MenuGlobalizationAnti-globalization What is globalization?Economic globalization means that many of the goods and services we buy as consumers or funds we use as investors cross national borders. Buyers, sellers and investors can take advantage of prices, products on offer and investment opportunities in markets around the world when they decide to buy, sell or invest. In a globalized market, national markets are sufficiently open that goods and services move easily between countries. This means that prices in one market will reflect competitive offers to buy or sell anywhere the global marketplace. So, as markets become global a rapidly growing proportion of market transactions take place across international borders. Market opening, improvements in information flows and transport are the main factors that make the globalization of markets possible. For example, after only five or six years commercial use, the Internet is already re-defining business relationships with customers worldwide and with suppliers through business-to-business procurement portals. Globalization is not restricted to markets and trade. Many people would say that the impact of global media, travel, migration and personal communications on societies, cultures and personal lives is potentially more profound than the effects of expanding market boundaries. The globalization of markets and the growth of these other forms of global exchange are closely linked, of course. Also, the economic aspects of globalization are arguably more pervasive than the cultural and social aspects. Billions of people who are not able to take advantage of global communications, because they have limited or no access to a telephone or modern transport are, nevertheless, already affected by the globalization of markets. For example, even in the poorest countries the price of rural labor or of agricultural produce may be driven by global market conditions such as demand for commodities, or barriers to the countrys exports, or subsidies on surplus agricultural production in rich countries. [back to top]So what's the problem?Most people seem to be aware of the controversy about the benefits of globalization. Its a big subject, but there are two main concerns that can be expressed in a personal way, because they directly affect individuals
First, the problem of control: the globalization of markets seems to force changes on us as businesses owners, investors, government administrators, employees and consumers whether we want the changes or not. Some people fear that the forces bringing change, such as stronger import competition or foreign purchases of national companies are uncontrolled or perhaps, controlled transnational firms in their own interests. Although many of the uncertainties are about the economic consequences of globalization, similar concerns are expressed about e.g. environmental consequences Second, the problem of fairness: many people are worried that economic globalization creates winners and losers and that the winners tend to be those that are already rich or those who are best placed to survive economic change. The result of economic globalization, in this view, is greater inequality between the rich and the poor.Globalizing trends:
not new, but faster Is WTO the problem?No. WTO finds itself at the center of sometimes-violent criticism of globalization, but the strongest criticism of WTO is often based on two simple mistakes. The first mistake is that the protestors often mistake a symbol (WTO) for the thing (the policies of Member governments) that is the real target of their concern. For example, WTO represents for many people the idea that market liberalization is good. But WTO does not impose this policy on its members: it does not need to, and has no power to do so anyway[1] . WTO stands for market liberalization because all of its Members have adopted that policy, for themselves. The same mistake occurs when people criticize WTO for opposing some policy, such as the use of trade sanctions to enforce core labor standards. There have been violent protests against WTOs alleged opposition to core labor standards, but nothing could be further from the truth. WTO has no policies on labor standards. Its refusal to discuss the use of trade measures to enforce these standards simply reflects the consensus among its Members, which is that countries should improve employment and the living standards of employees (see the discussion of the Preamble) by opening markets. This policy was not imposed by WTO in fact, WTO did not exist when it was first adopted. So, people who object to this policy are wasting their time battering on the doors of WTO. They need to convince a sufficient number of governments around the world that trade sanctions should be used for this purpose. A second mistake that many protestors make is they assume that because the WTO Agreements are about trade barriers, and because WTO has been very effective in dealing with trade barriers, WTO should somehow use trade barriers or permit Members to use trade barriers - to achieve other policy goals. This mistake is actually two mistakes in one
Ironically, WTOs most strident critics are often interested in issues far removed from the world trade concerns of WTO itself. They are usually interested, for example, in the preservation of the natural environment, or in the employment standards of workers in developing countries, or in the social consequences of foreign investment. These are very important issues, but the WTO rules have almost nothing to say about them. Globalizing
flows Is there a liberal trade consensus?Yes, there is: among WTO member governments, developing as well as developed, there is broadly shared, detailed agreement that market opening promotes economic growth and is, therefore, beneficial. The active efforts of governments that are not at present members of WTO (for example, China, Russia, Saudi Arabia, Taiwan, Vietnam) to join the Organization, suggests that this consensus view is, in fact, universal. One of the main reasons for the strength of the consensus around the opening of markets for trade and investment is that the alternatives to these liberal market policies self-reliant development policies or centrally planned command economies have spectacularly failed to deliver benefits. Historical experience has, to a remarkable degree, confirmed that market openness delivers benefits in accordance with the general predictions of the theory of trade.[2] In general, countries that liberalize their economies secure higher shares of world trade and achieve significantly higher growth rates. Is globalization good or bad?Although trade alone may not be enough to eradicate poverty, it is essential if poor people are to have any hope of a brighter future. For example, 30 years ago, South Korea was as poor as Ghana. Today, thanks to trade led growth, it is as rich as Portugal. Mike Moore -- WTO Director General The globalization of markets provides real benefits for billions of people around the world, including the poorest people. The biggest problem is the slow rate at which the markets of poor countries are being globalized and the low share of the benefits that is accruing to them as a result. Its an increasingly common experience of people everywhere that a global market provides consumers and businesses with a greater range of choice, lower prices and access to new technologies and finance.
