Trade, Investment, and Competition Rules


Excerpt From: Rischard, Jean-Francois.

“High Noon: 20 Global Problems, 20 Years To Solve Them.” iBooks.

 

“This global issue is a cause célèbre, if only because protest movements have chosen to concentrate on it so much more than on the other nineteen or so. It comprises one urgent issue, trade rules, and two slightly less urgent ones, global investment and competition rules. Some people like to jumble them all up, but that just adds to the confusion.
 

TRADE RULES.

The story is simple. Shortly after World War II, the rich countries started freeing trade and reducing tariffs, mostly through the General Agreement on Tariffs and Trade (GATT). The results were stunning: between 1950 and 2000, world output was multiplied by five, world merchandise exports by eighteen.

Developing countries were little involved in these efforts until the 1980s, when they started opening their economies to trade as part of the economic revolution that has acted as one of the two engines of the new world economy (Chapter 3). For them the results were also extraordinary: for instance, over just the last decade, they lifted their share of merchandise exports (other than oil) from 18 percent of the world total to 25 percent. Lately, they have been doing well even in services exports—recall the performance of India’s Bangalore in software exports and other examples (Chapter 4). Developing countries now account for one-fourth of total trade in services.

This has been one major factor behind the 3.5-percent average economic growth of the developing countries in the 1990s, exceeding that of the rich countries. And those that opened their economies the most—including Mexico, Brazil, China, India, Malaysia, Bangladesh, Vietnam, Hungary, and even a few African countries—did the best both in economic growth and poverty reduction. A group of twenty-four such “globalizers” from the developing world—with 3 billion people—increased their per capita income by about 5 percent a year during the 1990s, against a 1-percent decline for the other developing countries—with 2 billion people—that did the least to integrate themselves in the new world economy.21 Many countries in the latter group are part of the group of fifty-odd “least developed countries,” which even saw its share of world exports move down from 3 percent in the 1950s to less than 1 percent today. These days, economic isolation is a fast track to impoverishment—and to diseases, degradation, and the despair that leads people to lose faith in their institutions.

Further liberalization of trade should be a no-brainer. Indeed, studies show that a further substantial lowering of trade tariffs and barriers could lift world output by several hundred billion dollars a year, netting developing countries at least $50–100 billion a year in additional resources—resources that, as we saw, are badly needed to seriously reduce poverty on the planet.

But the story isn’t simple after all. There have been massive complications and controversies around the attempt to move in such a direction by the more than 140 member states assembled in the World Trade Organization (WTO)—the global successor, created in January 1995, of the more secretive, rich country-oriented GATT. These complications, which predated the highly publicized Seattle fiasco of November 1999, are all the more intriguing as the WTO’s membership has been steadily increasing—with the recent entry of China and Taiwan adding, in one fell swoop, 20 percent to the reach of trade liberalization. But they are likely to become even more vividly clear as all the WTO members enter a three-year negotiation phase now that the November 2001 Doha meeting has managed to launch a new trade round, with a clear developing country-focused agenda.

If trade liberalization is so beneficial, and if the next round is indeed going to focus on the development agenda, where do these complications come from? Summarizing a bit, there are three major sources.

To start with, even though most developing countries have done nicely, emerging asymmetries have made many of them fear that rich countries will get disproportionately more out of future liberalization than they do. For one, many of them feel that they don’t even have the resources and capacity to implement earlier agreements, such as the so-called Uruguay Round of 1994, which liberalized telecommunications and services, among others. What’s more, they point out that greater market access will work only if they get help in addressing “behind-the-border” issues like their deficient ports, road networks, infrastructure, customs systems, quality certification setups, and sanitary controls. And finally, they feel that some new rules, such as those on intellectual property rights, may make them lose out to the rich countries in the increasingly knowledge-intensive new world economy. All these points have such validity that they do indeed form an urgent agenda for global action. Much needs to be done: despite scores of practical proposals by the developing countries in those directions over the last two years, there has been little action so far, leaving them quite disappointed.

The second big complication has to do with agricultural exports. Almost all developing countries—especially the lower-income ones and those in the “least developed countries” group—depend heavily on agricultural exports. For many of them, it’s the only avenue towards lifting themselves and their people out of poverty. Yet the rich countries have not only failed to seriously reduce agricultural tariffs and barriers, but they continue subsidizing their own agriculture to the tune of $1 billion a day, depressing world prices and depriving poor countries of the chance to compete. In Europe alone, such subsidies cost every man, woman, and child nearly $200 a year. Subsidies also continue in Japan and in many other places, and have lately even increased in the United States.

Reducing, let alone eliminating these subsidies is a political hot potato, even though the farmer population in the rich countries is an extremely small part of the electorate. For those who read between the lines, this may have been the major cause behind the debacle of the Seattle WTO meeting in the fall of 1999. It’s not an issue that will go away—it’s too central to solving the issue of poverty. But the contrived, tortured text of the Doha declaration that deals with this issue strongly hints that some rich countries will be very slow to address it.

