The Multinational Monitor

November 1990 - VOLUME 11 - NUMBER 11



GATT & The Third World

An Interview with Martin Khor Kok Pen

Martin Khor Kok Pen is the Research Director of the Consumers' Association of Penang. He is also the Vice-President of the Third World Network, the Asia Pacific People's Network and Sahabat Alam Malaysia, Friends of the Earth Malaysia, which won the Right Livelihood Award in 1988. He is the coordinator of the World Rainforest Movement. He has also authored several books, including The Malaysian Economy: Structures and Dependence.

If Third World countries with small firms compete on the same terms with multinational companies, the small industries and the small service sectors of the Third World are going to be crushed underfoot. Multinational Monitor: What does free trade mean for the Third World?

Martin Khor: I think that the term "free trade" has taken on some kind of magical and mythical proportions, almost as if it were a religion. It is as if free trade is something which is by definition good.

But I don't think, if one examines free trade in a serious or scientific way, that one can say that free trade is always good in all circumstances for all people. Obviously free trade under certain conditions at certain periods of time and for certain people may be beneficial.

But the notion that free trade is per se good for all persons and for all countries at all times is very dangerous. If we have trade between two partners and these two partners are of equal capacity and are able to compete on equal terms, then free trade in such circumstances may be beneficial for both partners. But it is different if we have a situation in which one partner is much weaker than the other partner and you have free trade, by which you mean that the rules are the same for both players. Then we are having the same rules for two partners or two people with very unequal starting points. The result will be that the strong defeat the weak.

[Imagine] we have a 100 meter race and we say we are going to have a free race. That means that all the runners adhere to the same rules of the competition, with the same starting point and same ending point, and that they start moving when the starter's gun goes off. And then we say that this is something which is fair and free because the rules apply to everyone. Now if we have Carl Lewis competing against Ben Johnson, perhaps we can say the rules of free competition should prevail. Even then we would check whether Ben Johnson or Carl Lewis has been taking steroids because that would violate the rules of free competition. But it is different if you put Carl Lewis together with an African boy who is three years old and hasn't eaten for three days, and you say we are going to have a free competition and all the rules apply to both racers. Nobody in his right mind would say that this is a fair race, simply because the two people competing would not be starting from the same starting point--they may be starting on the same line, but they are starting from very different capacities.

In the context of this analogy, we can [understand] the world marketplace, where we have a few multinational corporations which control the dominant share of world production and world trade. To ask Third World countries with small firms, very often family-sized firms, to compete on the same terms with the multinational companies is going to lead to a situation in which we can predict that the small farms, small firms, small industries and the small service sectors of the Third World are going to be crushed underfoot.

It has already happened during the colonial period in which farmers who grew cotton, for instance in India, were wiped out by "free trade." The big cotton farmers from England or later on the United States swept the market and, consequently, the textile industry was crushed in many parts of the Third World.

We are going to seethe same thing if we have free trade if we give multinational corporations the right to trade without any tariffs imposed on their products or the right to invest in the Third World countries without any conditions imposed on their investments. If this happens, we can predict that the Third World countries, which are already very much marginalized in the world economy, will be even more marginalized. In their domestic spheres, where they have a substantial share of the domestic economy and product, Third World countries will also become marginalized by the transnational companies. This whole process is being accelerated on a worldwide scale by the Uruguay Round of negotiations of the General Agreement on Trade and Tariffs (GATT), and this is why we are so worried about what is happening in GATT.

MM: What are your particular concerns about GATT?

Khor: What has been recognized in GATT until now is the fact that the Third World countries, being in a relatively weak position because of historical and colonial reasons, deserve to be given some privileges and exemptions from general regulations in GATT. The so-called development principle allows these exemptions on account of Third World countries' need to develop capacity within their domestic economies. There are many articles in GATT which say that if a developing country wants to protect its own domestic, infant industry and to develop the capacity for industrial growth, it does not have to follow strictly agreements regarding tariff protection and soon. At present there is a provision in GATT which says that if developing countries have balance of payment difficulties then they are exempted from following certain of the rules of free trade on GATT until these difficulties are overcome. Developed countries are seeking to change these rules so that Third World countries can no longer use balance of payments as a reason for suspending, or not acceeding to, the tariff or other provisions of GATT.

MM: How will the new areas to be covered by GATT affect the Third World?

