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DESPERATE to clinch a new global trade deal, World Trade
Organization chief Pascal Lamy is planning to convene a
“mini-ministerial” meeting in the third week of July.
The aim of the meeting is to come up with agreements on
trade in agriculture, industry and services, which have
been the focus of the so-called Doha Round of WTO
negotiations that have dragged on since 2001.
Developing-country governments have been rightly
concerned about agreeing to texts which promise illusory
reductions in agricultural subsidies in the European
Union and the United States, and require them to cut
their industrial tariffs proportionally more than the
developed countries. They should also not allow
themselves to be snookered into a bad agreement on
services.
While
global attention has focused on the talks on
agricultural subsidies and industrial tariffs, the US
and the EU have made it clear that they will not settle
for a trade package that does not include services. As
US Trade Representative Susan Schwab bluntly stated in a
recent opinion piece, Washington “will not support a
Doha package unless it includes an ambitious outcome on
services that delivers commercially meaningful
results.” While Schwab portrays the services talks as
the poor cousin of the agriculture and industry
negotiations, an equally possible outcome is a services
agreement unaccompanied by deals in industrial tariffs
and agriculture. With the North-South polarization in
agriculture and industry, salvaging Doha with a deal in
services, which are said to account for 50 percent to 60
percent of economic activity in most developing
countries, might become an increasingly attractive
option to the EU and the US.
Much
media coverage of developing country concerns in
services has centered on the so-called Mode 4 of the
General Agreement on Trade in Services (GATS), which
addresses the movement of “natural persons.” Much
resentment has been expressed with a multilateral system
that facilitates the movement of capital and goods into
developing-country markets, but severely limits the
entry into developed-country markets of labor from the
developed countries. But an equal, if not greater,
concern of the developing countries is their current
lack of capacity to regulate transnational service
providers. Their fears have been fanned by the current
troubles of the global financial system, which are
traceable to the virtual absence of global regulation of
developed-country financial operators. While financial
services are just one of many services covered by GATS,
the US and the EU have made a liberalized financial
sector their main demand on developing countries. It
has been revealed, for instance, that the EU has
demanded that some developing countries eliminate
regulations that cover the activities of hedge funds.
The EU has also demanded that Mexico open up its market
to trade in derivatives, the slippery financial
instruments that have played such a key role in the
current financial chaos.
Most
developing countries welcome foreign capital, but they
have learned the hard way that a strong foreign
financial presence demands a strong regulatory regime
tailored to a particular country’s needs and
capacities. It was the indiscriminate elimination of
capital controls across the region at the behest of the
International Monetary Fund and the US Treasury
Department that brought on the devastating Asian
financial crisis. With practically all capital controls
lifted and investment rules liberalized, some $100
billion flowed into the key Asian economies between 1993
and 1997, with the money gravitating toward areas of
high and quick return, like the stock market and real
estate.
With few
controls on where the funds went, overinvestment soon
swamped the stock and housing markets, causing prices to
collapse and triggering follow-on dislocations in the
exchange rate, the balance of payments, and the balance
of trade. Gripped by panic, speculators scampered
toward the exit. With both entry and exit rules
liberalized, there was no way for governments—except for
Malaysia, which defied the International Monetary Fund
and imposed capital controls—to stop the stampede, and
the $100 billion that fled the region in a few short
weeks in the summer of 1997 brought economic growth to a
screeching halt from Korea all the way down to
Indonesia.
Capital
account and financial liberalization was also a key
demand pushed on Argentina in the 1990s by
developed-country authorities. Buenos Aires complied,
prompting Larry Summers, then US secretary of the
Treasury, to claim that the end result of foreign
interests controlling 50 percent of the banking sector
and 70 percent of private banks was a “deeper, more
efficient market and external investors with a greater
stake in staying put.”
Summers
was dead wrong. Foreign control aggravated the
financial crisis into which Argentina was plunged in
2002, with the foreign-controlled banks ceasing to lend
to local governments and businesses and sending capital
out of the country instead. With no credit, small and
medium enterprises, and not a few big ones, closed down,
throwing thousands out of work as the country spiraled
into depression.
After
the Asian financial crisis, the Argentine financial
collapse, and the dot-com crash of 2000-02, which was
also caused by a speculative bubble promoted by lack of
financial regulation, one would have thought that
developed-country authorities would put the emphasis on
seriously regulating the activities of global financial
actors.
Global
finance, however, resisted any move toward effective
regulation. While there were calls for controls on
proliferating financial instruments such as derivatives,
these got nowhere. Assessment and regulation of
derivatives were to be left to market players who had
access to sophisticated quantitative “risk assessment”
models that were being developed.
Moreover, despite the fact that it was developed
country-based financial institutions like hedge funds
that triggered the Asian crisis, the so-called Basel II
process focused not on disciplining these actors but on
standardizing developing-country financial institutions
and processes along the weakly regulated
“Anglo-American” financial model that had already been
implicated in scores of crises since the 1980s.
Having
been burned by the consequences of financial
deregulation, many developing-country governments were
not surprised when “self regulation” led to the massive
housing bubble whose bursting has brought the global
financial system to the edge of collapse.
One of
the stock scenarios of the old western movies was that
of a train picking up speed toward a collision with
another train as the lifeless hand of the engineer,
already shot dead by outlaws, remained pressed on the
accelerator. Current developments in global finance are
reminiscent of this scene. A global consensus is
forming around strongly re-regulating the financial
sector. But in disregard of this emerging consensus and
the financial chaos around them, developed-country
negotiators at the WTO, much like the dead hand of the
engineer, continue to press developing countries for a
services agreement that would drastically liberalize
their financial sectors!
The
developing-country governments should steer clear of the
train wreck that will certainly ensue from the US and
the EU’s determination to pursue global financial
liberalization at any cost.
They
must not agree to a services deal that would compromise
their ability to effectively regulate financial and
other services. Just as they must say no to
agricultural and industrial tariff agreements loaded
down with inequitable conditions, they must also not be
party to a services agreement that would have no other
effect but to continually drag them into the terrifying
maelstroms of unregulated global finance.
*A
specialist in global trade and finance, Walden Bello is
president of the Freedom from Debt Coalition and senior
analyst at Focus on the Global South, a research and
advocacy institute at Chulalongkorn University in
Bangkok, Thailand. |
