| Geneva Update
Trade Information Project
Institute for Agriculture and Trade Policy (IATP), Geneva
May 20, 2003 Coherence between World Bank, IMF and WTO: A Flawed Agenda for Development Last week’s WTO General Council Meeting, May13, is seen as a “historic” event by the Secretariat because for the first time, the heads of the World Bank (WB), the International Monetary Fund (IMF) and the WTO met with the entire membership of the WTO. The Secretariats of these three institutions have been cooperating and exchanging information with each other for years, with scant attention from governments. However, this meeting is a clear signal from the three institutions to step up a more coordinated approach to expedite liberalization in developing countries and to bring development, trade and finance ministers to move “coherently” in that direction. In fact, the WTO secretariat background note suggests that governments grant observer status to these bodies at the highest level of negotiations i.e. the Trade Negotiating Committee (TNC) and its various negotiating bodies. This status has not been given to other UN bodies. An analysis of the Secretariat’s background note, the public statements of the heads of all three institutions, the statements made by WTO Secretariat staff and developing country member states reveals the four following key concerns: - All three institutions continue to press for faster and unequivocal liberalization citing liberalization as the primary solution for all problems related to economic decline, debt alleviation, poverty reduction and development even stretching as far as global security (See WTO Director General’s Speech). While the IMF offered a few caveats, saying liberalization needs to be properly sequenced, there continues to be a dearth of analysis on the long-term systemic problems created by liberalization of goods, services and capital. Furthermore, there is a failure to truly address negative impacts and policy reform outside the context of assistance to deal with these “temporary problems” and “external shocks.(1)” For instance, the WTO secretariat boasts about WTO rules acting as “shock absorbers” (2)during the Asian Financial crisis without analyzing the link between liberalization of capital controls and the crisis in the first place.
- Given this dogmatic insistence on liberalization for the sake of liberalization, the Secretariats are pushing for the concept of “credit” for developing countries in the WTO for having followed policy prescriptions of the Bank and Fund. By diverting attention to the idea of attaining “credit” in WTO horse-trading, both the Bank and the Fund hope to diffuse the tension surrounding their own past adjustment policies that have contributed, not only to balance of payments (BOP) problems, but a steady and progressive erosion of governmental institutions and social welfare programs--impacting the poorest in borrowing countries. The WTO also fails to mention that the concept of “credit” has resulted in empty negotiating time in the GATS negotiations with no real gains for developing countries
For years, WTO delegates from developing countries have talked about being squeezed on two fronts. At the national level, they have been forced to liberalize through structural adjustment policies of the Bank and the Fund. At the international level, their negotiating positions are eroded by what they have already given away nationally. Conveniently termed “autonomous liberalization,” the idea of credit is riddled with problems. 1) Countries often did not liberalize on their own terms. 2) It is unclear what they can gain out of “credit” in the WTO. Developing countries have been interested in the concept of “credit” in the WTO in order to decrease pressure on them to make ambitious concessions in WTO negotiations. They hoped that by acknowledging unilateral liberalization, developed country members would grant them some breathing space in negotiations or make further concessions in return. Most recently, members agreed to the modalities/guidelines for credit in the Services talks. The Services modalities for “credit”are falsely publicized as a success in the WTO because all insiders and, in particular, Services negotiators, know that after over a year of fighting over modalities—credit has been left to bilateral negotiating among drastically unequal economic powers. According to the Services modalities on credit, even developed countries can ask for credit from their developing country partners. Moreover, these guidelines encourage countries to bind liberalization in the WTO that members undertook unilaterally in exchange for credit in that particular area . Thus more than any tangible benefits of “credit” in the GATS negotiations, the concept legitimized controversial economic reforms prescribed by the Bretton Woods Institutions. Moreover, the offer of “credit” encourages developing countries to bind these controversial reforms within the WTO in exchange for ambiguous gains. - Another issue of relevance is Special and Differential Treatment (S&D). Though currently heavily contested in the Doha Round, the WB is positioning itself to be the “knowledge Bank” regarding the concept of Special and Differential Treatment. The WB’s analysis of S&D completely ignores the systemic imbalances in WTO agreements that have lead developing countries to see S&D, not as a special favor given to developing countries to delay liberalization, but as an obligation of economically powerful members to address the problems caused by liberalization.
