Why is the WTO Facing a Legitimacy Crisis?
Introduction
In this essay, I will argue that a major source of the WTO’s current legitimacy crisis is a failure on the part of the more powerful elements within that forum to secure the full consent of developing country governments to further multilateral trade liberalisation. This consent has not been fully secured for the simple reason that many developing countries currently do not see further liberalisation via the WTO as being in their interests.
Using Daniel Esty’s conception of ‘legitimacy’, augmented with Antonio Gramsci and Giovanni Arrighi’s use of the term ‘hegemony’, I will examine the current difficulties experienced by the WTO forum, and the interests that shape its agenda, to establish a global trading order whose legitimacy is commonly accepted. I will review the emerging developing country opposition to the policy direction taken by the WTO, and the probable reasons for that opposition.
I will not argue that this developing country opposition is the only reason that the WTO is facing a crisis of legitimacy. There are other factors that may challenge the WTO’s legitimacy. These include the input that activists and NGOs have had into the emerging popular understanding of globalisation; specifically their role in promoting the perception that WTO trade negotiations have not been offering a good deal for developing nations (Smith:2003). Another factor is the perception within the developed countries that trade liberalisation may be detrimental to certain domestic and/or cultural interests (Bhagwati:2001:19). Though these factors are relevant, I will limit the scope of this essay to an examination of the failure to secure sufficient developing country consent to WTO-managed liberalisation and the importance of this particular factor in the erosion of WTO legitimacy.
Although I will review the probable reasons for developing country opposition, I will not enter into the debate on whether this opposition is objectively justified. The thesis presented here is that the WTO faces a legitimacy crisis because developing nations increasingly fail to see further liberalisation under its auspices as being in their interests. For these purposes, the question of whether that perception is justified is, to an extent, peripheral. The point is that the perception exists and that there are substantive reasons for its existence.
Legitimacy and Hegemony
For Esty, a governing institution establishes its legitimacy either because it is representative (by being subject to elections, for example) or as a result of the “efficacy of the outcomes it generates” (Esty:2002:9). I will focus particularly on this second factor – the notion that “institutions also [in part] win legitimacy and authority because of their capacity to deliver good results..” (Esty:2002:16). Understanding of this particular source of legitimacy and how it relates to the global trading order can be enhanced by introducing the notion of ‘hegemony’, as it is used by Gramsci and Arrighi.
Gramsci noted that, at the national level, order does not necessarily establish itself through straightforward coercion by the dominant social group. Often, “the development and expansion of the particular group are conceived of, and presented, as being the motor force of a universal expansion, a development of all the ‘national’ energies” (quoted in Arrighi:1994:28).
This Gramsci describes as “hegemony”. Order is established not simply by coercion but by consent. The interests of the dominant group are widely accepted (correctly or not) as being consistent with the interests of society more broadly. In Arrighi’s words:
“Whereas dominance will be conceived of as resting primarily on coercion, hegemony will be understood as the additional power that accrues to a dominant group by virtue of its capacity to place all the issues around which conflict rages on a ‘universal’ plane” (Arrighi:1994:28 - emphasis in original)
Arrighi applies this concept of hegemony to the international sphere and the evolution of the global political economy. He identifies “three hegemonies” that have shaped the history of modern capitalism: the first was the post-Westphalia system of sovereign states whose prosperity was underwritten by Dutch economic and military power; the second was the British-managed free trade system of the late nineteenth century; and the third was that of the post World War II era, run under US auspices via multinational institutions and corporations.
