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Dangerous liaison


The Kathmandu Post - Editorial

Dangerous liaison


I borrow the title of this column from Sam Laird’s article on the similar topic published in The World Economy in 1999. While his article focused on regional trade agreements (RTAs), this column concentrates on bilateral trade agreements (BTAs) - trade agreements between two countries or groups of countries. They are a sub-set of RTAs and are WTO compatible, provided certain rules are respected. I argue that, under the guise of freeing trade, BTAs are being used as a tool to further an absolute top-down Northern agenda, at the victimization of the poor and marginalized groups and communities of the South.

While there is ample evidence to suggest that RTAs can be welfare enhancing, the same may not hold true for bilateral trade agreements (BTAs) if such an agreement is between a powerful developed country and a weak developing country partner. They can truly represent the phenomenon of ’dangerous liaison’ between powerful and well organized sectoral interests in the developed countries and developing countries, trying to maximize their benefits at the victimization of others, who may not even be aware of the implications involved. This is an example of classic political economy - concentrated benefits and dispersed costs.

These sectoral interests are found among the exporters of the developing countries, who try to convince their governments to sign a BTA with a developed country so that they could get market access to export their products to the latter’s market. The most visible among them are the textiles and clothing lobby of the developing countries, which otherwise face high tariff barriers in the developed countries’ market.

Sectoral interests found in developed countries include the pharmaceutical and agro-chemical corporations, service providers and mutlinational corporations willing to invest in the developing countries. They convince their government to create much higher level of standards than necessary under the World Trade Organization (WTO) while signing BTAs. These standards, popularly known as ’WTO-plus’ standards, are imposed on the countries willing to sign BTAs with the developed countries. It is at the insistence of the sectoral interests that their government have followed the ’forum shifting’ practices for ratcheting up trade and investment related standards.

What is also conspicuous is the fact that some developed countries have used BTAs as overt political tools to achieve specific foreign policy objectives. For example, in a paper prepared for UNDP, Craig VanGrasstek notes that his country, the USA, has shown an unambiguous preference to sign BTAs with those who rally around its interests in the Middle-East - whether in the peace process or war in Iraq.

He also argues that some of these BTAs have been used to create defection among the developing country groups, which oppose US negotiating strategies at the WTO. Gains from such agreements are not really clear because they have to agree to several WTO plus conditions, some of which are worth highlighting here. First, on intellectual property rights (IPR), the flexibilities provided by the WTO Agreement on Trade Related Aspects of Intellectual Property Rights (TRIPS) - for whatever they are worth - are severely tightened in the BTAs.

For example, rules on issuing compulsory licensing to make generic drugs available in the market at the time of public health crisis is tightened and data protection clause included, the latter of which obliges generic producers to wait till patent expires for the clinical trial. Similarly, the flexibility of not providing patent protection on plants and animal are taken away and providing protection to plant varieties through a unique system suited to the country’s environment (sui generis system) is not allowed. They are obliged to follow a model legislation prepared by International Union for the Protection of New Varieties of Plant (UPOV), which restricts the rights of farmers to save, plant-back, exchange and sell seeds.

Second, they are asked to follow a negative list approach for services liberalization, as opposed to positive list approach followed in the General Agreement on Trade in Services (GATS) at the WTO. Modality of services liberalization under GATS has been hailed as a useful model for helping developing countries maintain policy space by making commitment to selectively liberalize those services sector in which they feel comfortable. When a negative list approach is followed, only those sectors that are contained in the negative list are excluded for the liberalization, all others (including future services yet to be invented) are deemed liberalized.

Third, at present WTO agreements do not require members to make substantial commitment on investment, though Agreement on Trade Related Investment Measures (TRIMs) and GATS do contain provisions relating to investment. However, what an asymmetric BTA does is to include a provision on pre- and post-establishment national treatment, locking in government from any future commitment to be selective on sectors they want to liberalize.

It also contains provision on ’deemed expropriation’, whereby any regulatory measures taken by the government, including on public interest, which could result in reduction in value of investors’ assets could be challenged by the investor as ’illegal’.

Moreover, some BTAs’ definition of investment goes well beyond the traditional definition of investment implying equity and retained earnings. In the context of BTAs or latest version of bilateral investment treaties (BITs), it includes portfolio investments, loans and even intellectual property.

Finally, BTA obliges developing countries to make commitment on issues such as environment and labour standards, as well as competition policy, which are outside the domain of the WTO.

While environment related provisions somehow figure in the WTO, the issues of labour standards and competition were so contentious that they had to be taken out of any discussion in the WTO forum due to strong opposition from the developing countries. These issues are part of the mercantilists’ agenda aimed at gaining increased market access in other countries, while protecting own markets from foreign competition.

(to be concluded)

 source: Kathmandu Post