Khor: We are very concerned about the moves of the United States and other developed countries to expand the powers of GATT. GAIT originally was set up to deal only with regulation of trade in goods, but now the developed countries are seeking to expand the powers of GATT so that it includes three new areas: services, intellectual property and foreign investments.

The service transnational companies have lobbied the governments in the developed countries, particularly the United States, to expand the powers of GATT so that GATT becomes the policeman to ensure that the service companies will have freedom of operation in terms of their exports, imports and investments, particularly in Third World countries. They would like to see GATT eventually becoming a deregulator and a promoter of free trade and free investment in services. This includes banking, insurance, information and communications, media, professional services like lawyers and doctors, tour agencies, accountants and advertising the whole gamut of service industries which today form a greater proportion of the gross national product in industrialized countries and in the United States than does manufacturing or agriculture.

If this happens [transnational corporations win their demands], we can predict that many of the service industries in the Third World will come under the direct control of the transnational service corporations within a few years. This would mean the eradication of almost the last sectors in the Third World which are still controlled by national companies. In terms of manufacturing and agriculture, many Third World countries are already controlled by transnational companies, either in the form of investments or in the form of purchasing their products for the world market. It is the service sector in the Third World which still remains basically in the hands of local companies.

The multinational service companies will be able to go into the Third World and not only be given the freedom to trade and invest in the Third World, but they will benefit from an additional clause called "national treatment." This means that any foreign company which wants to set up a base in the Third World in services should be given the freedom to do so and should be treated on terms which are no less favorable than those accorded a national or local company. Some Third World countries restrict the participation of foreign banks in the economy by, for instance, giving a limited number of licenses to foreign banks or by allowing foreign banks to participate only in certain kinds of banking. They may be prohibited from participating in commercial banking or from setting up branches in small towns so that local banks will have more of the deposit business. Now, [under GATT], the foreign banks may be given total freedom; they will be treated just like a local company. We are going to see the marginalization of local banks, the marginalization of local financial services and professional services. It may even mean that media companies and media personalities and owners in the United States or Australia may be given the freedom to set up media companies or to buy out media companies in the Third World, including television and the print media, and therefore control the cultures of Third World countries.

So, if you look very deeply into the processes, we are not only talking about economic sovereignty and autonomy. We are going to see it affect the culture of people of the Third World.

We are also going to see it affect the health of people of the Third World. There is already a very big push by the commercial health care industry and the insurance companies of the Northern countries for the commercialization of health care services in the Third World. The insurance companies who are in health insurance, accompanied by the private sector, big hospital establishments of the North, are beginning to buy up hospitals and accelerate the whole process of commercialization of health care in the Third World.

MM: Why would Third World countries, especially the few with progressive governments, agree to something like this?

Khor: I think there are two reasons. One is ignorance, the second is what we call the carrot and the stick. Ignorance many of these things which are being pushed by the developed countries are being pushed in negotiations in Geneva which are taking place behind closed doors. The people who are directly negotiating are the diplomats. The Third World countries have very few diplomatic staff in Geneva compared to, say, the United States, which has a very big, knowledgeable staff. Those diplomatic staff of the Third World in Geneva have to cover not only GATT but also all the other international agencies, such as the World Health Organization, the United Nations Center for Trade and Development, the International Labor Organization and so on. [It is difficult] even to follow what is going on within the GATT negotiations because you may have three or four sub-meetings going on in GATT on the same day. It is beyond the capacity of the Third World diplomats.

Also, the top politicians and the planning leaders in the Third World themselves may not be aware of the greater implications of the GATT negotiations. Cloaked in very technical jargon, the Uruguay Round may be seen as only another trade negotiation, which it is not.

You do, however, find that there are some Third World governments which take this very seriously. For instance, India, Brazil and a handful of other Third World countries are increasingly beginning to realize how serious the situation is. Now what has happened is that these countries which are putting up a resistance to the new themes in GATT have, over the last few years, been facing the "carrot and stick" approach. In other words, some of them have been singled out by the United States for unilateral trade attacks and have been placed on the watch list for Super 301 [which enables the U.S. administration to levy tariffs on governments found to be engaging in discriminatory trade practices against the United States]. For instance, India was placed on a watch list on the grounds that it has not opened up its insurance industry to the United States. We can only assume that these measures have been taken in order to pressure India not to take such a strong position on behalf of the Third World in the Uruguay Round. Similarly with Brazil.