What qualifies the Dutch, the British and the US as hegemons in their respective periods, for Arrighi, is their ability first to create a new system and secondly to secure broad consent amongst the subjects of that system. In the case of the WTO’s current legitimacy crisis, it is this second factor that concerns us. The global trading order that has evolved under the GATT and latterly under the WTO does not by itself constitute a global economic system on the Dutch, British or US model, but the principle of hegemony applies. A hegemonic global trading order can only be created and sustained by consent, and governments will only consent to multilateral trade liberalisation if the agenda of the WTO is placed on a “universal plane” – in other words, if they perceive it as being in their interests to participate in the WTO process. Here we return to Esty’s point about efficacy. The WTO’s hegemony over the global trading system can only be secured when its “capacity to deliver good results” is demonstrated to the satisfaction of member states. Its current crisis of legitimacy derives in part from its failure adequately to make that case.
Withdrawing consent
Concerns about the WTO process and who benefits from it have been present in the developing world for several years, as acknowledged even by supporters of the institution’s track record. Daniel Esty remarked in 2002 that the crisis of legitimacy that came to the fore at the time of the Seattle meeting of 1999 was partly due to the fact that “fears of special interest domination [of the WTO] are now prevalent. And these views are not limited to the public; many developing countries share the concern” (Esty:2002:11). What is relevant in terms of the question of legitimacy is not whether these perceptions were objectively correct – Esty felt that they were not – but rather the fact that they existed and affected the developing countries’ sense of the WTO’s legitimacy.
For reasons that will be discussed further below, many developing countries viewed the 1986-1994 “Uruguay Round” of trade talks as having been largely detrimental to their economic interests. At the turn of the century, there was little appetite amongst those countries for more of the same. In advance of the Seattle meeting in 1999 , the Group of 77 developing countries (“G77”), whilst declaring themselves fully in favour of international trade liberalisation in principle, nevertheless “noted with great concern…that the benefits of the existing multilateral trading system continue to elude developing countries”. They warned that these problems “could erode the confidence of developing countries in the multilateral trading system” and said that they “therefore attached utmost importance to addressing the issues and difficulties…that have arisen in the course of the implementation of the WTO multilateral trade agreements” (G77:1999:paragraphs 18-20). The Tanzanian Minister for Industry and Trade expressed these reservations more forcefully before the Doha conference in July 2001, saying that “most of us are not ready, psychologically, materially and technically, for a new round” (WDM:2006:11).
Against this backdrop, the EU Commissioner for Trade, Pascal Lamy, “a skilled negotiator and shrewd tactician, knew that something needed to be done to demonstrate that the EU ‘cared’ about poor countries” according to an NGO, the World Development Movement (“WDM”)(WDM:2006:11). It was Lamy that called the new round the “Doha Development Agenda”, with the WTO Secretariat arguably compromising its apolitical role by adopting this slogan as part of its Doha Round official logo (WDM:2006:13). Whether the expressed concern for development was genuine or a tactic, the adoption of this slogan strongly indicates that the developed nations and the WTO bureaucracy recognised the importance of presenting the WTO agenda as being on a “universal plane”, and specifically in the interests of the developing nations. Whether those nations would consent to a new round, and on what terms, was implicitly acknowledged to be in question.
Developing country concerns have persisted throughout the Doha “Development Round”, according to a WDM review (WDM:2006). These concerns have centred on the economic problems that the developing world perceived to have been caused by the “implementation of the WTO multilateral trade agreements”, as noted above in the G77 statement. The concerns were exacerbated by the fact that these “implementation issues” were often relegated in importance or ignored during WTO negotiations in favour of “new issues” – i.e. the further liberalisation of developing country economies - brought to the table by the developed nations and the national and multinational corporate interests that they arguably help to represent. The developed world demanded a quid pro quo for any concessions it made during the Doha round, but the developing countries felt that this would mean them having “to pay a second time with new liberalisation commitments in return for trying to rectify” the losses incurred from the last set of liberalisation commitments (WDM:2006:10,12).
