Development and Trade: A New Architecture

Today I will give you a view of the situation that has emerged in the area of development policy, particularly with reference to the World Trade Organisation (WTO). We have all heard the shouts and screams of anti-trade protestors at Seattle, and sometimes we are tempted to admire them, if not their solutions, for the passionate way in which they pursue their beliefs. It might therefore be useful to understand the organisation that causes them so much anger and what The World Trade Organisation is and should be about.

The first paragraph of the WTO Agreement sets the objectives of the Organisation as follows:

“raising standards of living, ensuring full employment and a large and steadily growing volume of real income and effective demand.

expanding the production of, and trade in, goods and services, while allowing for the optimal use of the world's resources in accordance with the objective of sustainable development, seeking both to protect and preserve the environment and to enhance the means for doing so in a manner consistent with their respective needs and concerns at different levels of economic development;”

Kofi Annan, the UN Secretary General has said,

"The central challenge we face today is to ensure that globalisation becomes a positive force for all the world’s people, instead of leaving billions of them behind in squalor. Inclusive globalisation must be built on the great enabling force of the market, but market forces alone will not achieve it. It requires a broader effort to create a shared future, based upon our common humanity in all its diversity.”

Nobody can really doubt the truth of both these statements, so why do the protestors protest?

Globalisation which, started in the early 19th century is now unstoppable. It is unstoppable not because the EU wants it or the great transnational corporations want it, or because the rioters of Seattle do not want it.

It is unstoppable and uncontrollable because in the past 15 years, people drive it by the individual commercial choices they make. The world, through the advent of communication technology has become a single village. Global television, global mobile telephony, global banking, global travel, the global internet has created a new global identity.

These global citizens, specifically the younger people, want it. Paradoxically however these people, whilst connected to the entire world through technology, are also probably more single, more individualistic and more alone than at anytime in human history. That is why access to the whole world, whilst not knowing the people who live next door, has now impelled thousands to gather together in mutual support to watch a common event such as a World Cup football match on a giant screen in a public square or in a public house, rather than in the isolated confines of their own home with their own television set. Billions of people can now share a moment such as a world cup goal with the same fervent excitement, whether they be in Korea or Brazil, Japan or Turkey. The point here is that they share the same moment in real time.

What happens in one corner of the globe is now shared by everyone on the globe immediately. This immediacy binds us all together. It is a shared experience that transcends national boundaries, time and space, linguistic barriers and sometimes even national prejudices. Globalisation means interdependency. This interdependency links every one of us, and every nation on the planet together. In so doing it brings an awareness of our common problems and our common opportunities.

These problems cannot be solved unilaterally. They require consensual multilateral decision-making: Therefore we do need NEW global institutions, which clearly recognise the shifting balance of human, economic and legislative priorities within clearly defined norms, in order to stabilize and ameliorate these problems.

The main problems are:

• Making Development consistent with Environmental Sustainability,

• Accelerating growth within the global economy by Capacity Building to maximize comparative economic, commercial and industrial advantage,

• Skills shortages and world migration,

• Global pandemics and communicable diseases

• Global drug and people trafficking

• Global security, including food, water and energy security.

These common concerns affect everybody on this planet. No one is insulated nor immune to their consequences; not the super rich in their gated estates nor the shanty-town dweller scratching a subsistence. Each and all of us in our own way will be affected by these concerns and their consequences.

Today’s global Institutions and their institutional structures are failing both the Global Trade and the Sustainable Development Agenda.

The United Nations is ineffective at best and marginalized at worst. The UN was set up to reduce tensions and prevent major wars. The UN now nearly sixty years in existence has not evolved as the global economy has evolved; Its institutions are stuck in the immediate post -World War II ethos, which defined its raison d’ętre by territorial sovereignty.