MM: What are the purported advantages of GATT for the Third World?

Khor: Third World countries sometimes feel that they are very weak and not able to withstand pressure placed upon them by developed countries if they are singled out for unilateral action. That is what we call the "stick" approach.

The "carrot" approach is that some of the Third World countries may be under the impression that, if they give way to the developed countries in areas like services, investments and intellectual property rights, they may benefit in other areas. For instance, they may be given better access to the markets of the industrialized countries through lower tariffs. I think that this may be only an illusion. The industrialized countries have violated [similar] bargains with Third World countries in the past.

MM: What will be the impact of GATT on the Third World environment?

Khor: This is something which we are still working on. The more you learn about what is happening in the Uruguay Round, the more far-reaching the consequences appear. In the next 20 to 30 years, we are going to see horrendous consequences which we are only beginning to imagine and to project. For instance, if we liberalize the conditions of trade and investments to the extreme degree which the United States is proposing, we don't know to what extent governments not only in the Third World but even in the United States will have the autonomy to establish environmental, occupational health and other safety regulations. Some of these regulations may be considered to be against the principles of free trade and free investment. For instance, a year or two ago, Indonesia proposed to ban the export of ratan, which is a very important forest product. It is getting scarcer and they wanted to retain ratan in Indonesia for domestic use. This of course is to be welcomed by environmentalists who do not want to see the depletion of forest resources. Immediately, [however,] the United States and the European Community criticized the Indonesian government and said that the export ban was against the principle of fair trade. They accused the Indonesian government of taking protectionist steps and threatened retaliation against Indonesia.

I think we are about to seethe same thing happen in the area of irradiated food. There is already an international committee on food irradiation consisting of the Food & Agriculture Organization (FAO), the WHO and, believe it or not, GATT. If they come to the conclusion that irradiated food is not dangerous, GATT may make a ruling that if you decide to ban irradiated food then that might be a protectionist step on your part. To what extent, then, can there be an autonomous government, not only in the case of Malaysia, or Mali or Bangladesh, but even of a country like the United States? To what extent are these kinds of environmental regulations going to be ruled "GATT illegal?"

If a country were to classify such and such a substance as toxic and refuse to import it, then that might even be ruled to be GATT illegal if GATT decides that that sub-stance is not dangerous. Now this brings us into a whole mine field. What agency is going to be accepted by every-one to set standards? Each government should set its own standards.

What is happening in GATT through the Uruguay Round maybe a process for the transnational companies, which are the main actors pushing the Uruguay Round, to sidestep the gains made by the environmental and health movement in terms of getting legislation approved in several countries to regulate corporate activities in relation to health and environment. This is going to roll back the progress that has been made over the last many years.

MM: Are there provisions which could be put in GATT to protect the environment, workers and people's health and safety?

Khor: A government could propose that under GATT rules there should not be international trade in toxic waste or international trade in products which are banned [for sale in countries where they are produced] because they are considered dangerous (like pesticides, drugs and soon). Up until today, however, no developed country has put this on the agenda. Some Third World governments have tried to put trade in toxic waste onto the agenda of GATT, but this has been ignored by the developed countries.

So, actually GATT could be used to protect the environment, but instead it is being used for the reverse. I think that all responsible citizens in the world should fight for a better GATT and against the concept that free trade in all circumstances is necessarily a good thing. We should fight for the principle of fair trade rather than the principle of free trade.

MM: Switching to the rainforest issue, the last several years have seen much more attention in the United States paid to the importance of rainforests. Do you think this has been translated into better protection of the rainforests in the Third World?

Khor: I think on the positive side there has been a tremendous improvement in consciousness that rainforests are important and that they are being destroyed. But there is still some confusion as to the causes of the destruction.

Many people are still promoting the idea that it is poor people who are destroying the forests. In reality, it is industry which is responsible for a very large proportionof the destruction, for instance, the logging industry, the industries that are promoting hydroelectric dams, the cattle ranchers and so on. And at the same time, the lack of land reform in countries where there is a shortage of land for poor farmers is also pushing farmers into a situation where they are colonizing the forests, as is happening in Brazil. If one goes to the root of the rainforest problem, we find that it is the issue of power and inequality that is ultimately responsible for destroying the rain-forest. I think that realization is beginning to come about. Whether this realization has been translated into practical saving of the forest is something else.

