Trade ee background_globalization

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NIS Project
Background paper 1: Globalization, Trade and Sustainable Development
Introduction
It is a truism to say that we live in an era of rapid change since the pace of change has
been accelerating steadily over the past centuries. However, it is also clear that the
pace of change is not even, and that there are periods which, in retrospect, turn out to
have been particularly momentous.
There can be little doubt that, in the Newly Independent States of the former Soviet
Union (NIS), the past ten or fifteen years have been unique in their impact on society,
politics and the economy. Not only has the region lived through the greatest political
upheavals in decades, this has coincided with the pattern of global change now
referred to by the term globalization. The combination of a complete change in
political and economic arrangements, and the need to adapt to a highly demanding set
of international rules and norms, have placed the NIS countries in a particularly
difficult situation. How these countries face this challenge in the coming years will to
a considerable extent determine their prospects for sustainable development.
This paper will examine the nature of globalization and a number of its
characteristics. It will then focus on trade liberalization as one of the key ‘drivers’ of
globalization and one that is of immediate relevance to the Newly-Independent States.
It will describe the characteristics of the multilateral trading system, how it has
evolved from the days of GATT through the Uruguay Round and the creation of the
WTO. It will introduce the work programme adopted at the fourth WTO ministerial
conference in Doha, Qatar, last November, although a detailed examination of the
Doha agenda will be the subject of another background paper.
Throughout the paper, the focus is on sustainable development. Our interest in both
globalization and trade relate to the way in which these affect sustainable
development. In the case of trade, we are interested in identifying the ways in which
trade liberalization and a rules-based system governing trade can advance sustainable
development, so that we can support these. We are also interested in identifying the
many ways in which trade liberalization, or the current application of the trade rules,
establishes obstacles in the path of progress towards sustainable development, so that
we can design ways to remove these obstacles, amend existing rules or craft new
ones, and minimize the negative relations that too often exist between trade and
sustainable development.
Globalization
The term globalization is loosely used to describe a series of changes that have
occurred over the past two decades, and whose effects have been felt in the remotest
corners of the globe. It is not a precise term, but it nevertheless has powerful
connotations. For some, it carries the sense of almost boundless possibilities, of new
opportunities opening, of escape from the unsatisfactory conditions of the past, and of
a technological revolution that will raise humanity onto a new plateau of prosperity
and well-being. Others fear a state of growing anarchy, in which unknown and

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unrevealed forces begin to rob us of our autonomy, identity and character. These find
globalization deeply unsettling - a pace of change that has gone out of control, and
shifted or eliminated the fixed reference points from which we used to derive our
security. For many, globalization is a deeply threatening concept.
Whatever the balance of threats and opportunities, the reality of massive global
change is beyond dispute. The nature of this change must be understood, and its
effects managed so that the change may contribute to the creation of a society
characterised by social justice and environmental sustainability. The challenge is to
adapt our institutions so that the energy unleashed by globalization is channelled into
sustainable development.
It is not the intention here to enter into a debate on globalization, but instead to
examine some of the major changes witnessed over the past couple of decades and
which trade, collectively, under the name of globalization. Four areas of change
appear to be of particular significance:
• the rapid spread of information and communications technology, which is now
accessible almost worldwide, even in the remotest areas. This has reduced the
time needed to communicate, the cost of such communication, and has
increased the information readily available to communicate, so that
communication worldwide is now almost instantaneous, and accessible to
most organized groups. This has led to the ‘globalization’ of many local
issues by offering local groups a global audience for their issues. It has also
led to the ‘localization’ of global issues, as the impact of such things as trade
liberalization are increasingly felt locally. This ‘vertical integration’ has
greatly increased the effectiveness of civil society networks, and the impact of
their campaigns. And it has put considerable pressure on such anti-democratic
behaviour as corruption, abuse of human rights, and censorship.
• the design of a set of rules, norms and standards that govern almost all aspects
of macroeconomic behaviour. This set of rules are, increasingly, a
precondition for participation in the global market-place, are increasingly
uniform across the entire globe, and are more and more established by
powerful players in intergovernmental organizations and not by sovereign
States, although their application is largely domestic. The conditions that
apply to loans from the International Monetary Fund, the policy reform
packages delivered by the World Bank, and the multilateral trading rules
administered by the World Trade Organization, are three examples of the
increasingly rigid macroeconomic architecture that not only determine how
countries act among themselves but, increasingly, also how they act at home.
• the internationalisation of capital, which has made it easier both to gain access
to capital in other countries and regions, and for investors to expand the reach
of their activities well beyond their borders. On the negative side, this has led
to a set of investment agreements that are strong in the defence of investor
rights, but vague on the subject of investor responsibilities. On the positive
side, it has led to rising pressure on investors from developed countries not to
apply lower standards in their international operations than they would apply
at home. Experience with this has lent considerable momentum to the

