HOW DOHA DIED: A RINGSIDER'S VIEW
"Interview with Riza Bernabe by Walden Bello
SAARC: SO LITTLE FREE TRADE, BUT SO WHAT?
Benny Kuruvilla* (1)
South Asia’s talking shop – the South Asian Association for Regional Cooperation (SAARC) - held yet another annual summit from 2 -3 August 2008, with the usual entourage of ministers, bureaucrats, media, think tanks and NGOs descending into Colombo. Over 1200 delegates attended the 15th summit of the eight-member club, considered the world’s largest regional grouping. (2) The spotlight was expected to be on the food and energy crisis, but bombings in the last week of July in the Indian cities of Bangalore and Ahmedabad ensured that the ‘fight against terrorism’ became the centre piece of the conclave.
The Colombo declaration titled ‘Partnership for the growth of our people’ emphasised, more than anything else, the need for the strongest possible cooperation in fighting terror and trans-national organised crime.(3) There were sections on climate change and a separate statement on food security. This was a positive step as concrete initiatives to deal with the climate crisis, rising food prices, declining agrarian incomes and ensuring food security will be welcome. But there was also a lame section in the declaration on the nearly defunct free trade treaty for the region, the Agreement for a South Asian Free Trade Area (SAFTA). The absence of any serious commitment from the SAARC political leadership to move ahead on SAFTA met with criticism from business quarters. Expressing disappointment on the lack of concrete steps to invigorate free trade in the region, Tariq Sayeed the President of the SAARC Chamber of Commerce and Industry (SAARC CCI) said ‘hunger and terrorism are undoubtedly vital issues for a region like South Asia, but promoting trade and entrepreneurship could be the best answer to deal with such issues’. (4)
This sidelining of regional trade integration is not new. Despite previous attempts beginning from the SAARC Preferential Trading Arrangement (SAPTA) in 1995, economic integration has been a consistent no-show in South Asia. And frankly other than the usual suspects -- the World Bank, the Asian Development Bank, a few neo-liberal think tanks and some bureaucrats -- nobody is really is clamouring for free trade in the region. For sure, trade between SAARC countries is marginal; intra-regional trade accounts for only 5.5 per cent of total trade and there is merit in increasing that substantially but, as this article argues, a deep integration Free Trade Agreement (FTA) is barking up the wrong tree.
WHAT IS BEHIND SAPTA'S FAILURE?
Despite modest expectations, a flexible structure and three rounds of preference exchange negotiations, SAPTA came a cropper. There are several reasons for this. In the 1990s member countries preferred the route of unilateral domestic reforms for trade concessions rather than through the SAPTA. (5) In the initial rounds, although India offered, on paper, the largest number of concessions in tariff lines, it tactically left Non-Tariff Barriers (NTBs) off the agenda. (6) Moreover the Indian tariff cuts were not deep enough and excluded items such as textiles in which countries like Bangladesh and Sri Lanka were competitive. This ensured that the largest market in the region remained effectively closed. In short, there were not enough of the preferential aspects in SAPTA for a preferential trading arrangement to flourish. While some argue that this led to a loss of trade opportunities, the flexible approach in SAPTA did indeed address some of the sensitivities of member countries. (7) The positive list for instance addressed the fear of a surge of imports from India into other countries in the region that already experienced enormous bilateral trade imbalances with the latter. (8) The political situation in the region didn’t help the trade liberalisation cause either; the 1999 coup d’etat in Pakistan, the assassination of members of the Nepal royal family in 2001, the 2001 election boycott in Bangladesh and the continuing ethnic strife in Sri Lanka ensured the primacy of domestic political priorities.
This slow progress of the SAPTA should have called for a rethink and directed policy makers towards more flexible options to manage trade, especially for the smaller countries in the region, but instead there was a foolish attempt to speed up the process by removing flexibilities and converting the region into a fully-fledged Free Trade Area. Predictably, this set it up for failure yet again. The SAFTA was signed in 2004 and, after arduous negotiations on revenue loss compensation, rules of origin and sensitive lists, it came into force in January 2006. Unsurprisingly, SAFTA still had long negative lists, a limited number of products for tariff concessions, restrictive rules of origin, exclusion of issues such as para-tariffs and NTBs and the exclusion of the services sector. Members gave themselves till 2016 to achieve total liberalisation and agreed that there would be a two tiered system of tariff cuts; a slower pace for Least Developed Countries (LDCs) and a faster pace for others.
The large number of items on the sensitive list (those that will not be subject to tariff cuts) is evidence of the recognition of possible negative consequences of tariff reductions on tax revenues and livelihoods. The mid 2006 lists had India with 867, Pakistan 1183, Sri Lanka 1574, Nepal 1355, Bangladesh 1254, Maldives 671 and Bhutan with 259 items which would not face the chopping block. (9) Facing a SAPTA like situation, hectic parleys began to try and prune this long list, but progress continues to be elusive as before. Part of the reason is simple. For instance in the textiles sector the presence of several products (such as readymade garments, woven and knitted garments, special woven fabrics, handlooms, handicrafts, jute and jute goods) in the sensitive list illustrates that India, Bangladesh, Nepal and Pakistan are in competition with each other. India, the benign hegemon that promises to undertake ‘asymmetrical responsibilities’, has 302 textiles lines in its sensitive list. As each country would want to protect its domestic sector, duty free quota free trade is not likely to be on when there is competition from the region.
INDIA-SRI LANKA FTA SETS A TREND
India and Sri Lanka were the pioneers in the region to experiment with a free trade agreement. Signed in 2000, the ISFTA did lead to increased trade between them but it also brought in its wake negative impacts in specific regions and sectors. The agricultural sector in one of India's southern states, Kerala - which directly competes with Sri Lanka in a number of products -- was adversely impacted. The implementation of the FTA saw high volatility in pepper and coconut prices which resulted in farmers in Kerala facing uncertainties in their incomes. For instance, the export of pepper from Sri Lanka to India increased from 2154 tonnes in 2000 to 6167 tonnes in 2003. (10) The price of pepper per quintal declined from the all time record of Indian Rupees (INR) 21502 in 1999-2000 to INR 6980 in 2004-2005. (11) The sharp drop in prices accentuated the ongoing crisis for small producers and the initial years of the FTA saw hundreds of farmers in the pepper belt of Wayanad district in Kerala committing suicide.
Despite this, India has pushed for scaling up the ISFTA into a Comprehensive Economic Partnership Agreement (CEPA) and pre-SAARC media reports did indicate that the CEPA would be signed on the sidelines of the 2008 Colombo summit. But Sri Lanka had to postpone the event indefinitely due to opposition from left parties such as the Janatha Vimukthi Peramuna (JVP) whose member of parliament Wimal Weerawansa argued that a CEPA would deal a crippling blow to the service sectors in Sri Lanka. (12). Weerawansa argued in the Parliament that the provisions of the deal would give Indian investors an upper hand, leaving local enterprises in the doldrums.
SERVICES AND INVESTMENT STALLS NEGOTIATIONS
The 2008 Colombo declaration calls upon SAARC members to commence negotiations for a Framework Agreement on Trade in Services and an Agreement on Investment Promotion and Protection. While India, with a relatively developed services sector, has a vested interest in this move, it is a contentious issue for others. In a February 2007 meeting at the Ministry of Commerce, industry representatives in Bangladesh came out against the liberalisation of the country’s incipient services sector under SAFTA. (13) And as mentioned in the preceding section the India Sri Lanka CEPA is now stuck on the issue of services.
There are of course proponents from civil society as well. South Asia Watch on Trade, Economics and Environment (SAWTEE), an NGO based in Kathmandu agrees that Pakistani and Indian services companies in information technology, telecommunication, banking and financial services and engineering will gain from a services agreement within SAFTA. They also argue that since the potential for intra regional services trade and investment is high it is also a better option for LDCs, given that weakness in manufacturing in almost all SAARC countries except India. Moreover, since services provision is, at times, inadequate in the LDCs, it is assumed that free trade in services can add to the overall availability and quality of services. (14)
This is a dangerous and flawed argument. Given the experience of developing countries in liberalising services the reluctance of countries such as Bangladesh and Sri Lanka in opening up their services sector under a legally binding framework is justified. Liberalisation and concomitant de-regulation, especially in basic services, undermines the public sector, resulting in diminishing access of such services to poorer sections of the population. Liberalisation kicks in de facto privatisation in cases where big private sector operators crowd out the public sector (in sectors such as finance, insurance and telecommunications). It is thus prudent that countries be given the time to scale up regulatory frameworks and do comprehensive sector level assessments based on consultations with all affected constituencies such as industry, unions, consumers, local and regional government representatives and different line ministries before they open their services to the private sector, even if they are from neighbouring developing countries.
At the February 2007 SAARC business leader’s conclave in Mumbai investment was identified as a key sector to be integrated into SAFTA for an effective increase in regional trade. At the event Indian Minister of State for Commerce Jairam Ramesh stated that countries such as Bangladesh, Nepal and Pakistan would not be able to have a positive trade balance with India, because of the nature of their economies. The key to resolving this issue was not trade but integration of investment rules in the region through protocols in SAFTA that provide market access and protection to FDI. This, according to Ramesh, would make it possible for other countries in the region to improve their trade balance with India. It is unlikely that policy makers and the business sector in other SAARC countries will fall for this logic that is reflective of Indian business’ mercantilist interests. Applying free trade principles of non-discrimination to FDI would seriously limit the ability of countries to reach national development objectives through proactive industrialisation policies. Policy makers in many developing countries have recognised the importance of the quality of the FDI received and have attempted to improve it through selective policies and by imposing performance requirements on foreign affiliates and by providing incentives for high quality investments. For example, East Asian countries such as South Korea have in the past pushed FDI into high technology and export-oriented sectors using various policy instruments. (15) These include provisions on localisation, contribution to development of modern industries, transfer of technology and export orientation.