The latest estimates suggest that the rainforests are being destroyed today at a rate which is much faster than even a few years ago. So in terms of rates of logging, in terms of the burning of the forest, in terms of development projects in forest areas, things have become worse.

The latest danger is that the forests are even being destroyed in the name of saving them, through forest-industry projects disguised as environmental projects. For instance, the Tropical Forest Action Plan, a plan of the World Bank and the FAO, aims to garner something like $8 billion from governments, mainly in the Northern countries, in order to save the rainforest. But if you examine the concrete projects which TFAP is planning to fund, you will find that the overwhelming share of them are projects which involve logging and which actually accelerate the loss of the forest. So this is very dangerous; governments in the West are responding to the demands of their citizens by saying, "we will give more aid to the forestry sector," but the forestry sector actually represents the forest industries, the ones that are going to log and process wood.

MM: In the last few years, the multilateral banks have claimed to be making efforts to protect the rainforests. Have you seen any change in the type of development projects they are funding?

Khor: I think there has been some progress at the conceptual level. In the past, the World Bank was seen as the best example of development aid to the Third World. Today the World Bank is seen as having funded a generation of projects which are environmentally damaging and socially not progressive. So the World Bank has responded by setting up an environmental wing and it is now very concerned about its public image. It has also begun to examine the environmental impact of their projects more thoroughly. The bulk of their project funding, I think, still remains destructive. But the foundation is now laid so that environmental groups and public interest groups are able to begin to speak environmental language to the World Bank, so that the World Bank can begin to screen the projects it is funding environmentally.

MM: What can be done on a national and international basis to preserve the rainforests?

Khor: There should be a total ban on logging in all remaining primary tropical forests. In forests which are seriously degraded, this will allow a regeneration of such forests. In areas where the primary forest is already gone, we can then set aside some of the land for the planting of indigenous trees in order to harvest wood from it. I think if we put this model into place then we will not need to log rainforests.

Correspondingly, business and individual consumers in Northern countries, which are the greatest users of rainforests, should refrain from using tropical wood and tropical wood products. For instance, when Sony VCRs are exported to the United States, they are sent in crates which are often made from tropical rainforest wood.

At the individual country level, I think the best defenders of the rainforests are the native peoples who live in or near the forests and the environmental groups.

We also need to have policies addressing the problems of agriculture, land and employment, so that people who farm will have sufficient land; this will relieve the pressure which they would otherwise put on the rainforests.

I think a combination of consumer action, the banning of logging plus a good agricultural and rural policy with its center being a more equitable distribution of land will lead to a tremendous reduction of the pressures being put on the rainforests.

But rainforest countries which still have a large part of their country under forest cover are going to find it very difficult to refrain from making money from the rainforest. If a country has only 5 percent of its rainforest left it is quite easy for them to ban logging, but if we take a country like Brazil which still has a very large part of its rainforest intact and tell it that we will not allow it to develop its rainforest anymore, it is going to be very difficult for that country to agree. I think that some kind of international mechanism should be established by which the developed countries compensate I wouldn't even call it aid those tropical countries which still have rainforests for not developing their forests. Some kind of compensation mechanism should be set up because the world recognizes that we all need the rain-forests, but that some countries are going to be asked to make sacrifices for not destroying them. In return for a certain amount of money per acre of rainforest, the tropical countries would agree not to develop those rainforests for, say, the next 100 years.

What has been recognized until now is the fact that the Third World countries deserve to be given some privileges and exemptions from general regulations in GATT.
In terms of manufacturing and agriculture, many Third World Countries are already controlled by transnational companies, either in the form of investments or in the form of purchasing their products for the world market.
India was placed on a watch list on the grounds that it has not opened up its insurance industry to the United States.
Third World countries sometimes feel that they are very weak and not able to withstand pressure placed upon them by developed countries if they are singled out for unilateral action.
What is happening in GATT through the Uruguay Round may be a process for the transnational companies to sidestep gains made by the environmental and health movement in terms of getting legislation approved to regulate corporate activities
Many people are still promoting the idea that it is poor people who are destroying the forests. In reality, it is industry which is responsible for a very large portion of the destruction, for instance, the logging industry the industries that are promoting hydroelectric damns, the cattle ranchers and so on.

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