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movements calling for corporate social and environmental responsibility. This
has stimulated a debate about which standards should justifiably apply,
opening the way for a fresh look at human rights, governance and democracy
issues.
• the greatly increased pace of change, which has placed enormous adaptive
pressures on our institutions. It is interesting to note in this context that
globalization offers a competitive advantage to those institutions with the
greatest capacity to adapt rapidly – favouring corporations and civil society
over national governments and intergovernmental organizations. It has also
led the different groups to experiment with cooperative approaches across
sectors, in part to overcome the obstacles to change that may be inherent in
some of the institutional partners. Overall, globalization has led to a
diminishing role for national governments, much of whose authority has been
transferred upwards – to multilateral organizations (like the WTO) or
economic integration bodies (like the European Union); downward – to
provincial and municipal authorities; and outwards – to the market and to civil
society.
One general observation on globalization is that it has introduced profound changes at
a rhythm much greater than our ability to manage these changes. As a consequence,
an institutional gap has developed, leading to a growing frustration on the part of
those who do not clearly benefit from globalization, and whose concerns are
inadequately addressed by our present institutions.
The Anti-Globalization Movement
One of the most interesting phenomena of the past decade has been the global nature
of the protest against the patterns of rapid global change. As noted above,
globalization is destabilizing, and is taken by a large part of the general public to be a
threat to values they hold dear. Globalization easily appears to be a process whereby
the elites in the rich countries and the multinational corporations extend their scope of
action at the expense of the less powerful. It easily appears as a process that deepens
the gap between rich and poor, marginalizes ever-larger segments of society, and
undermines democratic process, replacing it with the power of money and privilege.
Whatever the merits of this set of arguments, there can be little doubt that the facts
support many of the fears that the anti-global movements have expressed. Measures –
such as trade liberalization - that are supposed to be good for all countries have turned
out to be better for the richer and more developed, less favourable for the middle-
income countries, and arguably negative for many of the poorer countries. Trade
liberalization has undoubtedly led to expanded economic growth, but the fruits of that
growth have tended to be captured by the richer and more developed trading partners
and by the richer and more powerful segments within trading countries.
As a result, the organizations that develop and police the macroeconomic rules – the
IMF, the World Bank, the WTO, the G8, the World Economic Forum and, to a lesser
extent, the European Union – have come to be regarded as the vanguard of
globalization, using their power and authority to extend the privileges of the elites,
and ensure their near-total dominance of the instruments of economic power. They

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are seen, through their actions, as undermining the public sector, weakening the social
net, and disregarding the environment. They have, increasingly, become the target for
expressions of anger and disaffection.
In the context of the WTO, the third Ministerial conference in Seattle in late 1999
represented a high point in the anger expressed at the failure of the Uruguay Round
agreements to advance poverty alleviation and sustainable development. Seattle led
to very successful protest movements that disrupted the World Bank-IMF meetings in
Washington, the World Economic Forum meeting in Davos, and the EU Summit in
Göteborg, Sweden, culminating in the death of a young demonstrator during the G8
summit in Genoa. It began to look as if public anger and successful civil society
organization might seriously hamper the progress of the principal vanguards of
globalization. Had there not been the events of 11 September 2001, and a tacit
decision on self-censorship by the anti-globalization movement, it is likely that this
movement would have continued to gather momentum. It will undoubtedly begin to
grow again, as the recent EU Summit in Barcelona demonstrated.
Conclusion on Globalization
There can be little doubt, in 2002, that the rapid changes lived in the past two decades
and which are grouped under the term globalization represent a change of
revolutionary proportions in the organization of our economies and societies.
Globalization has fundamentally changed the relationship between individuals,
communities, corporations and the public sector.
Some welcome these changes as a means of setting in place global standards of
governance, justice and accountable democracy. They see globalization as offering a
fast road to technological development, objective information, and almost unlimited
opportunity. These people are undoubtedly right.
Others believe – often profoundly – that globalization represents an undermining of
local identity, cultural diversity and even state sovereignty and that, while the benefits
are certain, the costs are very high. They consider that globalization is being
promoted because it responds to the interests of the rich and powerful, and that a great
deal of disruption hides behind the aggregate statistics used to justify it. These people
are undoubtedly also right.
The question is, what can be done? One thing is clear: globalization is here to stay.
There can be no return to a romantic past. The challenge is not to reverse
globalization, which in any event would be impossible. Instead, it is to manage
globalization, and to ensure that the benefits are maximised for the maximum number
of people, while steps are taken to prevent or minimize the harmful fallout from
global change. It is to reform existing institutions so that globalization can be
channelled in ways that contribute to sustainable development, and to create new
institutions where they are required.
Globalization is both good and bad, but managing global change should not be
beyond the reach of human ingenuity. Nor should creating the institutions and
processes that embed it in a wider framework of social justice and environmental care.

