Global Policy Forum

Promoting Human Development through Trade


By Kamal Malhotra*

Carnegie Council on Ethics and International Affairs
April 5, 2006

I speak in my individual capacity, and nothing I say here is the official position of the United Nations.

Principles of Justice.
When I think of justice from the framework that I work with, I think of enhancing human development as an outcome of justice. When I look at that goal and I look at a vision for the future in terms of a trade regime which is friendly to human development, there are four simple principles of international trade that I would like to highlight.

The first would seem to be acceptable to most people, at least rhetorically, but has very profound implications if you actually follow it through: that trade is simply a means to an end; it's not an end in itself. A lot of people would agree with that statement at the level of principle or rhetoric, but if you look at what it actually means in practice, among other things it means that you should not be trying to maximize trade volumes-you should be trying to maximize a quality of trade that contributes to human development or to justice, more broadly. The two are quite different things.

A second key principle is that trade rules must allow for diversity in national institutions, development strategies, and standards. There is no one-size-fits-all, and trade rules should not be geared to a one-size-fits-all approach, especially if that "one size" doesn't fit the vast majority of the member states.

Third, countries should have the right to protect their own institutions and their development priorities.

Last but not least, no country should have the right to impose its institutional preferences on others.

Implications for Practice.
These four principles have many operational implications. I would like to focus on four.

First, designing a trade regime which respects these principles in a serious manner would mean that you will need to have human development assessments which are ex ante, not just ex post. These assessments should entail research, calculation of costs, and analysis of human development implications of multilateral, regional, and bilateral agreements before such agreements are actually entered into.

Second, the trade regime should not unify and harmonize national policies, but instead should allow for diversity in development strategies.

Third, trade rules must be asymmetric. The principles of reciprocity and non-discrimination should be linked to the economic capacity of countries and restricted to groups of countries at similar levels of human development.

Fourth, we need a mindset shift from what is essentially a market-access approach, which guides the current global trade regime, to what I would call a human development perspective. Such a shift means that the trade regime should stop being evaluated in terms of whether it maximizes trade in goods and services. Instead, the question should be whether trade arrangements, current and proposed, maximize the possibilities for human development at the national level. Making such a shift will require that developing countries articulate their needs, not primarily in terms of market access, but in terms of the policy autonomy they will need to allow them to implement institutional innovations and human development-friendly strategies.

What kinds of goods should be allowed to be traded?
I will address this question in terms of what sorts of goods should not be traded. I will focus on two types of goods that pose quite complex questions in terms of trade.

The first are agricultural goods which directly impinge on food security and livelihood security, particularly with respect to the poorest people in the world—or the "Fours," in Robert Hockett's terms. This Fours exist in all parts of the world: the global South, as we know, is not limited to developing countries. I think there are serious questions about trading in goods which will have negative consequences for the food and livelihood security of a large part of a population, particularly in developing countries, because so many developing countries have such large numbers of their populations in the rural sector.

The second set of goods are public goods, or goods which relate to basic social services, such as health, education, water, and some might put energy into this category. If you look at these basic social services, I have argued that there is a policy incoherence in the international system.

The Millennium Development Goals seek to achieve targets related to health, education, water. At the same time, these kinds of goods have been placed into a system where the rule is market access and progressive liberalization. The empirical evidence on privatization or liberalization of water services is mixed at best. Indeed there was a recent conference which seemed to provide a consensus that water should be put back in the public realm. The same can be said about health. We only have to look at the health system in the United States. We don't have to go very far. The same can be said about education. So there appears to be policy incoherence when we have a services agreement which is based on a framework of progressive liberalization and the Millennium Development Goals, which have been translated into the Millennium Declaration which was signed by the largest-ever gathering of heads of state in world history—and these are the same countries that are responsible for agreeing to both.

Through what processes should goods be produced in order to be allowed to be traded internationally?
This is the question of the link between trade and labor standards, but it can be used in the context of production and process methods, in terms of environmental goods.

