The December 2005 World Trade Organization meeting in Hong Kong: Promises to the poor remain unfulfilled

Kristin Sampson

(March 2006) Twenty years ago, the U.S. Catholic Bishops identified three questions for assessing economic life: What does the economy do for people? What does it do to people? And how do people participate in it?¹  In the lead up to the now infamous 1999 Third WTO Ministerial in Seattle, Jim Hug, President of the Center of Concern wrote:

The current direction of trade policy and international economic governance violates many of the fundamental beliefs and commitments of Judeo-Christian social traditions in giving priority to the powerful over the poor and weak, in promoting the consolidation of wealth and power rather than an adequate and appropriate distribution in justice to all, in justifying economic efficiency over the common good, and in its shallow understanding of human development.²

Six years later in 2005, U.S. and Latin American Bishops issued a call for trade agreements to be fashioned "in ways that stimulate economic growth while at the same time giving priority to integral human development that builds on solidarity, improves the common good of all, and in an essential way reduces poverty, exclusion and hunger."³

Unfortunately, the outcome of the December 2005 Sixth WTO Ministerial in Hong Kong reveals that the criticisms levied against the WTO in 1999 still ring true today. Calls for policies that promote economic growth but prioritize human development seem to have fallen on deaf ears. Outcomes in the three critical negotiating areas of agriculture, NAMA (non-agricultural market access/industrial tariffs), and services and the proposal of a questionable "development package" indicate that the priority is on opening markets and deepening liberalization. While "development" featured prominently in the rhetoric and public statements, it was not meaningfully addressed in the substance of the negotiations.

Developed countries want more access for their service 'exports'
Going into the Hong Kong Ministerial, many developed countries were frustrated with the slow pace of the services negotiations and the "poor quality" of the few offers on the table - arguing that too few sectors were offered and the level of liberalization was too low. After proposing many schemes for increasing the scope and depth of services liberalization, negotiators in Hong Kong successfully introduced into the Ministerial text plurilateral negotiations on a sectoral and modal basis. This provision not only undermines the agreed upon procedure for services negotiations which provided countries flexibility and policy space for determining which services sectors to open up to international competition and investment, but also may even violate the legal structure of services negotiations as established in GATS. Under the new provisions, a country or group of countries request a country or group of countries to enter into negotiations in a specific sector (e.g. energy, education, infrastructure) or mode of supply and the countries must seriously consider the request.

Access to essential services like water, education, and health care is crucial for development and poverty eradication. The privatization and marketization that will likely result from faster and deeper liberalization in services at the WTO will mean that the provision of many public services will be dependent on one's ability to pay and the extension of services dependent on its profitability. Access cannot be guaranteed when profit maximization is the guiding principle. As essential services slip farther out of reach, women will likely see their workload increase as they are called upon to pick up after the failed state.

Agriculture
As Maria Riley noted in the November 2005 Center Focus:

A thriving small-farmer agricultural sector is essential to rural development and food security in the developing world, where 90 percent of the people in poverty work in agriculture. Current negotiations should be focused on means to reduce the growing impoverishment of developing countries' small farmers and on enhancing rural development. ... Substantial reductions in real dollars in trade-distorting domestic support and export subsidies are necessary.⁴

Developed countries like the U.S., European Union, and Japan pour billions of dollars into their agricultural sectors in the form of export subsidies (payments given to farmers so they will sell their product abroad) and domestic support which results in overproduction, dumping, and volatile, destabilizing world prices. Domestic support in the U.S. comes in three forms:

• Farm Payments: These are usually cash payments or special loans made directly to participating producers

• Conservation Payments: There are also agricultural subsidy payments made to farmers for environmental and conservation purposes

• Disaster Payments: Disaster payments are made to crop producers when either planting is prevented or crop yields are abnormally low because of problematic weather conditions.

In the case of the U.S., much of the support is given to the agribusiness producers and food processing operations. According to the Environmental Working Group, USDA subsidies in United States totaled $143.8 billion from 1995-2004.⁵ During that time the top 10 percent of total USDA subsidies payment recipients were paid 72 percent of total USDA subsidies payment - some 312,000 large farming operations, cooperatives, partnerships and corporations that collected, on average, more than $33,000 every year. Of the 2,128,982 farms enumerated by the most recent Census of Agriculture, for 2002, only 33 percent received government payments. While these programs keep the largest and wealthiest producers in business, they promote economic insecurity for family farmers, small and medium-size farms and rural communities in the U.S. and abroad.

The current U.S. offer on domestic support would amount to little more than shifting the categories in which support is classified - effectively just re-labeling existing support programs from "Really Bad" to "Bad" so they are subject to smaller cuts. And even then, the proposed cuts would be to "bound levels", i.e., the maximum allowable amounts, rather than actual spending. In the end, little movement was made in Hong Kong toward making meaningful reductions in domestic support. However, negotiators did agree on using three approaches for reducing domestic subsidies, but this arrangement could mean that developing countries are cutting domestic support at the same rate as some developed countries (excluding the EU, U.S. and Japan) and it fails to reflect the special situation and needs of developing countries.