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Globalization should be made subservient to sustainable development, not the other
way around.
Trade liberalization, past and present
Although trade liberalization is not the only engine of globalization, and arguably not
the principal one, it has come in for more criticism than most. It symbolizes in a
potent and immediate way both what the proponents of globalization regard as
representing its strongest benefits, and what the critics regard as its greatest
drawbacks. This section will examine the positive and negative impact of trade
liberalization on sustainable development.
Trade theory
Traditional trade theory argues that trade liberalization is positive both in terms of its
economic and political impacts. Economically, trade liberalization creates larger
markets and introduces greater competition, which in turn leads to economic growth
and increased inefficiency in the use of energy and resources in production. This
growth in turn creates an increased demand for the goods produced, and fuels
economic and technological transformation, moving economies out of areas in which
they have no comparative advantage and into other areas where they do. The various
Rounds of multilateral trade negotiations conducted under the auspices of the WTO’s
predecessor, the GATT, have led to a significant reduction of tariffs and other barriers
to trade, so that the growth in international trade outpaces overall economic growth by
a significant margin. The Uruguay Round was sold to new WTO members as being
good for every country, and the same is now being said of the liberalization currently
being negotiated as part of the Doha Development Agenda.
Although not so commonly used to sell trade liberalization, the political impacts are
thought to be at least as significant. Trade increases mutual dependence among
countries and greatly multiplies the links joining countries together. The former
provides a strong disincentive to conflict, and instead a strong incentive towards
peaceful resolution of differences. The latter creates greater understanding which, in
turn, greatly reduces the likelihood of conflict. Indeed, much has been written about
the links between the protectionist measures taken by many economies following the
Great Depression, and the conditions that led, only a few years later, to the outbreak
of World War II. It is important to understand the perception of a strong link between
protectionism and conflict to understand the mindset that emerged in the post-war
years.
GATT and the origins of the multilateral trading system
GATT itself was one of the institutions put in place to ensure international
cooperation following the Second World War, along with the United Nations and its
specialized agencies, the World Bank and the IMF. Together, and each in its own
area, they were determined to build international cooperation in ways that would
maximise the political and economic benefits of cooperation and minimize the
incentives to resolve differences through the display of power or through conflict.