The national treatment clause (Article 5) in SAFTA would prohibit member countries from using several of these policy instruments. Regulations such as equity ceilings (regulation on a maximum of FDI allowed in a national company), obligations on technology transfer, universal services provision (legislation that obliges private providers in basic services such as health, education, water to supply services to marginalised sections) and employment of local labour will fall foul of SAFTA rules. Such an investment framework under SAFTA rules will maximise investor rights at the cost of development priorities.
LESSONS FROM WTO NEGOTIATIONS
In the ongoing WTO trade talks, South Asian countries have been reluctant to cut industrial tariffs under the WTO Agreement on Non Agricultural Market Access (NAMA). They have argued that under the formulas proposed in the WTO they would have to implement steep tariff cuts which would severely impact local industries, balance of payments, tariff revenues, policy space and employment, all of which are crucial components of national development and poverty reduction policies. As SAFTA follows a similar logic of progressive tariff cuts, the effects on small industries that are as yet not ready for competition will be similar.
TIME TO THINK BEYOND FREE TRADE
Trade and development policies for a small vulnerable economy such as Nepal will be significantly different from those of countries such as India and Pakistan. For Nepal this would entail product diversification, deepening of local industrial activity and scaling up technology. An economically integrated South Asia will not allow the Nepalese Government to follow policies that allow this. National policy space is both needed and justified to create an enabling environment for local industry and employment. This is not to say that trade cannot happen among the SAARC countries. In fact reports indicate that there is vibrant ‘informal’ trade within the region which shows that complementarities do exist. It is up to policy makers to go beyond lofty empty rhetoric at summits and instead meaningfully engage with traders and agriculture groups to find ways of creating a bottom-up trade co-operation framework for the region. Or they can wait for the next SAARC summit in the Maldives to insert another paragraph on the importance of implementing SAFTA.
* Benny Kuruvilla is a research associate with Focus on the Global South based in Delhi, India.
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NOTES
1. With inputs from my colleague Afsar Jafri and Susana Barria, a former intern at Focus. Comments can be sent to
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2. With a population of 1.5 billion, the SAARC is the largest regional grouping in the world. Member countries include Afghanistan, Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan and Sri Lanka. The second largest regional group is the Association of Southeast Asian Nations (ASEAN) with 526 million followed by the European Union (EU) with 500 million.
3. SAARC (2008). ‘Declaration of the Fifteenth SAARC summit’
4. Anonymous, ‘SAARC chamber concerned over sidelining of trade issues’ , The News, August 06, 2008
5. Research Information Systems (2003), ‘Regional Trade Liberalisation under SAPTA and India’s Trade Linkages with South Asia’. New Delhi
6. Non-tariff barriers include government measures such as quantitative restrictions, import licensing and variable levies.
7. The SAPTA was based on a positive list approach and did not have any strict deadline for implementation. A positive list approach allows countries to choose products that will be liberalised as opposed to a negative list in which all products are deemed covered unless specific exceptions are made.
8. Bhutan is the only country which has a positive trade balance with India largely due to energy imports by the latter.
9. Government of India. (2006). ‘South Asian Free Trade Area, Annex-I- Sensitive Lists of Member States’. Ministry of External Affairs: New Delhi. http://www.saarc-sec.org/main.php. Note that where member countries have 2 sensitive lists (for LDC and NLDC) the longer list has been used.
10. Report on Export of Pepper from Sri Lanka to India under ISFTA –Implications, by Sri Lanka Export Development Board, Page 7, http://www.srilankabusiness.com/eresearch/pdf_files/ISFTA-Implications/pepper%20Internet.pdf
11. Dhar Biswajit and Verma Poornima (not dated), ‘India-Sri Lanka Free Trade Agreement: Regional Implications for India. Working paper. Unpublished.
12. Anonymous, ‘Sri Lankan MPs clash over CEPA with India’, Economic Times, 6 August 2008.
13. Anonymous, ‘Bangladesh sets SAFTA strategy tomorrow’, South Asian Media Net, February 11 2007.
14. Raj Bhatt Shiv, ‘Services under SAFTA: how to make it work for South Asia’, SAWTEE, September 9 2006.
15. Nagesh Kumar. (2002). ‘Globalisation and the quality of FDI”, Oxford University Press: New Delhi.
REFERENCES
Gallagher, Kevin P. (2005). Putting Development First: The Importance of Policy Space in the WTO and IFIs. London: Zed Books.
Nath Mukherji Indra. (2004). ‘Towards a Free Trade Area in South Asia: Charting a Feasible course for Trade Liberalization with Reference to India’s Role’. RIS: New Delhi, December
Research Information Systems (2003), ‘Regional Trade Liberalisation under SAPTA and India’s Trade Linkages with South Asia’. New Delhi
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EIGHT-POINT MEMO TO ADDRESS THE ECONOMIC CRISIS
by Herbert Docena and Jenina Joy Chavez
Despite the President's attempts to give a positive spin to the crisis, the government’s own data unambiguously attest to how Filipinos are reeling from an economic downturn made worse by increases in the price of basic commodities. A previous Focus report documented the grim signs: the 7.3% GDP growth of a year ago dipped to 5.2% in the first quarter of 2008. About 9.5 million of the country’s 33.5 million workers are either unemployed or underemployed. Inflation in June breached double-digit at 11.4%, compared to 2.3% last year. Prices soared high in the fuel, light and water commodity group, registering a doubling of inflation from 3.8% to 7.6% in June on a year-on-year basis. Even more staggering was the inflation in food, beverages and tobacco which shot up to 16.5% in June from 2.6% last year. Little wonder that 2.8 million families, or 15.7% of total, experienced hunger.
A more visionary leadership would have implemented an emergency response while laying the ground for long-term measures. Instead, the crisis has been used as an excuse to gain political points. Government’s answer is an elaborate package of dole-outs that are palliatives at best.
The crisis is caused by fundamental weaknesses in the economy. These include the government’s perennial lack of funds, the inability of the majority of the population to contribute to and gain from the economy due to their lack of incomes or assets, and the power of a few to dominate the economy in ways that promote their interests over the larger public’s.
We put forward an eight-point agenda that address – instead of evade – these problems.
1. END CORRUPTION AND WASTEFUL SPENDING.
When President Arroyo and her delegation went to the US recently, they reportedly spent Pesos (P) 66 million – enough to buy 4.4 million kilos of National Food Authority (NFA) rice. Banning junkets and other frivolous expenses will bring considerable savings which can instead be spent for more essential and urgent expenditures. Corruption sucks our already limited resources dry, effectively shrinking government budget by about one-fifth annually, according to the World Bank. This translates to about P250 billion out of this year’s budget of P1.12 trillion. That’s 14 billion kilos of rice – enough to assure 170 kilos of rice for every single Filipino. For starters, we can work to recover those P700 million in fertilizer funds. At the end of the day, however, no anti-corruption drive will work unless change begins at the top.
2. EASE THE TAX BURDEN ON THE POOR AND RATIONALIZE THE TAX SYSTEM TO MAKE IT MORE PROGRESSIVE.
The current crisis is debilitating and calls for immediate relief, and what better way than to target VAT which cuts across all classes. To avoid a deep fissure in revenue projections, a minimum immediate action can be the restoration of VAT rates from 12% to the original 10%. The 2% add-on was put in place in 2006 to respond to what President Arroyo considered the most urgent problem at the time, the burgeoning public sector deficit. A strong peso and two years of the 12% VAT have addressed this problem. Meanwhile, the government has raked in a windfall from VAT collections due to the rapid increase in the prices of oil and other products. Said windfall amounts to as much as P73.1 billion from oil alone (based on government estimate of revenue losses if VAT on oil is scrapped).
It goes without saying that steps to correct the institutional weaknesses of our tax system and to improve tax administration should be put in place. The system should be designed to rely more on taxes on wealth and profit.
3. SPEND MORE ON SOCIAL SERVICES AND SOCIAL INVESTMENTS.
The largest portion of next year’s budget should go to social services and investments – health, education, housing, social welfare, land reform, investments in agriculture, etc – up from only 10% today. This re-allocation of spending will not only help Filipinos cope with the crisis – by decreasing what they have to pay for school or hospital bills – but will also spur demand and production, thereby boosting mid-term and long-term growth prospects.
Social Watch Philippines’ Alternative Budget presents concrete recommendations for spending an additional P20 billion but an even larger increase is needed. Meeting the international ideal of spending 6% of GNP on education by increasing the budget of the Department of Education from P140 billion to P440 billion could lead not only to the construction of more school buildings, thereby boosting the construction industry, but also to more productive workers, better-paid teachers, more research and development and, thus, to more innovations. Mass housing projects will not only put roofs above people’s heads; they will also boost consumption. Wiping out TB and other communicable but preventable diseases is not just good in itself; it will also enhance the country’s social capital in the long-term.