Thanks to the globalization of markets, exporters have a much wider range of sales opportunities, businesses have more sources of investment and technology and immigrant workers and, frequently, their families at home benefit from higher paying work in foreign countries. Workers in many countries benefit from employment opportunities provided by transnational companies in fact, the data shows that the largest transnational companies, which already have a large majority of their employees in countries other than their home countries, are increasing the foreign proportion of their workforce. Market liberalization is not cost-free. Some individuals and firms may loose from the move to open markets because their business or employment relied on the government taxing local consumers through a tariff (for example) to keep them competitive. The way in which markets are opened, especially the speed and sequence of market liberalizing steps can make a big difference to these adjustment pressures. But economic studies consistently show that market liberalization is associated with higher growth (see the graphs taken from recent IMF data[3] ) and that growth contributes to the alleviation of poverty. It is clear from all the evidence that the biggest risk for the poorest developing countries does not come from the potential losses that globalization or market opening may pose: the biggest risk is that they may be excluded from the opportunities for growth by continuing barriers to their exports or the maintenance of protected domestic markets. [back to top]Does global trade benefit everyone?There is both good and bad news. Although living standards in some developing countries are catching up with living standards in developed countries, this is not true of developing countries as a group (see the next section). What distinguishes the countries doing best is their openness to trade. The countries that are catching up with rich ones are those that are open to trade; and the more open they are, the faster they are converging. Countries that create strong links into world markets grow fastest and recent research confirms that the poorest members of the population share the benefits of this growth. The relationship between openness to trade and the reduction of poverty is complex but positive. Heres how the argument goes:
First, the relationship between market openness and national income growth: its a complex and hotly debated area of economic research, but one broad conclusion is clear and widely accepted: in combination with other policies, market-opening policies have made an important contribution to the success of the fastest-growing developing countries. The reason is that trade allows countries to make the most efficient use of their own resources trade allows countries to import goods that they could only produce for themselves more expensively, if at all. Also, openness to trade tends to promote technical progress by making new technologies or new management techniques available to local industries. For technical reasons, it is still difficult to determine precisely what contribution market opening policies, on their own, make to growth. One recent report showed that countries that increase trade by one percent of GDP could expect an increase in per-capita incomes of between one-half and two percent: that is, market opening is associated with positive growth.[4] But the relationship between opening markets and national income growth is very complex and can depend on many policy settings other than the level of border protection. Here is how Prof Alan Winters summarizes the evidence in his report for WTO on the subject Overall, the fairest assessment of the evidence is that, despite the clear plausibility of such a link, open trade alone has not yet been unambiguously and universally linked to subsequent economic growth. It has certainly not, however, been identified as a hindrance. Moreover, trade liberalization has a positive role as part of a package of measures promoting greater use of the market, more stable and less arbitrary policy intervention, stronger competition and macro economic stability. Thus, taken as a whole, trade liberalization is a major contributory factor in economic development.[5] Experience shows that national income growth is strongly associated with permanent falls in the level of poverty. But it does not necessarily reduce the income gap between rich and poor people, so there is a possibility that the poor might not share equally in national income growth. Economic policy administration matters a lot to the outcome, in practice. But experience confirms that the most likely outcome is that national growth will have a positive effect on the incomes of the poorest parts of a population; possibly because it is generally easier for the government to increase its poverty alleviation efforts if incomes are higher or growing.[6] Indeed, a recent study of growth in 80 countries over four decades for the World Bank shows that, on average, growth in the income of the poor - defined as the poorest fifth of the population - rises about one-for-one with the growth rate of overall per-capita income in a developing country.[7] It is important to remember that growth policies have to be sustained for poverty to be reduced. Each year output growth has to keep pace with population growth and then to add some more to pull the incremental numbers of poor out of poverty. Relying on growth and the growth effects of trade liberalization is probably not sufficient to address poverty problems over the medium term. What about the historical record of the link between trade and poverty? Again there can be debates about individual cases, but there is strong plausible evidence of a positive link between trade liberalization and poverty alleviation. Because trade contributes to income including the income of the poor - putting up barriers against the rest of the world is a sure way to condemn a country particularly a small developing country - to lower growth and poverty. This has been demonstrated by the trade-oriented policies that helped transform East Asia, whose 1.8 billion people represent over a third of the population of developing countries, from one of the world's poorest regions 40 years ago to the prosperous and economically resilient region it is today In East Asia, the poverty rate was almost halved between 1990 and 1998: the largest and most rapid reduction in poverty in history. Though much of the reduction in poverty occurred in China, most countries in the region shared in the steep fall. Poverty rose in 1998 in those East Asian countries hit by financial crisis, but by less than had been initially feared and a very strong rebound in growth in 1999 suggests that the regions prosperity will be quickly re-established. 