Proposals from developing countries aimed at addressing their concerns were put forward in December 2001, April 2002, October 2002 and August 2003, only to be rebuffed by the developed world (WDM:2006:14). In advance of the Cancun meeting in 2003, 66 developing countries signed statements expressing their opposition to the “new issues” pressed on them by the developed world (WDM:2006:15). The collapse of the Cancun talks was in no small part due to the collective opposition of many developing nations to the emerging WTO policy agenda – which opposition stemmed from the perception that this agenda was not in their interests. As Dipak Patel, the Zambian Trade Minister, said:
“I am definitely sure that I would have been lynched by the private sector and civil society if I had returned home with a bad deal….No deal is better than a bad deal” (WDM:2006:16).
This last phrase was indicative of where the growing disillusionment amongst developing countries could lead.
By the Hong Kong meeting of December 2005 there were strong indications that this disillusionment had become widespread and entrenched. An opinion poll of African trade delegations, carried out by the development NGO Christian Aid, found that ninety per cent of respondents did not agree with the characterisation of Doha as a “development round”. Seventy per cent believed that their country’s economy would suffer a net loss if they accepted what the developed countries were proposing. And fifty-five per cent said that they were prepared to “block the consensus and stop negotiating” if the round failed to address their priorities (Christian Aid:December 2005). This disillusionment contributed towards continued co-ordinated opposition amongst developing countries at the Hong Kong meeting to the more excessive demands of the developed world (Rice & Talpur:2006).
Clearly the most powerful interests at the WTO – the developed nations and the private sector interests they arguably helped to represent – had failed to establish their agenda on a “universal plane”. The WTO’s legitimate hegemony over the global trading system was not being effectively secured because, quite simply, those whose consent was required to bring that hegemony into being had not had the WTO’s “capacity to deliver good results” in their interests demonstrated to their satisfaction. In order to deepen our understanding of this failure to secure developing country consent, it is necessary to look at the probable reasons for that consent being withheld.
The costs of liberalisation
According to a study produced by Christian Aid, drawing on data from the World Bank, International Monetary Fund, the United Nations and academic studies, trade liberalisation has cost sub-Saharan Africa US$272 billion over the past 20 years, which is
“..roughly what it has received in aid. Effectively, this aid did no more than compensate African countries for the losses they sustained [through trade liberalisation]. Had they not been forced to liberalise…sub-Saharan African countries would have had enough extra income to wipe out their debts and have sufficient left over to pay for every child to be vaccinated and go to school…..The negative effects of trade liberalisation are not confined to Africa. The average loss to the countries in Christian Aid’s study [which included developing nations in Latin America and South Asia] was about 11 per cent of total GDP over 20 years…The total loss for the 32 countries in the study was US$896 billion” (Christian Aid:June 2005:2-4)
The study pointed out that trade liberalisation often leads to harmful trade deficits, as increased imports squeeze local producers in developing countries by causing decline in local demand for their wares, while export opportunities do not increase to compensate (Christian Aid:June 2005:2-4).
Furthermore, both the WDM and Gallagher and Wise point out that the liberalisation that developing countries have undertaken under WTO auspices runs counter to what history tells us about the policies required to foster development. (WDM:2006:5 and Gallagher & Wise:2006:3-4) Development has traditionally involved countries not concentrating on an existing ‘comparative advantage’ in exporting primary products such as agricultural produce, but in creating a new specialisation in more profitable manufacturing industries. Both the “Asian Tiger” economies since World War II and the now developed Western nations before them retained and exercised their freedom to strategically deploy various kinds of trade barriers to protect their infant manufacturing industries. The WDM quotes the economist Erik Reinert, who says that
“Today the application of the rules of the Washington Consensus – essentially that the historically proven procedure of artificially creating a comparative advantage in manufacturing is no longer allowed – means that the road to development that has been followed by absolutely all industrialised countries up until now, is completely blocked for the Third World of today” (WDM:2006:5 – emphasis in original).
Both Christian Aid (Christian Aid:June 2005:6) and the WDM (WDM:2006:6) present statistics to show the correlation between trade liberalisation and increases in poverty. The WDM table, based on data from the United Nations Conference of Trade and Development, is reproduced below. It shows that, contrary to the policies adopted by developing countries under the WTO process, poverty is generally more likely to increase in the absence of moderate (though not stringent) trade protections.