4. REDUCE DEBT SERVICE TO ENSURE THAT THERE ARE ENOUGH RESOURCES FOR SOCIAL SERVICES AND INVESTMENTS, GOVERNMENT MUST REDUCE DEBT SERVICE.
Total debt service this year will gobble up 37% of total government spending of P1.6 trillion. At close to P600 billion, it will be 170 times larger than what the national government will spend on housing, 120 times bigger than that for social welfare, 30 times that for health, and four times larger that for education. President Arroyo's much-trumpeted P2 billion cash subsidy for small power users, or the National Food Authority’s budget of P2 billion, is only 0.3% of debt service. At a time when one in six Filipino families is going hungry, this spending priority is not only scandalous, it makes no economic sense. It is like being forced to donate blood while one is also already hemorrhaging.
Part of the debts we have incurred are anomalous. Freedom from Debt Coalition strongly advocates stopping payment of these anomalous debts. They also call for an official debt audit to find out which debts were fraudulently incurred and should be cancelled. All these will, of course, be opposed by creditors and their local underwriters who will expectedly threaten to withdraw funds from and withhold lending to the Philippines in the future. But as Argentina – which refused to pay part of its debts in 2002 and has since been growing 9% annually – has shown, this reallocation from debt to productive spending may be the only “win-win” solution both for the country and the creditors in the long-term.
5. BRING DOWN THE PRICE OF OIL AND ELECTRICITY.
One way to reduce the costs of electricity is to review the expensive contracts with independent power producers (IPPs). Government gives them generous guarantees which make us pay even for power we don’t consume. As of December 2007, we still have an oversupply of electricity, with 15,937 megawatts of total installed generation capacity for peak demand of only 8,993 megawatts. A technical audit of these IPPs will give government a clear basis to renegotiate the terms of their contracts, and save us billions of pesos.
The Energy Regulatory Commission (ERC) should also start examining the cost structure of distribution utilities like Meralco. ERC should look behind the submissions of electric distributors, and in particular, check whether the purchases of the distributors are competitively priced. For the ERC to act decisively, there should be a revamp of its officials, with only bureaucrats of proven integrity appointed.
The VAT on oil should be scrapped, and in its stead a specific tax lower than what the VAT now yields should be reinstituted. This way, oil will still be taxed high enough to pay for its environmental costs, to discourage wasteful use, and to replace some of the revenues lost from the removal of VAT. The government should also reclaim its role in the energy sector. The Oil Industry Deregulation Law and the Electric Power Industry Reform Law should be revisited. Plans to privatize the Philippine National Oil Company (PNOC) and its remaining 40% stake in Petron should be abandoned. Energy is a strategic industry where government presence is desirable. Government needs to have a direct stake in the industry to be able to exercise price leadership and better monitoring, and to serve strategic concerns beyond profits (e.g. development of renewable and clean energy).
6. REVIVE INDUSTRY, CREATE MORE JOBS, AND INCREASE WORKERS’ AND FARMERS’ INCOMES.
We are concerned about the plight of Filipinos as consumers, but it is important to emphasize that they are also producers and workers. The goal of development should not be narrowly defined by low consumer prices, a goal which has been used to justify a myriad of policies from trade liberalization to the freezing of wages. Cheap prices have come at the expense of income and employment, particularly in agriculture, promoted the restructuring of the economy towards services, and undermined our productive capacities in both agriculture and industry.
For starters, the current minimum wage must be raised. Government estimates that a family of six must have at least P894 everyday to afford a minimum standard of living in Metro Manila but the current minimum wage is only P382.
The predilection of government to sign trade and economic agreements left and right should be checked. The government should refuse to sign the Doha Round agreement in the World Trade Organization which seeks to further open up our markets. Opening up has led to jobless growth, de-industrialization and the implosion of agriculture. Contrary to the promises of its proponents, it has failed to raise income and employment.
This must be reversed by a review of the tariff structure, adjusting it upwards to protect domestic employment and incomes – not to coddle and enrich local capitalists as in old-style protectionism but to foster sustainable industrialization and development the gains from which must be more broadly shared.
7. EXTEND AND REFORM THE COMPREHENSIVE AGRARIAN REFORM PROGRAM
Increasing trade protection is not enough for the farm sector, characterized as it is by a highly skewed asset distribution and landlessness, low investments, low technology, high production costs and low productivity. To address the asset distribution issue, government must undertake to extend the Comprehensive Agrarian Reform Program (CARP) with reforms. CARP still has 1.9 million hectares of land to redistribute to more than half a million potential beneficiaries. Beyond land redistribution, CARP needs to step up on the support services necessary to sustain existing as well as assist new farmer beneficiaries, and help stem reversals in the program. (For more on our recommendations regarding land reform, see http://www.focusweb.org/philippines/content/view/159/4/)
8. PROVIDE THE POOR JOBS AND SERVICES, NOT DOLE-OUTS.
The dole-out programs now in vogue with government are only appropriate as an immediate response in the wake of a disaster or calamity. The poorest lack the means to buy basic essentials, but they do not lack talent or the will to work. They deserve to be treated with more dignity and not be subject to a near-mendicant, dependent existence.
That said, targeted intervention is necessary for the poorest, because they are the least able to manage the impact of a crisis, even as they are the last to share in the benefits of growth. For this, appropriate social mobilization is necessary involving both the state and the community. For example, employment-based intervention can involve public works at the local government units or the public school system. Everyone has the right to employment and services and it is the duty of government to ensure that these rights are respected – not as a matter of charity but as an obligation. Fulfilling these obligations is not just good in itself, however, but it is also a prerequisite for progress.
Taken together, this 8-point package of interventions will allow the majority of Filipinos to cope with the crisis. To get by for another day should not be our only goal, however. These policies should be seen as initial efforts to break free from the dominant economic paradigm that has guided policy-making in the country for the last few decades and which have resulted in stagnation and immiseration.
In the medium-term, the government should aim to rebuild its capacity to act in the economy so as to promote the welfare of the most number of people by assuming leadership in strategic economic sectors, pursuing an industrial policy to rebuild our manufacturing capacity, and abandoning trade agreements and arrangements that disallow the government from upholding the interests of the larger population. Bondage from debt must be finally broken. The government should also continue to prioritize policies to democratize economic power – through land reform, progressive taxation, and other redistributive measures – in order to widen the economic base required for long-term sustainable growth. At the same time, the government should, in cooperation with other developing countries, play its role in transforming the international environment to make it more conducive for attaining sustainable and equitable development.
*Herbert Docena is a research associate with Focus on the Global South and Joy Chavez coordinates Focus' Philippines programme.
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THE DESTRUCTION OF AFRICAN AGRICULTURE
Walden Bello
( First published in Pambazuka News, 5 August 2008, http://www.pambazuka.org/en/category/features/49919)
Biofuel production is certainly one of the culprits in the current global food crisis. But while the diversion of corn from food to biofuel feedstock has been a factor in food prices shooting up, the more primordial problem has been the conversion of economies that are largely food-self-sufficient into chronic food importers. Here the World Bank, International Monetary Fund (IMF), and the World Trade Organization (WTO) figure as much more important villains.
Whether in Latin America, Asia, or Africa, the story has been the same: the destabilization of peasant producers by a one-two punch of IMF-World Bank structural adjustment programs that gutted government investment in the countryside followed by the massive influx of subsidized U.S. and European Union agricultural imports after the WTO’s Agreement on Agriculture pried open markets.
African agriculture is a case study of how doctrinaire economics serving corporate interests can destroy a whole continent’s productive base.
FROM EXPORTER TO IMPORTER
At the time of decolonization in the 1960s, Africa was not just self-sufficient in food but was actually a net food exporter, its exports averaging 1.3 million tons a year between 1966-70. Today, the continent imports 25% of its food, with almost every country being a net food importer. Hunger and famine have become recurrent phenomena, with the last three years alone seeing food emergencies break out in the Horn of Africa, the Sahel, Southern Africa, and Central Africa.
Agriculture is in deep crisis, and the causes are many, including civil wars and the spread of HIV-AIDS. However, a very important part of the explanation was the phasing out of government controls and support mechanisms under the structural adjustment programs to which most African countries were subjected as the price for getting IMF and World Bank assistance to service their external debt.
Instead of triggering a virtuous spiral of growth and prosperity, structural adjustment saddled Africa with low investment, increased unemployment, reduced social spending, reduced consumption, and low output, all combining to create a vicious cycle of stagnation and decline.
Lifting price controls on fertilizers while simultaneously cutting back on agricultural credit systems simply led to reduced applications, lower yields, and lower investment. One would have expected the non-economist to predict this outcome, which was screened out by the Bank and Fund’s free-market paradigm. Moreover, reality refused to conform to the doctrinal expectation that the withdrawal of the state would pave the way for the market and private sector to dynamize agriculture. Instead, the private sector believed that reducing state expenditures created more risk and failed to step into the breach. In country after country, the predictions of neoliberal doctrine yielded precisely the opposite: the departure of the state “crowded out” rather than “crowded in” private investment. In those instances where private traders did come in to replace the state, an Oxfam report noted, “they have sometimes done so on highly unfavorable terms for poor farmers,” leaving “farmers more food insecure, and governments reliant on unpredictable aid flows.” The usually pro-private sector Economist agreed, admitting that “many of the private firms brought in to replace state researchers turned out to be rent-seeking monopolists.”
