The Hindu Business Line : WTO shackles on national policy

Ever since the WTO came into being in 1994, it has been bandied around, making a lot of sense especially to those who feel that the organisation is just another instrument through which the developed world is controlling the economic resources of the developing economies. For the sake of a liberalised international trading regime, the policy options for developing economies have been reduced.

Very often, one hears the complaint that WTO membership in fact does not help a developing economy to grow; on the contrary, it places hurdles in the way of a national Government to take the measures it deems necessary to promote growth. In other words, the pursuit of domestic economic policy as thought fit by a country's own leaders is hemmed in by the WTO's guidelines, which in effect can be interpreted as a surrender in part of national sovereignty for the greater good of the international trading system.

This is not a new complaint. In fact, ever since the WTO came into being in 1994, it has been bandied around, making a lot of sense especially to those who feel that the organisation is just another instrument through which the developed world is carrying out its long-term, strategic policy of controlling the economic resources of the developing economies. The intention of this write-up is not to go into the merits of this standpoint, but to examine whether and to what extent the charge that the economic policy-making powers of the poor countries have been circumscribed by the WTO's guidelines is true, and if so how specifically that control is being exercised.

UNCTAD's report

There is a whole lot of material on the subject already, the latest addition to the analysis being relevant sections of UNCTAD's Trade and Development Report 2006 titled "Global partnership and national policies for development".

To go straight to the point, the report says that the rules governing the multilateral trading environment have been devised "to provide what is often called a `level-playing field', by extending the same legal rights and obligations to all member States of the WTO".

These rules were codified by the long-drawn-out Uruguay Round negotiations, the different sectors being brought under separate accords such as the Agreement on Trade-related Aspects of Intellectual Property Rights (TRIPS), the General Agreement on Trade in Services (GATS), and the Agreement on Trade-related Investment Measures (TRIMs) along with the Agreement on Subsidies and Countervailing Measures (SCM).

All these accords, though having a distinctive, separate existence as far as their respective spheres of operation are concerned, form an integral whole and cannot be treated individually under the doctrine of `single undertaking', which in fact is the bedrock of the entire WTO edifice.

The UNCTAD report takes all this into consideration when it says that "the resulting expansion of the scope of the multilateral trading regime means that key aspects of countries' regulatory regimes that affect how national economies operate have become subject to multilateral disciplines".

Further, it is not only the WTO rules and guidelines that should be considered while discussing this aspect of a developing economy's policy-making flexibility.

Bilateral and regional trade accords also fall into the same broad category, the UNCTAD report stating that the latter "offer substantial benefits to developing-country members as they usually provide greater market access than multilateral agreements, and often include a wider range of products than traditional trade-preference schemes such as the Generalised System of Preferences (GSP)".

However, all this comes at a price, namely, "greater integration (leading to) additional steps towards regulatory disciplines, (which) further constrains the de jure ability of developing countries to adopt appropriate national regulatory and development policies".

Trading rules

Dilating on this point, the report says that "since the rules and commitments of the international trading regime restrict the de jure ability of developing nations to adopt national development policy, they limit the possibilities for governments to deploy policies in support of further productive and technological development". In short, these trading rules "reduce the flexibility of national governments to pursue their development objectives" as best as they think fit.

The report studies this proposition through the prism of the rules and commitments associated with TRIMs, TRIPS and SCM agreements and also industrial tariffs, the emerging picture being that not only has the ability of the poor economies to devise their own economic policies in the specific spheres been severely curbed, but there is also a strong element of unfairness involved when one considers the situation today's developed countries found themselves in when they were at a comparable stage of under-development vis-à-vis today's developing countries.

Role of FDI

Take for example, performance requirements of foreign direct investment, the sole objective of which is to produce benefits for the local economy.

Two of these are local-content floors set for items produced with the help of FDI and export obligations tied to import requirements, issues which are commonplace today in every developing country trying to use FDI efficiently to promote growth.

The UNCTAD report says clearly that TRIMs has affected the use of these instruments by developing countries, at the same time drawing attention to the fact that today's developed economies had recourse to such measures at a time when they were in the process of getting on to the high-growth trajectory.

As far as the agreement on subsidies is concerned, the report says unabashedly that "it impinges directly on national rule-making authority". This is bad by itself, considering that, historically, subsidies have played a big role in encouraging the development of national economies, including today's developed countries, in specific directions.

It is even worse when it is known that the SCM has prohibited export-encouragement subsidies which, as the UNCTAD report points out, were probably the key instrument which East Asia used to put some of its economies firmly on the road to export-led growth (which was nothing short of an explosion).

The inference is that, thanks to the WTO, this route of rapid development cannot be used today by a developing country intending to take a leaf out of the East Asian economic-miracle book.

On Trips and tariffs

On TRIPS, the point has been made that the agreement favours producers and holders of protected intellectual property "at the expense of those trying to gain access to protected intellectual content, mainly in developing countries". Regional and bilateral agreements have made the situation worse because they "often foreclose part of the autonomy left open to developing countries by TRIPS".

On the regulation of industrial tariffs by the WTO (the NAMA negotiations), the report says a lot with the remark that industrial tariffs "were the main element of protection that today's developed countries used during their industrial development" and that, compared with that situation, tariff policy in today's developing countries "appears to be relatively liberal".

In view of the above, it is perhaps safe to say that, for the sake of a liberalised international trading regime, the policy options for economic development for developing economies have been reduced.

In a global perspective, would this be described as a liberalisation of domestic economic policy for the world's poor, or should it be seen as the other way round?

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