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Special Report on Trade Issues in 2005: the Doha Round of WTO Trade Negotiations, the Central American Free Trade Agreement, Textile Imports to Developed Countries and Taxing International Transactions to Benefit Developing Countries
(Last updated December 11, 2005) Trade relations between developed and developing countries are structured in favor of the developed countries: the United States and Canada, countries of Western Europe, and Japan. This is because some of the developed countries have been in charge of making the rules for a very long time--certainly since before the 1700's. The way that the rules are made have certainly changed. At one time, Spain with colonies and control of the seas, established the unwritten rules. Later, Great Britain took control of the seas, had colonies and did the same thing. Subject, of course, to negotiation which was fundamentally subject to power relations--the strong dictated to the weaker. Now we have the World Trade Organization, quite a number of regional or specialized trade agreements, and the operation of country legal systems, which can be used to enforce business practices such as contracts and patents.
This article, concerned with trade issues in 2005, deals with three topics:
- The World Trade Organization (WTO), including clothing imports to the U.S. and other developing countries
- the Central American Free Trade Organization (CAFTA)
- the possibility of taxing some international transactions such as currency flows or international airline flights for the benefit of poor countries.
WTO After World War II the General Agreement on Tariffs and Trade (GATT) was established to set rules for international trade. The successor to the GATT--it even has the same building in Geneva, Switzerland--is the World Trade Organization. It was established, in Hunger Notes view, so that developed countries could extend their control of international transactions into key new areas, especially including intellectual property rights (e.g. Microsoft didn't want people in developing countries copying computer code) and foreign investment (by developed countries in developing countries). While legal safeguards were presumably in place to protect these property rights in developing countries, this was viewed as not sufficient. Much better--from the point of view of firms in developed countries and their active supporters, developed country governments--to make the right of trade dependent on compliance with a broad range of controls embodied in the "new and expanded" WTO. This would mean "one stop shopping" with respect to rules enforcement. While the developed countries are ostensibly in favor of free trade--free trade is a mantra with the George Bush administration and Republican law makers for example--developed countries are not in favor of free trade when it does not suit their interests. The key example is agriculture. The United States, Japan, and European countries have giant agricultural subsides and even quota limitations--the U.S. sugar quota is a major example. How do they get away with it? Well of course they wrote the original WTO rules which provide for "differential treatment" for agriculture. The Doha round of trade negotiations is supposed to take major steps to reduce barriers to the export of developing country agricultural products. Developed country governments do not much want to do this, and so one theme this year is struggle over agricultural trade rules. A second similar major struggle is over textile imports (also something which developing countries have a comparative advantage) which appears in a separate subsection below.
Photo: AFP. Anti-riot police repeatedly battled protesters trying to storm the World Trade Organization meeting in Hong Kong
Poor countries get little from ostensible 'development' WTO trade negotiating round BBC News December 19, 2005 (You will leave this site.) 'Modest' trade deal struck in Hong Kong. Developed countries agricultural subsidies 'will' end by 2013, providing that developing country industrial tariffs are also lowered. BBC News December 18, 2005 (You will leave this site.)
The Doha World Trade Organization trade round was supposed to favor the developing countries. (Doha is a city in Quatar where the Doha trade round was launched. WTO trade rounds are a process of negotiation between WTO member countries, which, once concluded sucessfully, lead to new world trade regulations). The reason why Doha was supposed to favor the developing countries was that the earlier rounds had strongly favored the developed countries since they were relatively much more powerful in the negotiating process. It took a while for developing countries, without nearly as much resources to devote to trade negotiations or to understand the consequences of what was being negotiotated, to wake up to the reality that the trade rules worked to their disadvantage, and organize to attempt to redress the disadvantage. A major issue was that developed countries succeeded protecting farm products and textiles in earlier WTO rounds, products in which developing countries have a comparative advantage, and where they could export substantial quanties to developed countries. The WTO meeting in Cancun several years ago brought these differences to the fore. The Hong Kong meetings failed to address the key trade issues of developing countries, resulting more in a 'pious hope' that, for example, developing countries agricultural subsidies will end by 2013--by no means a binding commitment such as the developed countries have been forced to make in the past, under pain of being excluded from the world trade system.
Senators Vote to Kill Trade Law. Byrd Amendment Illegal, WTO Says. Paul Blustein Washington Post December 22, 2005 (You will leave this site and be required to register [once] with the Post.)