What support the government was allowed to muster was channeled by the Bank to export agriculture – to generate the foreign exchange earnings that the state needed to service its debt to the Bank and the Fund. But, as in Ethiopia during the famine of the early 1980s, this led to the dedication of good land to export crops, with food crops forced into more and more unsuitable soil, thus exacerbating food insecurity. Moreover, the Bank’s encouraging several economies undergoing adjustment to focus on export production of the same crops simultaneously often led to overproduction that then triggered a price collapse in international markets. For instance, the very success of Ghana’s program to expand cocoa production triggered a 48% drop in the international price of cocoa between 1986 and 1989, threatening, as one account put it, “to increase the vulnerability of the entire economy to the vagaries of the cocoa market [1]." In 2002-2003, a collapse in coffee prices contributed to another food emergency in Ethiopia.
As in many other regions, structural adjustment in Africa was not simply underinvestment but state divestment. But there was one major difference. In Latin America and Asia, the Bank and Fund confined themselves for the most part to macromanagement, or supervising the dismantling of the state’s economic role from above. These institutions left the dirty details of implementation to the state bureaucracies. In Africa, where they dealt with much weaker governments, the Bank and Fund micromanaged such decisions as how fast subsidies should be phased out, how many civil servants had to be fired, or even, as in the case of Malawi, how much of the country’s grain reserve should be sold and to whom. In other words, Bank and IMF resident proconsuls reached into the very innards of the state’s involvement in the agricultural economy to rip it up.
THE ROLE OF TRADE
Compounding the negative impact of adjustment were unfair trade practices on the part of the EU and the United States. Trade liberalization allowed low-priced subsidized EU beef to enter and drive many West African and South African cattle raisers to ruin. With their subsidies legitimized by the WTO’s Agreement on Agriculture, U.S. cotton growers offloaded their cotton on world markets at 20-55% of the cost of production, bankrupting West African and Central African cotton farmers in the process [2].
These dismal outcomes were not accidental. As then-U.S. Agriculture Secretary John Block put it at the start of the Uruguay Round of trade negotiations in 1986, “the idea that developing countries should feed themselves is an anachronism from a bygone era. They could better ensure their food security by relying on U.S. agricultural products, which are available, in most cases at lower cost [3]."
What Block did not say was that the lower cost of U.S. products stemmed from subsidies that were becoming more massive each year, despite the fact that the WTO was supposed to phase out all forms of subsidy. From $367 billion in 1995, the first year of the WTO, the total amount of agricultural subsidies provided by developed country governments rose to $388 billion in 2004. Subsidies now account for 40% of the value of agricultural production in the European Union (EU) and 25% in the United States.
The social consequences of structural adjustment cum agricultural dumping were predictable. According to Oxfam, the number of Africans living on less than a dollar a day more than doubled to 313 million people between 1981 and 2001 – or 46% of the whole continent. The role of structural adjustment in creating poverty, as well as severely weakening the continent’s agricultural base and consolidating import dependency, was hard to deny. As the World Bank’s chief economist for Africa admitted, “We did not think that the human costs of these programs could be so great, and the economic gains would be so slow in coming [4]."
That was, however, a rare moment of candor. What was especially disturbing was that, as Oxford University political economist Ngaire Woods pointed out, the “seeming blindness of the Fund and Bank to the failure of their approach to sub-Saharan Africa persisted even as the studies of the IMF and the World Bank themselves failed to elicit positive investment effects [5]."
THE CASE OF MALAWI
This stubbornness led to tragedy in Malawi. It was a tragedy preceded by success. In 1998 and 1999, the government initiated a program to give each smallholder family a “starter pack” of free fertilizers and seeds. This followed several years of successful experimentation in which the packs were provided only to the poorest families. The result was a national surplus of corn. What came after, however, is a story that will be enshrined as a classic case study in a future book on the 10 greatest blunders of neoliberal economics.
The World Bank and other aid donors forced the drastic scaling down and eventual scrapping of the program, arguing that the subsidy distorted trade. Without the free packs, food output plummeted. In the meantime, the IMF insisted that the government sell off a large portion of its strategic grain reserves to enable the food reserve agency to settle its commercial debts. The government complied. When the crisis in food production turned into a famine in 2001-2002, there were hardly any reserves left to rush to the countryside. About1,500 people perished. The IMF, however, was unrepentant; in fact, it suspended its disbursements on an adjustment program with the government on the grounds that “the parastatal sector will continue to pose risks to the successful implementation of the 2002/03 budget. Government interventions in the food and other agricultural markets…crowd out more productive spending.”
When an even worse food crisis developed in 2005, the government finally had enough of the Bank and IMF’s institutionalized stupidity. A new president reintroduced the fertilizer subsidy program, enabling two million households to buy fertilizer at a third of the retail price and seeds at a discount. The results: bumper harvests for two years in a row, a surplus of one million tons of maize, and the country transformed into a supplier of corn to other countries in Southern Africa.
But the World Bank, like its sister agency, still stubbornly clung to the discredited doctrine. As the Bank’s country director told the Toronto Globe and Mail, “All those farmers who begged, borrowed, and stole to buy extra fertilizer last year are now looking at that decision and rethinking it. The lower the maize price, the better for food security but worse for market development.”
FLEEING FAILURE
Malawi’s defiance of the World Bank would probably have been an act of heroic but futile resistance a decade ago. The environment is different today. Owing to the absence of any clear case of success, structural adjustment has been widely discredited throughout Africa. Even some donor governments that once subscribed to it have distanced themselves from the Bank, the most prominent case being the official British aid agency that co-funded the latest subsidized fertilizer program in Malawi. Perhaps the motivation of these institutions is to prevent the further erosion of their diminishing influence in the continent through association with a failed approach and unpopular institutions. At the same time, they are certainly aware that Chinese aid is emerging as an alternative to the conditionalities of the World Bank, IMF, and Western government aid programs.
Beyond Africa, even former supporters of adjustment, like the International Food Policy Research Institute (IFPRI) in Washington and the rabidly neoliberal Economist acknowledged that the state’s abdication from agriculture was a mistake. In a recent commentary on the rise of food prices, for instance, IFPRI asserted that “rural investments have been sorely neglected in recent decades,” and says that it is time for “developing country governments [to] increase their medium- and long-term investments in agricultural research and extension, rural infrastructure, and market access for small farmers.” At the same time, the Bank and IMF’s espousal of free trade came under attack from the heart of the economics establishment itself, with a panel of luminaries headed by Princeton’s Angus Deaton accusing the Bank’s research department of being biased and “selective” in its research and presentation of data. As the old saying goes, success has a thousand parents and failure is an orphan. Unable to deny the obvious, the Bank has finally acknowledged that the whole structural adjustment enterprise was a mistake, though it smuggled this concession into the middle of the 2008 World Development Report, perhaps in the hope that it would not attract too much attention. Nevertheless, it was a damning admission:
Structural adjustment in the 1980’s dismantled the elaborate system of public agencies that provided farmers with access to land, credit, insurance inputs, and cooperative organization. The expectation was that removing the state would free the market for private actors to take over these functions—reducing their costs, improving their quality, and eliminating their regressive bias. Too often, that didn’t happen. In some places, the state’s withdrawal was tentative at best, limiting private entry. Elsewhere, the private sector emerged only slowly and partially—mainly serving commercial farmers but leaving smallholders exposed to extensive market failures, high transaction costs and risks, and service gaps. Incomplete markets and institutional gaps impose huge costs in forgone growth and welfare losses for smallholders, threatening their competitiveness and, in many cases, their survival.
In sum, biofuel production did not create but only exacerbated the global food crisis. The crisis had been building up for years, as policies promoted by the World Bank, IMF, and WTO systematically discouraged food self-sufficiency and encouraged food importation by destroying the local productive base of smallholder agriculture. Throughout Africa and the global South, these institutions and the policies they promoted are today thoroughly discredited. But whether the damage they have caused can be undone in time to avert more catastrophic consequences than we are now experiencing remains to be seen.
*Walden Bello is a senior analyst at Focus on the Global South, a program of Chulalongkorn University's Social Research Institute, and a columnist for Foreign Policy In Focus (www.fpif.org) where this article first appeared under the title, "Destroying African Agriculture."
NOTES:
1. Charles Abugre, “Behind Crowded Shelves: as Assessment of Ghana’s Structural Adjustment Experiences, 1983-1991,” (San Francisco: food First, 1993), p. 87.
2. “Trade Talks Round Going Nowhere sans Progress in Farm Reform,” Business World (Phil), Sept. 8, 2003, p. 15
3. Quoted in “Cakes and Caviar: the Dunkel Draft and Third World Agriculture,” Ecologist, Vol. 23, No. 6 (Nov-Dec 1993), p. 220
4. Morris Miller, Debt and the Environment: Converging Crisis (New York: UN, 1991), p. 70.
5. Ngaire Woods, The Globalizers: the IMF, the World Bank, and their Borrowers (Thaca: Cornell University Press, 2006), p. 158.