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For the first four decades of its existence, there was little reason to question the
international trading system. GATT focused almost exclusively on lowering barriers
to trade, and on putting in place rules that would govern trade according to a number
of fundamental principles – in particular the principles of transparency and non-
discrimination (see below). It dealt almost exclusively with what happens to
manufactured goods when they arrive at the border. There could be little
disagreement that this was the legitimate business of trade policy, and there was little
overlap between trade policy and policies in the social or environmental fields.
The basic principles of the trading system
Nor could there be much disputing the fairness of the three basic principles on which
trade liberalization was based. These principles are elevated almost to the status of a
religion by the trade policy community. Understanding them and understanding the
power that they hold over the trade policy community is essential to any effort at
reforming the trading system.
There is much debate about which principles are at the root of the trading system, and
how they can be broken down and described. This paper focuses on three:
transparency, non-discrimination, and peaceful settlement of disputes.
The use of the term “transparency” in the trading system is very different from the use
of the same term in the sustainable development field. In the latter, it refers to the
transparency of decision-making, to structures for the exercise of accountability, and
to access to information. In the trading system, it refers to transparency in the rules
applying to trade and the manner in which they are implemented. Thus an exporter
who wishes to sell goods in Thailand must have the same access to the terms and
conditions of doing business in Thailand as a local counterpart. He or she must not be
placed at a disadvantage as a result of information on the tax laws, import tariffs or
local labour laws not being readily available.
The principle of non-discrimination is more fundamental. It means that, among
members of the WTO, “like” products must be treated equally. The principle is
divided into two parts. “National Treatment” states that a WTO member must treat
products from another WTO member country no less favourably than like products
from its own producers. Thus imported products must benefit from at least as
favourable conditions of access to markets as products from the importing country.
“Most Favoured Nation” states that advantages given to one WTO member under the
WTO rules must automatically be extended to all WTO members. Thus an importing
country must offer another WTO member the conditions offered to the WTO member
that is accorded the most favourable conditions of trade. This principle is aimed at
ensuring that the same rules apply to all members of the WTO club.
The principle of peaceful resolution of disputes recognizes that the application of
economic sanctions, and especially trade sanctions, is one of the only effective tools
lying in the spectrum between diplomacy on the one hand, and military power on the
other. It recognizes that trade sanctions are a potentially powerful tool in international
relations, and insists that this tool be used responsibly. Thus the trading system
provides a range of mechanisms aimed at resolving differences of opinion between

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trading partners in such a way that unilateral imposition of economic punishment is
used as little as possible.
The Uruguay Round and the WTO
The Uruguay Round of multilateral trade negotiations was launched in Punta del Este,
Uruguay, in 1986, and concluded with the Marrakech Agreements in 1994. The
package of agreements adopted at Marrakech represents the most substantive changes
in the multilateral trading system since the GATT was set up in 1947, and many of the
implications of these changes are only now becoming apparent. From the point of
view of sustainable development, the Marrakech Agreements are significant in two
ways: they greatly expand the reach of trade policy; and they establish new
institutions of considerable power, so that trade policy has further strengthened its
comparative advantage over policies in other areas.
As noted above, trade policy was largely regarded as positive when it restricted its
scope to border measures relating to manufactured goods. This is because the theory
of comparative advantage works well for traded goods, so that lowering tariffs and
introducing stability and predictability to markets was regarded almost entirely as a
positive thing. With the Uruguay Round, the trade regime extended its reach into a
range of policy areas that are extremely sensitive in political, social and economic
terms. It introduced trade policy – timidly at first – to the field of agriculture. It
introduced it into the whole area of trade in services, dealing with such issues as water
supply, banking, insurance, maritime transport, tourism, energy, health and education.
It gave the trading system enormous power over the application of intellectual
property rights, and therefore to a considerable extent over access to technology and
the other fruits of invention. Uruguay Round agreements govern technical barriers to
trade, including packaging requirements, labelling and certification. They govern
requirements for standards in the field of food safety. And they regulate the
conditions on which subsidies may be applied.
Together, these agreements represent a massive invasion by trade policy of policies
normally established in other areas, with consequences that are only now beginning to
be discovered and understood. This is not to say that the consequences are invariably
negative. However, they create the need, at the very least, for a range of processes to
determine how the new trade policy affects other policy areas, and what can be done
to ensure optimal compatibility between policies in the respective areas.
This of course led to a wave of interest in (and a wave of concern for) trade policy,
once the exclusive preserve of technical specialists. It would not be exaggerated to
say that interest in trade among non-trade actors, whether in governments, the private
sector, or civil society, has multiplied more than one hundred-fold since the
establishment of WTO in 1995.
The other major result of the Uruguay Round was the establishment of the World
Trade Organization. Unlike GATT, which had a small secretariat designed essentially
to prepare and service meetings of the members, WTO is a full-scale institution, with
a range of organs that greatly strengthen the reach of trade policy.