There are some ways in which Christian Barry and Sanjay Reddy's proposal for linking trade with labor standards, which they advance in their very thoughtful monograph "Just Linkage," is problematic. The institutional context matters a lot; the choice of forum where labor rights and trade are to be linked matters a lot. I think the institutional context of the WTO is not one which is conducive to a just linkage.

Also, the carrot-and-stick incentives and sanctions linking trade and labor are problematic. One of the "carrots" would probably violate one of the more fundamental principles of the WTO, the most-favored-nation status, whereas one of the "sticks," which is essentially trade sanctions, as I have argued separately, has moral problems and is also very ineffective. Indeed, in the WTO context, there is an inherent asymmetry in the use of trade sanctions. It is hard to imagine that a small country, for example Bangladesh, will bring trade sanctions against the United States, but it is easier to understand that the United States might bring trade sanctions against a developing country, as it is proposing to do even with China at the moment. So there is an inherent asymmetry in the use of trade sanctions as a disciplining stick. In the context of the WTO, using trade sanctions will perhaps result in reinforcing existing asymmetries rather than counterbalancing them.

I would also like to give one example from the trade and environment linkage. There was the very famous shrimp-turtle dispute some years ago between the United States and a number of Southeast Asian countries. I think, if you go back to the principles I enunciated, it is alright for the United States to say that it will not import shrimp if it's made in a certain way—but it's not alright to tell Thailand or Malaysia that they can only make shrimp in a certain way. This is the fundamental dilemma in the trade-environmental linkage.

It is not surprising to me that the largest number of trade disputes brought before the Dispute Settlement Understanding of the WTO have been on trade and environment. If you were to put labor into that same framework, the only thing that can possibly be said is that the number of labor disputes might overtake environmental disputes in the WTO. I think this shows the difficulty of addressing the trade-labor linkage in this manner.

On what terms should goods be exchanged?
I have already indicated that there should be asymmetric rules. The asymmetry must favor development. It is not a question of favoring one country over another or certain workers over others. But there must be, if you like, positive discrimination in favor of human development. If the rules need to be asymmetric or different for different countries to enable that outcome, then so be it.

It would seem to me that the current discussions, particularly on industrial tariffs, the nonagricultural market access issue, provide a good illustration of where the rules need to be very different, because if developing countries give up the possibility of using tariffs for selective infant industry protection, you are effectively saying to late industrializers, You will never industrialize. I think this is a case where you cannot argue that industrialized countries that have had 200 to 300 years to develop, under high industrial tariffs till very recently, should ask for symmetry with developing countries. But there are many other examples.

Through what procedures should the rules of the international trade system be decided?
With respect to the consensus process, as opposed to the one-country-one-vote process, I have argued that in a formal sense, the WTO is the most democratic of all international economic governance organizations, because it has a one-country-one-vote system. Unlike the United Nations, it has no equivalent of the Security Council. In that sense, the WTO is formally more democratic than the United Nations.

But the real issue here isn't about formal democracy. It's about the consensus process by which decisions are reached, which is essentially an informal process. It's an informal process that is less than transparent, and it's an informal process that can only benefit the strong vis-í -vis the weak.

So the proposition, "Should consensus be regarded as even more democratic than majority rule," because no decision is taken until everyone agrees, I think is fundamentally flawed because of the way consensus works in practice. If you look at the rules of consensus in a lot of the international institutions, not just in the WTO, they imply that a country would have to actively oppose something to not be counted as part of the consensus. Once again, I don't see many poor or vulnerable countries getting up to actively oppose many things, even if they don't agree with them, for a variety of reasons that I don't need to go into.

Does justice demand that reciprocal concessions be made on all sides during intercountry bargaining?
I think the answer is clearly no. I think, in fact, justice demands the opposite, which is that countries at different levels of development need to be treated differently. The asymmetry in the rules needs to respect this. Otherwise, you are not respecting a country's right to development.

About the Author: Kamal Malhotra is Senior Adviser on Inclusive Globalization at the United Nations Development Programme (UNDP).

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