Victory at Cancun

by Stan Kahn

The G-22 group of developing nations, representing more than half the world's population, declared victory and walked out of the Cancun meeting last week. The win was based on the fact that they didn't just roll over and let the developed nations trample them into the dust.

Until Cancun the general order of business was for the rich world to negotiate a deal behind closed doors, obviously to their benefit, and then offer it, backed up by a big stick, to the poor countries on a take-it-or-leave-it basis. This has resulted in a lot of market opening on the part of the South and a lot of lip service on the part of the North.

Recent studies have shown that the least developed countries lose much more by being shut out of rich world markets for the only things they can produce competitively – agriculture and garments – than they gain from international aid.

Agriculture is the biggest bugaboo and far too complex a subject to be dealt with as ordinary trade. No country should voluntarily sign away its right to food self-sufficiency. Being dependent for food supply on other countries is rife with disaster scenarios – many of them already in process. NAFTA opened up Mexico's market to subsidized corn from the US. Now the absolute last thing Mexico needs is to have its peasant farmers driven off the land and into burgeoning urban slums by cheap below-the-cost-of-production corn dumped on their market by the US.

They already have, even in the least worst case scenario, enough problems trying to serve the social and economic needs of their vast numbers of poor and unemployed without dealing with an artificial crisis created by a rich trading partner. The first change that needs to happen at the WTO is to treat agriculture separately and with different rules than other forms of trade. I suggest two rules. One: Subsidized agricultural products cannot be exported, or if they are the receiving country has the right to impose tariffs sufficient to protect its own farmers. Two: Acceptance of imported food is totally at the discretion of the receiving country.

As to the second rule the US has been trying to force its tainted, adulterated food – in the form of frankenfoods and other abominations – down the throats of Europeans since the mid-nineties. Which segues into the second major problem with the global trade regime. The government-corporate trade oligarchy wants to separate trading from the real world. In this setup, governments, the people in other words, are not allowed to consider environmental impacts in their trade rules.

A few years back Canada banned a gas additive produced by the Ethyl Corporation because they discovered it was carcinogenic. Ethyl filed a complaint in a special NAFTA court claiming millions in lost profits. The tribunal, made up exclusively of corporate hacks and meeting in secret decided that Canada was unfairly restraining trade and either had to let Ethyl poison their country or pay the price.

Now I know this sounds so absurd (to those of you not already aware of what's happening) you'll think I made it up out of whole cloth but in fact the industrialized countries are working on expanding investment rules – commonly referred to as NAFTA on steroids by opponents – to include electricity, water, education amongst others.

According to the proposed rules, if a multinational wants to buy your public water system, you either have to sell it or compensate them for their lost profits. I kid you not, it's already happened in Bolivia where a city was forced by the international finance regime to sell its water system. The multinational purchaser promptly tripled the price – putting it way beyond most people's means – and big riots erupted which forced them to back down and run for cover – served them right.

The other commodity which the least developed world is competitive in is garments. There is currently a quota system in place which guarantees exporting countries a market. Cambodia's garment quota has encouraged the creation of about 200,000 jobs – for one of the world's poorest countries, a significant economic boost. The quota system is slated to be scraped in a little more than a year in favor of a free-for-all system of pure competition.

For Cambodia, this is likely to be a very big problem since it's expected most of the industry will move to China. Cambodia is hoping to entice corporations with an inkling of social consciousness to stay – they'll be able to say that their products are made in a country where workers have rights. In fact the unions here can get quite uppity.

Which brings up the Race to the Bottom. The first, most obvious result of NAFTA was the exodus of US manufacturing jobs to the Mexican side of the border. Millions of Mexicans flocked to border towns, which couldn't possibly keep up with social and infrastructure needs of exploding populations since, in the competition for jobs, they were forced to give up any form of revenue from the factories.

And, true to form, no matter how much money you throw at a wealthy multinational, they'll abandon you the first time another country throws more money or offers a better deal. Why bother with Mexico when you can go to China where all worker rights are suppressed, wages are minimal and the currency is kept artificially low? So next rule; no corporate welfare. No robbing the world's poorest people to line the pockets of the richest. Novel concept; corporations pay their fair share of society's costs.

