A Disappointing Monster

Rigged Rules and Double Standards:  Making Trade Fair
(Oxfam International, 2002)

It is disturbing and disappointing when a well-intentioned and respected organisation such as Oxfam publishes a confused and ill-informed study such as this 250-page monster.  The report argues that expanding international trade has assisted some developing economies to grow, but that more should be done to alleviate poverty by adapting WTO rules to give new preferences to all developing countries.  This implies that economic development would occur if only trade rules were suitably tailored, whereas benefits from trade depend most of all on a country's own economic policies and institutions.

When referring to the damage caused by EU, US and Japanese agricultural subsidies and protection of labour-intensive manufacturing (especially textiles and clothing), improved access would undoubtedly offer trade opportunities to many developing countries.  However, when proposing more "special and differential treatment" for developing countries' exports and hence for their domestic development, the Oxfam authors neglect the low tariffs already levied on most other OECD imports.  Moreover, economic research raises serious questions about the benefit of trade preferences to developing countries and whether the vested interests which are thus created impede further multilateral liberalisation.

The catch-phrase "fair trade" used throughout the report can mean almost anything, and nowhere does Oxfam define what it means.  "Fairness" is in the eye of the beholder!  Moreover, the term "fair trade" has been captured by uncompetitive industries in developed countries to justify anti-dumping and other contingency protection.

Not unexpectedly, the authors rediscover the spectre of exploitation by multinational enterprises, which they want to be tamed by requiring OECD governments to "enforce" internationally agreed guidelines on labour standards, foreign investment flows, income remittances, etc.  None of these are specifically covered in WTO articles -- and labour standards were specifically excluded from the WTO agenda at the Singapore Ministerial meeting!  The report also resurrects the idea of international financial supports to stabilise commodity prices, ignoring their bad record in the 1970s, the moral hazard they introduce and the absence of WTO articles covering such schemes.

In this context, "fair trade" is really about income transfers to developing countries by indirect and inefficient processes, because the authors reject conventional analysis of benefits from trade (chapter 5).  The case for free trade does not claim that the benefits will be distributed in ways consistent with perceptions of social equity or poverty alleviation, or according to any "moral" interpretation.  Welfare gains do occur from trade liberalisation, however, and global economic interdependence has reduced poverty and inequality.  On this topic the Oxfam report is deliberately evasive and even contradictory.  Bleating about "unfair" distribution does not require that gains from liberal trade should be sacrificed, only redistributed.

The verdict that the WTO is "indefensible" on moral and sustainability grounds (pages 4-5) raises serious doubts about the internal consistency of the report.  Elsewhere (chapter 9), amendments to WTO rules are proposed that depend on the institution becoming stronger.  How do the writers of this report believe that the world economy -- and poor, marginalised developing countries in particular -- would have fared without GATT/ WTO liberalisation since 1948?  This counter-factual position is not mentioned in the report.  As noted above, some of the changes to the WTO proposed by Oxfam are unexceptionable to anyone concerned about economic development.  This does not, however, mean that the changes will be easy to achieve.  The institutional structure of the WTO, with negotiated liberalisation and consensus decisions on rule changes, is easily manipulated to preserve the status quo.  Above all, amending WTO rules depends on changing political attitudes in member governments.

Other proposals in the report also show little understanding of the WTO and its processes.  Non-OECD countries have a very substantial majority among the WTO membership (over 100 out of 142 members).  One country, one vote, in an organisation where decisions are made by consensus, is a substantial blocking force.  Oxfam supports extension of the "differential and more favourable treatment" granted in GATT Part IV in 1965 and incorporated into the General Agreement by the "enabling clause" in the Final Act of the Tokyo Round in 1979.  Yet most analyses of these preferences cast doubt on their value to developing countries;  some even argue that this "concession" by OECD countries was used as an excuse for establishing, and progressively tightening, the multifibre arrangement (MFA) and the spread of other non-tariff barriers in the 1970s.

At several points, the report purposely misrepresents the effects of new agreements achieved in the Uruguay Round.  Oxfam joins the vocal NGOs in opposing liberalisation of services' trade in developing countries.  Yet to leave service sectors outside WTO liberalisation would exclude 80 per cent of employment in OECD countries from international competition, and around 50 per cent in developing countries.  Recently, earnings from services' exports by some developing countries have provided new growth sectors (for example, call centres and "new economy" services in India).  This is extending economic development, not exploiting developing countries.

The TRIPS agreement has been seriously criticised by developing countries' governments and by academics.  The flaws identified on humanitarian grounds show this agreement deserves to be reviewed in the Doha Round, especially with respect to access to pharmaceutical drugs.  At the same time, other issues, such as labelling GM foods, imposing geographical indications and introducing environmental standards on traded goods pose threats to the multilateral trading system overall, as well as to developing countries' trade and growth prospects.

By joining the "campaign of blame" against the WTO, Oxfam has failed to recognise the vital need for institutional and political change in developing countries, if they are to benefit from international economic integration.

Much of the poverty in sub-Saharan Africa and other marginalised areas results from civil unrest, authoritarian regimes and exclusion of much of the population from the market sector because of inadequate institutions and limited political systems.  Most of those living in poverty in any part of the world fall outside the direct reach of international trade.  Any alleviation of their poverty depends on channelling some part of the economic gains from liberal trade to them using domestic income transfers and redistributional mechanisms, which require effective domestic economic institutions.

It is inadequacies in political and institutional instruments that block changes in agricultural policies and other remaining areas of protection in OECD markets, too.  Witness the recent open letter to major European newspapers by seven EU Ministers of Agriculture that trumpeted the blessings of the CAP.  Subsequently, the French authorities have campaigned to preserve the present system until 2013!

Analytical unevenness and factual errors in the text also weaken its appeal.

This kind of emotionally committed report does little to resolve problems, while possibly misleading developing countries' governments into believing that their plight can be eased by international actions alone.  By advocating global management strategies, Oxfam, like most NGOs, avoids the difficult subjects, such as political and institutional reform in developing and developed economies.  In the summary (page 5), Oxfam asserts that "WTO rules reflect the power of vested interests", but arguing for more trade preferences will create even more vested interests against change.  Shifting decision-making to make it easier for the LDC majority to vote through changes will achieve nothing if OECD governments are not party to the decisions.  Reform of "rigged rules and double standards" requires more than arbitrary assignment of blame.

This is a disappointing report.  It is far too long because the editors have failed both to pursue a consistent line of argument and to edit out repetitions and irrelevancies.  It acknowledges economic benefits from trade liberalisation, but then tries to dispose of conventional trade theory.  It recognises the importance of domestic policies for trade policy, but blames WTO rules for shortcomings.  It treats "developing countries" as a uniform group, although the disparities and divergences create as many conflicts as common interests.  The inconsistencies, exaggerations and biases mean that this report does not strengthen the case for further preferences, which weaken the principles that underpin the multilateral trading system:  non-discrimination, reciprocity and transparency.

The future of the WTO will be decided in the Doha Round and its success will depend on a re-assertion of these principles.