World trade in goods increased as a proportion of purchasing power parity GDP from 21 to 28 per cent between 1988 and 1998. Countries that were well integrated with the world economy continued to do well but overall there were more gainers than losers " The 20th century saw remarkable average income growth around the world, but it is also quite obvious that not all countries shared equally in this growth. The gaps between rich and poor countries, and between rich and poor people within countries, have apparently grown. The distribution of per-capita income between countries has become more unequal in recent decades. For example, in 1960 the average per-capita GDP in the richest 20 countries in the world was 15 times that of the poorest 20. Today this gap has widened to 30 times, since rich countries have on average grown faster than poor ones. The gap appears wider than it is in reality due to the way income is measured. GDP per capita measures are easiest to compile from national accounting data but do not take account of the purchasing power of local incomes or of some important quality of life factors such as life expectancy, literacy and social amenity. When these measures human development indicators are taken into account, the gap between rich countries and poor countries is much smaller.[8] Some of the critics of globalization contend that trade is responsible for the income gap: that somehow trade favors countries that are already wealthy. Again, both theory and experience contradict this view. Its been known for more than 200 years that the ability of two countries to gain from trade depends only on differences in the home-market costs of production of traded products not on the level of costs. It doesnt matter at all whether a country is low wage or high wage: countries in both camps stand to gain from trade with each other. In theory, at least, the gains from trade can be just as great for poor countries as for rich countries. In practice, the theory holds up remarkably well. The historical record confirms that trade openness fosters higher, not lower, national incomes. Countries that are more open to trade have grown faster. Also, those poor countries that caught up with rich countries have been the poor countries most open to trade and investment. For many of the poorest least-developed countries the problem is not that they are being impoverished by globalization, but that they are in danger of being largely excluded from it. These countries accounted for a miniscule 0.4 percent share in world trade in 1997 - down by half from 1980. Their access to foreign private investment remains negligible. WTO, in cooperation with the World Bank and IMF has adopted an urgent program to help the least developed countries become better integrated in the world economy, providing assistance to help them build up needed supporting institutions and policies, as well as by continuing to enhance their access to world markets. For individuals, the richest quarter of the worlds population saw its income (measured as GDP per capita) increase nearly six-fold during the century, according to the IMF, while the poorest quarter experienced less than a three-fold increase. There is no evidence, however, that this income disparity is linked to trade. In some countries, trade liberalization has been accompanied by increases in the income gaps between rich and poor (the World Bank cites Argentina, Chile, Colombia, Costa Rica and Uruguay[9] ). But there are many other cases where there is no such association. Furthermore, as already noted, some recent research shows that the poor tend to share in the benefits from higher trade incomes. [back to top]What's WTO doing to help poor countries?WTO promotes the opening of markets for goods and services and the adoption of policies with the least restrictive impact on trade across borders. So its fair to say that the WTO Agreements promote the globalization of markets. But the WTO rules also help governments to achieve a balance between accessing the benefits of globalization maintaining the policy flexibility necessary to tackle poverty. For example, the WTO Agreement on Safeguards and Article XIX of the GATT balance the opening of markets with safeguards for local producers who might be unexpectedly caught-out by new global market competition. In these circumstances, the rules permit Member governments to take action to slow the pace of globalizing market competition. Also, the WTO like the GATT before it explicitly recognizes the right of governments to take measures necessary to safeguard social values, to conserve scarce resources and to maintain the welfare of human, animal and plant life. The General Exceptions clauses of GATT and agreements such as the Agreement on Sanitary and Phytosanitary Measures spell out the right of governments to restrict trade flows in order to achieve these objectives. Its important to remember, too, that the WTO has limited authority in the vast arena of globalization because its rules apply only to trade regulations. WTO rules do not provide a framework for governments to cooperate on other economic or non-economic aspects of globalization. So, for example, the WTO rules do not deal with investment flows or international communications or the natural environment. In these areas, governments have formed other bodies (such as the IMF or the International Telecommunications Union or the UN Environment Programme) that are the focus of international expertise and cooperation. WTO provisions align very well with the rules and requirements developed in these specialised international agencies, which is not surprising when you think about it: the same governments that make the rules in those agencies make the rules in WTO. [back to top]Are transnational corporations controlling globalization?Critic of economic globalization sometimes say that transnational corporations
