaster: the WTO fails to alleviate suffering when it has the opportunity
to do so. In the case of natural disaster, the membership will have taken almost two
years to agree and implement temporary trade concessions for Pakistan, where severe
flooding displaced 20 million people in 2010 and caused $10bn of damage. Those
measures, according to the International Centre for Trade and Sustainable
Development, would have boosted Pakistan's exports to the EU by at least 100m this
year.
9. Decision-making: the WTO makes most of its decisions by consensus and
achieving consensus between 153 countries is nearly impossible. But this shows another failure
of the WTO: to break the link between market size and political weight that
would give small and poor countries a voice in the trade negotiations.
10. Fair trade: 10 years after the start of the Doha Development Round, governments
have failed to make trade fair. As long as small and poor countries remain without a
voice, the role of campaigning organisations, such as Traidcraft and Fairtrade
Foundation, which are working together to eliminate cotton subsidies, will remain
critical.

15

CHAPTER IV

THE PROPOSED NEW ISSUES IN THE WTO AND THE INTERESTS OF

DEVELOPED COUNTRIES
THE PRESSURE FOR AND DANGER OF NEW ISSUES
The Uruguay Round has already introduced new areas into the multilateral trading system, vastly
expanding its scope. In recent years, the developed countries have intensified the pressures to
incorporate yet more and more issues which are to their advantage into the WTO. This is being
resisted by many developing countries, on the grounds that (i) they are not ready for negotiations
on yet more new issues as they are already unable to grapple with the problems generated by the
Uruguay Round, (ii) the proposed issues are not in their interests but instead can seriously harm
their economies should they become the subject of new WTO rules; and (iii) the issues are not
directly related to trade and do not belong to the WTO.
There is a long list of "new issues" being put forward by the developed countries to link trade
(and the possible use of trade measures and sanctions as enforcement mechanisms) to several
economic and non-economic areas. Three working groups have been created to examine trade
and investment, trade and competition policy, and government procurement. Trade and
environment is already being negotiated under the WTO's Committee on Trade and
Environment. There have been strong attempts by many Northern governments to link trade
with labour standards in the WTO. It is possible that a wide range of other issues, such as human
rights, tax systems, cultural behaviour, will also be sought to be linked to trade measures in the
WTO in future.
The linking of issues to the possibility of sanctions under the device of attaching a "trade related"
prefix to the chosen topics was successfully used in the Uruguay Round to inject IPRs (through a
trade-related intellectual property rights agreement) and investment issues (through a traderelated investment measures agreement) into the GATT/WTO system. The justification for
introducing these issues was that they were "related to trade."

16

In fact, the real objective was to link the chosen issues to the threat of "trade retaliation and
penalties" for non-compliance of disciplines. The device of bringing in new topics by alleging
that they are trade-related has continued to be used in on-going WTO negotiations. In fact the
pretence of being directly trade-related is no longer even necessary and may unnecessarily
restrict the scope of the issues being introduced. The prefix "trade-related" has now been
dropped in proposals for these new issues, which are now sought to be brought into the trade
arena through simply using the word "and", as in "trade and environment", "trade and labour
standards", "trade and investment" and "trade and competition policy."
The device of linking trade with other issues (when the intention is really to link the dispute
settlement system of the WTO to new policy areas) is being increasingly used for the purpose of
further opening up Third World economies or to reduce their competitiveness in the scramble for
world market shares. The WTO could also be used as an instrument to shift a great portion of the
burden of future global economic adjustment (for instance, because of environmental
imperatives) to the South, which presently has a weaker negotiating position in the WTO forum.
THE PROPOSED NEW ISSUES AND DANGERS FOR THE SOUTH
The European Union, backed by Japan, Canada and other developed nations, were at the
forefront of attempts to launch a new comprehensive "Round" of trade negotiations at the WTO
Ministerial Conference in Seattle. They hoped that in such a Round, several issues would be
made the subject of negotiations for new multilateral Agreements that will be legally binding on
WTO members.
Although the US originally seemed cool to the idea of a comprehensive new Round (preferring
to push issues it liked on a sector by sector basis), it may eventually agree to go along with the
proposals for initiating negotiations on the proposed new issues. For example, it has been
among the strongest advocates for the issues of labour and government procurement.
Several developing countries spoke up strongly against such a new Round with new issues
thrown in. They believe that instead of injecting the new issues, the WTO should allow
developing countries (who after all form the majority of the membership of the WTO) the time
and space to tackle the problems of implementation of the existing Agreements. Despite such an
17

