The Collapse of WTO Negotiations: Implications for the Middle East

Robert Naiman and Steve Niva

(Robert Naiman is a Senior researcher at the Center for Economic and Policy Research (CEPR) in Washington, DC. Steve Niva, former MERIP Executive Committee member, teaches at Evergreen State College in Olympia, Washington.)

January 13, 2000

The failure of the World Trade Organization (WTO) Ministerial meeting to agree to launch a new global trade agreement, amidst protests of the WTO's policies by labor and environmental activists outside the meetings and developing countries' delegates inside, was a major setback for proponents of greater deregulation of trade and investment flows. The dissent in Seattle reflected a growing skepticism toward the deregulatory economic model promoted by the dominant international economic institutions over the past few decades. Critics charge that the WTO has already imposed too many policies that serve the interests of Northern corporations at the expense of post-colonial countries, the poor, the environment, workers and consumers.

Several of the seven Arab delegations (Bahrain, Egypt, Kuwait, Morocco, Qatar, Tunisia and the UAE) of the 135-nation WTO membership were among those pleased at the meetings‚ failure to launch a new round of deregulation talks. Prior to the ministerial meeting, Egypt and Morocco had been among the growing ranks of developing countries that warned they would not be pressured into making any more concessions until the biases of WTO rules favoring Northern corporate interests were corrected. They argued that the unrelenting pressure on developing countries since the end of the Uruguay Round of the General Agreement on Tariffs and Trade (GATT) in 1993 to adopt a broader trade and investment deregulation agenda, if successful, would further undermine developing countries' economies. At a pre-WTO meeting of developing countries hosted by Egypt, officials voiced their disillusionment that five years after the WTO's creation they had seen too many costs and too few benefits in implementing WTO policies.

Prior to the meetings, former colonial countries had put forward many proposals to resolve the problems that they had faced in implementing WTO agreements, including adjusting some of the WTO rules for the benefit of developing countries. These proposals were dismissed by the United States and the European Union. Instead, the US and the EU insisted on trying to impose even more burdens on developing countries with proposals for further deregulation of foreign investment (along the lines of the failed Organization for Economic Cooperation and Development [OECD]-Multilateral Agreement on Investment) and government procurement. In fact, in an effort to ram through an agreement, the US and EU reverted to the notorious "Green Room" negotiating process, where they and hand-picked developing countries negotiate an agreement, which is then imposed on all other developing countries as an accomplished fact. Developing countries' delegates -- emboldened, some suggest, by the demonstrations outside -- rebelled against this process and declared their unwillingness to sign any agreement so negotiated.

Commenting on the meeting's failure to launch a new round, Egyptian Foreign Minister Amr Moussa denounced the proceedings, saying that the "big powers attempted to impose certain trade policies on the developing countries in a way that could only lead to wide economic destruction in the Third World."

The defiance of developing countries at the WTO, including those from the Arab world, is largely the product of growing frustration with the consequences of economic models imposed by Washington on the South over the last two decades. Developing countries in the Middle East, like other former Western colonies, have been told by the International Monetary Fund and the World Bank that there is only one model for national economic development: deregulate the economy, restructure it to focus on producing exports for the world market, and reduce government spending and social protections for the public that might discourage international investment. Follow this road and prosperity will result from increased foreign investment and increased access to First World markets; deviate from this model and the economy will stagnate. For developing countries, establishing the World Trade Organization five years ago, and the thousands of pages of rules that it enforces, merely consolidated the IMF-World Bank model of development.

Arab elites' opposition at the WTO may seem surprising given that the IMF, World Bank and the US government have long promoted Arab regimes supportive of their agenda and fostered Western-educated leaders schooled in the theology of deregulation, reduced social protections, and export-led growth. Algeria, Egypt, Jordan, Morocco and Tunisia were all subject to IMF-imposed structural adjustment programs. Along with Lebanon, they have all embarked upon export-led development strategies and privatization schemes, dramatically cutting back public services. Even Syria and the Gulf states have recently moved in this direction.

Arab membership in the WTO, which locks in the deregulatory model through multilateral agreements backed by the threat of trade sanctions, has grown during this period; Bahrain, Egypt, Kuwait, Morocco, Qatar, Tunisia and the UAE are all members; Jordan was admitted on December 17. Algeria, Oman, Saudi Arabia and the Sudan have begun the process of negotiations to join the WTO. Many Arab states have also signed multilateral agreements with Europe leading to create a Mediterranean Free Trade Zone (MFTZ), encompassing the nations of the Mediterranean region and the European Union, which will oversee the dismantling of tariffs on industrial goods, while lowering agricultural and service barriers. The EU has already pursued bilateral trade agreements with Tunisia, Israel, Morocco and Jordan, and negotiations are still underway with Egypt, Lebanon, Algeria and Syria.