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READERS' COMMENTS
DON'T BLAME THE WORLD BANK FOR EVERYTHING
By Regina Birner, Senior Research Fellow, International Food Policy Research Institute (IFPRI)
I am wondering how much more evidence on the pre-structural adjustment era and on structural adjustment needs to be created before our friends from the NGO community stop telling this misconceived story-line that everything was just fine in African agriculture, until the bad World Bank and IMF pressured the poor African governments into dismantling their “elaborate system of public agencies that provided farmers with access to land, credit, insurance inputs and cooperative organization.” (quote from the article). If these systems were working so well and reached the smallholders with all these services, then why didn’t Africa have a small-holder based Green Revolution prior to structural adjustment? Why did agriculture fail to even keep pace with population growth? There is ample evidence that many of these “elaborate systems” the article refers to mainly served elites who appropriated large rents rather than reaching smallholders. To name just one source, the book by Djurfeld et al. (2005) on “The African Food Crisis - Lessons from the Asian Green Revolution” provides ample evidence on the large-farmer bias and the rent-seeking by bureaucrats that characterized agricultural policies on the continent. Independent “cooperative organization” of farmers, for example, was destroyed by authoritarian governments long before structural adjustment (as in the case of coffee farmers in Ghana). So yes, agricultural spending has been reduced under structural adjustment, but why is the author not asking in whose pockets most of that expenditure had ended up the first place?
It is also important to consider what governments actually did--as compared what they were portraying to do--under structural adjustment. As Jayne et al. (2002:1967) show for Eastern and Southern Africa, “many of the most fundamental elements of the reform programs either remain unimplemented, were reversed within several years, or were implemented in such a way as to negate private sector investment incentives.” Other authors (Cooksey, Pletcher) also provide evidence on the same point. And van de Walle shows that many African governments and elites were quite well able to protect their own interests under structural adjustment.
I would be the last one to defend the Bank’s role under structural adjustment or thereafter, and I think it is very important that NGOs criticize the Bank and IFPRI for whatever goes wrong. For example, I think it took the Bank far too long to move away from the position that “all subsidies are bad” to considering “market-smart subsidies.” And one can certainly criticize IFPRI for starting to research this topic only now. However, I wonder when the NGO community will finally start to acknowledge that one can’t blame international organizations alone - African governments themselves—especially those who were not accountable to their own people--have played an important role in the destruction of African agriculture, as well.
REFERENCES
Cooksey,B. 2003. "Marketing Reform? The Rise and Fall of Agricltural Liberalization in Tanzania." Development Policy Review, Vol.21, pp.67-91, 2003. 21:57-91
Djurfeldt, G., Holmen, H., Jirström, M., & Larsson, R. (2005). The African Food Crisis - Lessons from the Asian Green Revolution. Wallingford, Oxon: CABI Publishing.
Jayne,T.S., Govereh J., Mwanaumo A., Nyoro J.K., and Chapoto A. 2002. "False Promise or False Premise? The Experience of Food and Input Market Reform in Eastern and Southern Africa ." World Development. 30:1967-1985.
Pletcher,J. 2000. "The Politics of Liberalizing Zambia's Maize Markets." World Development. 28:129-142.
van de Walle,N. 2001. African Economies and the Politics of Permanent Crisis. Cambridge University Press. New York.
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BUSINESS AS USUAL IS NO SOLUTION TO THE CURRENT FOOD CRISIS
By Dr Dan Taylor, Director, Find Your Feet (
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, www.fyf.org.uk)
Any attempt to cover a very complex subject in the space of a few pages must inevitably be somewhat superficial in its analysis. Walter Bello’s ‘The ‘destruction of African agriculture’ is a good attempt to do so but suffers from a number of analytical shortfalls. While the article starts with biofuel production it does not argue against the disastrous impact that biofuels has had on the global food crisis, and glosses over the fact that it is one of the major contributing factors at the present time. But I do not want to dwell on this and must myself be subject to the same criticism of trying to say too much in too little words.
The conflation in this article of structural adjustment, state failure and the more recent policies of global institutions in which privatisation has been mandatory for the developing world (together with the deforestation for, and use of, food crops for biofuel production) does little to clarify our current food crisis or the destruction of Africa’s agriculture. Furthermore the fact that African governments do little to promote agriculture either by investing a higher proportion of their national budget in this sector, or by enacting policies that link agricultural production to environmental and biodiversity conservation, raises some important issues of governance and accountability to their poorer citizens. But all this is old news. The point that we wish to emphasise is that the rather predictable outcome of a privatisation process should not detract from the fact that business as usual, the industrial model of agriculture, is no solution – to repeat the findings of the latest IAASTAD Report - to the current food crisis.
In this regard we want to refer to the Malawi success story promoted in the article, one that is dependent on continued donor support, affordability in the face of growing fertiliser prices, and state patronage. In attributing the success of the scheme to farming inputs, insufficient attention has been paid to the fact that rainfall in Malawi over the past two agricultural seasons has been optimal. We are delighted that Malawi farmers were able to grow more food and our wish is for this to continue. At risk of being harbingers of doom, it is clear that it cannot and will not continue – the sad fact is that Africa is susceptible to floods and droughts. The droughts will return, if not next year, then the year after, or the year after that. And at this point of time the crops will again fail. In any event donors will most probably have changed their priorities by then, but farmers’ reliance on an unsustainable model of agriculture will remain.
So what about sustainability? Part of the food crisis is the high costs of an agricultural model dependent on monocultures and fossil fuels at the expense of the environment. The threat of global warming tells us that we need to reduce risk and diversify agricultural production away from a reliance on single crops towards a diversified agriculture that is more in keeping with agricultural systems which have served Africa for millennia and more closely mimic the natural ecosystems. Hence the use of readily available local resources using farmers own skills and knowledge – in other words a range of technologies, practices and systems that require few external inputs.
The article shows little concern for the environment, while even the Malawi Government is recognising the unsustainbility of highly subsidised input packages in the current economic crisis. It is for this reason that it has asked us, through the Ministry of Agriculture and Food Security, to launch a national composting programme, to reduce reliance on an intervention that it cannot afford and neither can the farmers which it is designed to benefit.
So the World Bank, with regard to subsidies in this case, is right, even if it is not for the correct reasons. And while we must recognise the mistakes of the rather short-sighted policies of the past – of which structural adjustment provides us with a devastating example – we should look forwards not backwards. The positive role that the state must play should be re-emphasised in a policy context which recognises farmers as custodians of the environment and plays an affirming role in setting the policies that empower them while making them responsible for conserving the agricultural and biological diversity on which posterity depends. This is real agency for farmers as citizens and one in which they will no longer be subject to the fads and fashions of donor policies or the edicts of global multilateral institutions.
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DERAIL DOHA, SAVE THE CLIMATE
Walden Bello
(First published in Foreign Policy in Focus, 29 July 2008)
In the face of the looming spectre of climate change, current World Trade Organisation negotiations amount to arguing over the arrangement of the deck chairs while the Titanic is sinking. In fact, one of the most important steps to deal with climate change would be to bring to an end an unsustainable free trade system.
There’s something surreal about the ongoing World Trade Organization talks in Geneva, which aim at coming up with a new agreement to bring down tariffs in order to expand world trade and resuscitate global growth. In the face of the looming specter of climate change, these negotiations amount to arguing over the arrangement of deck chairs while the Titanic is sinking.
Indeed, one of the most important steps in the struggle to come up with a viable strategy to deal with climate change would be the derailment of the so-called “Doha Round.”
Global trade is carried out with transportation that is heavily dependent on fossil fuels. It’s estimated that about 60% of the world’s use of oil goes to transportation activities which are more than 95% dependent on fossil fuels. An OECD study estimated that the global transport sector accounts for 20-25% of carbon emissions, with some 66% of this figure accounted for by emissions in the industrialized countries.
GLOBAL TRADE: DEEPLY DYSFUNCTIONAL
From the point of view of environmental sustainability, global trade has become deeply dysfunctional. Take agricultural trade. As the International Forum on Globalization has pointed out, the average plate of food eaten in Western industrial food-importing nations is likely to have traveled 1,500 miles from its source. Long-distance travel contributes to the absurd situation wherein “three times more food is used to produce food in the industrial agricultural model than is derived in consuming it.”
The WTO has been a central factor in increasing carbon emissions from transport. A study by the OECD done in the mid-nineties estimated that by 2004, the year marking the full implementation of free-trade commitments under the WTO’s Uruguay Round, there would have been an increase in the transport of internationally traded goods by 70% over 1992 levels. This figure, notes the New Economics Foundation, “would make a mockery” of the Kyoto Protocol’s mandatory emissions reduction targets for the industrialized countries.
TRANSPORTATION: MORE FOSSIL INTENSIVE THAN EVER
Ocean shipping accounts for nearly 80% of the world’s international trade in goods. The fuel commonly used by ships is a mixture of diesel and low-quality oil known as “Bunker C,” which has high levels of carbon and sulfur. As Jerry Mander and Simon Retallack point out, “If not consumed by ships, it would otherwise be considered a waste product.”
Aviation, which has the highest growth rate as a mode of transport, is also the fastest growing source of greenhouse gas emissions, with its consumption of fuel expected to rise by 65% from 1990 levels by 2010, according to one study cited by the New Economics Foundation. Other estimates are more pessimistic, with the Intergovernmental Panel on Climate Change (IPCC) suggesting that fuel consumption by civil aviation is going up at the rate of three percent a year and could rise by nearly 350% from 1992 levels by 2050. Note Mander and Retallack: “Each ton of freight moved by plane uses forty nine times as much energy per kilometer as when it’s moved by ship….A two-minute takeoff by a 747 is equal to 2.4 million lawn mowers running for twenty minutes.” In support of trade expansion and global economic growth, authorities have by and large not taxed aviation fuel as well as marine bunker fuel, which now account for 20% of all emissions in the transport sector.