opposition by these countries, it is unclear whether a sizable number of them will be able to
withstand the intense pressures for the new issues that will continue to build in future.
The main category of new issues being proposed are international investment rules, competition
policy and government procurement. These three issues were put on the agenda of the first
WTO Ministerial Conference in Singapore in 1996. Most developing countries were against
having any negotiations for Agreements on these issues, but the pressure from the developed
countries was so strong that they compromised and agreed to taking part in "working groups" to
discuss the issues.
The developing countries made it clear that the working groups had the mandate only to discuss
the topics in a sort of academic way, in what was called an "educative process". The working
groups had no mandate to start negotiations for Agreements.
The three working groups have now gone through several years of discussion in the working
groups. In the process before and at Seattle, many developed countries made it clear they
intended to "upgrade" the talks at the working groups into negotiations for agreements.
However, the Seattle Conference ended without a Declaration, and the three issues (investment,
competition, government procurement) have not become the subject of negotiations for new
Agreements. Instead, the three working groups have resumed their discussions. Although these
discussions are considered at a low level of intensity at present, it can be expected that there will
again be intensification of pressures to upgrade the working groups into negotiating groups,
especially in the build up to the next Ministerial Conference when the idea of launching a New
Round will again be highlighted.
Many countries are also proposing that "industrial tariffs" (the reduction of import duties on
manufactured products) be another new issue for negotiations. Although there have of course
been several previous negotiating rounds on tariff-cutting in this sector, the issue is nevertheless
considered "new" in that fresh negotiations on the industrial sector are not mandated in the WTO
agreements. Thus, a decision to negotiate on this issue would mean a fresh commitment on the
part of members.

18

Some of the developed countries are also proposing that "trade and environment" and "labour
standards" to be part of a proposed new Round. The governments of these countries want to
placate environmental groups and labour unions who have been protesting about the negative
effects of free trade. If the environment and labour standards are also thrown into the pot of the
New Round, the influential civic groups may then be won over, or at least they may not
campaign so hard against the proposed Round or so the establishment thinking goes.

THE IMPLICATIONS FOR DEVELOPED COUNTRIES OF FOUR NEW ISSUES:

INVESTMENT,
COMPETITION,
GOVERNMENT
PROCUREMENT
AND
INDUSTRIAL TARIFFS
(a) The Investment Issue
On the INVESTMENT ISSUE, the developed countries are pushing to introduce new rules that
give new rights to foreign investors, making it easier for them to enter countries and to operate
freely. Pressures would be mounted on WTO member states to liberalise investment flows and to
grant "national treatment" to foreign investors and firms. Governments would lose a large part
of their present rights to regulate the operations of foreign investors. Restrictions on the free flow
of capital into and out of the country could be prohibited or contrained.

Moreover, the

"performance requirements" that host governments now place on foreign companies (such as
technology transfer, the use of local professionals) would come under pressure. There is even
talk of prohibiting or disciplining the use of investment incentives to attract foreign investments.
The recent proposal by the European Union on investment negotiations in the WTO is a watered
down version of the discredited "MAI" (multilateral agreement on investment) that the
developed countries had negotiated (but failed to conclude) in the OECD. The original OECDMAI model had defined foreign investment to include both short-term flows and foreign direct
investment; given rights to foreign investors to enter any country (i.e. "pre-establishment
rights"), own 100 percent equity, and be automatically given "national treatment." Due mainly
to public protests, the MAI negotiations collapsed, and the EU has taken a lead in getting
negotiations for an investment agreement started at the WTO.

