The ‘economic’ and the ‘political in the political economy of the World Trade Organization work in elusive ways alternating their roles as Jekyll and Hyde. The causes of the collapse of the round of negotiations in 1999 were buried under graphic images of young people taking to the streets of Seattle with posters, some to save turtles and whales and others, the wretched of the earth. Two years later, the world woke up to find the most powerful economic symbols of capital, the World Trade Center and the Pentagon office go down. It triggered the ‘war against terror’ that changed the political environment world wide, however as far as the WTO goes it is business as usual.
The Doha round of the WTO that followed the events of September 11 took the ubiquitous form of the ‘Doha development round’. It was couched in language that had something for everybody. Ironically, the ‘development round’ of WTO negotiations was inaugurated amidst the bombing of one of the poorest countries in the world, Afghanistan, ravaged by two decades of war with virtually no economy in any sense that the term is used in WTO-speak. The Fifth Ministerial Meeting of the WTO to effectuate the ‘development round’ is two months away. It will meet when one of the most ‘modern’ Arab states, Iraq, has been reduced to a pre-medieval existence and other neighboring states wait anxiously for the destiny of their nations to unfold. Amongst other things the Ministerial Meeting will discuss GATS and ‘cross-border movement of natural persons’ at a time when the Palestinian people struggle for the right to return to their own homeland. In the wonder-world of WTO, home is where the magic wand of the market finds the ‘natural person’ a job, if at all.
Preparations are underway for the Fifth Ministerial Meeting in Cancun from September 10-14, even as politicians everywhere exorcise ghosts from the rubble of the World Trade Center and economic Frankensteins continued to cast their long shadows over the future of the WTO and indeed over the world economy.
The WTO’s mandate is to promote ‘free trade’. The General Agreements on Tariffs and Trade (GATT), negotiated under the aegis of the WTO are premised on the assumption that economics and politics operate in different realms. A rule based trading regime it was said would prevent wars. Proselytizing about ‘free trade’ has not stopped wars from spreading however. The contradictions confronting the world economy that the WTO must deal with in Cancun, come September, touch on the foundations of the post-war world order. Three issues, critical to the world economy, where the ‘political’ and the ‘economic’ do not walk hand in hand, need mention.
The first is the political economy of oil. Since the end of the Second World War, the political economy of oil was a carefully managed regime of sanctions in the Middle East dating back to the 1950s when it was first applied to Iran. Whereas the political face of sanctions remains that of ‘rogue nations’, ‘tyrants’ and ‘mindless terrorists’, the regime of sanctions has been the best protectionist measure providing exemptions from market competition to the seven oil companies (all US or UK based) that control global oil production. The stated rationale for the WTO is to provide a rule based trading regime and a ‘level playing field’ for all. Yet the WTO can do very little about an important engine of the world economy such as oil.
In April 2001, reports that a German firm Wintershall was seeking drilling rights in Libya prompted the US government to appoint a high powered task force headed by Dick Cheney the Vice President to review sanctions, to ‘increase America’s oil supply’ and ‘advance important national security and diplomatic goals’. The regime of sanctions target not only countries in the Middle East but all companies in Europe and elsewhere doing business with those countries. The EU opposed sanctions on the grounds that the US does not have the right to legislate the behavior of companies outside its territories. Contrary to assurances that sanctions against Libya would be lifted if the suspects in the Lockerbie case were handed over for trial; and notwithstanding the fact that the suspects were tried and sentenced by the International Court (never mind that the UN observer at the International Court, an Austrian, reported to the UN that the judgement was made under political pressure from the US); on August 3rd 2001, over a month before the events of September 11, the US extended the Iran-Libya Sanctions Act 1996 for another five years.
The occupation of Iraq alters the political economy of oil in fundamental ways since the end of the World War II. It makes the economically stronger EU nations dependent on the US for oil, a critical factor for their economy. The EU must now decide how they will respond to the challenge. Issue as important as economic sanctions and political occupation, that keeps entire nations, trading blocs, and important commodities like oil outside the trading regime remains beyond the purview of the WTO.
With most of the world’s oil in the Middle East and most of the production in the hands of the seven US and British oil companies, the US is in a double bind. If it eases the regime of sanctions, and allows political autonomy in the region, it stands to lose out on its oil interests to other competitors real and imagined. If it continues with the economic stranglehold over the Middle East, the political fall out could be costly. Yet, the modern world economy is energy driven. The WTO can do little in a region where the ‘free market’ has such a distorted face. With energy issue out of bounds, the WTO is left with industries like clothing and shoes and problems like migrant workers and child labour. None of those things can ‘kick start’ the global economy, as promised by the WTO.
