BALANCING:
POLICIES FOR JUST AND SUSTAINABLE TRADE
By Kristin Dawkins
Institute for Agriculture and Trade Policy
Minneapolis, Minnesota 55404 USA
Tel: 612-870-0453
Fax: 612-870-4846
E-Mail: iatp@iatp.org
Third Revision: January 1994.
United Nations Conference on Environment and Development (UNCED.)
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TABLE OF CONTENTS
I. Four Key Balances
II. The Trade-Debt-Aid Spiral
III. Policies for Balancing Trade
IV. Democracy and Trade
V. Conclusion
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BALANCING:
POLICIES FOR JUST AND SUSTAINABLE TRADE
I. FOUR KEY BALANCES
Trade can be positive. The benefits of exchanging goods and services as a way of sharing the world's wealth are obvious. Some crops, like coffee, grow only in special climates. Certain raw materials, such as petroleum, are found unevenly scattered across the globe. In order to share products like coffee and petroleum, corporate exporters and importers from different geographic regions engage in trade.
Trade can also be negative. Trade in human beings, slavery, is immoral and unjust. Trade in products which endanger human health or the environment and trade practices which make some people rich by impoverishing others are certainly unwise and unjust.
Trade-related impoverishment -- of people, of nations and of the planet -- results from imbalances in four key areas. To achieve sustainable trade policies, we must restore balance to each: the balance of trade, the terms of trade, the price-cost ratio, and social/ecological accounts. To do so, it is crucial to remember that governments do not trade, corporations do. The role of governments, whether national or international, is to set the rules which regulate corporate trade and to manage the distribution of trade-generated wealth.
Balance #1 - "Balance of Trade":
The balance of trade measures whether the export earnings of all the corporations based in a particular nation cover the total cost of its corporations' imports. When total import costs exceed the value of exports, the country has a trade deficit and its supply of foreign currency may fall short. Then it is forced to make up the difference through borrowing from private lenders such as transnational banks or from government lenders such as the International Monetary Fund.
Balance #2 - "Terms of Trade":
The terms of trade is a ratio that compares the prices received by a country's corporations for its exports to the prices it pays for its imports: the price of coffee beans to the price of a tractor, for example. Deterioration of a country's terms of trade means that, over time, it is able to import less in exchange for the same amount of exports; in other words, each year fewer tractors can be purchased with the revenues from its annual coffee bean harvest. This is an impoverishing trend -- similar to the hardship caused a family when inflation increases faster than household income.
For less-industrialized countries, the terms of trade have deteriorated -- meaning that in world markets, the prices paid for their raw material and agricultural exports have fallen while the prices of their processed goods imports have increased. The terms of trade affect the rate at which nations must convert their natural resources to tradeable products.
Deterioration in the terms of trade is caused by a wide variety of practices and policies. For example, oversupply in the world market can cause prices to fall while a shortage -- due to weather, war or other factors -- can cause prices to rise. Exchange rate and interest rate shifts also alter a nation's economic relationship to the world market. Monopoly suppliers, too, can manipulate prices. And external shocks such as a sudden rise in oil prices can change the terms of trade dramatically.
Balance #3 - "Price-Cost Ratio":
The price-cost ratio compares the prices paid to the producers of exported goods to their costs of producing those goods. When producers do not receive prices to cover their full costs of production -- including fair wages, a fair profit for reinvestment and all social and ecological costs for all stages in the cycle of that production process -- the producer faces a deficit.
Balance #4 - "Social / Ecological Accounts":
Trade-related social and ecological accounts are a means of expressing the costs/value of protecting and regenerating the human and natural resources used in the importing and exporting of goods and services. These accounts are in balance when society collects -- through market mechanisms or taxes -- and reinvests the full value of these expenses to replenish and sustain its resources.
The value of natural resources in their unexploited state is not reflected in measures of national wealth. Environmental costs such as cleaning up pollution or public investments in waste disposal are generally not reflected in market prices. By shifting the burden to the public sector, industry escapes these costs -- called "externalities" because the costs are external to the market economy.
Unless both social and ecological accounts are recognized and balanced, future generations face environmental deficits from pollution and depleted natural resources as well as ever greater deficits in their health, educational, welfare, cultural and other institutions.
