Do developing nations have an "ace in the hole"??? (WTO meltdown)

[IrateCitizen]

With regards to the collapse of WTO trade talks in Cancun, I have been trying to make some sense of it all -- especially considering that I was out of the loop this entire weekend, and just now trying to play "catch up".

Last week, our own Thankfully_in_Britain posted a thread highlighting a series of articles on trade from the UK Guardian. You can view the thread here. There are a BUNCH of articles on this, and I don't necessarily expect many to read them, but there it is for the taking.

Anyway, even as an adamant "fair trader", my opinions on this subject have shifted somewhat over the past year or so. While I am not big fan of the WTO, I have come to agree with the view of George Monbiot in that we should not be so quick to just call for its demise, because it is the only international trade regulating mechanism that we have -- even if it does appear to be corrupted and compromised almost beyond repair!

Now, with regards to developing nations, some interesting things have been happening over the past several years. It appears that some have recognized the way in which the EU and US have been coming closer together on many trade issues, and that their alliance could be a serious threat to any kind of fair playing field. So, these countries have decided to play the same game, organizing into blocks. Most notable is the lead that Brazil has taken in South America, helping to organize Latin American nations into a trade bloc to counter the influence from the north (US and Canada). This organization has gone a long way toward hindering efforts by the US and Canada to steamroll the Free Trade Area of the Americas agreement over their developing Latin neighbors, especially with Brazil threatening not to sign on if the terms are not to their liking.

A similar organization seems to be forming in Africa, with many of the more stable African states coming together in a pact of "economic cooperation". While still weak in comparison to some of the other blocs, this too has promise.

But there is one thing that the industrialized world has long used as a pistol to hold at the head of the developing world, to keep them in line: DEBT. Through the international loan sharking organization called the International Monetary Fund, industrialized nations have been able to control developing ones by first trading with them on unfair terms that don't allow native industries to develop, and then burying them under a mountain of crushing debt when their economies collapse. This process has practically guaranteed a neocolonialist world order for the foreseeable future, in which the developing nations are beholden into doing pretty much whatever their richer neighbors tell them to do.

But what would happen if these developing nations decided to band together in a formidable bloc, and collectively default on this debt. While they would stand to have their aid packages cut, it would be a small price to pay in relation to being freed from the crushing debt payments and austerity measures that have long bankrupted their monetary, and particularly social, economies. And while US and EU nations would most likely slam the doors of their markets shut, it is likely that several nations who are relatively recent additions to the "developed world" (e.g. South Korea, Japan, etc) may keep their markets open, in order to purchase the agricultural products of the developing nations that are lacking in theirs. Finally, it would be a terrible blow to the financial institutions of the "first world" -- causing a horrible shock wave to the economies of these nations.

Given the insistence of the industrialized nations for the developing ones to submit to their unreal demands in the recent WTO talks, without making ANY real concessions on pharmaceutical patents or agricultural subsidies, is this a strategy that would be viable for the developing nations? Could you see any of them doing this? Could this be the shock wave that is needed to begin to make the system fairer in the end?

[IrateCitizen]

1. KICK!

:kick:

This thread was sinking like a stone, but I'd really like to get a little feedback from some of you on this....

[muriel_volestrangler]

5. It looks like a high-risk strategy

Not only would the US/EU stop imports from the defaulting countries, they might also ban exports to them, to try to force them into submission (and western firms would become wary of dealing with people who defaulted on a loan for a political reason). It would then be a question of who'd crack first - the developed world and its banks, or the developing countries.

Also, how many developing country leaders have strong enough principles to risk their own lifestyle (US/EU luxury goods, cars, maybe even the oil for them from the US/EU oil companies) for an unsure fight for the country's long-term good?

[IrateCitizen]

10. I guess the one country I'm really watching on this is Brazil

Before Lula was elected President of Brazil, he talked a lot about simply defaulting on the IMF debt in order to escape from its punitive austerity measures. While he has backed off from this considerably since being elected, it could be argued that an economy the size of Brazil's, along with a show of solidarity from several other large South American states (i.e. Argentina, Venezuela, Bolivia, Peru), it could be a possibility.

I don't disagree with you at all that it's a high-risk strategy. However, if the US and EU keep pushing for patent protection and financial liberalization so strongly while making absolutely zero concessions of their own, let along living up to past promises that were broken, it may eventually be the best alternative to the developing nations. :shrug:

[T_i_B]

2. BOO!

Thanks for linking to the thread about the Grauniad supplement. :-)

The questions at the moment are regarding multi-lateral vs Bi-lateral trade agreements. Now call me what you will but in the multi-lateral format of the WTO poor nations have the chance to bargain collectivly and also, every member state of the WTO has a veto. That gives poor nations more power than some might have you think, but that is particularly the case when small nations bargain collectivly. Rich nations have noticed this but that is why we have Europe uniting under the EU flag and going to the WTO lead by a certain Pascal Lamy. make of that what you will.

Now conversely in bi-lateral trade agreements between rich and poor the rich countries are in a far greater position to put the poor countries over a barrel. The US trade representitive Robert Zoelick is, I am told a bit of a fan of this sort of arrangement as the rules of the WTO are not as much of an impediment.