These are very contentious issues that give rise to emotional arguments about the potential for conflict between the interests of the corporations and the interests of host governments. Critics of international capital have long used the transnational corporation as the exemplar of lawless and footloose commercial exploitation. It is not a debate that is easily resolved because some critics of the transnational corporations are too deeply sceptical of the motives of the companies to accept at face value attempts to bridge differences of perception or to creatge common grounds for debate.[10] Transnational
corporations How many? The decisions that in aggregate lead to the globalization of markets are decisions about the opening of national markets. Governments that control a customs territory usually national governments - make all of these decisions. It would be unrealistic to expect TNCs not to seek to influence the environment within which they operate all firms do that. There is plenty of evidence, too, that governments actively seek to attract the Foreign Direct Investment (FDI) that TNC operations bring with them and are ready to offer incentives to secure the investment. But there is no evidence that TNCs seek to establish low-wage or high- or low-protection regimes as a condition of establishment. UNCTADs review of the behavior of TNCs in the World Investment Report suggests that TNCs are much more interested in stable economies and societies. Although FDI is deterred by corrupt practices, a recent study for the World Bank of TNC behavior in the former Soviet Union suggests that TNCs and domestic firms are about equally prone to engage in corrupt practices such as paying administrative bribes and to trying to capture government policy-making machinery. The study found that TNCs headquartered abroad were more likely than other firms to pay public procurement kickbacks. It is true that transnational corporations can benefit from globalized markets for the same reason that all other corporations and individuals can benefit: globalized markets offer greater opportunities for sales and more varied and competitive supply of goods and services. But there is no evidence that transnational corporations play a bigger role in the decisions that lead to the globalization of markets than other firms or interested groups. [back to top]Are governments losing control?The opening of markets for goods or finance does make economic management choices more difficult because in open markets it can be more difficult to use non-market, regulatory solutions to support domestic industry or to manage prices, supply, exchange-rates. However the evidence of the past 50 years is that market globalization over the long-term contributes to sustainable growth, low inflation and social progress. In the short-term, as we saw during the financial turmoil in Asian economies in the late 1990s, volatile short-term capital flows can threaten macroeconomic stability. Also, changes in the location or direction of trade can quickly raise competitive pressures on industries to adjust to new import competition. But there is no reason to fear that governments that have liberalized markets lack the policy tools to maintain stable financial markets or steady industrial growth and employment markets. The policy instruments are always available to governments to deal with the risks of open markets. For example, the safeguard provisions of the WTO permit the use of temporary trade barriers to control unexpected adjustment pressures on a domestic industry. The challenge is to maintain control while not negating the benefits of open markets to consumers, businesses and investors. This requires good information flows to both governments and the markets and the best information flows are normally associated with open markets. [back to top]Why cant citizens go directly to WTO on international matters?Although the WTO Agreements do not directly affect the rights or interests of individuals, there is little doubt that they have the potential indirectly to affect those rights or interests. So its reasonable to ask why citizens cant access the WTO disputes mechanism to defend their interests. The answer is that the WTO Agreements are international treaties that, like most other international treaties, do not provide any rights for citizens, except to the extent that a government represents them. This is a long-standing custom of international law. If a government decides to adopt a treaty and to abide by its provisions, this can affect the way that it treats the interests of individuals in its own realm. But, in traditional international law, the treaty itself has no direct application to individual citizens of most states until it has been adopted by a national government and becomes part of national law or is incorporated into national laws. In some states, treaties are held to be self-executing in national law. Citizens obligations and rights are, nevertheless, entirely matter for national laws possibly including self-executing treaties - not matter for the treaty. Citizens that wish to use legal means such as an injunction to require the government to take some action under the treaty provisions, or citizens who wish to seek to enforce their rights with respect to other individuals, must apply to the national courts for action or remedy not to the WTO. The treaty provisions, to the extent that they can affect individual rights or interests, do so through national laws. Some modern theories of international law incorporate citizens as the subjects of international law for example international human rights and even, possibly, criminal laws. The European Union, however, is exceptional among international organizations because the Directives of the Organization are binding on both states and individuals. Furthermore, members of the EU have given up their sovereignty in specific areas to allow European Court of Justice decisions to be superior to the decisions of national courts including in matters affecting individuals rights. Furthermore, member states of the EU have delegated powers in international trade to the European Commission. The European Court of Justice has, however, declined to assert a right to review acts of the Commission on matters involving WTO disputes.