However, the IMF, the World Bank, and the US‚ extreme policies and their frequently disastrous consequences for economic growth and the exacerbation of poverty have caused some of the same Arab elites who previously embraced the model to fear that increased compliance with WTO and IMF mandates may cause greater economic suffering and thereby further undermine their legitimacy. This threat, and the recent Asian economic crisis, accentuated fears among many in the region about the dangers of unregulated capital flow, and of following economic recipes cooked in Washington by IMF and US officials. Such concerns were evidenced in Seattle.

The widespread dissatisfaction at the WTO with the impact of globalization on developing countries were overshadowed in part by the attention given to the issue of whether violation of "social standards" - workers' rights and environmental protections - should result in restrictions on imports from offending countries. Preceding Seattle, Morocco, Egypt, and other members of the Group of 77(G77) of developing countries had rejected US and EU proposals to discuss the relationship between international trade and social standards. Many expressed anger when President Clinton announced that he supported trade sanctions to enforce social standards, notwithstanding the US‚ lack of enthusiasm for its own official position.

Developing country governments, which have surrendered much of their sovereignty to the WTO with little to show for it, are understandably skeptical about giving authority the WTO, an unresponsive institution to Southern concerns, to adjudicate violations of labor rights and the environment. They rightly fear that such authority will largely be used to advance northern economic interests. On the other hand, many developing countries have demonstrated little interest in promoting labor rights or environmental protections. Many Arab governments, for example, have been historically hostile to independent labor unions; Bahrain, Qatar, UAE and Kuwait do not permit labor unions, while Tunisia, Morocco and Egypt have intimidated and imprisoned labor activists.

At the same time, the US commitment to social standards remains largely rhetorical. There is no evidence that the US is prepared to negotiate trade concessions to developing countries in order to win acceptance of social standards. Indeed, the US rejected Egyptian and other developing countries‚ proposals to review existing WTO rules that have undermined food security and economic diversification in the South. The US also rejected calls from the South to revisit WTO agreements on intellectual property rights based on US-style patent and copyright protections. These agreements are widely seen in the developing world as a device to prevent the transfer of technology from transnational corporations to developing countries and to protect the monopolies of northern pharmaceutical and media corporations. The intellectual property rules, with no basis in "free trade" economic theory, had been inserted in the WTO by US-based multinational corporations. The economic cost to developing countries of obeying US patents and copyrights is many orders of magnitude higher than the potential cost of enforcing labor and environmental standards.

The weakness of the US commitment is affirmed in that it now has the ability to impose social standards on imports, for example by banning the import of goods produced by child labor. The US could simply accept any resulting WTO sanctions; this is what the European Union has done in response to the WTO's decision against the EU's ban on hormone-treated beef. This again suggests that the US is not very serious about social standards. Other issues of deep disagreement, for example, between the US and the EU on agriculture or investment policy, were quite sufficient to scuttle the talks, with the US only too happy, for the purposes of the Presidential campaign, to spread the perception domestically that its "tough stand" on labor rights had caused the collapse of negotiations.

In the aftermath of Seattle, developing countries may try to abolish such procedures as the "Green Room." Other voices in the South such as Third World Network argue that short of dismantling the WTO altogether, the only useful reforms are those which reduce or limit the WTO's power, by denying it the authority to invalidate laws passed pursuant to international environmental agreements, limiting the application of WTO agricultural rules to the developing world, or eliminating major areas from the WTO's intellectual property claims agreements.

Seattle revealed the growing dissent against the IMF/World Bank-imposed model of economic development. The obvious alternative is to refocus attention on domestically led development and gradual regional integration, along with a comprehensive social justice agenda that includes progressive taxation, strong labor rights, social welfare programs and land reform. Such an agenda would require changing IMF policies or ignoring its prescriptions. An important first step will be to cancel or repudiate debts owed by developing countries to the IMF and the World Bank; payments on these debts divert export revenues from spending on health care, education, and domestic investment, and, through the endless cycle of debt renegotiations and conditionality, leave the macroeconomic policies of these countries under IMF and World Bank control.

Since most of the Middle East governments lack democratic legitimacy, and to various degrees are dependent on external forces to prop them up, they are unlikely to resist the IMF model and embrace an alternative development agenda without significant pressure from below and greater democratization across the region. But the opening created by the protests in Seattle and the growing grassroots mobilization around the world against trade and investment deregulation, particularly in the developing world, may help encourage such democratic efforts in the Middle East.

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