II. THE TRADE-DEBT-AID SPIRAL
The First Stage of Imbalance - Unbalanced Trade:
When any of the key elements are not in balance, deficits are created. Deficits must be covered by borrowing. Borrowing against the future is only reasonable when adequate resources are anticipated with which to replenish accounts. Chronic debt is the second state of trade imbalance.
The Second Stage of Imbalance - Debt:
Deficits can be immediately apparent, as in regularly reported data about a nation's official trade balance. Or they can become apparent only over time, as in the case of the depletion of natural resources.
A government's first response to a deficit in the balance of trade is likely to be an attempt to encourage companies to increase their exports in hopes of bringing into the country more foreign currency. Where the economy is largely dependent upon natural resource exports, the result may be intensified exploitation of the environment. This not only creates long-term problems, it can be counterproductive. For example, if agricultural resources are converted to export-oriented production, local supplies of food may dry up making communities dependent upon imports for food -- adding to the trade imbalance.
When an export strategy fails, countries become desperate for money and are forced into greater debt. But instead of investing in the future -- such as in developing local industries -- the new funds are usually spent to cover the immediate deficit. The draining effect continues and the deficit grows.
The Third Stage of Imbalance - Aid:
Eventually, the debt becomes unpayable. At this point, some rich nations choose to support the debtor nation's economy as donors of aid -- cash or goods which can help keep people alive and minimize social rebellion. However, in most cases this assistance does not contribute to offsetting the trade-debt-aid spiral. In fact, aid can perpetuate imbalances. Food aid, for example, competes with local farmers and gradually reduces a nation's capacity to feed itself -- thus increasing dependence upon further aid.
III. POLICIES FOR BALANCING TRADE
To avoid the trade-debt-aid spiral, it is necessary to find policies that will alter the practices causing the imbalances in each of the four major areas. In most cases, changes in policy and practice will affect several balances at once. In the case of trade, this discussion applies to regional trade negotiations and the international commodity agreements as well as the GATT, the General Agreement on Tariffs and Trade. However, we emphasize the GATT policies because they are global.
In December 1993, more than 100 governments announced to the world that they had concluded the 8-year process of controversial negotiations called the Uruguay Round. The new rules of the Uruguay Round agreement will replace the current rules of the GATT in July 1995 for governments choosing to join the new World Trade Organization (WTO.) The Uruguay Round agreement creates this new international institution with a "legal personality" similar to the World Bank and the International Monetary Fund.
The World Trade Organization will have the power to require a member nation "to ensure the conformity of its laws, regulations and administrative proceedings with its obligations as provided" in the Uruguay Round agreement. The WTO's assumption of power presents a strong challenge to national sovereignty and the practice of democracy. The preservation of democratic rights in international negotiations is fundamental to whether humanity uses its wisdom to make the needed changes in trade and other policy that will restore the earth's economic, social and ecological balances.
Balancing #1 - The Balance of Trade:
In order to solve any imbalance of trade, planners must consider both the volume and value of imports and both the volume and value of exports for a given country.
What can be done to reduce the volume of imports, such as boosting purchases from domestic industries? What can be done to reduce the prices of imports by increasing efficiencies and direct negotiations with suppliers for longer term, lower priced contracts? Where could barter arrangements fit in? If there is a world market available, what steps are needed to sustain production available for exporting? If export prices are too low, what international or bilateral arrangements can be made to boost world prices? What can be done to stabilize currency exchange rates?
Unfortunately, the new World Trade Organization will obligate nations to import certain minimum percentages of basic commodities and lock-in low world prices for exported agricultural products. And recently, nations have allowed exchange rate fluctuations to become increasingly volatile. Nations should re-evaluate the prices of basic goods in the global market, including the price of money itself.
Balancing #2 - Terms of Trade:
Deteriorating terms of trade can be caused by a decline in the price of exports, an increase in the price of imports, or both. To address this situation requires action on both sides: to raise the price of exports and reduce the price of imports. Perhaps the decline in export prices is due to oversupply in the world markets that can only be solved by global management of stocks. Perhaps the increase in import prices is due to the presence of monopoly controls leading to restrictive, unfair business practices. Perhaps there are currency problems that contribute to this problem.