[11] Although citizens have no direct rights under the WTO Agreements, they have no direct obligations either. The Agreements directly affect only the behavior of governments but do not directly affect the interests of individuals. [back to top]Could citizens use WTO disputes against governments?The effectiveness of the WTO in resolving disputes under its automatic disputes resolution procedures - and the effectiveness of the threat of reciprocal action in compelling governments to abide by their WTO obligations has led some people to argue that citizens should have access to the disputes system to enforce action under the WTO treaties using WTO-sanctioned trade retaliation. There are two ways in which groups of concerned citizens can have access to the WTO disputes system to express a view on a matter. But the access is not a matter of right and it cannot be used to originate an action under the WTO disputes procedures. Article 13 of the Dispute Settlement Agreement gives a disputes Panel wide discretion to seek advice or not to seek advice from any individual or group that it considers may help it in its consideration of a dispute.[12] The Appellate Body considers that it may also, in some circumstances, accept submissions from individuals or groups where these submissions are attached to the Appeal of a Member from a Panel recommendation and where the Member has in some degree accepted the arguments in the attached submissions. The Appellate Body does not, however, consider itself bound to accept submissions from such groups or individuals. A second way in which non-members can access the Disputes system is as a member of the delegation of a Member government. WTO does not currently have any firm rules about who may represent a Member in WTO meetings, including Panel and Appellate Body hearings. A Member may, therefore, appoint a non-official to its delegation although, by virtue of that appointment, the issue of whether the person is an official or not may become semantic. These avenues for non-government groups to access the disputes process are, in a sense, however accidental. They reflect a desire not to artificially limit the effectiveness of the system rather than an attempt to open the disputes process to non-Members: an outcome that is not intended by the Agreement on Dispute Settlement. Finally, some governments have passed legislation that appears to give their citizens (including firms) the right to access WTO procedures, for example to press for a WTO dispute. Examples are Section 301 of the United States Trade Law and the EU Commissions Special Commercial Instrument. These laws are, however, means for citizens to access national processes leading to a decision by the United States or the EU as Members of WTO to initiate a dispute process. [back to top]Under our national laws, citizens have rights. Why should it be any different under international law?There is no doubt that the WTO is concerned with matters such as the growth of economic opportunity that, ultimately, affect the interests of individuals. In fact, the Preamble to the Marakesh Agreement that established the WTO echoing the ambitions of the founders of GATT almost fifty years earlier confirms that WTO member governments endorse objectives that are founded in a respect for human rights aspirations and welfare. These objectives are reflected in the provisions of the Agreements: but the Agreements do not directly establish or define the rights of individuals. Nor should they do so since there is no direct democratic sanction for WTO Agreements this happens only after the Agreements are incorporated into national law by national parliaments. There are, of course, many international treaties directly concerned with the rights of individuals and with the conditions of work and health of individuals. But these treaties, too, have effect only when they are put into effect by national governments after they have been adopted by national parliaments and, sometimes, after they have been incorporated into national laws. [back to top]Does WTO increase the power of governments with respect to their citizens and Parliaments?Ironically, while some members of civil society are claiming that the WTO rules undermine the sovereignty of member governments or weaken the power of member governments to control the actions of transnational companies, other members of civil society argue the opposite is true. Some people believe that the WTO gives executive departments of government greater powers with respect to their citizens and the representative arm of government. The argument that international treaties give executive branches of government greater power is heard in relation to many treaties: not only the WTO. In many countries this argument takes one of two forms
Either way, citizens may feel that their views or those of their elected representatives are not given due weight. It is important to note that the solution to these questions lies in the constitutional arrangements or at least in the consultative arrangements of the country concerned. Nothing in the WTO Agreements touches on the way in which member governments prepare for negotiations of a new Agreement or decide to accept a new Agreement. It is up to parliaments whether they accept the challenge that has been issued by some international NGOs to increase their scrutiny of WTO activities. There is, however, a practical consideration that may have to be borne in mind by all citizens interested in the national approach to future WTO negotiations: once the Agreement enters into force it will become part of the single undertaking which all Members must accept. Members have realized as was evident at the Seattle Ministerial meeting that it therefore very important to be clear about the objective and scope of negotiations of an Agreement before embarking on the negotiations. This is because, should the Agreement be reached, all WTO Members will be required to accept its provisions. Nor do Members necessarily have the option of using