The WTO and the World Bank believe S&D is similar to trade preferences and thereby “erodes” the welfare gains of liberalization and the concept of most favored nation. Both believe that S&D must be phased out over time. The WB concept, similar to the US and the EC position in the WTO, advocates for S&D for only least developed countries (LDCs) and small and vulnerable economies. This approach is not only divisive amongst developing country members and thereby weakens their collective negotiating position on this issue, but in actuality ignores the systemic problems of WTO rules for all developing countries. See also, “World Bank on SDT: Bad economics, worse politics, Claire Melamed, Christian Aid” at http://www.brettonwoodsproject.org/topic/knowledgebank/k34sdt.htm - Perhaps the most troublesome feature of last week’s discussions are the way trade related technical assistance (TRTA) and Bank and Fund resources in general are
- being used as a political tool in the WTO negotiations to push for greater and more ambitious commitments by developing countries;
- justifying the World Bank’s movement towards the narrow-minded prioritization of trade over other elements in Poverty Reduction Strategy Papers (PRSPs) and the Country Assistance Strategies (CAS); and,
- positioning the IMF to work with the WTO as the “financier” to bail out developing countries once prescribed policies create negative impacts for their economies.
The last point is particularly relevant for the proposed investment agreement in the WTO and the Services agreement’s investment clauses. Both the WTO and the IMF support trade, finance and capital account liberalization based on a purely theoretical economic analysis. Their analysis of the problem is limited to sequencing and “prudential regulation and financial sector reform ”(3). Their analysis does not factor in the effect of these policies given varying levels of development, industrialization, capacity and priorities among developing countries. This position is also rather ironic since the aggressiveness with which the main proponents of financial services (EC, US, Japan) are pushing for ambitious liberalization in the GATS nullifies any attempts to sequence or take time to reinforce or institute “prudential regulation” in this sector. Meanwhile, the IMF closely aligns itself with the proponents even though the investment negotiations remain contentious: “At the WTO, progress in the financial services talks and the possible negotiation of an international investment framework, can make a key contribution to international financial stability. The IMF’s mandate and ongoing work in this area suggests that close collaboration can be of significant mutual benefit…”(4) The WTO Secretariat note says, “The IMF is committed to assisting countries that experience internal or external financial imbalances with advice and where warranted—financial support, including where the imbalances are related to the process of trade liberalization and reform.” (5) However, this view limits assistance to the symptom rather than the source of the problem. Country Statements For their part, developing countries addressed the heads of these institutions by cautioning them on their zealous promotion of liberalization. Morocco, on behalf of the Africa Group, and Bangladesh, on behalf of LDCs, expressed their concerns regarding the negative impacts of such policies. Gabon addressed its own problems with policy prescriptions of the IMF that limited the flexibilities accorded in the WTO. Kenya reinforced these concerns, noting how these policies have exacerbated “de-industrialisation, poverty and import surges.” Jamaica pointed to the historic and often contradictory advice of the Bretton Woods Institutions (BWIs) that in the 1980s, for instance, advised countries to move towards export processing zones for their economic development which then came under
disciplines of the WTO subsidies agreement. After spending scarce resources or loans based on the advice of the BWIs, members ask, how can countries be compensated for contradictory results in the WTO? Barbados and others addressed the problems created by losing tariff revenue due to trade liberalization and finding no alternative means to make up the lost revenue (6). Barbados also conveyed its dismay in the regular General Council following this meeting. Some delegates critiqued the limited view of the IMF in seeing the problems of liberalization as limited to BOP deficits. This view, some delegations felt, disregarded other long term problems associated with liberalization, such as unemployment, the inability of developing countries to renew domestic production once “inefficient” sectors were wiped out and the dismantling of social programs. India: “My distinguished colleagues from Morocco and Bangladesh have already referred to the apprehensions felt by developing countries regarding the process of liberalisation and the end results. The Ambassador of Morocco referred to the negative implication of liberalization and the importance of addressing them through collective endeavour. The Ambassador of Bangladesh said that trade liberalization and globalisation have increased vulnerabilities of certain economies. He also pointed to the fact that the causal linkages between trade liberalization and growth are not clear—whether liberalization leads to growth or whether liberlisation is a process that autonomously takes place in the process of growth…We need to study problems objectively not dogmatically. This would ensure that