Most immediately, improving the terms of trade of less-industrialized nations requires valuing their exports more highly. A variety of macroeconomic policy changes would help to do so, as would fair wages and prices that internalize the social and ecological costs of production. Price support programs could ensure that natural resource products reflect their full value; examples include the European Community's "STABEX" system, which distributes pooled funds to stabilize volatile segments of the market, and the commodity agreements in which producer-exporting countries and consumer-importing countries agree
to manage supply and demand. Policies enabling the development of value-added processing industries would also improve the terms of trade and eliminate the economic pressure to exploit increasingly scarce resources.
Unfortunately, the new World Trade Organization rules require sharp cuts in family farm support programs, including price stabilization programs. The new rules also prohibit most quantitative import restrictions which are employed in successful supply-management programs such as that of Canada. These controls are often needed to facilitate the development of value-added processing industries.
Minimizing exchange rate fluctuations is especially critical to balancing the terms of trade. Exchange rates are based on the purchasing power of each currency in the world financial markets relative to the dollar, the mark or the yen. Governments can choose to alter the value of their own currency but, more often, the International Monetary Fund and World Bank stipulate that a nation must devalue its currency -- an act which makes its exports more attractive but obliges the country to exploit its natural and land resources in greater quantities to earn the same amount of export revenue.
Exchange rate fluctuations can be stabilized through cooperation. Cooperating governments can price their currencies according to a set "basket of goods." This means that the costs of certain consumer goods are added up for each country; by comparing these costs from one country to another, equivalent values are found. When a particular country's currency gains or loses more than a certain percentage of its value relative to the basket of goods, the government makes an adjustment. It was through a system like this that prices remained relatively stable throughout the European Community during years in which the US dollar fluctuated wildly.
Successful exchange rate management requires coordination with other macroeconomic policies --such as interest rates and government spending. Macroeconomic cooperation and the coordinated adjustment of currency exchange rates are prerequisites for stabilizing economies and reducing the pressure on many nations to continuously increase their exports of natural resource-based products as a response to a weakening currency.
Balancing #3 - Price-Cost Ratios:
As in both trade balance and terms of trade issues, there are many factors that can be adjusted to bring prices received for specific products into line with the cost of production. Again, currency exchange issues are especially important.
Imbalances between supply and demand result from a variety of circumstances -- especially overproduction in the industrialized countries. Gluts cause prices to fall, preventing many producers from earning enough to meet their costs of production and preventing Third World producers from gaining access to world markets. The elimination of small-scale local producers in this way leads to chronic food shortages in many countries. The lack of economic alternatives also intensifies the depletion of natural resources and land use. On the other hand, shortages caused by circumstances such as drought or war can cause prices to soar, resulting in severe hardships for buyers. GATT Article XI allows governments to implement supply-management programs in conjunction with import restrictions; the Uruguay Round agreement eliminates this provision.
Global supply and demand can be regulated through equitable systems of shared production. When gluts in world stocks threaten to depress prices, nations could cooperate in reducing their shares of production proportionately. Each nation should ensure its own domestic food self-sufficiency and determine its own method for meeting national production goals. At the same time, food and other necessities must be stored on a global basis with an equitable system for distribution and shared costs to ensure food supplies in times of scarcity.
Economic dumping is the practice of selling exports at prices below the real cost of production. Although the dumping of agricultural products is illegal under GATT Article VI, there are many ways in which dumping occurs. In the US, for example, farmers absorb losses that enable exporters to dump their produce overseas. The dumping of agricultural products overseas eliminates the ability of many local farmers in the recipient countries to compete.
In attempting to sustain farm income, many producers will be unable to practice traditional land conservation techniques and they may increase their use of pesticides and other chemicals -- leading to deforestation, erosion, soil destruction and harm to watersheds. Some will give up trying to compete with dumped imports and abandon their farms -- leading to increased urbanization and the transformation of their farms to chemical-intensive export-oriented enterprises. The loss of more and more local food suppliers causes an increased reliance on food imports and aid.