The other thing I will add is how much the free and fair trade agdenda actually overlap at present. Be it reducing trade barriers on agriculture in the west or liberalizing intellectual property rights (a market in which the WTO oddly enough decided to give a good dose of protectionism via TRIPS) An intersting read at the moment which I will recomend is Open World: The Truth About Globalization by Phillipe Legrain. It's very much pro-globalization but it does contain some very interesting points and dissents from the establishment view in certain very important respects.

[IrateCitizen]

4. Just what in the hell is the "Grauniad"?

If that's supposed to be the "Guardian", it is the typo from hell, TiB! :D

As for another, probably more balanced book on globalization than the one by Legraine that you cited, I'd highly recommend The Silent Takeover by Dr. Noreena Hertz.

Finally, I was wondering if you could address some of the questions I asked at the end of my post, because I'd really like your opinions on them. Thanks!

[muriel_volestrangler]

6. British in-joke

The Guardian used to have so many typos in the print edition that everyone called it "The Grauniad"

[T_i_B]

8. It's a nickname for the Guardian

Given due to the number of typo's.

As to your question's, it's all down to the fine art of COMPRIMISE, by both sides. And how much comprimise both sides are willing to undertake.

And I would argue that the Legrain book is suprisingly balanced. You would be pleasently suprized by Legrain's views on intellectual property rights, agriculture & third world debt.

[IrateCitizen]

12. I think you've identified the root problem then, TiB!

As to your question's, it's all down to the fine art of COMPRIMISE, by both sides. And how much comprimise both sides are willing to undertake.

I think that the US and EU have clearly demonstrated their complete unwillingness to compromise, based on their broken promises regarding generic drugs and agricultural subsidies alone. They clearly have an interest in not only keeping the system as it is, but expanding their control over the developing world through financial liberalization, a strategy that is little more than a giant wrecking ball on the economies of developing nations!

Since the US and EU are NOT compromising, then is it possible for the developing world to decide that they need to inflict some serious pain on them in order to make ANY gains whatsoever? I could see it happening, especially with the role that Brazil has taken in regards to the FTAA negotiations on our side of the Atlantic.

[buddhamama]

3. sorry, IC

i actually have question not an opinion to offer at the moment.

recently the U.S. has signed onto trade deals with small central american countries. How do you envision these seperate trade deals affecting the larger WTO issues and the individual countries themselves?

[IrateCitizen]

7. I see them as devastating on both accounts

It's a classic "divide and conquer" strategy. And it places the developing world, the US in particular, in a stronger bargaining position within the WTO -- because it prevents these Central American countries from allying with the South American bloc being organized by Brazil, which is a group of much more common interest than the United States and Canada.

[buddhamama]

9. economic shut down

if the struggling countries default. a lot to consider. i'll have to think this out a bit more.

another aspect is that, if the U.S. and EU were to close their markets then the Corps would have a difficult time getting into the developing countries.

is the EU in any position to do this right now?
from the recent heatwave their agriculture has suffered and they're going to need to import large quantities of food stocks.
granted, it is a 'temporary' situation but, it could have an affect on the current negotiations.

i'll come back to this thread when i've given it more thought.

[madrchsod]

11. yes they do

it`s the idea that china-brazil-india will help the developing countries instead of the first world countries. brazil is now looked on as a model for developing governments not the usa. china is increasing it`s lead in attracting forgein investment over the usa,and of course india which will be developing new info and techno. industry. we are pretty much screwed with the bush regime in place for years to come...do you really think they will give up power???

[chadm]

13. I think you've identified the issues

The only thing I would add is that the developing countries are better off uniting with each other, regardless. Whether that means defaulting on the debt or simply bargaining as a stronger voice, I don't know. Keep in mind that the bankers running the show want to get paid (which they will anyway, probably from US taxpayers if these countries were to default)...but anyway, they might be willing to bend on some of the policies if it meant that there was a greater threat of default.

[aneerkoinos]

14. Some thoughts on EU

Great post IC, and thanks also for TiB and many others discussing this issue and informing others.

I've thought about the default of debt, but I don't have opinion. I simply don't know enough.

I think and hope that one "ace in the hole" might be EU. My perception is that the most bitter critizism is targetet at EU. I won't go into estimating whose the baddest guy, EU, US or somebody else, but I don't think that's the main reason for EU taking most of the rap. I think the reason is there is some possibility that EU is actually listening - something nobody would expect from Bushistas. EU by it's very nature is absolutely committed to multilateralism (unlike US who is happy with bilateralism), Commission is at least speaking nicely even if actions don't match the lingo, and the NGO lobbies inside EU are doing excellent job engaging politicians in dialogue. So there is a chance that EU might be turned over to the side of good and brake it's allience with US.

Commision's greatest shock was that G23 wouldn't give an inch and couldn't be broken down, that this time it wasn't business as usual. It is just starting to sink into even the thick skulls of Euro Commissars how serious these guys really are, that they have to accept the new reality, that they have no good arguments to oppose the demands of G23 and not even muscle together with US to dictate them anything anymore. I hope and believe EU is ready to do this and do the right thing on the next round.

Next Big Question: if EU changes attitude, what will US do? What would Dean/Kerry/Clark/other do if Democrate gets elected?