The Byrd trade law is named after Robert Byrd, the Senate Minority Leader. It concerns anti-dumping laws. 'Dumping' is a U.S. legal concept referring to foreign producers selling their products to the United States at less than they sell them in their own country. U.S. anti-dumping laws permit the United State to impose tariffs that in theory match the amount by which the 'dumping' price is lower than the in-country price. (As an aside, the United States dumps agricultural commodities abroad, since most U.S. farmers producing agricultural commodities exported abroad receive government subsidies, which make the export price much lower than the price the farmer receives for producing the product.) The Byrd amendment allowed this anti-dumping tax to be remitted directly to the producers. This created a (typically substantial) subsidy to the United States producers. It took quite a bit of legal and diplomatic effort at the WTO by Canada and other developed countries before the Byrd amendment was ruled in violation of WTO rules, an effort that may be beyond the financial abilities of developed countries in cases where there interests are affected.
World Bank Reconsiders Trade's Benefits to Poor Paul Blustein Washington Post December 17, 2005 (You will leave this site and be required to register [once] with the Post.)
What to say about the World Bank. The key international organization in charge of helping developing countries to develop, it often advances the agenda of developed countries, which can be and has been anti-development. The World Bank has advocated trade for three reasons, it appears to Hunger Notes. First, trade is good. The economist's idea of comparative advantage is that countries will produce the goods which they produce best, and trade with other countries--also doing the same thing--result in higher total output of goods and higher welfare for individual countries. Secondly, the World Bank is under the effective control of the developed countries. The United States always gets to name the president of the World Bank. Paul Wolfowitz, former U.S. deputy defense secretary, is the current president of the World Bank. And the voting control of World Bank decisions is controlled by developed countries. Thirdly, the intellectual climate of the World Bank has been established by economists. The profession of economics has done a very poor job of understanding the situation of developing countries, while promoting itself as the guiding light for development..
Thus, reasons why the World Bank has been in favor of trade are:
trade can be beneficial
developed countries--in charge of the World Bank-- want to break down trade barriers in developing countries so that they can sell more goods there
World Bank economists have been more strongly in favor of trade due to standard economics inadequate understanding of issues facing developing countries. This article indicates that the World Bank models--which have supported free trade--are showing less favorable results.
Doha development agenda fades at the World Trade Organization. Developed countries continue to push a self-interested agenda for the WTO December Hong Kong meeting. Maria Riley December 11, 2005
The tariff mismatch: purchasers' unseen penalty hits hardest on low-end items Paul Blustein Washington Post December 11, 2005 (You will leave this site and be required to register [once] with the Post.)
The reason why tariffs are higher on low-end items is that they are produced by developing countries, and developed countries are more threatened by their exports than they are by exports from other developing countries.
E.U. Offer Deflates Trade Talks Paul Blustein Washington Post October 29, 2005 (You will leave this site and be required to register [once] with the Post.)
The E.U. offered to cut tariff rates on its farm products by an average 46 percent -- from 22.8 percent to 12.2 percent -- if other countries take similar measures. European Trade Commissioner Peter Mandelson called the proposal "the most extensive the E.U. has ever offered" in such negotiations....But officials from other nations said the proposed market-opening measures were substantially more modest than they appeared, especially because the E.U. was insisting on sheltering large numbers of "sensitive" products such as beef, poultry and sugar from deep tariff reductions.
United States and the European Economic Union propose big agriculture subsidy cuts in an effort to get stalled Doha Round World Trade Organization trade talks moving BBC News BBC News October 10, 2005 (You will leave this site.) Trade talks may collapse BBC News September 23, 2005
U.S.--Brazil rift on cotton deepens: Brazil threatens WTO approved sanctions, U.S. threatens removal of Brazil's trade preferences BBC News October 7, 2005 (You will leave this site.) The United States fails to comply with World Trade Organization requirement to reduce cotton subsidies; Brazil asks WTO sanctions, saying its small farmers are harmed BBC News September 23, 2005
United States cotton subsidies violate World Trade Organization rules. The United States at this point is not complying.
Poor Nations Propose Farm-Aid Compromise Peter S. Goodman Washington Post July 13, 2005 (You will leave this site and be required to register [once] with the Post.)
Agricultural Trade: Reaping a Rich Harvest from the World Trade Organization Doha Round of Trade Negotiations International Monetary Fund March 30, 2005 (2 page PDF file. This article first appeared in Finance & Development, December 2004, Vol. 41, No. 4, published and copyrighted by the International Monetary Fund.)