Finally, the word 'trade' implies some form of balance or equal benefit and yet some countries consistently run trade surpluses – notably Japan and China – while others run deficits – one in particular, the US, runs HUGE deficits. The East Asian countries place barriers to imports because they're not really interested in balanced trade – they'd much rather have a few hundred billion dollars in the bank. (Of course that's not the only reason for the disparity). There's not much danger in having lots of money in the bank, but in contrast it is very dodgy for the US to run $500,000,000,000 (that's 500 billion) annual trade deficits. For one thing that translates into millions of exported jobs.

China is a special case and special place. On the one hand, it has multitudes of some of the poorest people in the world – people who need and deserve a job and an improved life as well as any. It has vast social problems and in an important sense it's good for both China and the world that it is growing and developing. On the other hand, it is a very powerful country and has large centers of wealth, which would be perfectly OK... if it were also a democratic country.

In other words, China will pursue its gross self interest with at least as much swagger and avarice as the US and the rest of the developed world does and it will get its way often, but there is no democratic check on its actions. There is no way for the people's voice to be heard. It follows then that a WTO in which autocratic China plays a significant role can't possibly reflect democratic values.

Enabling the transfer of great economic power to one-party China could have grave consequences. For instance, China now holds upwards of $300 billion dollars of American debt. If China decided to dump those bonds or merely stop buying more it would set the US economy on a tailspin. They'd hate to kill the golden goose but would be ruthless if it meant loss of face or political power.

Corporations have decided that the US is not competitive in the world labor market. In fact that's not quite true, it's only greed that makes the difference. Case in point; when Pendleton Woolen Mills, a famous old Oregon brand, moved its last factory out of the US it stated that it cost $1 more per shirt to manufacture in the states. That's 2% of a $50 retail cost. That's a miniscule amount to pay to keep Americans working. If a small percentage of jobs were kept in the US then the cost per shirt averaged out would be insignificant.

This Race to the Bottom also contains the seeds of its own destruction since the people who make the clothes can no longer afford to buy them. And in fact one of the world economy's biggest problems is overcapacity. There's lots of money to build factories, not enough people to buy their production.

The Race is not limited to the developing world. When the silicon chip business was booming Oregon decided it wanted to get in on the action so it offered hundreds of millions of dollars of tax breaks to get them to move in. However when the market turns down, you can't force a corporation to keep people working if they can't sell their product. So what of the large number of people who flocked to Oregon to work in the chip factories? Now it has the highest unemployment in the US. And do you think maybe giving massive tax breaks to some of the world's wealthiest corporations is one reason Oregon is having problems keeping up with public needs? Even if everybody were paying their fair share it would still be tight for public finances.

Getting back to debt or deficit, it has to be paid for sometime. In fact only the US can consistently run large deficits since so much of US currency circulates outside its borders. As long as people want to use dollars the US can just keep printing them. However the other means it has been using to pay for imports is mortgaging the homestead and/or selling the farm. Americans have incurred large amounts of long term debt – increasing the principal on their mortgages – to pay for short term consumption – TV's, vacations, new cars. There are valid reasons for going into debt, but not, in my not so humble opinion, for mindless consumption. We've also been selling assets – stocks, bonds, real estate, literally the farm – to pay for imports.

Add other forms of debt – credit cards, budget deficits – and the house of cards becomes ever more rickety. And since large parts of the world have become dependent on the money they make in the American market, there will be hell to pay when Americans have run their credit lines dry and have to start pulling back.

American debt and deficit are keeping the world economy afloat, but it should be voluntary. Every nation should have the right to do whatever is necessary to keep its trade in balance, absolutely regardless of the reasons for its noncompetitiveness.

The world trade regime has gotten seriously deranged. Hopefully the world's poor countries will no longer allow their rights to be trampled on. World trade, under the current rules, can only take us down a slippery slope.