 

https://youtube.com/watch?v=Y4OQeekSD6s+

 

The third big complication has to do with manufactured exports from the developing countries. Even though agricultural exports are a key agenda item for them, their manufactured exports have been growing nicely, with especially good prospects for growth in light, labor-intensive exports like textiles. Unfulfilled rich-country promises in the textile area, and rich country abuse of anti-dumping procedures, have been among the reasons for many developing countries’ recent hard feelings.

But the issue is broader and deeper: it has to with a great anguish in many rich countries. Many rich-country politicians, union leaders, and others fear that if the developing countries are given greater access to their manufactured export markets, their often lower labor and environmental standards will help them outcompete and hurt rich-country producers, possibly even leading to a “race to the bottom.” Note that there is no evidence whatsoever that as they lift their trade and growth performance, developing countries actively lower their standards, let alone become “pollution havens.” Still, this second political hot potato is what led the United States and the EU to try to link labor and environmental issues to trade issues in Seattle—the second major reason for the debacle and for the uproar by the developing countries. Why did this proposal make developing countries so upset? Because most of them believe that trade sanctions applied for such reasons would be used to keep their products out—and that rich countries, as they often do, would pressure small countries more than big ones.

Those are the main complications around the very complex agenda of the international trade rules. Don’t let their technical complexity and difficulty distract you from the huge stakes involved, the main one being poverty reduction. The proof will be in the pudding, particularly as far as agricultural subsidies are concerned.

At any rate, these complications explain why the malaise about global problem-solving seems to have somehow crystallized around this issue. And trade isn’t alone. It has two companion issues.
 

INVESTMENT RULES.

While the world makes a lot of noise around trade rules, another phenomenon has quietly begun to dominate the greater integration into the new world economy: foreign investment. It has soared even faster than trade over the last decades—about three times faster. Between 1980 and 2000, the total amount of foreign investment went from 4 percent to 12 percent of GDP as a worldwide average, but it surged even faster in developing countries, from 4 percent to 16 percent of their GDP.

There are now 63,000 multinational companies with 800,000 foreign affiliates. Those affiliates had sales of $14 trillion worldwide in 2000, a much higher figure than total world exports of $7 trillion. A Japanese or German car will often have been assembled in the United States from mostly U.S. components.

To put it another way: foreign investment, which now runs at about $1 trillion a year (one-third in developing countries, two-thirds in rich countries) is the main vehicle for the buildup of the global production system that is at the heart of the new world economy (Chapters 3 and 4). It is rapidly emerging as more important in delivering goods and services to foreign markets than trade itself.

Yet unlike the global trade rules that the WTO administers, there are few international investment rules—instead, there have been many bilateral investment treaties (or “bits”) between pairs of countries, with the EU as their main promoter. Their number has grown from some 400 in 1980 to close to 2,000 today, involving more than 170 countries.26 This alone (but there are also other reasons) makes investment rules a global issue that needs tackling at some point, and better sooner than later: the enormous proliferation of “bits” confuses investors and leaves developing countries probably at a disadvantage on the whole. Yet it is seen as a perhaps less urgent issue than the trade issue, as shown by the many voices that have been objected to its inclusion in the already overly complicated trade rules negotiations to come.

 

COMPETITION RULES.

This is a latecomer. Mergers reached more than $3 trillion worldwide in 1999, another sign of the massive restructuring of global production outside the domain of world trade. Those mergers do not raise global issues of their own, save for the problem that is created by the sheer number of countries (some sixty) in which these mergers must jump regulatory hurdles under national competition (antitrust) laws. When Alcan tried in late 2000 to achieve a deal with Pechiney and Alusuisse—which ended up unconsummated—the company had to file for approval in sixteen countries and in eight languages, with 400 boxes of documents and 1 million pages of e-mail.

This and other questions are likely to make this an emerging global issue next to international trade and investment rules. Should one look for greater convergence among national antitrust definitions, regulations, and tests? How should national antitrust authorities deal with a corporate world whose real or virtual business now extends well beyond its territorial jurisdiction? How should they deal with the monopolies that can arise so quickly in some high-technology areas?

Summing up, the triple global issue of international trade, investment, and competition rules demands determined global action. The toughest challenge has to do with rethinking the rich world’s enormous agricultural subsidies—and with cutting through the other obstacles and complications that have arisen around the expanded trade agenda. The urgency is all too clear: it has to do with giving the developing countries serious chances to achieve over the next decades the 5–6 percent annual growth rates needed to solve the biggest global issue of them all—poverty.”
 

Excerpt From: Rischard, Jean-Francois.

“High Noon: 20 Global Problems, 20 Years To Solve Them.” iBooks.