coherence achieves its objective: that of development and poverty reduction on a global scale…” Conclusion Technical Assistance, since Doha, has already gained political currency by proponents of ambitious WTO agreements while numerous outstanding issues remain unresolved in the WTO. This meeting of the IMF, WB and the WTO further reinforces the attitude that the problems are temporary, and that technical and financial assistance can solve them. All three institutions fell short of addressing the systemic problems created by such policies. Instead they focused on restricted market access of developing countries in agriculture and the general failure to liberalize. They propose that the Bank and the Fund can be effective in supporting the implementation of the Doha Round at the national level once the Round is completed. This scenario (where assistance is offered for ambitious commitments) can significantly weaken the negotiating positions of developing countries interested in systemic changes in the multilateral trading system towards pro-development rather than expressly “pro-liberalization” policies. And this is the likely scenario since both the Bank and the Fund’s messages have been about benefits of liberalization rather than actually tackling development concerns. Trade-related technical assistance currently being delivered by these institutions has no mechanism of credible and independent assessment as to its effectiveness. The Integrated Framework (a project of six agencies with the Bank serving as the Secretariat) continues to be inconclusive and in its pilot phase even after a second start. Delegations’ personal comments regarding the increasingly ambitious training programs of the WTO indicate that the WTO attempts to bring delegates “through university in three days” leaving them more confused by tackling complex trade law and policy issues in a short amount of time. Complex issues regarding trade and competition, investment etc. are taught in an astonishingly short period without taking the time to establish a basic understanding of the principles and progressively moving through the various layers of complexity. Without an independent and anonymous mechanism for real feedback on the effectiveness of such assistance, it becomes difficult for the recipients to offer criticisms and suggestions for improvement. Next Steps The Director General of the WTO has asked the WTO membership to deliberate upon the “most appropriate institutional vehicle within the WTO for continuing our consultations with the IMF and the World Bank on priority areas for collaboration.” The DG and World Bank President, James Wolfensohn, have also recently signed a “six-month, renewable strategy for staff cooperation between the WTO and the World Bank.” Will there be language on “coherence” in a Cancun Declaration? Both the Bank and the Fund are pushing to have observer status in the TNC and its subsidiary bodies. Members should ask themselves why these institutions rather than the UNDP and, in particular UNDP’s regional offices, are not proposed for such status instead--since the round is supposed to be about development. Moreover, what are the broader policy implications of “coherence” amongst these three bodies with regards to financing for development and the role of other UN bodies such as ECOSOC? The Secretariat Background Note as a Useful Tool The WTO background note prepared for the meeting of the three institutions is comprehensive and serves as a tremendous tool for civil society activists and governments to forge their own responses to the issues highlighted. The document can be found on the WTO website at www.docsonline.wto.org as WT/TF/COH/S/7 (see endnote 1). Some concerns have been raised above, but clearly much more coherent work can be done by civil society and their governments in responding to these issues. The Trade Policy Review of individual countries has been highlighted as an informative tool for all three institutions in collaborating on policy coherence. Governments and civil society can use these country reports to assess the results of such policies on the poor and domestic stakeholders. It is a positive sign that the WTO document at least acknowledges that development policy begins at home and that prioritization of trade in the larger context of development also depends on member countries. However, while acknowledging this fact, the prescription towards liberalization and international trade are clearly promoted as the only solutions. Some of these “themes” are also reiterated in the Working Group on Trade, Debt and Finance. However, the rhetoric on liberalization continues with little research on the detrimental aspects of debt and the related weakening of terms of trade for developing countries. All of these issues demand urgent attention.
____________________________________________________________ Endnotes: - Para 28, “Coherence in Global Economic Policymaking and Cooperation Between the WTO, the IMF, and the World Bank”, Note by Secretariat. ( WTO Document code: WT/TF/COH/S/7)
- Para. 38, Ibid.
- Para 10, Ibid.
- Horst Kohler, Managing Director of the IMF at WTO General Council, May 13, Geneva.
- Para 28, Ibid.
- SUNS #5344, “Trade: Coherence debate or IMF and World Bank monologues?,” Chakravarthi Raghavan.
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