The new World Trade Organization should enforce the existing GATT rules which prohibit agricultural dumping.
Monopolistic and restrictive business practices refer to an array of mechanisms used by transnational investors to affect prices and the supply of goods. Price fixing, the allocation of markets, exclusive deals, and differential or predatory pricing are just a few of the practices which restrict the ability of smaller companies to compete and defeat local development. One of the most troublesome is "transfer pricing," a term for the manipulation of prices within the operations of transnational corporations enabling them to minimize their participation in the economic development of host countries. For example, they may transfer the accounts for intra-firm activity from a location in one country to another country in order to take advantage of currency exchange rate fluctuations. Or they may under-invoice exports and over-invoice imports, enabling them to evade certain national regulations.
The new World Trade Organization should not prevent nations from regulating the behavior of private corporations in order to meet national development goals. The WTO should encourage multilateral codes of practice for transnational corporations to stabilize regulatory policies and provide a predictable business climate for responsible enterprises. Transnational corporations should recognize the national law of host countries. Intra-firm transfers within transnational corporations should be subject to local regulation and international monitoring.
Balancing #4 - "Social and Ecological Accounts":
Most social and environmental costs and values are external to the market economy. As a result, products are sold at prices below the actual cost of production -- a practice called social and ecological dumping. Long ignored or denied by classical economists, the impact of creating a deficit in human resource utilization and natural resource accounts is now more commonly recognized.
The costs of cleaning up and avoiding pollution, disposing of wastes, paying fair wages, maintaining the health and welfare of the producing community, and sustaining the value of a nation's natural resource base should be included in market prices and national accounting systems. Regulations requiring companies to pay for health insurance or pollution prevention directly are one approach to solving this problem. Another approach is through taxation such as carbon emission taxes, which increase with any increase in the release of global warming gases. The key issues are determining the costs that must be borne, the mechanism for collecting the money, the procedures for ensuring that company and tax revenues are re-invested in protecting and regenerating human and natural resources, and the appropriate institutional mechanism for balancing and adjusting the impacts of a complex policy.
The external environmental and social costs of production should be internalized in prices and the definition of dumping should be expanded to include social and ecological dumping. The sale of exports at prices below the full cost should be penalized. Governments should permit compensatory or countervailing social and ecological tariffs to counteract dumping, with revenues allocated to correct the incentive to dump. A diverse array of institutional responses should be encouraged to ensure the precise targeting of impacts. International mechanisms should be based upon national and local institutions to ensure that the determination of social and environmental costs reflects the environmental and social values of affected communities. The United Nations Environment Programme, the UN Commission on Sustainable Development and the new World Trade Organization should collaborate in the design of international policy which balances trade impacts with social and environmental impacts.
Discriminatory treatment of processed products refers to the use of higher tariffs by industrialized countries on imports of processed products than on the unprocessed version, with the purpose of protecting their domestic processing industries. For example, most industrialized countries place higher tariffs on instant coffee than on raw coffee beans. As a result, the coffee exporting country must continue exporting beans, foregoing the revenues that could be gained in processing. For economic growth, then, the coffee-exporting nations have no choice but to devote more land to raw coffee production -- often clearing more forests or farming more hillsides.
The Uruguay Round agreement reduces tariffs overall by 30%; as a result, discriminatory tariffs will be reduced proportionately. The new World Trade Organization should prohibit discriminatory tariff structures which perpetuate impoverishment. Nations should apply equivalent tariffs for products with equivalent raw natural resource contents.
Quantitative restrictions on the importing and exporting of natural resources are an important conservation measure, yet the Uruguay Round agreement severely limits the use of this option. Canadian restrictions on salmon and herring exports, for example, would have helped prevent overfishing but, based on charges by the US of unfair protection of the Canadian fishing industry, they were overturned by the GATT. Similarly, Japan objected to a US ban on the export of logs cut from public land and the European Community objected to Indonesia's ban on the export of raw logs and rattan, claiming unfair competition with their respective furniture industries. Although these cases were not pursued to the level of a GATT panel, the threat was sufficient to convince Indonesia to revoke its ban. The result is intensified export of the raw materials.