The evolution of economic groups, regional partnership and interest groups such as NAFTA or the EU, or regional economic interest group such as ASEAN in South East Asia are for the most part outside the ambit of the UN. A plethora of special-interest groups such G7, G8, G10, G20, G24, have formed by nation states to tackle immediate problems of security and governance outside the UN system. Another important development, that of civil society and mushrooming single -issue based global concerns, which have left the UN on the sidelines.
The UN Institutions and the WTO must recognize the role of regional and sub-regional trade agreements as well as free trade areas, in the establishment of a more equitable world trading system, and also in building the required infrastructure for the region.
It is paramount to recognize that fostering regional integration is one way of integrating developing countries into the world economy as the regional context will stimulate political and economic competition and cooperation and provide a framework to mitigate the problems of adjustment resulting from globalisation.
Another important global institution, which has provided much needed assistance to many countries in time of financial crisis -- the IMF -has also had a chequered career. It now needs to take on a more sensitive approach; in developing countries, eschewing its previous philosophy of “one economic dictum fits all” and so desist from its now discredited policy of opening up developing economies and their capital accounts before their financial sectors, public institutions, industries and civic societies are robust enough for global competition

The World Bank, which is a third the size of the European Investment Bank, but much much better known, has recently begun to adapt. Yet it has a long way to go if it is to be a pioneer in Sustainable Development Initiatives. It could do so immediately by adding to its preponderant involvement in structural adjustment and in the financing of large infrastructure and energy projects and focus as well on supporting more funding of grassroots health and education, and the needs of SME’s, so as to develop and sustain local capacity-building.

This now brings me to The Reality of Growth in trade and the world economy.

Globalisation has enriched our planet from an economic, social and cultural point of view.

A few centuries ago poverty and a miserable life dominated the world except for rare pockets of abundance. Over the past 50 years, world trade has increased nineteen-fold, world production has more than quadrupled, and world per capita income has doubled.

• International trade has increased significantly faster than world GDP over the last two decades, with the relative importance of high-technology goods increasing and the importance of agriculture and basic resources diminishing.

• The nature of production has changed to facilitate tightly integrated global supply chains. As a result, components account for a growing portion of trade from the developed countries to be assembled in developing countries.

• Trans-National Corporations account for a growing share of world trade, with involvement in 70 per cent of trade activity and controlling one-third within their own networks.


The EU is the world's leading trading block, with 20% of world trade in goods and services, the world's leading exporter of goods - 760 billion in 1999, almost 19% of the world total; the world's leading exporter of services: 240 billion in 1999, with 26% of the world total; and the world's leading source of foreign direct investment (298 billion in 1999).


Yet poverty remains – even in some parts of the developed world.

The prosperous, democratic, developed countries in Europe, North America, Japan, and Australia, are joined by several others such as Israel and Singapore and probably Chile. They belong to the group of 64 countries which have 'high human development'. The next 60 countries are in the 'medium' category. This group face environmental, population, structural, and social challenges, but they also have some educational and infrastructural resources, plus considerable (if unpredictable) access to capital. These include small nations such as Costa Rica and Jamaica, but also large, populous countries such as India, Pakistan, Brazil, Mexico and Indonesia. Together with China, they amount to about 60 % of the world's population, and the future of the world will depend largely on how they overcome their current challenges.
At the lower end of the human development index, there are 51 chronically low-income countries, chiefly in Africa but also in Asia and Central America; the poorest of the poor unable to rescue themselves and without private international capital inflows. They are now totally dependent on aid to survive.
So now let us look at where the power really lies and come up with sensible proposals, which harness economic power for the good.

The first place to look for this is in our own history. In the now developed Western countries. A century ago trade liberalisation and mercantilism within nation states during and immediately after the Industrial Revolution led to conditions being created within nation states which correspond to the extremes of poverty and wealth now obtaining in LDCs and Developing countries.

Western nations tackled huge problems such as slums, disease, disparities of living conditions, poverty eradication, housing, educational opportunities and citizens welfare in the immediate aftermath of the Industrial Revolution. The Industrial Revolution created problems but it also provided the wealth, and the scientific and engineering skills with which those problems could be tackled

These problems were addressed and ameliorated by a mixture of legislation in partnership with the substantial wealth creators of those times such as Carnegie, Andrew Mellon, Robert Owen, Titus Salt in Bradford and Lord Leverhulme on the Wirral (in the UK).

We have seen that Transnational Corporations are involved in 70 % of multilateral trade activity. The world's top 200 TNCs have combined sales which are far greater than a quarter of the world's economic activity These combined sales are bigger than the combined economies of all countries minus the largest 9; thereby surpassing the combined economies of 182 countries. The top 200 corporations have almost twice the economic strength of the poorest four-fifths of humanity, but very little political strength in the development partnership between EU politicians, the Commission and civil society.

Today’s developing economies face similar challenges to those then encountered by Western nations 150 years ago. We must now recognises that the TNC will be an essential partner with politicians and civil society in creating a NEW Enterprise development framework in the global economy to eradicate poverty, ensure food security and increase sustainable development.