the consensus procedure to bloc an Agreement with which they are not satisfied. [back to top]Does WTO consider the effects of its actions on the less wealthy and less powerful citizens of its member states?It would be wrong to imagine that WTO does not concern itself with the welfare of individuals just because there are no provisions in the WTO Agreements on human welfare issues. Trade is not an end in itself and nor is trade liberalization. Just below the surface of many WTO Agreements are important human welfare goals improving employment opportunities and productivity, improving food supply and food prices, better access to health, education and information services: the purpose of freeing trade is to increase wealth and opportunity for everyone. The poorest countries are not benefiting from trade to the extent that they or the WTO would wish. The poorest countries are, in fact, loosing shares in world trade. Despite the extraordinary growth in world trade in the past few years, the least developed countries share of world trade fell from 0.8% to a miniscule 0.4%. Accordingly, the WTO Secretariat has adopted an Organization-wide priority for measures to assist the poorest and smallest Member countries derive greater benefit from WTO membership. Poverty and trade
benefits The WTO has undertaken or sponsored assessments of many aspects of these difficult problems including its recent Trade and Poverty studies published in June, 2000 and has acted quickly to help the poorest developing countries access its resources:
The WTO Director General, Mike Moore, used his presentation of the WTOs Annual Report for 2000 to emphasize his view that it is essential to convey the messages contained in the Trade and Poverty studies that growth opportunities due to trade are important for the alleviation of poverty and for the elimination of the scourge of absolute poverty in developing countries. The Secretariat of WTO has also taken deliberate steps to make sure that the Organization can benefit from the information assembled by the non-government organizations on issues of poverty and human welfare associated with trade. As part of the dialogue established with the Non-Government Organizations in 1996, the WTO Secretariat has held regular meetings with Organizations whose specific brief is to address poverty and the welfare of women and socially disadvantaged groups in developing countries. The purpose of the dialogue which includes briefings, registration of NGOs at WTO Ministerial meetings and distribution by the Secretariat of information submitted by NGOs for the use of Member delegations is to keep the WTO informed of the concerns of civil society, just as much as it is to inform the NGOs of activities in WTO. [back to top]Are big corporations just citizens as far as WTO is concerned? Do they get special treatment?The WTO Secretariat receives representations from Non-government Organizations of all kinds, including business groups that have transnational corporations among their members. But it has no facilities for individual companies. For example, if a company wants to register to attend a Ministerial meeting, it must do so as part of a non-government organization. Within the limits of its resources, the Secretariat tries to be open to as many views as possible and to understand the interests and objectives of all parts of civil society interested in trade. This includes organizations representing big business and those representing small and medium-sized businesses, too. All non-government organizations have the same power within WTO: to exchange views, but not to decide. Members make all the decisions in WTO. If any NGO has influence in WTO, whether the NGO is a transnational corporation or a charity, it is only by making its case to Member governments. In fact, WTO rules or decisions do not directly affect the day-to-day activities of businesses. The WTO rules impact the laws and policies of national governments and it is the application of these laws by national governments that is most likely to affect business decisions. So business lobbying and the lobbying of business associations - is usually addressed to national governments. Trade, Poverty and Development[back to top]Does trade increase incomes?No economist or historian has any doubt that trade raises income: the evidence, backing up the theory of the gains from trade, is overwhelming. Openness to trade is one of the factors that distinguished the fastest growing developing countries over the past three decades, just as it played a critical role in the rapid growth of industrialized economies such as Japan in earlier decades. Trade and
growth This conclusion tends to confirm the theoretical understanding that access to imports improves economic performance by, among other things, lowering costs and raising the level of technology. Under the incentive of export income the economy tends to specialize in accordance with comparative advantage, improving its efficiency. Technology advances and specialization promote higher factor productivity that in turn is the source of sustained higher income levels. The WTO Agreements take account of the need to adjust to trade liberalization by allowing the phasing in of obligations to comply with new WTO rules such as those on trade related intellectual property (TRIPS) and trade-related investment measures (TRIMS) - with longer time-frames and less onerous thresholds applying to developing country Members. [back to top]Does growth worsen inequality?Economists have not found a simple answer to the question whether income growth will widen the income gaps in a society between rich and poor households or among different income groups in the society. It was once thought[14] that income inequality would tend to increase the gaps would widen as national incomes grew. But reviews of the evidence in many developing countries over the past half-century shows no support for a link between growth in income and growing inequality. Both high and low income growth are associated with periods where income distribution worsens or improves. Table: Income distribution and development 