Along with fossil-fuel-intensive air transport, fossil-fuel-intensive road transport has also been favored by the expansion of world trade, instead of modes with less emission intensities like rail and marine traffic. In the European Union, for instance, the focus on building up a road transport network led an OECD study to comment that “the way in which the EU liberalization policy has been implemented has favored the less environment-friendly modes and accelerated the decline of rail and inland waterways.”
DECOUPLING GROWTH AND ENERGY: A PANACEA
There has been talk about decoupling trade and growth from energy or shifting from fossil fuels to other, less carbon-intensive energy sources. The reality is that the other energy sources being seriously considered are either dangerous, like nuclear power; with deleterious side-effects, like biofuels’ negative impact on food production; or science fiction as this stage, like carbon sequestration and storage technology. For the foreseeable future, trade expansion and global growth will fall in line with their historical trajectory of being correlated with increased greenhouse gas emissions.
A sharp U-turn in consumption and growth in the developed countries and a significant decrease in global trade are unavoidable if we are to have a viable strategy against climate change. This will set the stage for a reduction in greenhouse gas emissions, including from the energy-intensive transportation sector. The outcome of the Doha negotiations will determine whether free trade will intensify or lose momentum. A successful conclusion to Doha will bring us closer to uncontrollable climate change. It will continue what the New Economics Foundation describes as “free trade’s free ride on the global climate.”
A derailment of Doha won’t be a sufficient condition to formulate a strategy to contain climate change. But given the likely negative ecological consequences of a successful deal, it’s a necessary condition.
* Walden Bello is a senior analyst with Focus on the Global South and President of the Freedom from Debt Coalition in the Philippines.
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COMPARATIVE TREATY-MAKING POWERS AND PROCESSES
Matthew Coghlan*
INTRODUCTION
During the late 1990s and early 2000s, successive Thai governments pursued an active trade policy of seeking out and participating in bilateral trade agreement negotiations. They conducted these trade negotiations using the existing executive, legislative and bureaucratic frameworks and practices. Under Section 224 of the 1997 Constitution, the power to make treaties was vested in the executive, but restricted by a provision that the legislature must approve certain treaties. In spite of this, the legislature’s capacity to play a strong role in the exercise of the treaty-making power in trade negotiations was initially low. Trade negotiators consulted a narrow network of business stakeholders that they had established in the 1990s, and which provided them with clear inputs in technical terms. The general public remained distant from the rarefied world of bilateral trade negotiation.
Notwithstanding the existing frameworks and practices, the impacts of a number of trade agreements were monitored with concern by members of the legislature and civil society. With the start of US FTA negotiations in 2004, concern rose and centred on the following issues:
1. The possible impact of a US FTA. By this time, the standard US FTA model had been extensively analyzed in other countries and regions, and the possible or likely detrimental effects of it on developing countries had been well-documented, as follows:
- unfair agricultural market access that might open up developing country economies to US competition, while US farmers continued to receive subsidies;
- stricter intellectual property rights (IPR) that could reduce access to essential medicines, and seeds and plants;
- new investment rules that straight-jacket policy space and erode sovereignty by granting favorable rights to foreign investors without imposing responsibilities;
2. Thailand’s negotiation preparation, which lacked expert and public involvement; and,
3. Thailand’s trade policy, which had never been debated by the legislature or in public.
In these circumstances, members of the legislature and civil society began to cooperate to operationalize the constitutional provision requiring legislative approval. Their attempts to do so were frequently rebuffed by the administration of Prime Minister Thaksin Shinawatra, but they persisted and developed a more robust and effective legislative committee system - that called and probed witnesses, generated news stories, raised public awareness - forcing negotiators to increase transparency and participation. Following the ousting of Thaksin, these actors grabbed the opportunity to argue for the inclusion of an expanded provision in the 2007 Constitution that would require a considerably greater level of openness in the treaty-making process, particularly on economic and social issues, and for trade and investment.
The objective of this survey is to provide readers with a deeper understanding of the scope for a greater level openness in treaty-making by comparing the new treaty-making system of Thailand under Section 190 of the 2007 Constitution with the treaty-making systems of Australia, Canada, South Africa and Viet Nam. A treaty-making system involves a significant number of concepts, stages and actors. This survey will be restricted to examining two of the most essential elements of a treaty-making system to achieve this objective the: distribution of treaty-making power between the executive and the legislature; and, roles that the legislature and public play in the treaty-making process.
COUNTRY SURVEY
1. AUSTRALIA
Treaty-making power
Australia’s Federal Government possesses the power to make treaties under the 1901 Constitution. The treaty-making power is an executive power under Section 61. Further, the Federal Government can implement treaties using a specific head of law-making power in Section 51 of the 1901 Constitution, referred to as the ‘external affairs power’.
Treaty-making process
The Federal Government implemented a substantial package of treaty reforms in 1996. The reforms required the executive to table treaty actions before the legislature for a period of at least 15 sitting days before any binding treaty action was taken. The tabled documents were automatically referred to the Joint Standing Committee On Treaties (JSCOT) for review. JSCOT advertises its reviews in the national press and on its website, inviting comments from interested parties. It takes evidence at public hearings from government departments and may invite interested parties that have made written submissions to appear before it. At the completion of its review, JSCOT presents a report to the legislature including advice on whether Australia should take binding treaty action.
In mid-2002, the Federal Government divided Australian treaties into three categories. Category 1 treaties are of major political, economic or social significance that are likely to attract considerable public interest and debate. They are now tabled for 20 sitting days. Category 2 treaties are still tabled for 15 sitting days. JSCOT reviews and reports on Categories 1 and 2. Category 3 treaties are minor actions that do not impact significantly on the national interest. They are tabled with an explanatory statement. JSCOT can review them too. The one exception to the rule that treaties must be tabled before binding action is taken is where a Minister of Foreign Affairs certifies that a treaty is particularly urgent or sensitive, involving significant commercial, strategic or foreign policy interests.
Categories 1 and 2 treaties are tabled with National Impact Assessments that explain the economic, environmental, social and cultural effects; obligations imposed; domestic implementation; financial costs associated with implementing and complying; and, consultation that has occurred with State and Territory Governments, industry and community groups, and other interested parties.
Further, treaty actions that affect business or restrict competition must be tabled with a Regulatory Impact Statement, which analyses their impact on the macro-economy, business, consumers and governments, and includes the consultations with stakeholders.
JSCOT has reported on a number of major trade negotiations and agreements since 1996, including an Interim Report and Final Report on the Multilateral Investment Agreement; a Report on the Fifth Protocol of the General Agreement on Trade in Services; a Report on the WTO; a Report on the Singapore Australia FTA; and a Report on the Australia US FTA.
2. CANADA
Treaty-making power
Canada’s treaty-making power is derived from royal prerogative and reserved for the Federal executive. Only it can negotiate, sign and ratify treaties under international law. Plus, it does not need legislative approval for trade policy, negotiations or agreements. The Constitution grants certain legislative power to the Federal legislature and exclusive legislative power to the Provincial legislatures. It does not give the Federal legislature power to implement a treaty where the Provinces hold the exclusive legislative power for the subject of that treaty. The Federal government should be careful to ensure that it has Provincial government support before concluding a treaty that is within exclusive power.
Treaty-making process
Canada remains one of the few major former British colonies that has no requirement for legislative involvement in treaty-making, leading to charges of a ‘democratic deficit’. The executive has tabled ‘important’ treaties in the legislature, but on an ad hoc basis. Regardless, Canada’s Federal legislature can play a participatory and scrutinizing role. The Standing Committee on Foreign Affairs and International Trade (SCFAIT) of the House of Commons is the primary actor in this regard. SCFAIT is composed of legislators, although a majority of them will be members of the majority party. It can set its own agenda, but the agenda is normally requested or approved by the executive. The main function of SCFAIT is to hold public hearings on foreign affairs and international trade issues. It has a Sub-committee on International Trade, Trade Disputes and Investment. SCFAIT has held hearings WTO and free trade agreement negotiations. The ‘high water mark’ of the federal legislature’s role in trade issues was the Sub-committee’s report on Canada’s negotiating positions in the WTO Doha Round. However, SCFAIT recommendations generally support and/or defend executive policies.
Canada’s Department of Foreign Affairs and International Trade (DFAIT) is the manager of the consultations and submissions on trade negotiations and issues. DFAIT gives notice of trade-related issues or measures – such as future assessments, documents received and published, specific negotiations and trade disputes – on its website and the Canada Gazette website. The Department invites participation in preparation or reply by providing details of the nature, timing and contacts for participation. Further, DFAIT retains the documents for active, ongoing and closed consultations. Most striking, perhaps, is the strong emphasis placed on environmental assessments, which are guided by the Framework for Conducting Environmental Assessments of Trade Negotiations.
3. SOUTH AFRICA
Treaty-making power
Section 231 of the 1996 Constitution determines the division of the treaty-making power. The executive is responsible for negotiating and signing “all international agreements”. An international agreement is binding only after it has been approved by resolution in the National Assembly and National Council of Provinces. There are two exceptions to this: first, an international agreement of a “technical, administrative or executive nature”; and, second, an international agreement that does not require either ratification or accession. However, the executive must table them before the legislature (within a reasonable time).