Table 1
Column A - IMF trade restrictiveness index (1 = most open, 10 = most restricted)
Column B - Percentage change un US$1-a-day poverty level in LDCs (figures with every country treated the same, regardless of population)
Column C - Percentage change in US$1-a-day poverty level in LDCs (figures weighted to account for more populous countries)
A B C
1 +24 +16
2 +5 +5
3 +4 +2
4 +3 +8
5 -1 -3
6 -1 -1
7 -4 -4
8 -7 -10
9 0 0
10 +6 +5
The costs of liberalisation described by these studies will have been no secret to the developing country governments that suffered the losses in question. And as the Doha round continued it seems likely that many of those governments came to the conclusion that the lessons of history were likely to repeat themselves under the WTO process.
As noted above, pressure was put on the developing nations throughout the Doha round to further open up their economies – now particularly their service industries - to competition from the developed nations (WDM:2006:12, 16-19). The latter saw this as a quid pro quo for any concessions they made. However, not only did the developing nations feel that they had already “paid” significantly as a result of the liberalisation they had undertaken to date, but the concessions now offered by the rich world seemed unlikely to offset any potential further losses. For example, as Charlton and Stiglitz point out, the much trumpeted phasing out of export subsidies by 2013 agreed at Hong Kong represented a mere four per cent of the total support given to agriculture in OECD countries (Charlton & Stiglitz:2006). The developing countries were effectively being offered more of what had cost them so dearly in the past. It was hardly likely that this would assuage their concerns.
Conclusion
I began by noting Esty’s view that “institutions …. win legitimacy and authority because of their capacity to deliver good results..” (Esty:2002:16). I augmented this view of legitimacy with the notion of ‘hegemony’ as used by Gramsci and Arrighi, for whom the hegemony of a certain order was secured not by the sheer coercive dominance of the strongest social group but by the agenda of that order being placed on a “universal plane”. A translation of these principles to the case of the WTO tells us that, for the global trading order to maintain its legitimacy, it will not be sufficient for the wealthy nations and/or the private interests they arguably help to represent in that forum to simply dictate terms to the weaker actors. Those weaker actors – the governments of the developing world, would have to perceive it to be in their interests to grant their consent to this order. As we have seen, the developing countries do not have this perception, and for substantive reasons.
However, there are reasons to believe that the crisis need not be terminal. As mentioned above, the G77 countries had expressed their support in principle to continuing trade liberalisation under WTO auspices in advance of the Seattle meeting of 1999. This indicates that the subject of the crisis of legitimacy under discussion here is the process of WTO liberalisation as it is currently unfolding, rather than the notion of the WTO itself. Should the process continue to offer what, in the perception of many developing nations, are deals that run contrary to their interests, than the crisis will persist and may indeed become terminal. But if WTO trade negotiations can begin demonstrate “their capacity to deliver good results” for the developing world, there is every reason to believe that the forum’s legitimacy could be reasserted.
Bibliography
Arrighi, G., (1994), “The Long Twentieth Century: Money, Power, and the Origins of Our Times”, (London: Verso)
Bhagwati, J., (2001), “After Seattle: free trade and the WTO”, International Affairs, 77(1), 15-29.
Charlton, A. and Stiglitz, J., (2006), “The Doha Round After Hong Kong”, conference paper produced for “An Assessment of the Doha Round after Hong Kong”.
Christian Aid, (June 2005), “The Economics of Failure: The Real Cost of ‘Free’ Trade for Poor Countries”, (London).
Christian Aid, (December 2005), “Christian Aid warns of World Trade Organisation walk out”, (London).
Esty, D.C., (2002), “The World Trade Organisation’s Legitimacy Crisis”, World Trade Review, 1(1), 7-22.
