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Building a global partnership for development

By Martin Khor

Goal 8 of the MDGs is about building a global partnership for development, an external economic environment that is favourable for development. From this perspective, the prevention of development-distorting rules, measures, policies and approaches should be the overriding concern of the WTO

The origins of the Millennium Development Goals (MDGs) lie in the United Nations Millennium Declaration, adopted by all 189 UN member states (147 of them represented by their heads of state or government) on September 8, 2000. The Declaration embodies many commitments for improving the lot of humanity in the new century. Subsequently, the UN Secretariat drew up a list of eight MDGs, each of them accompanied by specific targets and indicators. This paper provides a view on Goal 8, which is to “develop a global partnership for development”. Seven targets are listed under Goal 8, as well as 17 indicators. The selection of indicators is subject to further refinement. 

Due to the wide range of issues covered by Goal 8, the paper will focus on only some aspects of the global economic system, their effects on development, and what needs to be done to contribute to realising Goal 8. The main focus will be on international trade and multilateral rules under the World Trade Organisation (WTO). The global financial system will also be discussed, but in outline form and not in the same level of detail. In the discussion, some of the specific targets will be commented on. Suggestions will also be made on clarifying or adding to the targets or indicators.

Goal 8 is extremely critical in the overall scheme of the MDGs as it is the only goal that generally and specifically covers international relations.  As is generally accepted, successful development efforts require appropriate policies at both domestic and international levels. International factors have become proportionately more important in recent years, as a result of the globalisation process. Developing countries have generally become more integrated in the world economy and thus their development prospects and performance are more dependent on global economic structures and trends. More importantly, many policies that used to be made solely or primarily at the national level are now very significantly influenced or shaped at international fora and by international institutions. 

This applies especially to those developing countries that are dependent on international financial institutions for loans and debt restructuring, and have to abide by loan conditionalities. However it also applies to most developing countries that are members of the WTO, as they are obliged to align or re-align national laws and policies to conform to the WTO’s legally binding agreements. Thus, the “external economic environment” (comprising global economic structures and trends, and the policies determined or influenced by international agencies such as the International Monetary Fund, the World Bank, the WTO, the UN, and developed-country groupings such as the Group of Eight, the Organisation for Economic Cooperation and Development, and bilateral aid agencies) does impact tremendously on a typical developing country. 

In the context of the MDGs, the extent to which a developing country is able to make progress on many of the goals (especially Goal 1 -- to eradicate poverty and hunger -- but also Goals 4, 5 and 6 relating to health, and Goal 7 on environmental sustainability) depends not only on domestic policy choices, but also on how “friendly” or “hostile” the external economic environment is to that country. Four examples can illustrate this. 

  • The continuous fall in the prices of export commodities has caused tremendous income and foreign exchange losses to many developing countries, and is a major cause of persistent or increased poverty at local/community level.
  • The financial instability and sharp currency fluctuations caused by large inflows and outflows of external funds have led many developing countries (including those considered the most successful among them) into financial and economic crises, with dramatic and sudden sharp increases in poverty rates.
  • Many developing countries have suffered declines in, or threats to their industrial jobs and farmers’ livelihoods as a result of inappropriate import liberalisation policies, partly or mainly due to external policy influences resulting from loan conditionalities or multilateral trade rules.
  • Cutbacks in social sector expenditure, as well as the introduction of the “user-should-pay” principle, as a result of structural adjustment policies in the past have been identified as a significant factor for the deterioration of social wellbeing of vulnerable and poor groups in several developing countries.

These examples, as well as a continuation of the debt crisis in many countries, show that attempts to improve domestic policies, however exemplary, are insufficient if developing countries are to attain the MDGs. This underlines the importance of developing a “global partnership for development” to underpin or at least to accompany other efforts at attaining all the goals.

Another general point is that in the effort to meet the MDG targets, “getting policies right” is of crucial importance. If economic and social structures are inequitable, and if policies (either for preserving the status quo or for reform) are inappropriate, then the mere expansion of funds and programmes in a country would not be enough, and may indeed increase the problems. This applies to structures and policies at both national and international levels. Efforts to attain Goal 8 for developing global partnerships should, therefore, as a priority, focus on getting international economic structures, policies and rules right.  