The second spoke in the wheel of ‘free trade’ is the defense industry. A less discussed cause of the economic woes of the world economy is the economic implications of the end of the Cold War. At the height of the Cold War, estimates suggested that 60% of the American economy and 80% of the former Soviet economy were directly or indirectly related to defense. Regardless of the accuracy of the figures, it is undeniable that defense spending is a major driver of the economy. Most of the technological advances of the 20th century were spawned by the arms industry. According the Stockholm International Peace Research Institute, arms and military spending had gone down after the Cold War ended but started to rise after 1998. The largest volume of increases were in the US and Russia. 37% of the global military expenditure is by the US, which was 280.6 billion dollars in 2000 alone. The second on the highest spender list is Russia at 6% of the world spending (43.7 billion dollars in 2000). Between them, the US, France, Russia, Japan and UK account for 58% of the world’s military spending. Little surprising that Bush promised restarting the Strategic Defense Initiative (Star Wars program) before September 11. The five largest defense contractors in the US started diversifying into military hardware long before September 11. The defense industry is outside GATT treaties. With oil and defense, two prime drivers of the global economy, out of WTO’s promised ‘rule based trading system’ what is it left with the WTO?
The third fundamental contradiction relates to the tensions between the US and the EU. Two months before the September 11 events, Pacal Lamy the EU trade representative and Robert Zoellick the US trade representative thought it necessary to co-author an article for the Washington Post on July 17, to reassure the world that all was well with the two. They wrote, ‘if the press, the pundits and some politicians are to be believed, a yawning chasm has emerged between the United States and the European Union. The standard theory is that without common Cold War aims, competition between the United States and the EU will lead to conflict, acrimony and even alienation. Is this a scenario we are doomed to play out regularly, in such forums as this week’s G-7 economic summit in Genoa?’ It is significant that they found it necessary to write the article in the first place.
The political relations between the players in World Wars and the Cold Wars and their economic relations since then, pull them in different directions. The rift in the economic and political dynamics of their relationship touches the founding assumptions of the WTO. The WTO is founded on the assumption that economic regulation will reduce political tensions between the four major blocs in the post-war era, the former Allies, the former Axis powers, Russia and the former ‘socialist bloc’ and the colonies in their new avatar as the ‘Third World’. The experience with GATT over the past fifty years has been to the contrary. The expansion of GATT has intensified economic tensions between the countries within each bloc and across the blocs upon which the post-war world order was built. Institutionalising GATT in the WTO has institutionalised the economic tensions. Consequently the economic tensions remain less visible compared to the political tensions. The reality for the WTO is that if the EU and the US do not agree on something it cannot happen and the result is an impasse in the WTO.
In May 2001, the G-15 meeting, of 17 middle sized developing countries in Jakarta called for a freeze on all further negotiations until the WTO has been transformed into a more transparent and representative organisation. If it generated hopes in some quarters of the return of the New International Economic Order of the UNCTAD days in the 1970s, they were dashed quickly by the ‘war on terror’ and the ‘crusade’ that followed the events of September 11.
Three important principles in international law and international relations have changed the rules of the game framed at the end of World War II. The first is the acceptance of the principle of ‘occupation’ by the UN and the veto powers that form in the Security Council, even if tacitly, in the wake of the occupation of Iraq. The second is the acceptance of the principle of ‘pre-emptive deterrence’ in international relations. The third is the broadening of the Nuremberg principle from an extraordinary to an ordinary principle of international law. These changes alter, in fundamental ways, the institutional context under which the idea of an international trade organisation and the GATTs treaties first emerged. They challenge the founding assumptions of the WTO, that a fair trading regime is the surest guarantor of peace.
The US might hope to recover economically through military might, but remains economically vulnerable with its fiscal deficits and corporations under seize due internally due to corruption and externally from other competitors. The EU and others might be economically stronger but with little military clout the economic base could be threatened soon. It forces them to make their choices. The cleavages in the US-EU relations caused by the breaches in the economic and political dimensions of their relationship gives the G-15 countries room to manoeuvre. It imposes an additional strain on the WTO, which is required to reconcile its free trade mission with the G-15′s demands for greater share in the economic cake. Caught in this cross-fire between the titans, and others waiting on the sides, the WTO can neither influence the EU and the US nor live up to the promises of peace and plenty it has been making to the ‘Third World’ since the Doha round of negotiations was inaugurated.
If the credibility of the WTO was under fire, externally, from the NGOs and civil society, the increasing number of bilateral trade agreements open another line of fire that challenges its credibility, from within. The US and the EU countries have been signing up numerous bilateral agreements that present the WTO with a fait accompli, further reducing its influence, autonomy and credibility. The promises of the ‘development round’ however are premised on the presupposition that the WTO is an autonomous entity that is capable of determining the course of the organisation. Add to this the numerous blind cards: Russia, China and India, which in different ways, are big and unpredictable players in the way the economics and politics will be played out in the future.
The Doha round has provided the proverbial fig leaf for the WTO, however. By naming it the ‘development round’ the officials can churn out endless platitudes on poverty and human misery and shed crocodile tears, even as the big powers do exactly as they please through bilateral trade agreements, military exploits and closed room deals on the destiny of humanity. Weren’t they just the sorts of things the WTO was set up to prevent in the first place?
Yet, the preparations for the Fifth Ministerial Round continues as if nothing has happened to the world since it was set up. The Neroes play their tunes even as the Rome(s) burn.