Gallagher, K.P. and Wise, T.A., (2006), “Doha and the Developing Countries: Will the Doha Deal do More Harm Than Good?”, RIS Policy Briefs, 22, (Delhi).
Group of 77, (24 September 1999), “The Twenty-Third Annual Meeting of the Ministers for Foreign Affairs of the Group of 77: Ministerial Declaration”, (New York).
Rice, T. and Talpur, M., (2006), “A Development Analysis of the WTO Hong Kong Declaration”, Action Aid, (London).
Smith, J., (2003), “WTO Mood at Cancun Worsened by NGOs – EU’s Fischeler”, AlertNet. Viewed Online 17 March 2006
World Development Movement (“WDM”), (2006), “Missing Presumed Dead: Whatever happened to the Development Round?”, (London).
In this essay, I will argue that a major source of the WTO’s current legitimacy crisis is a failure on the part of the more powerful elements within that forum to secure the full consent of developing country governments to further multilateral trade liberalisation. This consent has not been fully secured for the simple reason that many developing countries currently do not see further liberalisation via the WTO as being in their interests.
Using Daniel Esty’s conception of ‘legitimacy’, augmented with Antonio Gramsci and Giovanni Arrighi’s use of the term ‘hegemony’, I will examine the current difficulties experienced by the WTO forum, and the interests that shape its agenda, to establish a global trading order whose legitimacy is commonly accepted. I will review the emerging developing country opposition to the policy direction taken by the WTO, and the probable reasons for that opposition.
I will not argue that this developing country opposition is the only reason that the WTO is facing a crisis of legitimacy. There are other factors that may challenge the WTO’s legitimacy. These include the input that activists and NGOs have had into the emerging popular understanding of globalisation; specifically their role in promoting the perception that WTO trade negotiations have not been offering a good deal for developing nations (Smith:2003). Another factor is the perception within the developed countries that trade liberalisation may be detrimental to certain domestic and/or cultural interests (Bhagwati:2001:19). Though these factors are relevant, I will limit the scope of this essay to an examination of the failure to secure sufficient developing country consent to WTO-managed liberalisation and the importance of this particular factor in the erosion of WTO legitimacy.
Although I will review the probable reasons for developing country opposition, I will not enter into the debate on whether this opposition is objectively justified. The thesis presented here is that the WTO faces a legitimacy crisis because developing nations increasingly fail to see further liberalisation under its auspices as being in their interests. For these purposes, the question of whether that perception is justified is, to an extent, peripheral. The point is that the perception exists and that there are substantive reasons for its existence.
Legitimacy and Hegemony
For Esty, a governing institution establishes its legitimacy either because it is representative (by being subject to elections, for example) or as a result of the “efficacy of the outcomes it generates” (Esty:2002:9). I will focus particularly on this second factor – the notion that “institutions also [in part] win legitimacy and authority because of their capacity to deliver good results..” (Esty:2002:16). Understanding of this particular source of legitimacy and how it relates to the global trading order can be enhanced by introducing the notion of ‘hegemony’, as it is used by Gramsci and Arrighi.
Gramsci noted that, at the national level, order does not necessarily establish itself through straightforward coercion by the dominant social group. Often, “the development and expansion of the particular group are conceived of, and presented, as being the motor force of a universal expansion, a development of all the ‘national’ energies” (quoted in Arrighi:1994:28).
This Gramsci describes as “hegemony”. Order is established not simply by coercion but by consent. The interests of the dominant group are widely accepted (correctly or not) as being consistent with the interests of society more broadly. In Arrighi’s words:
“Whereas dominance will be conceived of as resting primarily on coercion, hegemony will be understood as the additional power that accrues to a dominant group by virtue of its capacity to place all the issues around which conflict rages on a ‘universal’ plane” (Arrighi:1994:28 - emphasis in original)
Arrighi applies this concept of hegemony to the international sphere and the evolution of the global political economy. He identifies “three hegemonies” that have shaped the history of modern capitalism: the first was the post-Westphalia system of sovereign states whose prosperity was underwritten by Dutch economic and military power; the second was the British-managed free trade system of the late nineteenth century; and the third was that of the post World War II era, run under US auspices via multinational institutions and corporations.