Domestically determined quantitative restrictions on natural resource exports should be permitted as effective conservation measures. The new World Trade Organization should explicitly interpret GATT Article XX to exempt conservation and other environmental protection measures from the definition of trade-distorting non-tariff barriers. The burden of proof for demonstrating injury as a result of trade distortion due to environmental measures should rest with the complainant. The United Nations Environment Programme, the UN Commission on Sustainable Development and the new World Trade Organization should collaborate in the design of compensatory mechanisms to facilitate economic adjustment.
V. DEMOCRACY AND TRADE
Democratic governance depends upon transparent decisionmaking processes involving the smallest appropriate political units. Yet the new World Trade Organization has the power to overrule national as well as local laws. Under the Uruguay Round rules, the World Trade Organization can oblige countries to revise certain national, state and local laws -- such as regulations for pesticides, logging from public lands, recycled paper content, automobile emissions or nutrition labeling -- to minimize their "trade restrictive" effects or to bring them into compliance with often weaker international standards.
Disputes resulting from the Uruguay Round agreement will be decided by panels of trade experts appointed by governmental officials -- panels that operate with no transparency or accountability. The rules actually prohibit panel appointees from releasing documents and from disclosing their opinions to the public. Ongoing negotiation of trade policy, too, is typically conducted in secret by unaccountable trade experts with no environmental or other expertise. At times, even some affected governments are excluded from negotiations while participating governmental officials refuse to discuss proposals in public.
Sanctions and cross-retaliation are the enforcement mechanisms to be employed by the new World Trade Organization. When a dispute panel judges that a country's domestic law does not comply with the rules of the Uruguay Round agreement, the losing country is supposed to change its law within a reasonable period of time. If it fails to do so, the winning country can retaliate by asking the WTO for permission to suspend a certain amount of its trade with the loser. For example, if a country refuses to change a food-related law judged to be illegal, it could lose opportunities to trade in agricultural products with the other country -- or pay an equivalent monetary compensation. If this penalty is not sufficiently effective, then the winning country can "cross-retaliate" with sanctions against industrial products and other perhaps more costly sectors of the economy.
Retaliatory trade sanctions can be very powerful instruments. In fact, the mere threat of sanctions is often sufficient to convince countries to change their laws or other trade practices. However, the effectiveness of sanctions is relative to each country's economic dependence, market shares and the import sensitivity; both trading partners can be hurt by the lost economic activity, a smaller country with a weaker economy that is relatively dependent upon trade is much more vulnerable than a larger country that controls a significant share of the world market. Therefore, even when a small country wins a dispute and is authorized to retaliate against the violator, its citizens may suffer if the sanctions are employed.
One of the stated goals of the World Trade Organization is "achieving greater coherence in economic policymaking" with the International Monetary Fund and the World Bank. Yet these institutions are notorious for escalating the number and severity of conditions -- called "conditionalities" -- that are demanded of impoverished nations at each of the stages from trade to debt to aid.
One of the most common conditions imposed is open access to the debtor's consumer markets. Of course, this does nothing to develop the local productive economy nor does it counteract the spiraling trade-debt-aid imbalances. With each escalation along the spiral, nations are less able to support an export economy, debt service, and conditionalities, as well as the needs of their citizens.
Frequently, lenders and donors demand that countries comply with a large number of economic austerity conditions simultaneously to qualify for new loans and aid. Called "structural adjustment programs" or "SAPs," such packages of conditions usually include devaluing a nation's currency exchange rate to promote exports, reducing the domestic budget and privatizing industry and the service sector.
The International Monetary Fund and the World Bank, the lenders that most often impose these conditions, claim that their purpose is to make the economy more efficient. The overall effect, however, is a transfer of economic wealth and political decisionmaking away from the local communities.
In addition to precluding national and local economic development, actual structural adjustment programs have weakened the ability of many nations to afford environmental protection. Yet, despite this record, current proposals for international environmental policy often include "green conditionalities" defining how countries must behave if they wish access to the financial resources that may become available for investments in environmental technologies and environmental management.
