Global Policy Forum

Signing Away the Future--Summary

March 20, 2007

Download Signing Away the Future: How Trade and Investment Agreements between Rich and Poor Countries Undermine Development

The quiet advance of trade and investment agreements between rich and poor countries threatens to deny developing countries a favourable foothold in the global economy. Powerful countries, led by the USA and the European Union (EU), are pursuing regional and bilateral free trade agreements with unprecedented vigour. This is happening without the fanfare of global summitry and international press coverage. Around 25 developing countries have now signed free trade agreements with developed countries, and more than 100 are engaged in negotiations. An average of two bilateral investment treaties are signed every week. Virtually no country, however poor, has been left out.

Rich countries are using these bilateral and regional ‘free trade agreements' (FTAs) and investment treaties to win concessions that they are unable to obtain at the World Trade Organization (WTO), where developing countries can band together and hold out for more favourable rules. The USA has called its approach ‘competitive liberalization', and the EU declared its intention to use bilateral deals as ‘stepping stones to future multilateral agreements'. The EU argues that this new generation of bilateral and regional agreements is vital in order for developing countries in Africa, the Caribbean and the Pacific to maintain their access to European markets in a form that is compatible with WTO rules. It has also repeatedly told poor countries that it has no commercial ‘offensive interests' in the negotiations and that there will be long periods for implementation. Yet its far-reaching proposals and aggressive approach appear to contradict these statements.

The inexorable advance of such trade and investment agreements, negotiated largely behind closed doors, threatens to undermine the promise of trade and globalization as forces to reduce poverty. In an increasingly globalised world, these agreements seek to benefit rich-country exporters and firms at the expense of poor farmers and workers, with grave implications for the environment and development. The worst of the agreements strip developing countries of the capacity to effectively govern their economies and to protect their poorest people. Going beyond the provisions negotiated at a multilateral level, they impose far-reaching, hard-to-reverse rules that systematically dismantle national policies designed to promote development.

The USA and EU are pushing through rules on intellectual property that reduce poor people's access to life-saving medicines, increase the prices of seeds and other farming inputs beyond the reach of small farmers, and make it harder for developing-country firms to access new technology. The proposed trade deal between the USA and Colombia, for example, would increase medicine costs by $919m by the year 2020, enough to provide health care for 5.2 million people under the public-health system. Under the US–Dominican Republic–Central America Free Trade Agreement (DR-CAFTA ) the prices of agrochemicals are expected to rise several-fold.

The rules on liberalization of services in FTAs threaten to drive local firms out of business, reduce competition, and extend the monopoly power of large companies. When Mexico liberalised financial services in 1993 in preparation for the North American Free Trade Agreement (NAFTA), for example, foreign ownership of the banking system increased to 85 per cent in seven years, but lending to Mexican businesses dropped from 10 per cent of gross domestic product (GDP) to 0.3 per cent, depriving poor people living in rural areas of vital sources of credit.

These new rules also pose a potential threat to poor people's access to essential services. In some US FTAs, developing countries are committing themselves to let foreign investors into public utilities if the sector is opened up to domestic private companies. A leaked version of the EU's draft negotiating mandates for FTAs with ASEAN, India, Central America, the Andean countries, and South Korea show that the EU is seeking similar provisions for water and other utilities.

New investment rules in many agreements prevent developing-country governments from requiring foreign companies to transfer technology, train local workers, or source inputs locally. Under such conditions, foreign investment fails to build national linkages, create decent employment, or increase wages, and instead exacerbates inequality. The investment chapters of FTAs and bilateral investment agreements make governments vulnerable to being sued by foreign investors if a new regulation is perceived as damaging the investor's profits, even when such reforms are in the public interest. Current claims against Argentina for emergency measures adopted during the financial crisis in 2001/2002 are estimated at $18bn.

Free trade agreements can impose radical tariff liberalization, threatening the livelihoods of small farmers and preventing governments from using tariff policy to promote manufacturing. For example, through its Economic Partnership Agreements (EPAs), Europe proposes to oblige the poorest countries in the world to reduce a very large part of their tariffs to zero. At the same time FTAs do not address the adverse impacts of rich-country subsidies on poor countries through dumping, or the plethora of non-tariff barriers that continue to impede access to rich-country markets.

The overall effect of these changes in the rules is to progressively undermine economic governance, transferring power from governments to largely unaccountable multinational firms, robbing developing countries of the tools they need to develop their economies and gain a favourable foothold in global markets.

Although developing-country governments have proved themselves increasingly assertive at the WTO and in some regional and bilateral agreements, the balance of power in current negotiations remains tipped heavily in favour of rich countries and large, politically influential corporations. Furthermore, within developing countries, small businesses, trade unions, non-government organizations, women's groups, and indigenous peoples have very few mechanisms for participation, and their rights and needs are largely ignored.

Trade and investment are essential for development, and the imbalances that characterise and distort global trade and investment rules must be addressed as a matter of urgency. But unequal and exploitative free trade agreements and bilateral investment treaties, which prohibit the very policies developing countries need in order to fight poverty, is no way to put trade and investment at the service of development, or to build a safer, fairer world.

In order to turn the tide and put trade and investment at the service of development, Oxfam believes that trade rules, whether multilateral, regional, or bilateral, should:

• Recognize the special and differential treatment that developing countries require in order to move up the development ladder.
• Enable developing countries to adopt flexible intellectual-property legislation to ensure the primacy of public health and agricultural livelihoods and protect traditional knowledge and biodiversity.
• Exclude essential public services such as education, health, water and sanitation from liberalization commitments.
• Recognize the right of governments to regulate the entry of foreign investors to promote development and the creation of decent employment, and include commitments to enforce core labour standards for all workers.
• Ensure mechanisms for extensive participation of all stakeholders in the negotiating process, with full disclosure of information to the public, including the findings of independent impact assessments.

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