This is an optimistic article in terms of imagining what the World Trade Organization is in fact likely to do in terms of reducing developed country barriers to developed country agricultural exports, but it does indicate benefits to developing countries if developed countries were to do so.
Trade and Transnational Corporations: the Solution to World Hunger or a Major Part of the Problem? Peter O'Driscoll April 7, 2005
Bush Administration Asks for Reduction in Large Cotton Subsidies, Against the Wishes of Cotton Farmers, a Key GOP Constituency Dan Morgan Washington Post March 8, 2005 (You will leave this site and be required to register [once] with the Post.)
Textile imports For many years, developed countries restricted textile imports from developing countries, by quotas, tariffs or other arrangements, such as "voluntary" limitations. This was done because, although the United States and other developed countries were ostensibly in favor of free trade, this was to a real degree propaganda, to be set aside when free trade led to harm to developed country industries, such as textiles, and other goods in which the developing countries had a cost advantage in production. Though the United States and other developed countries did permit a substantial reduction in the size of the textile industry, they also imposed strict limitations on imports. For the United States, a key agreement was the 'multifiber' agreement, which limited the size of imports from major importers such as China." There were also additional agreements, such as, for the United States, the Generalized System of Preferences, and more recently, the African Growth and Development Agreement (AGOA) that permitted exporting countries that were not key exporters to increase their exports. However with the advent of the WTO, with stricter rules, the free trade rules are stronger, permitting China and other low cost producers to increase exports, threatening both developed country textile producers and developing countries that benefited from special deals such as AGOA.
China attacks 'unfair' U.S. textile quotas BBC News June 3, 2005 (You will leave this site.)
China to Raise Tariffs On Clothing Exports By Paul Blustein, Washington Post May 21, 2005 (You will leave this site and be required to register [once] with the Post.)
Caps on Chinese Textiles Revived: U.S. Move Limits Surge of Imports That Began in January Paul Blustein Washington Post May 14, 2005 (You will leave this site and be required to register [once] with the Post.)
CAFTA A second issue is regional trade agreements, such as the Central American Free Trade Agreement (CAFTA). European countries are also negotiating regional trade agreements. To Hunger Notes, the regional trade agreements seem to be a case of "divide and conquer"--get better terms by negotiating with a subset of developing countries rather than, as in the WTO, the larger group. Certainly in CAFTA, the United States got Central American countries (and the Dominican Republic) to sign off on a modest increase in their U.S. sugar quotas rather than quota abolition. The signoff appears to be due in part to Latin American sugar producers being able to 'rake off' the the profits from the additional production at the very high prices of the United States sugar market.
The U.S. House of Representatives has narrowly approved the controversial Central American Free Trade Agreement, bringing the pact a step closer to law BBC News, Lagos, July 27, 2005 (You will leave this site.)
U.S. senators back Latin trade pact BBC News July 1, 2005 (You will leave this site.)
Businesses Will Cut Off Funding to Members of Congress Who Oppose the Central American Free Trade Agreement, U.S. Chamber of Congress Says Thomas B. Edsall Washington Post June 12, 2005 (You will leave this site and be required to register [once] with the Post.)
The Central American Free Trade Agreement (CAFTA) Could Fall to Big Sugar Steven Pearlstein Washington Post May 11, 2005 (You will leave this site and be required to register [once] with the Post.)
Hispanic Groups Divided Over CAFTA Benefits Jim Abrams The Associated Press May 7, 2005 (You will leave this site and be required to register [once] with the Post.)
Five Nations to Lobby for CAFTA Approval Sergio de Leon The Associated Press May 9, 2005 (You will leave this site and be required to register [once] with the Post.)
The Central American Free Trade Agreement: Designed for Profit for U.S. Drug (and Other) Companies? Harold Meyerson Washington Post March 30, 2005 (You will leave this site and be required to register [once] with the Post.
U.S. Trade in the Americas: Regional Update Alexandra Spieldoch February 2005
Taxing International Transactions. A third issue is taxing international trade for the benefit of developing countries. A key idea was the "Tobin tax," named for an economist, James Tobin, who proposed it. This involved a tax on international financial transactions and was universally opposed by the international financial community and developed country governments such as the United States and Great Britain that benefited from private international financial institutions. A tax on international airline flights, a more modest proposal, was also proposed. France is evidentially taking steps to implement such a tax for international airline flights originating within her borders, as the following article indicates.
France plans tax on international airline tickets to benefit developing countries Hunger Notes September 2, 2005