November 14th, 2008
Myriam Vander Stichele, SOMO, in a detailed and excellent brief, argues that the call made by the World Trade Organisation and some European leaders to finalise the Doha round at the same time of financial reform talks (so-called Bretton Woods II) completely ignores that this would impose on the South exactly the same recipe of deregulation and liberalisation of financial services that caused the crisis in the first place. In fact, Free Trade Agreements already signed by both nations in both the North and the South are already likely to make increasing regulation of the financial sector difficult, if not impossible.
WTO meeting on financial crisis only about more financing of trade
On 12th November 2008, the World Trade Organisation (WTO) held a selective conference about the impact of the financial crisis on trade. The main issues discussed were the lack of credit and finance for traders, and the slow down of the economy resulting in slowing down international trade. The main responses advocated, which are already widely used, were to increase co-sharing of risks by the international financial institutions and export credit agencies (ECAs).
What the WTO calls risk-sharing, however, turns out in practice to increase risk for developing countries and minimise risk for transnational corporations. Export credits ultimately have to be paid by developing countries, thus increasing the debt burden of developing countries. They also mean less risk is to be taken by the private sector, some of whom were attending the meeting –including some of the banks that have already received government support such as ING and Royal bank of Scotland despite their poor social and environmental record.
The wrong arguments used for pushing to finalise the Doha Round of WTO negotiations
Of course, the WTO Director General Mr Lamy, has in his many speeches during the last weeks argued that the WTO is a solution to the crisis, that WTO rules prevent “protectionist measures” and beggar-thy-neighbour policies which led to the economic depression in the 1930s and the consequent wars, and that conclusion of the Doha Round means strengthening regulation. Mr Lamy has admitted that some losses of jobs and income over the last years are to be attributed to trade liberalisation [speech of 29 October 2008] but that therefore “restoring citizens’ confidence in trade requires governments to ensure that sound domestic policies are in place.” However, since those sound and distributive domestic policies are not in place, and the WTO rules are even undermining such policies, there is little argument to liberalise further.
There are many arguments why the WTO’s rule based system is not sufficient and why finalising the Doha Round as currently negotiated would be disastrous to deal with the economic, social and environmental problems facing the world today:
- In the Doha Round, developing countries are asked to open up their markets much more than developed countries, so that they will have to bear more of the burden to cope with liberalisation. This is contrary to the Doha Round principles and inegates the responsibility of the developed countries for the financial crisis: the latter should indeed show solidarity and take the responsibility of unilaterally providing financial support to allow developing countries to trade without undermining social and environmental needs worldwide.
- Opening up more markets would give even less chances to smaller producers and traders to be able to survive. In many countries employment and income losses cannot easily be replaced. The current world economic system has so many unequal players that liberalisation does not provide the claimed benefits of open trade as argued in the comparison with the 1930s. The multinationals would be the winners of the increased competition game and not the workers, poor and jobless. The Doha Round negotiation draft text show a protectionism of the rich and multinationals who lobbied for their interests, and would result in a inequitable and unsustainable ‘rule-based system’.
- The Doha Round is about deregulation and minimising governments’ space to make policies, and is not about strengthening of regulation. The Doha Round would reinforce a failed model of laissez-faire, based on the belief that markets can be left on their own and that the common good will come out of leaving everybody to pursue their own interest. The financial crisis has shown how the free market is based on a failed ideology and why the gap between rich and poor is increasing. Free markets are unable to take environmental and social concerns into account.
- Lamy’s argument that “one’s protection is another one’s lost opportunity” should be turned around by “each market opening is one’s lost opportunity”: the importance is that there should be no lost opportunity for “raising standards of living, ensuring full employment and a large and steadily growing volume of real income” and “the optimal use of the world’s resources in accordance with the objective of sustainable development,” “in a manner consistent with [countries’] respective needs and concerns at different levels of economic development,” – as the preamble of the WTO says! However, the trade rules would need to change as well !
The WTO has so far not talked about how General Agreement on Trade in Services (GATS) and Free Trade Agreement (FTA) commitments to liberalise financial services and to undermine the ability of governments to prevent, or deal with, the financial crisis as explained below.
Read also: The facilitating framework for free investment and capital
