Dan Slater: Attitudes trip up trade talks

The people who ensured that last week's World Trade Organisation talks made so little progress were the participating countries, not Korean farmers jumping into the harbour.

Numerous protesters were hoping the talks would fail and will no doubt claim the credit for the meeting's lacklustre result.

But the biggest irony is the talks showed attitudes to the WTO from the member countries themselves are still as deeply ambiguous as ever.

If nothing else watching the talks unfold in Hong Kong was educational. If you have been reading the press coverage from conservative publications such as the Economist you can picture witty and intellectual writers wearily telling the Third World millions to "just be sensible and get with the free-trade programme".

But talking to southern delegates (southern these days means undeveloped or poor in politically correct terms, although where that leaves Asia, mainly located in the Northern Hemisphere, is a mystery) it seems that the conservative reports don't really cover all the angles.

Many editorials have understandably criticised developing countries for having high tariffs against each other.

Thus, developing countries (as opposed to less-developed countries (LDCs), the poorest of all, have tariffs that are twice as high on average as the European Union. That hurts trade between poor countries.

Some commentators also say that poor countries should stop calling for the end to agricultural subsidies in the rich nations: after all, the poor benefit from the import of cheap food from these countries.

Such clever arguments apart, the poorer countries have been kept back by splits within their own ranks.

For negotiating purposes, the LDCs and developing countries should ideally show a united front but, in fact, they often have divergent views.

In many cases, LDCs have bilateral trade deals with rich countries which they are reluctant to renegotiate within the WTO framework to benefit all countries. Many LDCs are also willing to accede to demands by Western countries that China, Brazil and India be treated differently as (highly successful development models) not in need of special treatment. Developing economies see this as giving in to "divide and rule" policies by the West.

Developing countries in some ways had the most to win or lose at the Hong Kong talks. While the rich nations are willing to help out the LDCs, they are wary of the growing economic clout of the medium-income nations.

One Venezuelan delegate told me that his country was ranked as a developing country despite having pockets of serious poverty. "But we still need help. It's not enough to look simply at a country's GDP to decide whether or not it's developing."

What's clear is the different way in which rich and poor countries regard the WTO.

Many southern delegates see the WTO as a development tool with all the bells and whistles - including large dollops of aid- while Western conservatives prefer to see it as a trade liberalisation forum. For them, classical economy is clear on the inherent benefits of free trade.

Trade liberalisation indeed sounds good on the surface, but I was shocked to hear some of the comments made to me by southern delegates.

They complain about two aspects especially, the Trips and Trims, referring to trade-related intellectual property issues and trade-related investment measures.

According to the first, developing countries may not engage in reverse engineering. That simply means taking a Japanese or US computer, stripping it down, learning how it's been manufactured and then making and selling your own.

Not being able to do that is a huge disadvantage. If they can't do that, how can they move up the technology ladder quickly and cheaply? In effect, it's preventing them from taking the same path as Japan and other Asian countries.

Trade-related investment measures are even more disturbing. This refers to measures which give exporting companies (huge multinationals located in poor countries) the right NOT to source products locally, but from their own subsidiaries, even if they are overseas.

For southern delegates, this removes much of the benefit they were hoping to achieve from free trade.

"You could have a situation where the poor country's GDP is growing, exports are booming - but there is only a limited domestic knock-on effect in jobs or income levels, because the exporting companies are sourcing from overseas," one delegate said.

In effect, he's saying that the domestic small-to-medium enterprise sector, the backbone of any Third World country, is frozen out from playing the role of supplier to the exporting multinationals.

What it boils down to is this: developing countries are not interested in producing value-for-money commodity goods, however much it conforms to classical economic theory. What they want is economic interaction with the West which will enable them to move up the income ladder. That means gradually moving up from producing coffee, rice and bananas to producing cars, electronics and steel. It's the better salaries and living conditions associated with these industries which will enable developing countries to tackle their number one priority - poverty.

While it may be economically advantageous for each country to stick to what it does best (as stipulated by Adam Smith's theory of comparative economics), that's simply not ambitious enough for most developing countries.

Yet developed countries are reluctant to be drawn into changing the WTO into a huge poverty alleviation project. Many of these problems are domestic and should be solved locally. That, after all, is one of the purposes of national governments.

And the record of outside interference in improving domestic conditions is certainly ambiguous.

Next week we'll take a look at what WTO membership has meant to China.

* Dan Slater is a journalist based in Beijing.