How does trade affect income distribution inside economies?Here, too, its not possible to offer a simple generalization: outcomes depend on the real world facts. Trade does improve income distribution in some cases and may worsen it in others. Some examples will help to illustrate. The classic theory of the relationship between trade and returns to factors (land, labor etc) suggests that trade will improve income distribution when, for example, the economy has a large number of unskilled workers and exports are labor intensive. This is because the theory of trade predicts that trade will increase the returns to the factor of production (unskilled labor in this case) which is the most important in production of the goods exported. Indeed, in the South East Asian developing countries in the 1980s and 1990s this is precisely what happened. But income distribution may deteriorate in resource rich developing countries where the main exports such as minerals and metals are not labor intensive. In some developing countries that followed an import substitution policy of manufacturing development, domestic industries that grew up behind the tariff-wall were not competitive. When the government sought to improve the competitiveness of industry by opening to trade, the incomes of wage earners in these industries fell. At the same time, the income gaps between skilled and unskilled workers grew because skilled workers were now in greater demand in industries competing with imports. Also, in some African countries, trade liberalization raised the incomes of small farmers in relation to urban workers, but the income distribution in the rural areas themselves deteriorated. Gains from
trade The conclusion that many researchers have reached is that trade liberalization leads to higher incomes but is not necessarily linked to better or worse income distribution. The existing structure of the economy and the policies of governments are more likely to determine how growth affects income distribution. Trade is only one of many things going on in an economy that are likely to influence the demand for labor, capital or other factors of production and therefore the distribution of incomes. The World Bank points out that technological change, investment patterns, changes in relative productivity, or changes in institutional conditions - for example the declining importance of trade unions, or changes in the implicit contract between workers and employers - can all affect income distribution. In developed countries, too, it appears that these other factors and particularly technological change are much more important explanations of the (growing) gap between skilled and unskilled workers. [back to top]How do trade barriers affect income distribution?A strange thing about trade barriers is that probably the majority of people think of them as some sort of essential government service like national defense or social welfare. In fact, they are nothing of the sort: almost the opposite. Theyre really regulations that are designed to redistribute income, usually, as it turns out, from poorer people to richer people, either within a country or among countries - or both. Most trade barriers can be thought of as a combination of a tax that goes to government and a subsidy to the domestic industry - paid by consumers - for every unit of the newly protected volume of domestic output. Although the government might distribute the tax revenue equitably, the involuntary redistribution of consumers income to producers rarely improves income equity, particularly if the product is one on which poorer people spend a larger share of their income than richer people. Even where a case can be made that a trade measure redistributes income to the less wealthy, it does so at the cost of overall growth in the economy due to a loss of economic efficiency that will eventually hurt everyone, the poor included. The origins of protection may make a difference, too. A government may put the protective measure in place on its own initiative: for example to safeguard the income of workers in the protected domestic industry from new import competition.[16] This seems likely to maintain an existing income distribution, in the domestic market at least, for a while. But observation suggests that in many cases protective measures are put in place to safeguard the wealth of individuals or groups that already have the wealth and political influence necessary to secure the protection.[17] Whatever their source, such protectionist measures may simply export the threatened unemployment by denying the exporting country the opportunity to trade in accordance with its comparative advantage. If the exporting country is a developing country and the importing country is a developed country lets imaging the product is footwear then maintaining the status quo income distribution within the importing country may simply worsen the distribution of income among countries.[18] [back to top]Poor countries have limited social capital. Doesnt trade liberalization weaken these economies?Social capital could be defined as the glue that holds together the many different formal and informal institutions that make up a society. Its the shared relationships, trust, respect, deference, care and similar qualities that underlie a wide range of social interactions such as between parents and teachers or the police and the courts or people from different provinces or clans or between the stock exchange and its members or between religious minorities and the state. On a smaller scale, social capital is the social support functions that surround a household. The World Bank points out that at the household level, the idea of social capital helps to understand the differences between rich and poor: One of the defining features of being
poor is that one lacks connections into the formal economy
including material and informational resources. The poors
social capital, derived primarily from family and neighbors,