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The institutional regime
The World Trade Organization, based in Geneva, superseded the GATT on 1 January
1995. It is made up of member states (currently numbering over 145) that are
members on an equal basis. Decisions in the WTO are taken by consensus. A single
dissenting voice is sufficient, in theory, to block a consensus.
The supreme decision-making body is the WTO Council. The Council meets
frequently in Geneva, and it also meets every three years at ministerial level.
Statutorily, the ministerial meetings have no more authority than the Council itself.
Under the WTO Council, there are broadly three types of bodies. The first are
specialized Councils – permanent bodies dealing with the major themes of trade
policy or with major agreements – eg. the Council on Trade in Goods, the Council on
Trade in Services, the Council on Trade-Related Intellectual Property Rights, etc.
The second are more theme-related bodies, some of them permanent or virtually so,
others temporary. Thus the Committee for Trade and Development and the
Committee for Trade and Environment, while their mandates are reviewed by each
ministerial meeting, can be considered permanent. Others have a more task-oriented
nature, such as the Working Group on Transfer of Technology, or the Working Group
on Trade, Debt and Finance, both set up at Doha.
Finally, there are function-based bodies, such as the Trade Policy Review Body,
which undertakes regular assessments of member countries’ policies in respect of
trade, and the Dispute Settlement Body (DSB). The latter is a fundamental
innovation, with profound implications for sustainable development. The Dispute
Settlement Understanding adopted in Marrakech represented a significant step beyond
the dispute provisions contained in the GATT. First, through a process of conciliation
attempts, independent dispute panels and, finally, an Appellate Body, there is a
relatively rapid track from the initial complaint to the final decision. Second and
more important, compliance with the decisions of the DSB is facilitated through the
right to impose economic sanctions on the offending country.
The significance of this tool available to the trade policy world cannot easily be
exaggerated. It provides, to the trade world, one of the most effective mechanisms for
ensuring respect of agreed rules available internationally. To illustrate its power, we
might examine the case of intellectual property rights. For decades, international
intellectual property rights issues were dealt with by one of the most successful
members of the United Nations family – the World Intellectual Property Organization
(WIPO). WIPO administers the many intergovernmental treaties on intellectual
property rights negotiated over the past century and more, and has steadily advanced
the field of intellectual property rights cooperation internationally. Its one problem
was its limited ability to enforce its own rules.
Negotiating the TRIPS Agreement in the WTO had less to do with the fact that WIPO
did not deal adequately with trade-related intellectual property rights, and more to do
with the desire to seek strong and effective enforcement of these rights in a system
that carries real penalties for non-compliance. So, not only has trade policy invaded
the territory of other public policies it has, by linking agreements to the dispute

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settlement system, shifted the political momentum away from competent
organizations and into the WTO. Trade policy has not only extended its reach, it has
even brought under its own dominance agreements that were competently handled in
organizations more open to transparency and democratic practice than the WTO.
How WTO functions
WTO has three essential functions. It negotiates the rules governing international
trade, including the removal or lowering of the remaining barriers to such trade, and
administers these rules. It agrees on those grounds that will be considered legitimate
in restricting trade, including concern for food safety, national security, public health,
or the conservation of endangered species. And, finally, through its Dispute
Settlement Body, it considers cases where a violation of the rules has been alleged.
In principle, all WTO bodies are open to all of the membership. In practice, there are
wide variations in countries’ ability to participate. At the beginning of the Uruguay
Round in 1986, GATT had fewer than 70 members. That number has doubled, with
virtually all of the new members being from developing or transition countries. Many
of these have no permanent presence in Geneva, or one that does not permit them to
cover the forty-odd meetings that take place on an average week in WTO.
This imbalance in the ability to participate, and the continued dominance over the
WTO by the United States, the European Union and, to a lesser extent, Japan, has led
to a growing frustration on the part of the newer and smaller members, especially
from developing countries.
WTO and Sustainable Development
It is often mistakenly believed that the bulk of the sustainable development agenda in
the WTO lies in the mandate of the Committee on Trade and Environment. In fact,
this agenda is narrow, and restricted to a limited range of technical issues relating to
the way in which environmental legislation affects trade (and not how trade affects
the environment).
Sustainable development is, first of all, reflected in the preamble to both the
Marrakech agreements and to the Doha declaration. In the first, it is stated that trade
liberalization should be conducted in a way that is compatible with the goal of
sustainable development. Although this formulation is weak, it has nevertheless been
used in disputes to suggest that WTO members have an obligation to promote
sustainable development while conducting their trade. Doha takes a step further,
stating that the goals of trade liberalization and sustainable development not only can
be compatible, they must be compatible. While the strength of this reinforced
obligation has yet to be tested, it is a step in the right direction.
Beyond the preamble, and short of the mandate for the Committee on Trade and
Environment, it can be said that there are serious sustainable development concerns
with virtually every one of the Agreements that make up the current trade regime.
Some of the key ones include:

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The Agreement on Agriculture. This limited agreement adopted in
Marrakech has now been supplemented by a broad negotiating mandate agreed
at Doha, aimed at lowering – and eventually eliminating – much public
support to agricultural production. This issue, essential to many countries’
rural sector, to their food security, and to the preservation of landscapes, has
led to one of the strongest environmental debates in the WTO. This debate
separates those who believe that agriculture should be approached narrowly as
a producer of agricultural commodities, and those who consider that
agriculture has multiple functions, including food production but also the
preservation of cultures, lifestyles, the environment and landscapes. This
debate is symbolic of the broader debate in trade policy, because the
“multifunctionality” of agriculture is not substantially different from the
multiple functions of other economic sectors.
The General Agreement on Trade in Services. With trade barriers in the
goods sector largely dismantled, the attention of the trading system has turned
to trade in services. This area essentially concerns the role of the public sector
in regulating such services as health, education, banking, insurance, water
supply, tourism, and transport. The purpose of the agreement is to open more
and more of these sectors to competition from foreign service-providers, and
to diminish the State’s ability to favour its own industry. Services are one of
the key areas in the current negotiations. It is clear that what is at hand is a
wave of privatization in a growing range of service sectors, with a number of
them being turned over to basic market forces. The implications of this for
sustainable development are enormous, and still insufficiently understood.
The Agreement on Trade-Related Intellectual Property Rights. This
agreement has had the effect of greatly strengthening and extending the scope
of such rights as patents, copyrights, industrial designs, and so on. However, it
only recognizes privately held rights, and so extends the power of individuals
and corporations over knowledge, invention and technology. This has led to a
strong backlash against the WTO, for example in respect of the right of
countries to cheap medicine to fight public health crises such as HIV/AIDS,
malaria or tuberculosis. Also at issue is a concern central to biodiversity
conservation: how to recognize indigenous knowledge, or knowledge that is
communally held. At Doha, TRIPS disciplines were relaxed in respect of
public health, and it is anticipated that it will be further modified in the
coming years to reflect legitimate sustainable development objectives.
The Agreement on Subsidies and Countervailing Measures. This
agreement regulates both the conditions on which States may provide
subsidies to their own industry, and what measures they may take against
foreign producers if they are trading unfairly. In the case of subsidies,
independent studies show that a large proportion of these subsidies are
damaging for the environment. They are clearly trade distorting as well, and
usually work against the interests of developing countries. One would think
that this would provide a winning formula for the trade and sustainable
development community to come together. In fact, subsidies are proving
extremely difficult to tackle, though the Doha agenda again focuses on them.
In the case of countervailing measures, the most significant are the “anti-

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dumping” duties that countries can impose when they believe another country
is exporting its goods below the cost of production. A number of countries –
and prominently the United States, have made extensive use of these
measures, leading to the accusation that they are trying to replace, through
anti-dumping duties, the tariffs they have been obliged to eliminate through
successive waves of trade negotiations.
The Agreement on Technical Barriers to Trade. This agreement addresses
the range of technical requirements imposed on products as a condition of
access to markets. It includes the range of norms, standards and technical
specifications in vigour in the importing countries, including labelling,
certification, packaging requirements, etc. It essentially lays out guidelines for
how countries should handle these requirements in ways that offer the
minimum scope for protectionism, and lead to the minimum distortion to
trade. It focuses heavily on equivalence in the norms used, and mechanisms
for mutual recognition of standards among WTO members. It is nevertheless
a key agreement for sustainable development, in that it regulates most of the
mechanisms used to allow consumers to express a development (eg. fair trade)
or environmental (eg. “green” labels) preference in making purchasing
decisions, including labelling schemes that are voluntary.
The Agreement on Sanitary and Phytosanitary Measures. This agreement
deals with the range of health and safety concerns linked to international trade,
and essentially spells out how these measures should be administered in ways
that provide the minimum of obstacles to free trade. It essentially reviews the
health and safety standards applied in different countries to determine if they
are based on international norms (such as the Codex Alimentarius norms for
food safety), are scientifically based, and that they are not structured in such a
way as to represent hidden protectionism. The agreement has become
essential to sustainable development because it is in this area that the
Precautionary Principle is most immediately addressed. This principle, central
to building sustainable development, authorizes cautious and restrictive
behaviour in the face of uncertainty about the environmental or other effects of
a product or process. It has been very hotly debated in the case of Europe’s
reluctance to import beef from countries that make extensive use of growth
hormones in their cattle production, and in the case of their moratorium on
Genetically Modified Organisms.
The Dispute Settlement Understanding. This agreement sets up the
procedures for handling disputes between WTO member countries over the
application of the trade rules. It covers mechanisms for the amicable settling
of disputes, for dispute settlement panels and, finally, for the appeal of panel
rulings. This is significant for sustainable development in that the disputes
often deal with attempts by countries to regulate trade for social or
environmental purposes, and lead to an interpretation of WTO rules in respect
of their impact on these purposes. The dispute settlement system, and
particularly the Appellate Body, has in many ways made more significant
progress for the environment in their rulings than has the Committee on Trade
and Environment.