What qualifies the Dutch, the British and the US as hegemons in their respective periods, for Arrighi, is their ability first to create a new system and secondly to secure broad consent amongst the subjects of that system. In the case of the WTO’s current legitimacy crisis, it is this second factor that concerns us. The global trading order that has evolved under the GATT and latterly under the WTO does not by itself constitute a global economic system on the Dutch, British or US model, but the principle of hegemony applies. A hegemonic global trading order can only be created and sustained by consent, and governments will only consent to multilateral trade liberalisation if the agenda of the WTO is placed on a “universal plane” – in other words, if they perceive it as being in their interests to participate in the WTO process. Here we return to Esty’s point about efficacy. The WTO’s hegemony over the global trading system can only be secured when its “capacity to deliver good results” is demonstrated to the satisfaction of member states. Its current crisis of legitimacy derives in part from its failure adequately to make that case.
Withdrawing consent
Concerns about the WTO process and who benefits from it have been present in the developing world for several years, as acknowledged even by supporters of the institution’s track record. Daniel Esty remarked in 2002 that the crisis of legitimacy that came to the fore at the time of the Seattle meeting of 1999 was partly due to the fact that “fears of special interest domination [of the WTO] are now prevalent. And these views are not limited to the public; many developing countries share the concern” (Esty:2002:11). What is relevant in terms of the question of legitimacy is not whether these perceptions were objectively correct – Esty felt that they were not – but rather the fact that they existed and affected the developing countries’ sense of the WTO’s legitimacy.
For reasons that will be discussed further below, many developing countries viewed the 1986-1994 “Uruguay Round” of trade talks as having been largely detrimental to their economic interests. At the turn of the century, there was little appetite amongst those countries for more of the same. In advance of the Seattle meeting in 1999 , the Group of 77 developing countries (“G77”), whilst declaring themselves fully in favour of international trade liberalisation in principle, nevertheless “noted with great concern…that the benefits of the existing multilateral trading system continue to elude developing countries”. They warned that these problems “could erode the confidence of developing countries in the multilateral trading system” and said that they “therefore attached utmost importance to addressing the issues and difficulties…that have arisen in the course of the implementation of the WTO multilateral trade agreements” (G77:1999:paragraphs 18-20). The Tanzanian Minister for Industry and Trade expressed these reservations more forcefully before the Doha conference in July 2001, saying that “most of us are not ready, psychologically, materially and technically, for a new round” (WDM:2006:11).
Against this backdrop, the EU Commissioner for Trade, Pascal Lamy, “a skilled negotiator and shrewd tactician, knew that something needed to be done to demonstrate that the EU ‘cared’ about poor countries” according to an NGO, the World Development Movement (“WDM”)(WDM:2006:11). It was Lamy that called the new round the “Doha Development Agenda”, with the WTO Secretariat arguably compromising its apolitical role by adopting this slogan as part of its Doha Round official logo (WDM:2006:13). Whether the expressed concern for development was genuine or a tactic, the adoption of this slogan strongly indicates that the developed nations and the WTO bureaucracy recognised the importance of presenting the WTO agenda as being on a “universal plane”, and specifically in the interests of the developing nations. Whether those nations would consent to a new round, and on what terms, was implicitly acknowledged to be in question.
