The development of the World Trade Organisation provides valuable lessons about the challenges of achieving effective multilateral governance in those areas that most affect the development of the peoples of the world, writes Alec Erwin.
An important part of the ANC's international policy programme is the concept of multilateral institutions or, more generally, multilateralism. These are institutions responsible for governance, regulation or political processes that involve all or most sovereign states. This simple starting point hides many more complex issues and raises fundamental questions as to how humanity should conduct its affairs. The hard realities of trade also put the noble aspirations of solidarity to a severe test. Two developments over the last few centuries have brought these large issues sharply into focus.
Firstly, as the human species has grown in number it has transformed the physical world and its environment. An inevitable consequence of this is that more and more decisions have to be taken by humanity as a global collective as opposed to individuals, groups or nations. Secondly, however, over this same period humans have increasingly governed themselves within new geographic and political entities - the nation state. The power, capacity and size of these nation states vary widely and only in the last few decades has formal independent national sovereignty pertained to the majority of world states.
So when we talk about multilateral institutions we are predominantly talking about very unequally-endowed nation states coming together and trying to make a decision - preferably a decision that is in the best interests of all. The achievement of decisions and actions in the best interests of all is exceptionally difficult.
The process of human political decision-making is complex and has changed continuously. The idea of a democratic dispensation where all citizens are able to influence decisions through a process of voting is a relatively new one in the nation state. Should such egalitarian concepts also be translated into decision making in multilateral institutions and if so, how?
The World Trade System The inequalities in the world trade system are massive. So how do we establish a governance of that system that is fair to all? For most of the history of trade in the world it has been associated with military and political power. There is a very close link between the ability to control trade and the formation of states and empires. Ancient and massive trade routes, such as the Great Silk Road stretching across the entire east-west axis of Eurasia, were tightly controlled and that control was endlessly contested. The political entity we refer to as Mapungubwe, in the north-west of present day South Africa, linked Namibia to China as they traded gold and jackal skins for glass and porcelain a thousand years ago. The purpose of controlling trade was to benefit from it, usually in the form of taxes, but also from the building of large trading cities and access to a wide range of products. The benefits of trade to a state and an economy have always been very clear.
However, the idea of some form of governance for the world trade system based on agreement and not power alone is more recent. Two differing approaches to trade tend to surface when a country faces economic problems.
The one is essentially defensive and tries to defend domestic production and control trade to the benefit of the national producers. This was the predominant response of the emerging European nation states. This approach is usually referred to as mercantilism and is closely associated with the power to enforce the nation's economic will. The second is usually associated with economic strength and the possession of large merchant navy fleets, domination of the great land trade routes or being strategically located on such trade routes. This approach styles itself the 'free trade' approach. It favours trade by all knowing that a particular national interest will in all likelihood dominate that 'free trade'. It is easy to see why Singapore and Hong Kong are passionate free traders with their giant ports providing access to so many countries.
Even today these two approaches sweep back and forth across the world in time and place. Trade is a powerful economic force and continues no matter what. Differing resource endowments and the ubiquitous ingenuity of the traders as they search for and make profits compel and lure both the most reluctant and the most supportive of national economies into the world trading system.
By the twentieth century a number of contesting economies emerged that were open to the idea of 'free trade' and were big enough to do damage to other economies by reverting to mercantilism. This caused a serious reevaluation of the benefits of a 'free for all' in the world trade system. This realisation led to action after the First World War. Before exploring this development and its evolution into the World Trade Organisation we need to dig a little deeper into the idea of a world trade system.
The reason we usually talk of a trade system is interesting. Trade facilitation is an aspect of trade that does not get all that much media attention but is very fundamental to the trading system. This includes the basic factors that speed up trade and make the process of exchange more reliable and easier to effect.
We just have to think of very basic issues such as a common measure for the weight of corn, or gold or saffron. Do we measure it by mass or its volume? Who says the scales are accurate or the baskets of the same volume or the gold of the same purity. Will the transaction be a swap of glass for jackal skin or will money be used and, if money, whose money do we recognise and are we sure it is gold and not maybe bronze. How will we pay taxes on trade - nowadays mostly referred to as tariffs? These are all very basic but absolutely critical in facilitating trade. In the modern world should each country not try and standardise the custom documentation used? Even better could we not use the internet to report our trade and pay tariffs? These are the hard and only too concrete matters that underpin the ability to trade and form the trade system. Even more complex is how we prevent the spread of disease or toxins or environmental raiders from moving with trade - the phyto-sanitary regulations? All these questions highlight why trade will compel nation states and traders to talk to each other and try reach agreement on these matters.