Treaty-making process
South Africa is a valuable example of explicit legislature involvement in treaty-making. There is little information on-line to discuss it except in formal legal and functional terms. The website of South Africa’s Parliament describes the central functions or objectives to: pass laws; oversee and scrutinize executive action; facilitate public participation and involvement; participate in, promote and oversee cooperative government; and engage and participate in international relations.
The oversight, facilitation and participation functions are most relevant to treaty-making:
The legislature can put questions to the executive for oral or written reply, debate important issues propose and vote on motions, and table reports from institutions accounting to it. The legislature committees can summon documents or officials.
Direct public participation includes voting at elections, attending meetings, making submissions, representations and petitions, and contacting members. Indirect public participation includes joining a party or advocating from outside.
The concept of "cooperative government" involves working with the other arms of government to discharge constitutional and legislative duties, including approval of treaties. The work of the committees is a significant element in carrying it out.
The committees are required to report regularly on their activities and to make recommendations to the legislature for debate and decision. Much of the oversight of the executive is through the committees, particularly the portfolio committees. There is a portfolio committee for each corresponding government department. However, the composition of the committees reflects the affiliations of members. Importantly, the relevant portfolio committee will consider any treaty proposals. Committees can summon documents or officials, the public can attend meetings.
The committee system allows the legislature to increase the scope and depth of oversight, the participation and expertise of members, the participation of the public, and the scope and depth of the information that is heard and received.
Additional instruments available to pursue cooperative government are member statements, cabinet member statements, private member bills, member questions.
4. THAILAND
Treaty-making power
Section 190 of the 2007 Constitution bestows the power to make treaties on the King to be exercised by the executive in the same manner as Section 224 of the 1997 Constitution. However, in response to recent FTA negotiations, the section strengthens the role of the legislature in ratification by expanding the categories needing its approval:
- treaties that change Thailand’s territory or external territory that is subject to a sovereign right or
- jurisdiction under any treaty or an international law;
- treaties that require legislative enactment for domestic implementation;
- treaties that “affect immensely” “economic or social security”; and
- treaties that result in “significant binding” of “trade, investment, or budget”.
Consistent with previous constitutions, a joint legislative sitting is needed for approval.
Further, to clarify and meet definitional and operational uncertainties and challenges, Section 190 requires a law to regulate the treaty-making process for the two categories of ‘immense effects’ and ‘significant binding’ and revision or remedying of their effects.
Treaty-making process
In Section 190, the executive must do the following before concluding these categories: provide information to the public; conduct consultations with the public; provide information to the legislature; and submit a negotiation framework to the legislature for approval.
Section 190 imposes a further transparency obligation after signing a categorized treaty before consenting to be bound by requiring the executive to grant public access to details. Further, the executive must “revise” or “remedy” “rapidly, expediently and fairly” where the “application” of a treaty has “affected the public or small and medium entrepreneurs.”
5. VIET NAM
Treaty-making power
The division of treaty-making power between the executive – the Head of State and the Government – and the legislature is complicated under Viet Nam’s treaty-making system. Under the 1992 Constitution, the Head of State has the power to submit international agreements signed by her/him to the legislature for ratification, or to decide on ratification of international treaties except where they must be submitted to the legislature for decision. Further, the Government has the power to negotiate and conclude international agreements in the name of the State, except where they are signed or ratified by the State President, and to negotiate, sign and ratify international agreements in the name of the Government. Further, under the same constitutional provision, the Government has a duty and power to direct the implementation of concluded agreements.
The 2005 Law1 identifies the treaties that can be signed in the name of State or in the name of the Government. ‘Treaties in the name of the State’ are either signed by the Head of State, on peace, security, boundaries, territory, sovereignty, on rights and duties, on legal assistance, on universal international and important regional organizations, or in the name of the State. ‘Treaties in the name of the Government’ are treaties to implement existing treaties, on peace, etc., on rights and duties, on legal assistance if not prescribed, on international organizations if not prescribed, or, lastly, in the name of the Government.
The power-sharing arrangement of the treaty-making power includes the legislature, which has the power to ratify or nullify treaties signed or proposed to be signed by the Head of State. Treaties require ratification where they contain provisions requiring it, they are signed in the name of the State, or they are signed in the name of the Government and contain provisions in conflict with legal normative documents or relating to budget. The 2005 Law clarifies that the legislature decides to ratify treaties that are signed by the Head of State and other Heads of State, or at the request of the Head of State. Otherwise, the Head of State decides to ratify the treaties that require it.
In turn, where the Head of State submits treaties to the legislature for decisions on ratification, the legislature must verify the treaties. The Foreign Affairs Committee of the legislature oversees the verification process, and the verification process examines the:
- necessity of ratification;
- compliance with recommendation procedures;
- conformity with the Constitution and compatibility with legal normative documents;
- possibility of direct application; and,
- requirement to amend, supplement, repeal or promulgate legal normative documents for treaty implementation.
Further, the Standing Committee of the National Assembly is the permanent committee, which has power to exercise control and supervision over activities of the Government. All treaties that are “in conflict with or not provided for in”, or for which implementation will require “amendment, supplement, repeal or promulgation” of, “legal normative documents of the National Assembly or Standing Committee of the National Assembly” must be submitted by the Government to the Standing Committee for consideration before negotiating or signing. If there are provisions that are in conflict with legal normative documents, the Standing Committee reports them to the legislature.
The legislature has the responsibility for the supervision of implementation of treaties.
The only article in the 1995 Law formalizing the possibility of public participation is Article 102, which identifies the activities of the legislature in supervising implementation, and states that Delegations of Deputies of the National Assembly must:
“[Request] local agencies, organizations or individuals to give answers on issues relating to activities of conclusion, accession and implementation of treaties…”
There is no further explanation on the way in which the delegations should implement it.
COMPARISON
1. TREATY-MAKING POWER
Generally speaking, though, there is uniformity in distribution of treaty-making power. The countries surveyed have all assigned the power to conclude treaties to the executive. In two countries with a parliamentary model of government – Australia and Thailand - the Head of State holds the power but can only exercise it through the Government. For the other parliamentary countries - Canada and South Africa - it is held by the executive. In Viet Nam, the treaty-making power is held by the Head of State and the Government.
However, the countries have not assigned the treaty-making power to the executive without restriction. First, they restrict the capacity of their executives to express consent to be bound to some treaties; although, since the restrictions do not apply to all treaties, their executives have the unrestricted capacity to express consent to be bound to other treaties. Second, while the legislatures in these countries do not have the power to make treaties, they have the power to implement them if they need legislative implementation.
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Appendix A shows the unrestricted capacity of the executives in the countries surveyed. The executives in Australia and Canada have the freedom in theory to express consent to be bound to all treaties, but they are restrained by the fact that treaties might require legislative implementation. Of course, since their Federal governments generally hold the majority in their lower houses, and frequently hold it in the upper houses, their executives can be confident that most of the treaties that it concludes will be implemented, except for treaties that become ‘important’ for budgetary, economic or political reasons. Additionally, the legislatures in these countries can legislate to permit their executives to express consent to be bound to specific - or categories of - treaties to increase confidence. The other surveyed countries use the law to restrict the executive’s treaty-making power. The South African 1996 Constitution presumes that all treaties require legislative approval, but makes exceptions for two categories of treaties from this presumption. However, the executive must table excepted treaties. The Thailand 2006 Constitution and Viet Nam 2005 Law creates categories of treaties that require legislative approval. Thus, their executive can express consent to be bound to treaties outside these categories.
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Appendix B illustrates the restrictions that the surveyed countries have placed on the capacity of the executive to enter into treaties by legislative approval or implementation.
First, the presumption in South African constitutional law is that all treaties must receive approval by both houses of the parliament before the executive can enter into them, unless they are subject to one of two specific exceptions: that is, treaties of a technical, administrative or executive nature; or treaties that do not require ratification or accession. Thailand and Viet Nam have established categories of treaties that must obtain approval. In Thailand, the categories requiring approval have been decided by reference to effect: sovereignty; legislation; economic and social security; and, trade, investment and budget. In Viet Nam, the treaties that need legislative approval are defined by the level of signature: State or Government (where they must conflict with law or relate to budget).
Second, the legislatures of all of the surveyed countries have power to implement treaties. In the case of Australia and Canada, the federal structure of government means that the national/federal government shares it with subnational – State/Provincial – governments. This federal structure provides a further level of accountability, because national executive must ensure that it obtains subnational legislative implementation of treaties that require it. However, the relative power of national and subnational governments differs. In Australia, the 1901 Constitution gives the national government a residual and overriding power to implement treaties, but Canada’s constitutional architecture does not.
2. TREATY-MAKING PROCESS
Besides approval and implementation, legislatures can often play important review roles. Such roles can take place in both different forms and at different stages of treaty-making. In Australia, the mandate for JSCOT allows it to consider the treaties under negotiation. Further, JSCOT review of tabled treaties is now an integral step before executive consent. Canada’s practice is for the executive to table important treaties for legislature review. Similarly, in South Africa, the executive must still table treaties exempted from approval. In Thailand, the executive must now submit a negotiating framework to the legislature. Lastly, in Vietnam, the Standing Committee must consider treaties conflicting with law; and, later, the legislature must verify treaties requiring ratification before ratifying them.
