Rigged Rules and Double Standards
Kevin Watkins and contributors
(Oxfam International)
Oxfam is an antidote to claims that people do not care about politics any longer. They may not be enthused by traditional politics but they turn up in droves to Oxfam events. That is reason enough to pay attention to its new report on world trade rules, Rigged Rules and Double Standards. There is also merit in the charity's arguments. Oxfam says that free trade can benefit rich and poor countries alike, but claims that the rules that govern international trade are rigged in favour of the rich.
Often, they are. The most glaring example is the WTO's intellectual-property pact, known as the Trips (trade-related aspects of intellectual-property rights) agreement. This requires poor countries to enforce the same tough patent, copyright and trademark protection that rich countries do. Once Trips comes into force in the poorest countries-as it already has done in other developing countries-it will drive up their import bill and transfer huge sums from poor countries to rich countries.
It makes no sense for Mozambique to grant a legal monopoly to Microsoft, Merck, or Madonna. The point of patents is to strike a balance between encouraging innovation and spreading its benefits. Whereas rich countries do lots of research, poor countries do hardly any: nine in ten patents are owned by rich-country companies. So patent protection should be lower in poor countries than rich ones.
Trips is a drag on development since it makes it harder for companies in poor countries to copy the products and processes of those in rich ones. In a knowledge-based economy, that is a problem. In 2000, the US earned $38 billion (over half the global total) in royalties from abroad.
Oxfam is also right to highlight rich countries' high trade barriers on agriculture and textiles, poor countries' main exports. Rich-country subsidies to their farmers are greater than the GDP of sub-Saharan Africa. The EU's duty on offal is 252 per cent; the US tariff on groundnuts, 121 per cent. Rich countries tax processed imports (like instant coffee) more highly than commodities (like coffee beans), which discourages higher value-added manufacturing in poor countries. Oxfam says the cost of rich countries' import barriers to developing countries is $100 billion: twice what they receive in aid.
The most welcome aspect of the report is that it exposes the hypocrisy of the EU, which likes to pose as the friend of developing countries against the heartless Americans. NGOs are usually loath to criticise the EU, which supports them and panders to their concerns-by dressing up farm protectionism in green garb, for instance. Oxfam, though, has devised a "double-standards index" that tries to aggregate the protectionist impact of the many devilish ways that foreign goods are kept out. According to this index, the EU is the worst, followed by the US, Canada and Japan.
Pascal Lamy, the Frenchman who is the EU's trade commissioner, is one of the chief hypocrites. In public, he lambasts the WTO for not doing enough for developing countries, in private, he will not budge on liberalising farm trade. French farmers come first, second and third; poor countries (and European consumers) don't get a look in. As a previous Oxfam report said, the EU's "Everything But Arms" initiative-which promised to grant duty-free access to EU markets to the world's 49 poorest countries-turned out to be window-dressing. It ended up excluding sugar, rice and bananas, the commodity exports that matter most to poor countries.
Yet for all its strengths, Rigged Rules is still a missed opportunity. Oxfam remains wedded to the mercantilist fallacy that poor countries need to protect their own markets, even as they seek better access to rich countries'. But the poor in poor countries have most to gain from freer trade. Making imports more expensive benefits local monopolists. As India's record in the 1960s shows, substituting shoddy local production for imports is a dead-end. Poor countries need to be careful when opening their markets because some people may lose out at first, as Alan Winters says in his excellent new book Trade Liberalisation and Poverty. But protection condemns the poor to penury.
Another disappointment is that Oxfam cannot distance itself from the protectionist pleas of those who would impose minimum labour standards on poor countries. Trade unions' crocodile tears for workers in the third world are a means to protect their members. The right way to help workers in poor countries is by allowing them to trade their way out of poverty, and by offering carrots, not sticks, to improve labour conditions.
Perhaps the biggest pity is that Oxfam sees the WTO as part of the problem. In fact, compared with a world without rules, or one criss-crossed with regional and bilateral trade deals, the WTO is poor countries' best hope of achieving a fairer world. It is not perfect: witness the Trips agreement. But in a world without rules, might equals right. Regional trade rules, where the big powers lay down the law, are the ones that are truly rigged. When a heavyweight like the EU negotiates bilaterally with a developing country, it can easily impose iniquitous conditions. The US's recent trade agreement with Jordan, for instance, commits Jordan to tougher patent protection even than the Trips agreement requires.
At the WTO, in contrast, every country has a veto. Developing countries are finally starting to use this power constructively. Until recently, they used their veto primarily to block decisions. But last November in Doha they put forward an agenda that has the potential to bring them huge benefits. Rich countries' high trade barriers on agriculture and textiles will only be negotiated away at the WTO. The world is a desperately unfair place; the WTO can help make it fairer.
When I was an adviser to Mike Moore, head of the WTO, I urged him to work more closely with constructive critics like Oxfam. Not because NGOs should usurp the role of government. But because if Oxfam could mobilise a popular movement for free trade, it could do a world of good.