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Trade and Development
There is no single agreement that governs the development impacts of trade
liberalization. The theory has always been that development will benefit from
increased trade opportunities. The Uruguay Round agreements were strongly sold to
the developing countries on the grounds that they would benefit significantly from
them. Six years later, this is far from obvious. Some developing countries – in
particular the most developed among them – have certainly benefited. Others, and
especially the poorest, have either not benefited or have suffered as a result of trade
liberalization.
It can be said that most developing countries regard the WTO and the multilateral
trading system as deeply unbalanced. They observe that trade liberalization has
proceeded quickly in areas where the rich countries have an advantage – such as
intellectual property rights of financial services - but very slowly in areas that are of
importance to them – such as textiles, agriculture or the free movement of labour.
Further, they complain of serious lags in the implementation even of provisions that
have been agreed (such as the lifting of textile import restrictions), and of the
continued capacity imbalance that makes it difficult for them to participate in the
work of the WTO on an equal footing.
The developing countries as a block were central to the collapse of the Seattle
Ministerial conference, both because of their unhappiness with the Uruguay Round
and with the attempt by the richer countries to pressure them into an agreement.
Since then, a more serious attempt has been made to address their concerns. This
attempt is in several forms: a greatly increased attention to technical assistance and
capacity building; the elimination of all tariffs and quotas on goods from the least
developed countries (eg. the European Union’s “Everything but Arms” initiative);
expanded use of trade concessions that apply to developing countries only (Special
and Differential Treatment) and recognition of a “Development Box” – or a series of
exemptions from the trade rules that will allow developing countries to protect infant
industries, reinforce food security, protect rural livelihoods, and guard against
aggressive competition from outside producers.
It is far too early to say what effect these measures will have on developing countries’
prospects for equitable and sustainable development. The fact remains that in the
areas where these countries have the advantage of cheap labour (eg. agriculture,
textiles), liberalization has so far been timid. Greater market access, lower tariffs on
value-added goods as opposed to commodities, and a significant effort to build the
capacity to take advantage of trade openings could greatly boost development, but
most of these are still in the future.
One effect of the development debate is that the trading system is moving away from
one of its fundamental principles: the principle that the rules apply equally to all
members – the one size fits all principle. What is happening in trade and development
is the construction of a complex system that distinguishes seriously among countries
on the basis of their level of development. This trend can be expected to increase in
the future.