In Australia and Canada, participation in treaty-making takes place before or during negotiations, when DFAT and DFAIT consult widely with a variety of stakeholders. In addition, Australia has institutionalized a second set of consultations in the context of JSCOT review. Australia and Canada provide effective transparency as well, by publishing documents. In Australia’s case, JSCOT will publish tabled treaties and reports. The situation is not known in South Africa. The 2007 Constitution in Thailand requires greater transparency and public participation. The executive must consult with the public before concluding, and give details after signing/information before concluding, treaties. Thailand publishes treaties. In Viet Nam, the 2005 Law refers to local consultation in the supervisory responsibilities of the legislature but nothing on consultation with non-state actors. By contrast the 2005 Law is very detailed on cooperation between the state actors.
CONCLUSION
In conclusion, there is similarity in the governance in the treaty-making systems of the surveyed countries, but diversity in incorporation and operation. In all countries, the executive has the power to make treaties, but its power is restricted by law (South Africa, Thailand and Viet Nam) or practice (Australia and Canada). More specifically, the treaty-making power is restricted for important treaties, illustrating the principle of accountability. Therefore, the executive must account to the legislature. However, in the older democracies (Australia and Canada), the legislature is accountable to the electorate. The level of accountability is enhanced by the other legislative review of treaty-making. The survey of the treaty-making processes reveals the introduction and application of the principles of participation and transparency in legal frameworks and customs, although this similarity is weaker since Viet Nam did not draft participation into the 2005 Law.
* Matthew Coghlan, an Australian lawyer, is the Senior Trade and Private Sector Advisor with Christian Aid in London. This is the short version of a paper he wrote for Focus on the Global South.
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HOW DOHA DIED: A RINGSIDER’S VIEW
Interview with Riza Bernabe, volunteer consultant to the Philippine delegation to the World Trade Organization Mini-ministerial meeting in Geneva, July 21-29, 2008
(Regarded as one of the leading experts on Philippine trade and agriculture issues, Riza Bernabe was for a long time a researcher at the Philippine Peasant Institute [now Centro Saka Institute] and currently consults for various organizations. She was interviewed by Focus senior analyst Walden Bello on the latest collapse of the trade negotiations known as the “Doha Round.”)
THE AGRICULTURAL SUBSIDIES ISSUE
Focus: You have varying reports on how much agreement there was before the Doha Round talks collapsed on July 29. Some press reports said that countries had agreed on 90-95 per cent of the issues. Some said that only the Special Safeguard Mechanism (SSM) stood between failure and success. What do you think?
Riza: Well, let me speak only on the agriculture negotiations. I don’t think that the subsidy issue was resolved. Sure, the US offered to cap its domestic subsidies at $15 billion. But Brazil and other countries said that while that was good starting offer, it needed to be improved on. So the $15 billion offer of the US is not viewed by members as the final figure.
Focus: What did you think of the US offer?
Riza: Well, it seemed like the US was conceding a great deal in coming down to $15 billion from what it was prepared to offer in Potsdam in June 2007. It seemed that it was serious about meeting [WTO Director General Pascal] Lamy’s proposal to have a cap on domestic subsidies that would range between $13 to $16 billion. But, in fact, its notifications on the size of the domestic support were much lower than $15 billion during each of the last three years. So if it was actually shelling out much less in subsidies than $15 billion, there was room for more reduction, as the other countries pointed out. But, you have to grant it to the US negotiators: by announcing the $15 billion cap at the very beginning of the talks, they made the US look good and put other countries on the defensive. Image is as important as substance in the WTO talks: no one wants to be seen as being responsible for the collapse of negotiations.
WHY THE US DID NOT PRESS SP’S
Focus: I was surprised that the US did not make an issue of Special Products (SP’s) this time around when it was partly on SP’s that the G4 meeting in Potsdam foundered last year.
Riza: The maximum flexibility allowed under SP is exemption from tariff reduction. I am sure the US knows that, when it comes to SP’s, developing countries are more concerned about the issue of preserving policy space, and that some of them use low applied tariffs even if they have high bound rates. So in a sense, Special Products do not really block trade as the US has always argued. I think the US used its position on SP’s more as a bargaining chip rather than as a real negotiating point in the trade talks. It is definitely more concerned about the SSM (Special Safeguard Mechanism) because this has the potential of allowing developing countries to increase tariffs beyond the bound rates. The US does not want developing countries to have full access to SSM even though this will only be used during times of import surges or price declines.
SSM: THE BREAKING POINT
Focus: Let’s move to the issue on which the Mini-ministerial broke down, the SSM. Who do you think was at fault?
Riza: Clearly, the US. As I mentioned earlier, the US wanted to emasculate the effectiveness of the SSM for developing countries. It wants to limit the opportunities when developing countries can increase tariffs beyond the pre-Doha bound rate in cases of import surges. The G33 has always insisted that remedies or additional tariffs should exceed the pre-Doha bound rate if SSM’s are to be genuinely useful to developing countries, especially those with low tariff bindings. The US insisted that a 150% trigger should be breached before this maximum remedy can be used. This means that imports would have to surge by 50% before a developing country is allowed to increase tariffs beyond the UR [Uruguay Round] bound rate.* The G33 had earlier rejected the Lamy text, which set this trigger at 140%, so the US proposal was clearly unacceptable. Their proposals (both the US and Lamy’s) meant that local farming industries in developing countries would already be dead before they could sufficiently increase tariffs to protect their local farmers!
The US also insisted on the “cross check,” which essentially requires developing countries to show that once imports breach a volume trigger, it should also have an impact on prices, and conversely, once imports breach price triggers, it should also have an impact on volume. It is a roundabout way of saying that developing countries should have two sets of triggers – both price and volume - for SSM. This is a clear revisionist view of the Hong Kong Ministerial Declaration, which requires developing countries to meet either price or volume trigger for SSM.
Focus: What about on the level of protective tariffs that could be imposed, what were the disagreements here?
Riza: Well, even before the Mini-ministerial the G33 had already gotten the concession that countries could raise tariffs by at least15 percentage points beyond the Uruguay Round bound rates. Coming into the latest negotiations, Indonesia wanted no cap on the tariff hike. Some in the G 33 wanted a cap of 50 to 70 per cent. The Philippines proposed capping tariff hikes at 30 per cent. The US knew that it had already lost the debate on whether or not remedies should exceed the pre-Doha bound rate, so its strategy was to limit developing countries’ access to these remedies by insisting on a 150% trigger.
THE G 33 AND THE PHILIPPINES
Focus: The 30 per cent cap the Philippines proposed, how was that arrived at?
Riza: That was based on simulations conducted by the Department of Agriculture.
Focus: We have it on good authority that there were a number of countries that were disappointed with this position, including Indonesia. Is this true?
Riza: I understand that there are differences in position regarding the extent to which remedies should go beyond the bound rate. Some members of the G33 maintain that there should be no cap on remedies, But the G33’s main basis of unity - that remedies should exceed the UR bound rate – remains and it was able to win this debate in the trade talks.
Focus: There are some who say that the Philippines is no longer a part of the political core group of the G33. I thought we were seen as one of the leaders of the G 33?
Riza: The Philippines was indeed regarded as one of the key leaders of G33 especially during the Cancun and Hong Kong Ministerial Meetings. I know that it is still a very active part of its technical core group. However, after the “Walk in the Woods,”** in which the Philippines was not able to participate, I am not sure if it is still seen as part of the coalition’s political core.
Focus: Was the Philippines invited?
Riza: As far as I know, yes.
Focus: Do you think we did not attend so we would not have to bear the burden of carrying the G 33 position of high protective tariff rates while our position was only 30 per cent?
Riza: During a meeting with Philippine civil society groups in Geneva, Ambassador [Manuel] Teehankee, when asked by NGOs why the Philippines was not part of the Walk in the Woods, explained that the Mission decided to negotiate through the G33 and G20 rather than participate directly in the Walk in the Woods, What I can say though is that Indonesia’s position on SP’s and SSM’s, especially insisting that there should be no caps on remedies was an indication that it took seriously its position as the leader of the G 33.
Focus: We also heard that there was some friction between the delegation from Manila and our Geneva-based negotiators—that is, that the Manila delegation was more circumspect and was willing to sign on to an agreement only if our interests were not clearly compromised and the Geneva people placed more emphasis on a successful conclusion to the negotiations. Is this true?
Riza: It was precisely to better coordinate our negotiating strategy that Secretary of Agriculture [Arthur]Yap wrote up a memo specifying our bottom line in the negotiations before the Mini-ministerial. But in the case of many developing countries, people have noted that there is this constant tension between the capital and the negotiators. It is said that pressure from the capital is constantly needed to ensure your Geneva people do not agree to a bad deal. There is a diplomatic culture in Geneva that emphasizes compromise, for that is what diplomats do: to work out compromises. With its resources, the US does not face this problem, since the capital closely coordinates every move by its Geneva-based negotiators.
Focus: Do you think the Doha talks will resume soon?
Riza: I doubt this. I don’t think it can resume until after the US elections. People are, in fact, talking about a freeze in the negotiations of at least two years.
*Also referred to as Pre-Doha bound rates.
**This refers to the crucial meeting called by Agriculture Committee Chairman Crawford Falconer on July 22, 2008, to iron out the differences between the US and the G 33.
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Focus on Trade is a regular electronic bulletin providing updates and analysis of trends in regional and world trade and finance, the political economy of globalisation and peoples resistance, and alternatives to global capitalism. Nicola Bullard edits Focus on Trade. Your contributions and comments are welcome. Write to
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