The "Coherence" Agenda of International Finance and Trade Institutions is Tightening Industrial Country Control Over Developing Countries

Aldo Caliari

In the last few years, several joint as well as separate policy documents from the World Trade Organization (WTO) and the Bretton Woods institutions (BWIs), principally the World Bank and the International Monetary Fund, have stressed the need to achieve greater coherence among their policies. Coherence among the financial, monetary and trading systems was also a key theme of the UN Financing for Development conference last March and was reflected in its Outcome Document. Consistent with this trend, the share of lending—and other activities of international financial institutions—devoted to support trade liberalization in the same period has dramatically increased during the past few years.  

Photo: U.S. Government

The World Trade Organization, Geneva, Switzerland. One of the three principal international economic organizations, along with the World Bank and the International Monetary Fund. Industrial countries, such as the United States, England, France and Germany, are using their control of these international organizations to establish rules in their favor and implement them in all three organizations.  This approach is known as "policy coherence."

The BWIs support of trade liberalization is not a new phenomenon. Since the 1980s, when the BWIs began to make so-called stabilization and structural adjustment loans to their client countries, conditions requiring countries to slash tariff and non-tariff restrictions as a component of an export-led growth strategy were among the key conditions featured in those loans. However, policy-based loan conditions that require trade liberalization are only one, albeit probably the best known, mechanism by which the BWIs have influenced trade policy in borrowing countries. The role the BWIs play as providers of research and training to policy-makers in developing countries, BWIs’ assessments of country policy and institutional environments, and their trade-related technical assistance programs are other important mechanisms that significantly shape trade policy in developing countries and exclude the search for valid alternatives.

THE WTO-LED TRADE SYSTEM

The WTO, created in 1995, is a new institution that has come to embody in legal rules most of the progress in trade liberalization that developing countries have implemented unilaterally under structural adjustment programs. It is not surprising, therefore, that several civil society groups concerned with the negative impacts of trade liberalization on poverty and development have made the WTO the focus of their campaigns. 

It is important to understand some essential differences between the current WTO-led international trading system and the system in existence before 1995. The previous system was only concerned with trade in goods, while the WTO covers trade in services, intellectual property rights, and trade–related investment measures as well. In addition, the old trading system affected mostly import and export tariff and quota restrictions to trade. WTO membership requirements go far beyond tariff and quota restrictions. They now include wide-ranging changes throughout the whole legal and administrative systems of the member countries in order to make them compatible with WTO rules.

The pursuit for compatibility with WTO rules entails the danger that rules designed by democratic processes and aimed at protecting environmental, social or development goals, many of them implementing other international agreements, might have to be overturned for the sake of compliance with rules that protect Free Trade. The WTO adjudication bodies, empowered to apply trade sanctions in order to enforce their decisions, further ensure such compatibility. Finally, the WTO was criticized at the time of its creation for solidifying through binding legal rules a deal that has left developing countries at a serious disadvantage vis-à-vis industrial country members. Since the inception of the WTO, the disadvantages have only deepened. Successive negotiations, while generally expanding the obligations of developing countries, have not made advances on the issues of interest to them. The lack of progress in reducing industrial countries’ agricultural subsidies is paradigmatic in this regard.

SOME CRITICAL ISSUES

In the light of these changes, there is a real danger that increased BWIs involvement in trade policy reform in their borrowing countries might add to the pressure on these countries to liberalize, deregulate and privatize in ways that are harmful to their economies, populations and environments. Furthermore, the BWIs continue to be controlled by the wealthiest countries, which have trade and investment interests that conflict with those of developing countries within the WTO. There are reasons to fear that the BWIs could be used as an instrument to weaken developing countries’ negotiating positions at the WTO and ease their resistance to the negotiating goals of industrialized countries.

Countries that may actually have some bargaining power at the WTO may already have their hands tied in key negotiations on trade agreements such as agriculture, services and investment due to changes they agreed to or are agreeing to as part of their programs with the BWIs. One example is with the agricultural sector. The World Bank and IMF programs have in some cases required countries to dismantle measures of support to their agricultural sectors that would otherwise have been legal under the WTO Agreement in Agriculture. This is also true in the area of services. A country’s ability to trade in the WTO General Agreement on Trade in Services may be undermined by loan conditionalities to which many WTO countries have signed and are signing with the BWIs.

CHALLENGES TO CIVIL SOCIETY

The official trend towards policy coherence among trade and financial institutions poses significant challenges for NGOs that have been campaigning for a reform towards just and development-oriented policies in both international financial and trade institutions. As the areas dealt with in trade agreements dovetail with the areas addressed by the activities of international financial institutions with potential to reinforce each other, the need for activists and researchers from both fields to increase exchange of information on their issues will become a crucial need in order to reach some degree of effectiveness on their individual advocacy goals.

The trend towards policy coherence presents a unique opportunity for civil society groups to intensify their efforts and create new alliances for social justice. Information on the activities of the international financial institutions that threatens to prejudge the outcome of negotiations that are still to take place at the WTO and other trade fora could be successfully used by trade activists in order to discredit the so-called “level playing field” in the negotiations. Activists’ claims that the BWIs’ policy advice on trade and investment matters is flawed and has led borrowing countries to deepening crises and underdevelopment could be greatly strengthened by evidence that exposes the way in which the most powerful players in the international trading system, especially transnational corporations, are promoting their trade and investment interests through the BWIs. The agendas of both trade and finance activists will undoubtedly gain from being able to offer an assessment of how the policies of trade and financial institutions, acting jointly, tend to undercut the values they stand for, such as food security, access to essential services, or the ability of those governments to introduce investment regulations that require foreign investors to fulfill social, environmental and development  purposes.

An alternative agenda on coherence can provide a common platform able to contain both groups working on trade and financial issues. In theory, policy coherence is neither a good nor a bad thing. Only by knowing which values or paradigm drive such coherence is it possible to tell whether it is good or bad. A positive agenda where the human rights and environmental values that we stand for become the driving force for any kind of coherence among international institutions—financial, trade, or otherwise— could be an empowering theme for NGOs seeking to face this new trend in a coordinated and effective way.

COC LEADERSHIP

The Center of Concern has been working for some time now in order to strengthen its own analytical basis on the issues involved in coherence between trade and financial policies and provide some ideas for civil society strategizing and action. During the last World Bank / IMF meetings, taking advantage of the number of international NGOs present in the city due to the meetings, the CoC hosted a session aimed at NGOs doing advocacy with financial institutions, trade institutions, and UN processes that address trade and financial policies. The session, “The World Bank, the IMF, and the WTO: is there a way to exit the iron cage?,” brought together around 80 activists in those areas and provided a space for information sharing and joint strategizing around the issue of trade-finance coherence. This session should be seen, however, as only a first step in the direction of defining an alternative agenda on coherence and some concrete research and advocacy goals that could be pursued by those communities throughout the next few years. The Center of Concern has committed to continue to develop this topic.

Aldo Caliari is the Legal Research Scholar, Rethinking Bretton Woods Project, at the Center of Concern. Reprinted from the Center of Concern’s quarterly newsletter, CENTER FOCUS, Issue # 158, November 2002. This and other Center of Concern articles may be viewed at www.coc.org

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