Developing country concerns have persisted throughout the Doha “Development Round”, according to a WDM review (WDM:2006). These concerns have centred on the economic problems that the developing world perceived to have been caused by the “implementation of the WTO multilateral trade agreements”, as noted above in the G77 statement. The concerns were exacerbated by the fact that these “implementation issues” were often relegated in importance or ignored during WTO negotiations in favour of “new issues” – i.e. the further liberalisation of developing country economies - brought to the table by the developed nations and the national and multinational corporate interests that they arguably help to represent. The developed world demanded a quid pro quo for any concessions it made during the Doha round, but the developing countries felt that this would mean them having “to pay a second time with new liberalisation commitments in return for trying to rectify” the losses incurred from the last set of liberalisation commitments (WDM:2006:10,12).
Proposals from developing countries aimed at addressing their concerns were put forward in December 2001, April 2002, October 2002 and August 2003, only to be rebuffed by the developed world (WDM:2006:14). In advance of the Cancun meeting in 2003, 66 developing countries signed statements expressing their opposition to the “new issues” pressed on them by the developed world (WDM:2006:15). The collapse of the Cancun talks was in no small part due to the collective opposition of many developing nations to the emerging WTO policy agenda – which opposition stemmed from the perception that this agenda was not in their interests. As Dipak Patel, the Zambian Trade Minister, said:
“I am definitely sure that I would have been lynched by the private sector and civil society if I had returned home with a bad deal….No deal is better than a bad deal” (WDM:2006:16).
This last phrase was indicative of where the growing disillusionment amongst developing countries could lead.
By the Hong Kong meeting of December 2005 there were strong indications that this disillusionment had become widespread and entrenched. An opinion poll of African trade delegations, carried out by the development NGO Christian Aid, found that ninety per cent of respondents did not agree with the characterisation of Doha as a “development round”. Seventy per cent believed that their country’s economy would suffer a net loss if they accepted what the developed countries were proposing. And fifty-five per cent said that they were prepared to “block the consensus and stop negotiating” if the round failed to address their priorities (Christian Aid:December 2005). This disillusionment contributed towards continued co-ordinated opposition amongst developing countries at the Hong Kong meeting to the more excessive demands of the developed world (Rice & Talpur:2006).
Clearly the most powerful interests at the WTO – the developed nations and the private sector interests they arguably helped to represent – had failed to establish their agenda on a “universal plane”. The WTO’s legitimate hegemony over the global trading system was not being effectively secured because, quite simply, those whose consent was required to bring that hegemony into being had not had the WTO’s “capacity to deliver good results” in their interests demonstrated to their satisfaction. In order to deepen our understanding of this failure to secure developing country consent, it is necessary to look at the probable reasons for that consent being withheld.
The costs of liberalisation
According to a study produced by Christian Aid, drawing on data from the World Bank, International Monetary Fund, the United Nations and academic studies, trade liberalisation has cost sub-Saharan Africa US$272 billion over the past 20 years, which is
“..roughly what it has received in aid. Effectively, this aid did no more than compensate African countries for the losses they sustained [through trade liberalisation]. Had they not been forced to liberalise…sub-Saharan African countries would have had enough extra income to wipe out their debts and have sufficient left over to pay for every child to be vaccinated and go to school…..The negative effects of trade liberalisation are not confined to Africa. The average loss to the countries in Christian Aid’s study [which included developing nations in Latin America and South Asia] was about 11 per cent of total GDP over 20 years…The total loss for the 32 countries in the study was US$896 billion” (Christian Aid:June 2005:2-4)
The study pointed out that trade liberalisation often leads to harmful trade deficits, as increased imports squeeze local producers in developing countries by causing decline in local demand for their wares, while export opportunities do not increase to compensate (Christian Aid:June 2005:2-4).