The temptation to try to guarantee environmental protection by imposing conditions on new investments, debt, or aid, can actually cause further environmental problems. First, green programs or green conditionalities usually ignore a nation's development, the economic foundation upon which environmental protection programs must be based. Second, they tend to replicate the draining effects of debt and structural adjustment programs that actually prevent nations from undertaking environmental programs in the first place.
The worst environmental problem with green conditionality, though, is that the penalty accrues not only to the offending government but to the entire world. In other words, the penalty for violating a green conditionality is either the withdrawal of existing resources or the denial of additional resources. But without resources neither the government nor its citizens can comply with environmental protection treaties. As a result, the exploitation of natural resources and polluting behaviors continue unabated. In fact, in response to the greater economic distress, it probably worsens.
All conditionalities interfere with the democratic process within nations. Governments that are obliged to respond to other countries' governments or to international institutions are less able to respond to domestic interests. As trade negotiations establish international policies that actually preempt national, state and local laws, the loss of democratic participation in government becomes complete.
Many aspects of the Uruguay Round agreement and ongoing trade negotiations will preempt national democratic policies and eliminate the rights of individual citizens to participate in decisions affecting their lives.
Harmonization refers to the process of setting uniform standards for imported and exported goods -- eliminating the right of nations and local communities to establish regulations that might be stronger than an international norm. Theoretically, harmonized standards could be based on minimum threshold "floors" that enable countries to strengthen their own requirements for safety, health, labor, environmental and human rights. But in practice, negotiated harmonization proposals tend toward the least common denominator.
The Uruguay Round agreement, for example, establishes a "ceiling" for pesticide standards requiring nations to review their domestic regulations according to norms of Codex Alimentarius, an agency of the Food and Agriculture Organization. To defend a stronger standard, countries must attempt to prove matters that really depend upon subjective judgment. For example, they must prove that the national or local standard is "scientifically justified;" that it is "not more trade restrictive than required to achieve [the] appropriate level of protection;" and that there are no "unjustifiable distinctions" in risk levels throughout the country's national and local regulatory systems. In the case of the US, this could permit pesticide residue levels in certain foods to rise by factors of ten or more and restore the use of pesticide products which had previously been banned.
Each nation should retain the right to establish environmental and social regulations according to domestically determined national goals. International codes recommending "floors" rather than "ceilings" can promote minimal standards for community health and welfare that contribute to each nation's domestic debate without preempting domestic authority and democratic decisionmaking.
Intellectual property law defined by the World Intellectual Property Organization under the Paris Convention recognizes nations' rights to use products with broad social value through mechanisms such as compulsory licensing. The new trade related intellectual property rights rules -- called "TRIPs" -- of the Uruguay Round agreement will allow companies to strengthen their monopoly of intellectual property through long-term patents for new technologies. In particular, the new rules will allow the patenting of life forms and limit access to medicines and seeds covered by pharmeceutical and agricultural patents. TRIPs will tend to slow the application of best available environmentally-friendly technologies and hinder the development of non-resource intensive industries in the Third World. Furthermore, there is a double standard. Third World proposals for TRIPs protecting their genetic resources and indigenous technologies are not recognized in the Uruguay Round agreement.
There should be no double standard for the protection of intellectual property. Knowledge should be considered a common heritage to be shared through education and cooperation. Technology transfer should be promoted among all nations and communities; it should include both industrial and indigenous technologies of both the South and the North. The new World Trade Organization should recognize intellectual property rights as established by the World Intellectual Property Organization and the Biodiversity Convention.The patenting of life forms should be prohibited.
Trade related investment measures, called TRIMS, will be strictly limited by the World Trade Organization. Many national and local laws regulating foreign investments will be considered trade-restrictive and illegal. The resulting drain of resources from a national economy to foreign investors will hinder the ability of many countries to promote local development and environmental protection. A "right to establish" services in any country, regardless of the impact on domestic programs, is still pending in follow-up negotiations to the Uruguay Round. Under this proposal, nations would lose the right to base their economies on domestic banking, insurance, transportation, utility, health and other critical service sectors.
Each nation should retain the right to regulate foreign investment and service industries according to domestically determined national goals.
VI. CONCLUSION
A history of imbalanced trade, spiraling debt and self-perpetuating aid policies have created unsustainable poverty and ecological destruction among the nations of the world.