Negotiators in Hong Kong were able to agree on an end-date of 2013 for the elimination of export subsidies. The overwhelming majority of countries pushed for an end-date of 2010, but EU resistance prevailed and instead the end-date reflects the date already set in the EU's common agricultural policy. As Maria Pia Hernandez of the International Gender and Trade Network contends, "In real terms, the ending of export subsidies will mean little to the EU's impact on global agriculture. The EU's spending on export subsidies is just 5% of a total farm budget of 43 billion Euros."⁶ The situation is similar in the U.S. where export subsidies only represent 3% of its agricultural support.

Developing countries gained a small concession by securing flexibility in self-designating special products in agriculture. However the concession is qualified and limited to "an appropriate number" and must be "guided by indicators based on the criteria of food security, livelihood security and rural development." The real power afforded to developing countries in the designation of special products will be determined in the final details. Even in the specific issue of cotton, the U.S. refused to move on reducing domestic support, which is most damaging to developing country cotton producers.

Tariffs on industry 
Trade Ministers agreed in Hong Kong to use the Swiss formula for cutting industrial tariffs. This approach means that higher tariffs would be cut by a higher percentage than lower tariffs. Ministers also agreed that different coefficients will be used for developed and developing countries so that developed and developing countries are not cutting similar level tariffs by the same percentage. However, they have yet to agree on the coefficients that will be used in the formulas. Developing countries generally have higher industrial and manufacturing tariffs than developed countries in order to protect their domestic industrial sectors from industrial imports. Thus, the sharps cuts to these higher tariffs could cause rapid de-industrialization in developing countries as cheaper foreign goods displace local production and jobs, thereby destabilizing local economies. It is typical that when local production contracts, women workers in particular face higher levels of unemployment and lower standards of living.

In many developing countries, tariff revenues make up a large part of the government budget since tariffs collected at the border are comparably easier to collect than a personal income tax or even sales tax. Lowering tariffs would reduce tariff revenues, thereby constricting developing country budgets. Too often these shortfalls are absorbed through reduced spending on social programs like education and health care, which are crucial to women's advancement. Since tariffs are applied to imported goods, which are more often consumed by wealthier individuals, they are a more progressive form of taxation and less burdensome on the poorest citizens.

The Hong Kong text links progress in opening up greater market access in industrial goods with that in agriculture specifying that the formulas should be "comparably high" and "balanced and proportionate" to each other. Critics of the neoliberal model of liberalization have questioned this approach, arguing that greater liberalization in either agriculture or industry could threaten development in developing countries, or at least offer little benefit.

The 'development package'
The so called 'Development package' consists of two components which developed countries assert will promote development. First, the commitment to duty-free, quota-free market access for all Least Developed Countries' (LDCs) products is qualified by an exception allowing developed countries to exclude up to 3 percent of their exports from duty-free/quota-free access. That 3% exclusion will allow developed countries to continue to deny market access to the very products which are of specific export interest to LDCs--the specific products which could improve the livelihoods of millions of farmers (over 60% of whom are women) and workers. For example, the U.S. could exclude textiles from a globally competitive country like Bangladesh even though it is an LDC and expanded access to the U.S. market could improve the lives of the majority women workers upon whose labor the Bangladeshi industry depends.

Second, despite the declaration's affirmation of "aid-for-trade" (i.e. financial and technical assistance for economic diversification in developing and least-developed countries), offers put forth by Japan, the U.S., and the European Commission before and during the Ministerial may ring hollow. Many critics have noted that aid-for-trade offers are not necessarily backed up with money in the bank and could be given in the form of loans - plunging LDCs deeper into debt. Additionally, it is very difficult to determine whether these commitments represent new money for development or merely shuffle money between accounts, in which case they could very well drain money from broader social and economic development projects in areas like education and health. Even if increased funding were available, there is no evidence that it would be used to support social, economic or environmental assessments of trade proposals or to rectify existing unequal economic relationships between women and men or allow meaningful numbers of impoverished men and women to benefit from the global economy. (See accompanying article on Aid for Trade by Aldo Caliari)

Concluding observations
WTO negotiations are clearly moving toward the creation of a specific global economic order. When that end is evaluated in terms of what the resulting global economy will do for people and to people, and how people will participate in it - particularly the most vulnerable - it is clear that the current direction of WTO negotiations fails the basic moral criteria of Catholic Social Teaching. Rather than giving priority to integral human development that builds on solidarity, improves the common good of all, and in an essential way reduces poverty, exclusion and hunger, the current model set down at the WTO will continue to give priority to the powerful over the poor and weak, promote the consolidation of wealth and power, value economic efficiency over the common good, and denigrate genuine human development.

Kristin Sampson is the Senior Research Associate with the Engendering Economic and Social Justice Project of the Center of Concern. From Center Focus, Issue 170/March 2006 (http://www.coc.org/bin/view.fpl/1090/cms_article/3816/article/3816.html)

Notes:
1.  Economic Justice for All, #1. U.S. Catholic Conference of Bishops. 1986. Return to text.

2.  Jim Hug, "Catholic Social Teaching and Trade", Center Focus, November 1999.  Return to text.

3 Joint Communiqué of Catholic Bishops participating in the "Ecumenical Meeting on Integration in the Americas", September 8, 2005.  Return to text.

4 Maria Riley. "Doha Development Agenda Fades at WTO", Center Focus, November 2005.  Return to text.

5 See the Environmental Working Group's Farm Subsidy Database  Return to text.

6 Maria Pia Hernandez. The Outcome of Hong Kong: Reflections from a gender perspective. International Gender and Trade Network. January 5, 2006.  Return to text.


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