A Disappointing Monster

Article excerpt

Rigged Rules and Double Standards: Making Trade Fair

(Oxfam International, 2002)

It is disturbing and disappointing when a well-intentioned and respected organization such as Oxfam publishes a confused and ill-informed study such as this 250-page monster. The report argues that expanding international trade has assisted some developing economies to grow, but that more should be done to alleviate poverty by adapting WTO rules to give new preferences to all developing countries. This implies that economic development would occur if only trade rules were suitably tailored, whereas benefits from trade depend most of all on a country's own economic policies and institutions.

When referring to the damage caused by EU, US and Japanese agricultural subsidies and protection of labour-intensive manufacturing (especially textiles and clothing), improved access would undoubtedly offer trade opportunities to many developing countries. However, when proposing more `special and differential treatment' for developing countries' exports and hence for their domestic development, the Oxfam authors neglect the low tariffs already levied on most other OECD imports. Moreover, economic research raises serious questions about the benefit of trade preferences to developing countries and whether the vested interests which are thus created impede further multilateral liberalization.

The catch-phrase `fair trade' used throughout the report can mean almost anything, and nowhere does Oxfam define what it means. `Fairness' is in the eye of the beholder! Moreover, the term `fair trade' has been captured by uncompetitive industries in developed countries to justify anti-dumping and other contingency protection.

Not unexpectedly, the authors rediscover the spectre of exploitation by multinational enterprises, which they want to be tamed by requiring OECD governments to 'enforce' internationally agreed guidelines on labour standards, foreign investment flows, income remittances, etc. None of these are specifically covered in WTO articles-and labour standards were specifically excluded from the WTO agenda at the Singapore Ministerial meeting! The report also resurrects the idea of international financial supports to stabilize commodity prices, ignoring their bad record in the 1970s, the moral hazard they introduce and the absence of WTO articles covering such schemes.

In this context, `fair trade' is really about income transfers to developing countries by indirect and inefficient processes, because the authors reject conventional analysis of benefits from trade (chapter 5). The case for free trade does not claim that the benefits will be distributed in ways consistent with perceptions of social equity or poverty alleviation, or according to any 'moral' interpretation. Welfare gains do occur from trade liberalization, however, and global economic interdependence has reduced poverty and inequality. On this topic the Oxfam report is deliberately evasive and even contradictory. Bleating about 'unfair' distribution does not require that gains from liberal trade should be sacrificed, only redistributed.

The verdict that the WTO is `indefensible' on moral and sustainability grounds (pages 4-5) raises serious doubts about the internal consistency of the report. Elsewhere (chapter 9), amendments to WTO rules are proposed that depend on the institution becoming stronger. How do the writers of this report believe that the world economy-- and poor, marginalized developing countries in particular-would have fared without GATT/WTO liberalization since 1948? This counter-factual position is not mentioned in the report. As noted above, some of the changes to the WTO proposed by Oxfam are unexceptionable to anyone concerned about economic development. This does not, however, mean that the changes will be easy to achieve. The institutional structure of the WTO, with negotiated liberalization and consensus decisions on rule changes, is easily manipulated to preserve the status quo. …