Developing countries are being shackled by regulations formulated and enforced by international organisations. Policies to nurture domestic industry, which were used in Europe, north America and more recently the successful East Asian ‘tiger’ economies, are becoming illegal. The three major agreements which emerged from the World Trade Organisation (WTO) Uruguay Round of international trade talks – on investment measures (TRIMS), trade in services (GATS) and intellectual property rights (TRIPS) – are narrowing the powers of states. Governments now find it difficult to combine profit-oriented actions of companies within their borders with complementing national development strategies.

Research from the Crisis States Programme of the London School of Economics shows how developed country governments are using their dominance of multilateral organisations and international trade negotiations to force open markets and secure profits for international companies. Based on the actual experiences of East Asian countries, the author makes a powerful moral and economic case for rethinking development and returning decision-making to sovereign states.

The author shows that:

• The US and European Union (EU) demand others to open up markets for free trade but have kept large parts of their own economies off the negotiating table and have avoided commitments to improve market access for developing countries.
• In the market for knowledge developing countries seem destined to remain behind – even in the case of such a powerful developing country as Mexico, foreigners lodged 98.5 per cent of all patent applications in 1996.
• Full application of the WTO Trade Related Aspects of Intellectual Property Rights agreement (TRIPs) would give US companies, particularly Hollywood and the software and pharmaceutical giants who have enormous lobbying power over US trade policy, an additional $19 billion a year in royalties and a substantial portion of this would come from poor developing countries. 
• WTO’s dispute settlement mechanism (DSM) cannot oblige developed states to honour commitments on technology transfer which are made to developing – no developing country has ever taken a developed state to the DSM for not transferring technology.
• The EU and US are pushing for an interpretation of the WTO agreement on Trade-Related Investment Measures (TRIMS) which regards all performance requirements on international companies such as local content requirements or export requirements as illegal – further restricting the power of developing countries.

The author argues need for non-market measures of intervention and for refocusing international cooperation around development principles as distinct from ‘reciprocity’ principles. Reciprocity means that agreements are based on relative bargaining strengths and this favours the strong. Developing countries should be given differential treatment because their markets, states and companies are much weaker than those in developed states. But the new WTO agreements do not give developing nations any more policy space than developed nations – for example, to sustain protection for newly emerging industries.

Instead of moving towards a single model of market capitalism promoted by advocates of ‘globalisation plus’ we need to formulate an international regime which allows different forms of national capitalism to flourish. Stronger regional level organisations would help markets to be embedded nationally and regionally.

In addition:

• Developing countries should have the right to use certain forms of capital controls in order to maintain the stability of their economies and protect trade flows from disruptive surges of capital in and out.
• They should not have to meet the standards of intellectual property protection contained in TRIPS.
• The WTO must become more transparent and should do more by way of publishing the participants in specific negotiations, the suggested amendments to texts and the fate of the suggested amendments - it should at least meet the current World Bank standards of transparency.
• WTO staff should become more representative – currently some 80 per cent of the 500 WTO officials are nationals of developed countries whose population comprises less than twenty per cent of the population of WTO member states.

Source(s):
“What strategies are viable for developing countries today? The World Trade Organization and the shrinking of ‘development space’ ” by Robert Hunter Wade, Crisis States Programme Working Paper No 31, June 2003 Full document.
Review of International Political Economy, Vol. 10, No. 4, 2003

Funded by: Department for International Development, UK

id21 Research Highlight: 12 May 2004

Further Information:
Robert Wade
Crisis States Programme
Development Research Centre
DESTIN
London School of Economics
Houghton Street,
London WC2A 2AE
UK

Tel: 44 (0) 20 7955 7351
Fax: 44 (0) 20 7955 6844
Contact the contributor: r.wade@lse.ac.uk

Contact the contributor: csp@lse.ac.uk

Crisis States Programme, London School of Economics, UK

Other related links:
'Trade policy processes: is there space for civil society participation?'

'In defence of the WTO: hard rules are better than no rules at all?'

'Learning to trip up: how international regulation affects development strategies'

'Breaking the WTO logjam: towards enforceable special and differential treatment'

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