Undercurrents of World Trade

by Katarina Sehm Patomäki

Summary in English of
NIGD Discussion Paper 3/2004

The conditions for democratic trade relations are equal positions of negotiation. Democratic participation (as based on equal possibilities of participation and influence by all parties) presumes that there are no asymmetric dependency relations between the traders. However, behind the scenes of the official trade negotiations there are many factors that lead to imbalance in positions of negotiation. I call these factors undercurrents in world trade.

My thesis is that the present and strong undercurrents hinder true democratic relationships to be formed between the rich and the poor trading nations. Therefore, in this article I have collected a list of concrete measures to embark upon in order to cut the undercurrents of world trade.

I have defined these undercurrents of world trade to emerge from the double standards by the North toward the South that are particularly visible in the areas of clothing and textiles, agricultural products, military industry and steel and iron. Most notably, the issue of agricultural subsidies has got wide attention and has thus emerged on the political agenda. According to Martin Khor, however, although stressing the importance of agricultural policy points out that the significance of agricultural subsidies may not be all as important as sometimes claimed, after all, "the farm gate is often far from the national border". There are many hands in-between the farmer and the national exporter/importer agency, all of whom take a slice off the price. Instead, Dani Rodick predicts that the most important issue on the future development agenda will be that of the TRIPS (Trade Related Intellectual Property Rights) agreement negotiated within the WTO. The TRIPS agreement risks bringing with it even less possibilities for the South to acquire the necessary technology and the rights to use this for own profit. Southern countries needs access to this technology for the development of their economies. Therefore, it is important that the discussion on Intellectual Property Rights is not allowed to be politically overshadowed by agricultural issues.

This undemocratic basis for world trade was created when the Bretton Woods Institutions were set up. These institutions were set up according to a system where in practise, those with trade surpluses were awarded and those with negative trade balances were punished. Also, the early idea of John Maynard Keynes (later revived by Raúl Prebish in the UNCTAD Charter) of taking into account commodity pricing was dismissed. This system widened irreversibly the gaps between the rich and the poor countries. The economic and political structure adjustment policies of the Bretton Woods institutions and the conversion of the excess of eurodollars in the 1970s as a consequence of the oil crisis into loans for developing countries have given rise to a debt of an estimated USD 3 trillion today. Research by UNCTAD predicts that the increasing debt burden combined with falling commodity prices will materialise into a new severe debt crises in the next few years.

Furthermore, free trade agreements contain national security exceptions. Companies dually involved also in civil production often carry out military production. This means that based on security exceptions, industrialized countries in the North subsidize also their civil production, giving Northern industries advantages on the global markets. In addition, military production is a result of years of technological innovations more difficult to acquire in poor countries than in rich countries. Arms trade to poor countries creates new dependency relations between the rich and the poor countries.

In conclusion, I have collected ten groups of proposals on how to break these undercurrents of world trade: the debt problem of the developing countries should be solved through a debt arbitration mechanism; exporters of commodity products should be compensated through particular schemes; the issue of intellectual property rights should be removed from the WTO; South-South cooperation should be supported and developed; policies of double standards must end and national security exceptions should not be applied; a new organisation with responsibility for agricultural issues should be set up and the use of genetically modified food stuff revisited; the present system of agricultural subsidies should be reorganised; overseas development assistance should be fed into the development of trade; the WTO itself should be reformed, both by democratising its mechanisms for desicion-making and participation and by reducing its agenda.