The rest of this paper will further discuss this aspect…

Conclusions and proposals on WTO

In the context of the MDGs, there is a clear rationale for improving and reforming the WTO system of multilateral rules and decision-making process. Developed countries need to provide greater opportunities for developing countries, so that the latter’s export opportunities can expand.  If this is done properly, it can lead to increased export earnings, foreign exchange and income, thus helping provide the extra resources for financing measures to meet the MDGs. However, it must be recognised that many developing countries will be unable to take up the opportunity because of supply-side constraints. On the other hand, the problems caused to developing countries by the existing agreements need to be rectified. Failure to do so can adversely affect the realisation of several of the goals. Failure would hinder efforts towards achieving the global partnership for development inherent in Goal 8, since WTO rules are today recognised as representing an unequal partnership between North and South.  

For example, by allowing artificially cheap subsidised imports to threaten small farmers’ livelihoods in developing countries, the Agreement on Agriculture would threaten the realisation of Goal 1 (eradicate poverty and hunger). Unless there is a satisfactory clarification or amendment of the TRIPS Agreement, access to healthcare and other services will be adversely affected, thus threatening Goal 6 on combating HIV/AIDS and other diseases. The pressures for liberalising services under the GATS agreement could adversely affect access of the public, especially the poor, to essential services such as education (thus affecting Goal 2), healthcare (thus affecting Goal 4, 5 and 6), and water supply (thus affecting Goal 7 on the environment).

The following measures are thus proposed in order to further the goal of developing a global partnership for development:

(1)Developed countries should commit to meaningfully opening their markets to developing countries in sectors, products and services in which the latter are able to benefit. These include textiles, agriculture, and products processed from raw materials, as well as labour services. A meaningful expansion of market access for developing countries would be able to provide large opportunities for earning more revenues that could be the basis for significant extra financing to meet the MDGs.

(2)The process in the WTO of reviewing implementation problems arising from existing agreements should result in appropriate changes to the rules or authoritative interpretations of the rules that help resolve the imbalances and the problems facing developing countries.  For example, the following are among the changes that should be considered:

  1. Developing countries should be given adequate flexibility in implementing their obligations in the Agreement on Agriculture on the grounds of the need for food security, defence of rural livelihoods and poverty alleviation. In developing countries, food produced for domestic consumption and the products of small farmers should be exempted from the agreement’s disciplines on import liberalisation and domestic subsidies.
  2. In the agreement on Trade-Related Investment Measures (TRIMs), “investment measures” such as the local content requirement (obliging firms to use at least a specified minimal amount of local inputs) and foreign exchange balancing (limiting the import of inputs by firms to a certain percentage of their exports) have been prohibited. Such measures had been introduced to protect the country’s balance of payments, promote local firms and enable more linkages to the local economy. By prohibiting them, developing countries stand to lose some important policy options to pursue their industrialisation. The TRIMs Agreement should be amended to provide developing countries the flexibility to continue using such investment measures to meet their development goals.
  3. The TRIPS Agreement should be amended to take into account development, social and environmental concerns. For example, full clarification or amendments are still required to ensure that members can effectively take measures to provide medicines at affordable prices. Members should also be allowed to prohibit the patenting of life forms, and to protect the traditional knowledge and practices of farmers, indigenous people and local communities. Other amendments are also needed to rebalance the agreement towards the interests of consumers and technology-users in developing countries. The issue of whether IPRs should be covered at all under the WTO should also be reviewed.
  4. It should be clarified that essential services required by the public, and especially by the poor, such as water supply, healthcare and education, should or can be exempted from the general rules and the specific sectoral schedules of the General Agreement on Trade in Services (GATS).

(3)There should be a re-orientation in the operational principles and rules of the WTO so that the development principle is accorded the highest priority. The preamble to the Marrakesh Agreement recognises the objective of sustainable development and also the need for positive efforts to ensure that developing countries secure a share in international trade growth commensurate with the needs of their economic development. 

The objective of development should become the overriding principle guiding the work of the WTO, and its rules and operations should be designed to produce development as the outcome. Since developing countries form the majority of the WTO membership, the development of these countries should be the first and foremost concern of the WTO. The test of a rule, proposal or policy under consideration in the WTO should not be whether this or that is “trade distorting” but whether it is “development distorting”. Since development is the ultimate objective, whilst reduction of trade barriers is only a means, the need to avoid development distortions should have primacy over the avoidance of trade distortion. So-called “trade distortions” could, in some circumstances, constitute a necessary condition for meeting development objectives. From this perspective, the prevention of development-distorting rules, measures, policies and approaches should be the overriding concern of the WTO. (TWN 2001)

The re-orientation of the WTO towards this perspective and approach is essential if there is to be progress towards a fair and balanced multilateral trading system with more benefits rather than costs for developing countries. Such a re-orientation would make the rules and judgment of future proposals more in line with empirical reality and practical necessities. Taking this approach, the goal for developing countries would be to attain “appropriate liberalisation” rather than to come under the pressure of attaining “maximum liberalisation”. The rules of the WTO should be reviewed to screen out those that are “development-distorting”, and a decision could be made that, at the least, developing countries be exempted from being obliged to follow rules or measures that prevent them from meeting their development objectives. These exemptions can be on the basis of special and differential treatment.