The Uruguay Round agreement creates a new set of trade rules that extends the GATT's scope to new controversial provisions regarding agriculture, intellectual property, investment measures, service industries, health, and conservation, and other matters. The agreement creates a powerful new institution, the World Trade Organization, to enforce the new rules which tend to constrain nations from regulating many aspects of the behavior of trading corporations -- despite their impact upon peoples' health and the ecosystems of the planet. The new rules also constrain nations from establishing price and border policies that can help manage domestic production and the use of natural resources.
Furthermore, the World Trade Organization will use voting and binding dispute resolution procedures in place of the present system of decisionmaking based on consensus between participating nations. Because economic sanctions are the enforcement mechanism, only countries with substantial economic power can afford to wield the weapon of withholding trade. The new rules for cross-retaliation will give wealthier industrialized countries a stronger means than ever for overpowering weaker countries with predominantly natural resource based economies.
The World Trade Organization will extend and strengthen the GATT's power to overrule national and local governments. The preemption of domestic authority by multilateral institutions raises democratic as well as economic and environmental problems. In close cooperation with the World Bank and the International Monetary Fund, the WTO can systematically develop policies to override national decisionmaking institutions regarding the value of currency, fiscal and monetary policy, domestic budget plans, wage laws, and even health and environmental policies in order to maximize the economic opportunities of transnational corporations. With this further erosion of national sovereignty over the regulation of transnational corporations, citizens become almost entirely removed from global decisionmaking on major issues with critical economic, social and environmental impacts.
The lack of democratic process in trade negotiations is exacerbated by the lack of transparency. The proceedings of the World Trade Organization, its dispute panels, and most other trade negotiations will exclude citizens. Decisions will be made in private and reported after the fact. Disputes will be settled in secret. By withholding information from the public, decisionmakers perpetuate the notion that trade and economic policy is too complicated to be of general interest.
Nations should insist upon democratic processes of decisionmaking -- constructing multilateral international policy upon decisions made at the level of the smallest appropriate political units. Local communities can best assess their own needs and manage the wise use of resources to ensure their own and their children's welfare. The representation of community interests in determining trade, environmental and social policy should be guaranteed not only at the national level but internationally .
The evolution of a comprehensive global institution for sustainable development is desirable -- but it must be democratic, transparent, equitable, accountable and reflect the diversity of the peoples of the planet. It must be based upon diverse expertise and address diverse social and ecological issues as well as a diverse array of economic issues. Among the policies neglected by the Uruguay Round agreement are regulation of the restrictive business practices of transnational corporations, commodity agreements and the terms of trade, internalization of social and ecological costs, allocation of revenues from environmental taxes and tariffs to enable environmentally benign production, and macroeconomic policies including currency exchange rates and debt.
Achieving sustainable development will require national and international policies that restore balance in four key aspects of the economy. These are the balance of trade, the terms of trade, the price-cost ratio, and social and ecological accounts. To achieve these balances, policies for just and sustainable trade must interrupt the trade-debt-aid spiral that has crippled most nations. Above all, policies for sustainable development must respect local communities and avoid the erosion of culture.
© Institute for Agriculture and Trade Policy
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The Institute for Agriculture and Trade Policy was organized in 1986 to alert US public interest organizations to the importance of international economic and environmental policymaking institutions and to provide these organizations with the information, skills, and access needed to influence global decisionmaking. The first public event the Institute helped organize was an international conference on "The Impact of Agricultural Trade on Domestic Farm Policies" held in Geneva, Switzerland in 1986.
The Institute became one of the first public interest organizations to monitor the negotiation of the General Agreement on Tariffs and Trade (GATT) as, in 1986, some 100 countries began rewriting the international rules of trade. In 1988, the Institute extended its monitoring, education, technical assistance and organizing efforts to the US-Canada Free Trade Agreement. That year, the Institute also sponsored an international conference on agricultural trade conflicts and a series of panel discussions on "The Economics of Sustainable Development." In 1990, the Institute extended its program again to include the negotiation of the North American Free Trade Agreement (NAFTA) and the United Nations Conference on Environment and Development (UNCED.)
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