Furthermore, both the WDM and Gallagher and Wise point out that the liberalisation that developing countries have undertaken under WTO auspices runs counter to what history tells us about the policies required to foster development. (WDM:2006:5 and Gallagher & Wise:2006:3-4) Development has traditionally involved countries not concentrating on an existing ‘comparative advantage’ in exporting primary products such as agricultural produce, but in creating a new specialisation in more profitable manufacturing industries. Both the “Asian Tiger” economies since World War II and the now developed Western nations before them retained and exercised their freedom to strategically deploy various kinds of trade barriers to protect their infant manufacturing industries. The WDM quotes the economist Erik Reinert, who says that
“Today the application of the rules of the Washington Consensus – essentially that the historically proven procedure of artificially creating a comparative advantage in manufacturing is no longer allowed – means that the road to development that has been followed by absolutely all industrialised countries up until now, is completely blocked for the Third World of today” (WDM:2006:5 – emphasis in original).
Both Christian Aid (Christian Aid:June 2005:6) and the WDM (WDM:2006:6) present statistics to show the correlation between trade liberalisation and increases in poverty. The WDM table, based on data from the United Nations Conference of Trade and Development, is reproduced below. It shows that, contrary to the policies adopted by developing countries under the WTO process, poverty is generally more likely to increase in the absence of moderate (though not stringent) trade protections.
*
Table 1
Column A - IMF trade restrictiveness index (1 = most open, 10 = most restricted)
Column B - Percentage change un US$1-a-day poverty level in LDCs (figures with every country treated the same, regardless of population)
Column C - Percentage change in US$1-a-day poverty level in LDCs (figures weighted to account for more populous countries)
A B C
1 +24 +16
2 +5 +5
3 +4 +2
4 +3 +8
5 -1 -3
6 -1 -1
7 -4 -4
8 -7 -10
9 0 0
10 +6 +5
*
The costs of liberalisation described by these studies will have been no secret to the developing country governments that suffered the losses in question. And as the Doha round continued it seems likely that many of those governments came to the conclusion that the lessons of history were likely to repeat themselves under the WTO process.
As noted above, pressure was put on the developing nations throughout the Doha round to further open up their economies – now particularly their service industries - to competition from the developed nations (WDM:2006:12, 16-19). The latter saw this as a quid pro quo for any concessions they made. However, not only did the developing nations feel that they had already “paid” significantly as a result of the liberalisation they had undertaken to date, but the concessions now offered by the rich world seemed unlikely to offset any potential further losses. For example, as Charlton and Stiglitz point out, the much trumpeted phasing out of export subsidies by 2013 agreed at Hong Kong represented a mere four per cent of the total support given to agriculture in OECD countries (Charlton & Stiglitz:2006). The developing countries were effectively being offered more of what had cost them so dearly in the past. It was hardly likely that this would assuage their concerns.
Conclusion
I began by noting Esty’s view that “institutions …. win legitimacy and authority because of their capacity to deliver good results..” (Esty:2002:16). I augmented this view of legitimacy with the notion of ‘hegemony’ as used by Gramsci and Arrighi, for whom the hegemony of a certain order was secured not by the sheer coercive dominance of the strongest social group but by the agenda of that order being placed on a “universal plane”. A translation of these principles to the case of the WTO tells us that, for the global trading order to maintain its legitimacy, it will not be sufficient for the wealthy nations and/or the private interests they arguably help to represent in that forum to simply dictate terms to the weaker actors. Those weaker actors – the governments of the developing world, would have to perceive it to be in their interests to grant their consent to this order. As we have seen, the developing countries do not have this perception, and for substantive reasons.
However, there are reasons to believe that the crisis need not be terminal. As mentioned above, the G77 countries had expressed their support in principle to continuing trade liberalisation under WTO auspices in advance of the Seattle meeting of 1999. This indicates that the subject of the crisis of legitimacy under discussion here is the process of WTO liberalisation as it is currently unfolding, rather than the notion of the WTO itself. Should the process continue to offer what, in the perception of many developing nations, are deals that run contrary to their interests, than the crisis will persist and may indeed become terminal. But if WTO trade negotiations can begin demonstrate “their capacity to deliver good results” for the developing world, there is every reason to believe that the forum’s legitimacy could be reasserted.
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Labels: Economics, International Political Economy
posted by David Wearing at 7:56 PM
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