13
Trade and Environment
Finally, even before the Doha agenda was agreed, WTO pursued an agenda on the
environment. This agenda, reflected in the mandate of the Committee on Trade and
Environment set up in 1995, is a limited, technical agenda, focused essentially on
determining whether environmental legislation, domestic and multilateral, has a
serious impact on trade. In terms of the “issue progression” outlined above, the
agenda of the CTE in the period from the establishment of WTO until the Doha
ministerial conference was one of ‘studying the issues’. It was something of a
surprise that some of them catapulted directly to the negotiation table at Doha.
In terms of domestic environmental policy, the key issue at the CTE concerned
labelling for environmental purposes. Green labels, or “eco-labels” are used in
several countries to identify products that are favourable to the environment. In the
absence of a broad international agreement on how to design and apply environmental
labels, however, there is always the suspicion that the standards will discriminate in
favour of domestic products and therefore have a protectionist effect. The TBT
agreement allows the WTO to challenge labelling schemes even if they are voluntary,
and the initial fear in the environmental community was that WTO rules would be
used to limit the information provided to potential consumers. This in turn would
make it difficult to use market forces to advance environmental objectives.
In the end, however, the WTO has not been used to challenge labelling schemes,
although the matter remains controversial, and Doha has agreed to “upgrade”
consideration of this topic by instructing CTE to move labelling up to the second
stage – framing an agenda for negotiation down the line. The challenge will be to
allow consumers to exercise purchasing choices favourable to the environment
without introducing scope for ‘green protectionism’. It is also to seek greater
international cooperation on the setting and use of environmental labelling standards,
so that developing country producers are not placed at a disadvantage. In the case of
both of these priorities, the onus is on the environmental community to take the lead.
Another issue, of particular importance to developing countries, is the issue of
Domestically Prohibited Goods. This concerns the export by WTO members of
goods that are prohibited in their own countries, usually for health or safety reasons.
This issue raises a series of ethical issues, including the question of whether countries
at different levels of development can have differing standards, and whether exporters
should respect their home standards, or those of the markets to which they export.
The issue of Domestically Prohibited Goods offers a good bridge to the other
principal issue on the CTE agenda, that of the link between WTO rules and
Multilateral Environmental Agreements (MEAs), especially because of the Basel
Convention (on the control of transboundary movement of hazardous wastes and their
disposal). More has been written on the link between the WTO and MEAs than on
any other aspect of the Trade and Environment relationship, and with good reason.
Like the world of trade policy, the international environmental regime has known an
impressive development over the past decades. International environmental policy is
now regulated through a complex of environmental conventions and protocols
covering a wide range of subjects, from the bilateral to the global level. The

14
environmental community is eager that the WTO rules not get in the way of effective
implementation of the MEAs. This is all the more important since many of the MEAs
concern trade restrictions for environmental purposes (eg. the Basel convention, the
CITES convention on endangered species, or the Montreal Protocol on substances that
harm the ozone layer). These and others use trade measures (eg. trade bans or
sanctions) as a means of ensuring compliance, and would be considerably less
effective if this possibility were removed or limited. Furthermore, some of the more
recent conventions set up trading mechanisms (eg. the Climate Change convention
and trade in emission rights) or suggest the need for measures that appear to require
changes to WTO rules (eg. the Biosafety Protocol with its provisions on trade in
genetically modified organisms, or the Convention on Biological Diversity with its
call to recognize and protect traditional knowledge).
Both sides have strong arguments. The environmentalists do not want their regime to
be in any way considered subsidiary to the trade rules, even if the trade regime enjoys
far greater political power. They believe that, since the same States are party to the
MEAs as to the WTO, any disagreements should be dealt with through the MEAs
own mechanisms. The WTO, on the other hand, does not want to see its rules
weakened through reinterpretation outside of the trade policy mechanisms. They
wish, in particular, to see MEAs take trade measures only in very restricted
circumstances, and want to ensure that, when they do, the approach is in conformity
with the principles that govern the trading system.
The CTE spent six years ‘clarifying’ the relationship between MEAs and the trade
rules, and Doha agreed that this should now be the subject of negotiations, including
the provisions for participation in the CTE by convention secretariats. This
fundamental issue of the relationship between regimes established for different
purposes and responding to different requirements is now a centrepiece of the new
trade agenda.
Doha and the new start
Doha represents a new start for the WTO after the serious crisis provoked by the
collapse of the Seattle ministerial meeting. The Doha negotiations, like the Uruguay
Round, could massively extend the reach of trade policy and have a range of impacts
on sustainable development that are hard to predict at this early stage. They will take
WTO members into a range of areas that are poorly explored, and often poorly
understood. If successful, they will undoubtedly represent a further incursion of
multilateral rules into the domain of domestic regulation. The impact on social
equity, development and the environment is very likely to be great.
Whether this impact is positive or negative will depend a great deal on how the
process is managed, and how the different players participate. It remains true that
there is no necessary incompatibility between trade policy and the policies that
promote sustainable development. Whether trade liberalization advances or
undermines sustainable development depends more than anything on how policies in
the two areas are crafted, how they are linked, and how the tensions between them are
resolved.

15
Globalization can be both good and bad. It is our challenge to maximise the benefits,
while preventing the negative sides from undermining the careful advances that have
been made on social justice, environmental care and human rights over the past
decades.

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