19

Implicitly acknowledging that an MAI replica would not be politically acceptable either to many
developing countries nor to civil society worldwide, the EU has put in the diluted version, in
which countries could still have options on the degree of liberalisation and "national treatment"
to offer in a "positive list" on a sector-by-sector basis, and only for direct foreign investment.
However, this can be seen as a tactical move to make their proposal more acceptable. Once such
a watered-down version enters the WTO, pressures will then pile up to get the developing
countries to liberalise more and more, and to offer national treatment.
The entrance in principle of investment policy per se in the WTO would tremendously expand
the mandate and powers of the WTO, and pose a serious threat to developing countries.
Investment liberalisation in the South will become an objective to be intensely pursued by the
developed countries, just as trade liberalisation has been so ruthlessly pursued. Developing
countries would find it increasingly difficult to defend the viability of (or to give preferences to)
local investors, firms or farmers, which are all much smaller than the transnational companies
and will thus be unable to withstand the latter's onslaught. They would face the threat of having
their local products wiped out by competition from the bigger foreign firms, or of being taken
over by them.

(b) The Competition Issue

On COMPETITION POLICY, the EU is advocating a new agreement that would look
unfavourably on domestic laws or practices in developing countries that favour local firms, on
the ground that this is against free competition. The EU argues that what it considers to be the
core principles of the WTO (national treatment and non-discrimination) should be applied
through the WTO on competition policy.
Through an agreement on competition in the WTO, it would be compulsory for developing
countries to establish domestic competition policies and laws of a certain type. Distinctions that
favour local firms and investors would be called into question. For example, if there are policies
that give importing or distribution rights (or more favourable rights) to local firms (including
government agencies or enterprises), or if there are practices among local firms that give them
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superior marketing channels, these are likely to be called into question and disciplines may be
imposed on them.
The developed countries are arguing that policies or practices that give an advantage to local
firms create a barrier to foreign products or firms, which should be allowed to compete on equal
terms as locals, in the name of free competition. Such pro-local practices and policies are to be
targeted for phasing out or elimination in negotiations for a competition agreement.
Developing countries may argue that only if local firms and agencies are given certain
advantages can they remain viable. If these smaller enterprises are treated on par with the huge
foreign conglomerates, most of them would not be able to survive. Perhaps some would remain
because over the years (or generations) they have built up distribution systems based on their
intimate knowledge of the local scene, that give them an edge over the more endowed foreign
firms. But the operation of such local distribution channels could also come under attack by a
competition policy in the WTO, as the developed countries are likely to pressure that the local
firms also open their marketing channels to their foreign competitors.
At present, many developing countries would argue that giving favourable treatment to locals is
pro-competitive, in that the smaller local firms are given some advantages to withstand the might
of foreign giants, which otherwise would monopolise the local market. Providing the giant
international firms equal rights would overwhelm the local enterprises which are small and
medium sized in global terms.
However, such arguments will not be accepted by the developed countries, which will insist that
their giant firms be provided a "level playing field" to compete "equally" with the smaller local
firms. They would like their interpretation of "competition" (which ironically would likely lead
to foreign monopolisation of developing country markets) to be enshrined in WTO law and
operationalised through a new Round.
In the discussions at the WTO's Competition Working Group, developing countries have raised
issues which are more relevant to them, including the restrictive practices of transnational
companies, and the abuse of anti-dumping measures by the US and other developed countries
(that are anti-competitive in that they prevent the competitive exports of developing countries
21