can serve as an important day-to-day "safety net", but the
social capital possessed by the rich enables them to further
their interests. Helping the poor to transcend their closed
networks in order to access additional resources is one of the
challenges of economic development. The social cohesion that is reflected in these and many other relationships is critical for societies to prosper economically and for development to be sustainable. Those societies enjoying a strong social capital base, the theory predicts, will find it easier to adjust to economic changes and will share the rewards more equitably and efficiently. Those societies that do not have strong social capital, or who are struggling with ethnic or regional or social disputes that weaken social capital will be much less successful in identifying and embracing economic opportunities. Some social capital theorists argue that economic growth tends to make income distribution less equitable (we have seen that this is not necessarily the case), weakening social capital. Some also argue that the globalization of markets is putting additional strains on societies with weak social capital, exacerbating social divisions and hindering growth. [back to top]How does trade liberalization affect social capitalInternational trade, like all forms of economic activities depends on social relationships. So it is likely that social capital theory can help us to better understand the mechanisms of trade and may lead to improvements in trade performance. Research shows that social capital can reduce the costs of economic transactions by increasing trust, improving communications and assisting with the enforcement of norms and contracts. All of these things are valuable in raising the gains to be made from exchange including exchanges that ultimately involve the movement of goods or services across borders. In summary, nothing in the social capital analysis of social structures and their evolution conflicts with the view that openness to trade works to lift incomes and, with the right policies, can lead to sustained income growth (see the previous section). Nor is there any reason to believe that trade which offers income gains to both rich and poor alike will be less beneficial to societies with weak social capital. All that is required is a difference in own-prices for the income and other gains to flow. It may, however, be true that societies with poor endowments of bridging social capital have a harder time realizing the benefits of international trade because they have a harder time adjusting to economic growth pressures generally. Sustaining income growth due to trade is a complex challenge: one where the targets of economic policy might well be the same as the subjects of social capital analysis. Economists tend to talk about structural factors and adjustment mechanisms and complementary policies. These are economic policy frameworks that can help to manage the sequence of liberalization for highly protected economies to minimize social disruption and to achieve social-welfare outcomes after liberalization. For example, adjustment policies might redistribute some of the income due to trade liberalization from direct beneficiaries to direct losers through tax measures. Or a government might enact more flexible employment laws that help workers move from declining to expanding industries. [1] Technically, the WTO rules have nothing to say about the opening of a market. Instead, the rules focus on the binding of access to markets that are already to some extent open. It is this agreement to guarantee some level of access that is the real negotiating coin in the WTO. [2] The OECD has published an historical review of the experience of countries that liberalized their trade and investment markets: its main conclusions are available at http://www.oecd.org/ech/events/open.htm [3] IMF Issues Brief: Globalization, Threat or Opportunity. Available at http://www.imf.org/external/np/exr/ib/2000/041200.htm [4] Frankel, Jeffrey A. and David Romer. (1999). Does Trade Growth Cause Growth? American Economic Review. June, 1999. [5] Winters, Alan (2000) "Trade, Income Disparity and Poverty" WTO Special Study No.5. This study is available from the WTO web site at http://www.wto.org/english/news_e/pres00_e/pov3_e.pdf [6] Winters, A ibid. [7] Dollar, David and Aart Kraay. (2000). Growth is Good for the Poor. World Bank. (2000) [8] Nicholas Crafts, Globalization and Growth in the Twentieth Century, IMF Working Paper, WP/00/44, Washington DC, April 2000. [9] http://www.worldbank.org/html/extdr/pb/globalization/paper3.htm [11] Despite the contrary urging of many academic lawyers: see Griller, S Judicial Enforceability of WTO law in the European Union, Journal of International Law (2000) 441 - 472 [12] The breadth of the discretion was discussed by the Appellate Body in its review of the Shrimp Case (WT/DS58/AB/R) [13] A review of this debate can be found in the paper by Professor Alan Winters, Trade and Poverty: Is there a connection? commissioned by the WTO. The paper is available from the WTO website. [14] The hypothesis was first put forward in the 1950s by Kuznets that income levels and growth would be associated with a sort of U shaped curve of changes in income equality as income grew over time [15] Examples are drawn from Winters, Stewart and World Bank. [16] The WTO rules permit temporary safeguard actions under some very specific circumstances. [17] Groups that Mancur Olsen described as distributive coalitions: their interest is in the distribution of benefits to themselves, however. See The Rise and Decline of Nations: Economic Growth. Stagflation. and Social Rigidities, Yale University Press, 1982 [18] An elaboration of this idea is contained in a recent conference paper by the American trade economist Alan Deardorf Market Access for Developing Countries (http://www.ksg.harvard.edu/cbg/trade/deardorff.htm) that explores what happens when developing countries catch up with developed countries and crash into protectionist trade barriers
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