(4)The next phase of the WTO’s activities should focus on the above three areas in order that the review of existing rules, the realising of opportunities in the developed countries’ markets, and the re-orientation of the WTO to developing countries’ needs and interests can be carried out. These processes would in themselves be a massive task, requiring the commitment, energy and resources of all WTO members. However, this is urgently needed to build a mutually beneficial multilateral trading system.

(5)The proposal to begin negotiations on “new issues” (especially investment, competition, transparency in government procurement) after the WTO Ministerial Conference in Cancun in September 2003 should be withdrawn as this would not only distract and detract from the tasks of reform detailed above, but also add new, heavy obligations onto developing countries and render the WTO system much more imbalanced.

(6)The process of decision-making in the WTO must be democratised, made more transparent and enable the full participation of developing countries. At present, the system of participation is flawed.  The so-called consensus system enables developed countries to pressurise developing countries to accept what has been agreed among the former.  Moreover, non-inclusive and non-transparent processes are used, especially surrounding the ministerial conferences, during which the key decisions are taken. 

For example, at the Singapore Ministerial Conference in 1996, only 30 countries were invited to the “informal” meeting where the major decisions were taken, and the remaining countries were asked to accept the decisions on the last night. At the Doha Conference in 2001, the proposals of a majority of developing countries on key subjects were not included in the drafts of the Declaration, despite their objections. This put them at a great disadvantage. The decision-making processes should, therefore, be reformed, and the absence of such reform would make it difficult or impossible for the other improvements being suggested.

At the very least: (a) All members must be allowed to be present and participate in meetings. (b) The views of all members must be adequately reflected in negotiating texts. (c) Pressure should not be applied on members to accept the views of other members. (d) Adequate time must be given to all members to consider proposals being put forward. (e) The practice of late-night exclusive meetings at ministerial conferences should be discontinued.   

(7)There should also be a rethinking on the scope of the WTO’s mandate over issues, and the role of other agencies. It is misleading to equate the WTO with the “multilateral trading system”, as is often done in many discussions. In fact, the WTO is less than and more than the global trade system. There are key issues regarding world trade that the WTO is not seriously concerned with, including low commodity prices. On the other hand, the WTO has become deeply involved in domestic policy issues such as intellectual property laws, domestic investment and subsidy policies. There are also proposals to bring in other non-trade issues, including labour and environment standards, as well as investment and competition.

The WTO and its predecessor, the GATT, have evolved trade principles (such as non-discrimination, MFN and national treatment) that were derived in the context of trade in goods. It is by no means assured or agreed that the application of the same principles to areas outside of trade would lead to positive outcomes. Indeed, the incorporation of non-trade issues into the WTO system could distort the work of the WTO itself and the multilateral trading system. Therefore, a fundamental rethinking of the mandate and scope of the WTO is required. Firstly, issues that are not trade issues should not be introduced in the WTO as subjects for rules.  Secondly, a review should be made of the issues that are currently in the WTO, to determine whether or not the WTO is the appropriate venue for them (the obvious issue to consider here is IPRs).

The processes of reviews, reforms and changes suggested for the WTO above are important elements that will contribute towards MDG 8: “Developing a global partnership for development”. In fact, the above measures could be included as new targets, with accompanying indicators. Within its traditional ambit of trade in goods, the WTO should re-orient its primary operational objectives and principles towards development, as elaborated in the sections above. The imbalances in the agreements relating to goods should be ironed out, with the “re-balancing” designed to meet the development needs of developing countries and to be more in line with the realities of the liberalisation and development processes.

With these changes, the WTO could better play its role in the designing and maintenance of fair rules for trade, and thus contribute towards a balanced, predictable international trading system which is designed to produce and promote development. The WTO, reformed along these lines, should then be seen as a key component of the international trading system, co-existing, complementing and cooperating with other organisations, and together the WTO and these other organisations would operate within the framework of the trading system, in a “global partnership for development”.

(Excerpts from a paper by Martin Khor; the complete paper is available on the website of Third World Network: http://www.twnside.org.sg/crisis_10.htm. The site also offers updated news and analysis of trade-related events and issues)

InfoChange News & Features, February 2007