Those Khans on the Silk Road that had stable currency and gave the best protection to the trading caravans traversing their lands became the most powerful kingdoms. So it is no wonder that even now the powerful economies and trading nations will try shape this negotiation to their benefit since they dominate trade. Trade and agreements - be they written or by practice -are inseparable.
Emergence of the WTO The real momentum toward some form of global or multilateral system emerged after the First World War in the form of a family of agreements being brought together under the umbrella of a General Agreement of Trade and Tariffs (GATT). This was, however, essentially an agreement between the major economies, most of whom were colonial powers. Nonetheless a new concept of some form of equality of treatment emerged and became to be known as the most favoured nation (MFN) principle - which was that all nations should be treated in the same manner as your most favoured trading partner.
While in its implementation this principle was fraught with practical obstacles (the free trade versus mercantilism debate) it was a real breakthrough on which much was to be built. There are three exceptions to the MFN principle. These are free trade agreements (FTA), regional economic agreements (such as in SADC), and special and general programmes to help developing countries (called general systems of preference. A country either applies MFN or it enters some form of free trade or preference agreement.
In the mid-1960s the newly independent nation states began to express their grievances with the world trade system. The United Nations Conference on Trade and Development (UNCTAD) was convened and was to continue as a permanent organisation to this day. It attempted to mobilise and support the developing countries in their fight for a fairer and more balanced trade system. Changes in the GATT were effected through a gigantic negotiation -probably the world's largest and most complex - called a round. Negotiators are now stalled in the Doha Round.
The emergence of the developing countries as more active players in the world trade system and the severe problems experienced in the global trade and financial systems from the late 1960s to the early 1980s contributed to a willingness to find more predictable rules for the trade system. Some ten years or so of negotiation followed. What was important about these negotiations was that they set a new objective and that was to establish rules that would be binding on members of a new World Trade Organisation (WTO). This was a path breaking endeavour in the world of global trade. An agreement was finally reached and signed by the parties in Marrakech in April 1994. Kader Asmal represented the ANC and accompanied the formal South African delegate.
This agreement is massive in its scope and intricacy. We will only touch on some of the salient features that are particularly relevant for the issues of multilateral governance and international solidarity.
The first is the interesting structure of the WTO. All member states are equal. The agreements have to be incorporated into national law in certain respects. But decisions are not taken by a vote. A small country could conceivably block much larger and more powerful states from getting their way. Yet many economies, let us say the developing economies that are in the majority, cannot force the large and powerful economies to do something they refuse to do. This is a delicate balance. We have to think through what the implications are of many economies forcing a nation state to do something that may seriously damage its economy and the well-being of its people. It is well and good to do something in the context of the WTO but who will assist an economy if that action has negative consequences. The WTO explicitly excludes such a mandate and the World Bank and International Monetary Fund (two large and interventionist multilateral institutions) are not sufficiently aligned with the WTO. In fact, their actions are sometimes directly contrary to the WTO agreements. So no sensible country would trust its economic fate to the voting patterns of the WTO if they were to exist.
In short the WTO is an advance toward some form of democratic governance but the advance shows how much more needs to be done for multilateral governance of the global economy becomes just that.
This delicate balance between formal equality of power bestowing certain 'blocking capacity' and the realities of economic inequality are starkly shown up in the question of agriculture. Here Europe, the USA, Japan and a collection of smaller agricultural exporters such as Norway and Korea were able to prevent agriculture's incorporation into the basic architecture of the WTO. Basically the WTO tries to stabilise the world trade system in a number of ways. The key ones are to remove the key pillars of mercantilism, namely high tariffs, subsidisation of traded products and complex and different systems of trade facilitation. The WTO agreements mainly deal with how these matters are implemented in practice. However, agriculture was excluded from these basic principles in that subsidies could remain and there was no reduction in tariffs. The intention in 1994 was to enter negotiations on these issues in 1999. We are now in 2006 and progress has been minimal.
This brief outline of the WTO should illustrate a few very fundamental challenges facing the multilateral system. How do we get a fair decision making system? In an area like trade it is not as simple as being subjected to majority decisions. But if we resort to consensus, as in the WTO, then a really problematic structure - agricultural subsidies in developed countries - can remain an obstacle to development for many decades. However, despite these problems there is no doubt that a system of multilateral rules is far better than the application of power. Smaller and weaker economies would no doubt be in an even worse position now if they did not have the protection provided by the rules.
It is for these reasons that the ANC remains so committed to a multilateral approach - whether this is in the reform of the United Nations or how we deal with nuclear energy in Iran - it is the path to human solidarity and wiser and fairer governance of our global economy.
Alec Erwin is a member of the ANC National Executive Committee, Minister of Public Enterprises and a former Minister of Trade of Industry.
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