from having access to their markets). However, such extremely relevant and legitimate concerns
under the topic of "competition" have not been welcomed, especially by the US. Given the
relatively weaker negotiating position of the South, it is more likely that the interpretation of
developed countries could prevail, should there be a decision to begin negotiations for a
competition agreement in the WTO. Then, another instrument would be available to the
developed countries to pry open the markets of the developing countries.
(c) The Issue of Government Procurement
On GOVERNMENT PROCUREMENT, the developed countries want to introduce a process in
the WTO whereby their companies are able to obtain a large share of the lucrative business of
providing supplies to and winning contracts for projects of the public sector in the developing
countries.
At present, such government expenditure is outside the scope of the WTO, unless a member
country voluntarily joins the "plurilateral" agreement on government procurement. This means
that governments are now able to set up their own rules on procurement and project awards, and
most developing countries give preferences to locals in such awards.
The aim of the rich countries is to bring government spending policies, decisions and procedures
of all member countries under the umbrella of the WTO, where the principle of "national
treatment" (foreigners to be treated on par with or better than locals) will apply.
Under this principle, governments in their procurement and contracts for projects (and probably
also for privatisation deals) would no longer be able to give preferences or advantages to citizens
or local firms. The bids for supplies, contracts and projects would have to be opened up to
foreigners, who should be given the same (or better) chances as locals. It is even proposed that
foreign firms that are unhappy with the government's decisions can bring the matter to court in
the WTO.
Since government procurement expenditure in some countries is bigger in value than imports,
such an agreement to bring procurement under the WTO rules would tremendously enlarge the
scope of the WTO and its rules.
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As most developing countries would object to having their public-sector spending policies
changed so drastically, the developed countries have a two-stage plan for this issue: firstly, to
have an agreement limited to achieving greater "transparency" in government procurement;
secondly, to have a broader agreement that would cover the aspects of liberalisation, market
access for foreign firms, and the national treatment principle.

Stage One would inject the

procurement issue into the WTO multilateral system; Stage Two would seek to "fully integrate"
government procurement into the WTO system. This strategy was revealed in the presentations
and non-papers of the US and EU during the preparations of the 1996 Singapore Ministerial.
In the preparations for the WTO Seattle Conference, the United States had tried to have an
agreement on "transparency in government procurement" signed in Seattle itself.

With some

other Members, it put forward a draft of elements of a transparency agreement, in the form of an
agreement. An analysis of that draft showed it contained several elements that went beyond
transparency.
After Seattle, the discussions are continuing to focus on issues such as scope and the role of the
dispute settlement system. Many developing countries are also adamant that a transparency
agreement, if there is one, should not lead on towards liberalization and national treatment.
However it can be expected that should there be a multilateral agreement on transparency in
government procurement, there will be intense pressures in future to extend it to market access
and national treatment issues, for example on the ground that these are core principles of the
WTO.

By agreeing to a transparency agreement, developing countries would be put on the road

to a full-scale procurement agreement incorporating liberalisation and national treatment. At

stake is the right of governments to reserve some of its business for local firms. With the
removal of that right, a very important instrument for assisting local firms, for national
development, macroeconomic objectives and for socio-economic objectives, would be
removed. However despite such important issues at stake, there has been little analysis from a
development point of view of the implications of the integration of government procurement in
the WTOs multilateral system. Until the full implications are studied by each country,
developing countries should be extremely cautious about agreeing even to a transparency
agreement. After all, transparency or for that matter government procurement are not directly
trade issues although like so many other subjects they of course may have a relationship to trade.
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(d) Industrial Tariffs

Besides the three issues of investment, competition and procurement, another economic issue
that was being pushed for as part of a New Round is "industrial tariffs." This would entail
another round of negotiations to further reduce duties on manufactured products. Since the
tariffs in this sector are generally lower in the developed countries, a new round of tariff cuts
would mainly entail new commitments by the developing countries.
Most developing countries have already significantly reduced their tariffs on industrial products
in recent years. Many did this under the structural adjustment programmes directed by the IMF
and the World Bank. An influential study by the UN Economic Commission for Africa on the
effects of structural adjustment policies in 1991 warned that: "External trade liberalisation for
underdeveloped economies can have some serious side effects. For one, it can lead to dumping of
cheap products from outside such as clothes, shoes, creams, etc. This undermines the local
industries that produce or those that would have started to produce these products as they cannot
compete with similar but much cheaper products from abroad. So African infant industries fail to
take-off under extensive trade liberalisation."
In recent years, many African and Latin American countries have suffered from "deindustrialisation", a process in which local industries and enterprises have been closed or taken
over as they are made uncompetitive by rival imported products.
A further round of cuts in industrial tariffs, as proposed by the developed countries, would render
the industrial sector and industrial enterprises of most developing countries even more unviable.
Therefore, there should not be another formal round of negotiations to further cut developing
countries' tariffs. The developed countries should commit themselves to reducing their tariff
peaks and tariff escalation, and not use the promise of this as a carrot to draw in the developing
countries to cut the latter's industrial tariffs in a new Round.
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CONCLUSION
Of course a justification can always be made that this or that issue is linked in some way to
"trade." But that does not mean that it is justified to link the issue to the WTO and its system.
For an issue to be linked to the WTO system in an integral way, it must be made to meet a strict
test with clear criteria, and moreover there should be a framework that helps specify in which
way the particular issue should be integrated in the WTO. Issues chosen should be for the
benefit of Members, especially the developing countries that form the majority, and should be
treated in a manner that leads to equitable results.
At present there is no such framework determining whether and how "new issues" should enter
the WTO system, nor a way to determine the likely benefits and costs and their distribution
among the WTO membership.
Yet there are very strong pressures, emanating from the developed countries, to add more and
more items onto the WTO agenda. There is now a clear danger that this could lead to very
negative consequences: (a) an overload of the WTO system, making it impossible for
developing countries to cope with negotiations and implementation;

(b) a distortion of the

WTO system, where fairness in the process of trade operations is replaced by protectionism; (c)
a failure of credibility as citizens in developing countries perceive the WTO as an instrument by
the developed countries to impose unfair and inappropriate rules and policies that are
disadvantageous to the developing countries. Moreover it is also unlikely that the intended
objectives of the proponents of the new issues will be met.
In the light of the already onerous obligations undertaken by developing countries in the existing
WTO Agreements, the immense problems of implementation, and the possible serious economic
and social dislocation that will result in many countries, it is most inappropriate for the
continuing and intensifying pressures to place more new issues onto the WTO.
At present the WTO does not have a systematic way of enabling the assessment, introduction (or
rejection), and the appropriate incorporation of new issues. As a result, several new issues have
been absorbed during the transition from GATT to the WTO through the Uruguay Round. And
many more new issues are in various stages of brewing, with advocates in governments (mainly
25

of developed countries) and in social organisations pushing hard to gain entry for their favourite
issues.
A system or procedure for assessing potential or proposed new issues should be established.
The criterion should not only be whether an issue is "trade related", because a case can always be
made that almost any issue is related in some way with trade. The criterion should be whether
the entry of a particular issue would add advantage and benefit to the Members of WTO
(especially the majority, ie the developing countries, and to the majority of people in these
countries) and to the WTO system, with the ultimate goal of equitable and sustainable
development (rather than liberalisation, which is only a means). And given the fact that the
WTO is mainly a negotiating body, with the mandate and task of formulating and monitoring the
implementation of Agreements, issues should not be allowed to easily enter the system, even for
a "study process" in a working group.
Discussions on potential new issues should take place in appropriate fora outside the WTO, in a
setting more conducive to perspectives broader than the more narrow framework of trade
relations. In such discussions the role of trade relations can be placed in the broader context of
equitable and sustainable development, and the specific role of the WTO (if any) can be
demarcated. Until the discussion is sufficiently "brewed" or "matured" in the appropriate fora,
the issue should not be brought into the WTO system, either for discussion in working groups
and certainly not for negotiations for new Agreements.
Unless the trend for putting more and more issues into the WTO basket is reversed, the trade
system will become overloaded and over-bloated. It will not be able to carry out the tasks which
it was originally intended to do, because it would have taken on other tasks it is ill suited to
perform, as well as grappling with a host of new and complicated issues which will tie up its
Members, diplomats and policy makers with knots too difficult to disentagle from.
WTO Members can decide to limit the WTO to the tasks it is supposed to do, and to review its
rules and system to put it back on the right track, or it can decide to throw more issues and
complications into the system, with unknown and probably dire consequences.

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Finger, J. M., Ingco, Merlinda D., and R. Ulrich. 1996. The Uruguay Round: Statistics
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Graham Dunkley (2004) Free Trade: Myth, Reality and Alternatives, New York: Zed
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Gulati, Ashok and Ketly, Tein (1999) Trade Liberalization and Indian Agriculture, New
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