Given the present dominance of the TNCs in world trade, it is absurd for Governments, politicians and the public to ignore the substantial contribution the TNCs could make to sustainable development in the developing countries in partnership with local enterprises, civil society and the international community.

Today In all developed countries, economic rules are codified as regulations or laws, and enforced by national governments where they:

• require financial disclosures by companies,
• govern competition and prevent monopolistic behaviour,
• oversee financial markets, insider trading or investor collusion,
• require banks to hold reasonable reserves, and engage in fair lending practices,
• provide mandatory social insurance, the right of workers to organise, anti-discrimination laws, laws protecting working conditions and hours,
• protect the consumer and ensure environmental standards and
• embody the core social compact that defines the life of all citizens.

It seems eminently reasonable in the context of a Global trading environment that these same rules would be increasingly applied on an international basis. Market economies rely on a wide array of non-market institutions that perform regulatory, stabilising, and legitimising functions. Cross-national econometric work shows that the quality of a country's public institutions is a critical, and perhaps the most important, determinant of a country's long-term development.

The OECD Guidelines for Multinationals should be made an intrinsic part of EU trade relations where enterprises should take fully into account established policies in the countries in which they operate, and consider the views of other stakeholders. In this regard, enterprises should:

1. Contribute to economic, social and environmental progress with a view to achieving sustainable development;

2. Respect the human rights of those affected by their activities consistent with the host government's international obligations and commitments;

3. Encourage local capacity-building through close co-operation with the local community, including business interests, as well as developing the enterprise's activities in domestic and foreign markets, consistent with the need for sound commercial practice;

4. Encourage human capital formation, in particular by creating employment opportunities and facilitating training opportunities for employees;

5. Refrain from seeking or accepting exemptions not contemplated in the statutory or regulatory framework related to environmental, health, safety, labour, taxation, financial incentives, or other issues;

6. Support and uphold good corporate governance principles and develop and apply good corporate governance practices;

7. Develop and apply effective self-regulatory practices and management systems that foster a relationship of confidence and mutual trust between enterprises and the societies in which they operate;

8. Promote employee awareness of, and compliance with, company policies through effective dissemination of these policies, including training programmes; refraining from discriminatory or disciplinary action against employees who make bona fide reports to management or, as appropriate, to the competent public authorities, on practices that contravene the law, the Guidelines or the enterprise's own policies;

9. Encourage, where practicable, business partners, including suppliers and sub-contractors, to apply principles of corporate conduct compatible with the Guidelines;

10. Abstain from any improper involvement in local political activities;

I now call for all companies and shareholders of companies which fall into the category of Trans National Corporation to set up Ethical Investment Committees similar to the Audit Committee and Remuneration Committee which now exist in such companies; These Committees should report to the board of directors, the shareholders and those directly affected by the activities of the TNC on the implementation of the OECD Guidelines for Multinationals in the developing countries

When developed countries have privatised their national assets and utilities they have required investors in Western countries to also invest in Offset projects in those countries where "Offset" is the umbrella term for a broad range of industrial and commercial "compensatory" practices required of outside suppliers or investors as a condition of purchase in either government-to-government sales or commercial sales under public agency procurement programs.

I also now call for such Ethical Investment Committees to be tasked to identify Enterprise Development projects as Offset projects through which these companies can invest in each country where they operate, in conjunction with NGOs and other civil society actors, so that these projects are tied to local social, industrial and service capacity building, which will lead to poverty eradication and foster food security, clean water and sanitation, education, health and gender equality.
This is a win win situation for all.

I would further recommend that TNCs adopt transparency rules requiring directors to report information about their investment activity and their environmental, social and employment impact in each country where they do business, based on the well-developed concept of "disclosure.”

I would call for international accounting standards to be expanded along the lines of the Global Reporting Initiative which promotes "triple bottom line" accounting and corporate annual reports: (i.e., economic, social and environmental accounting);

I would encourage each TNC to commit as a minimum investment at least 0.7% of their gross turnover or up to 5% of their net profit (which ever is the smaller) into new investments as Offset projects each year, stressing that such Offset investments should have a high component of social, educational or environmental capacity building and should be undertaken jointly or severally with local SME's and business groups.

I now propose that a European Forum of Enterprises for Sustainable Development be instituted, holding two meetings per year rotating in locations corresponding to the Presidency in the Council of the European Union;

I further propose that this European Forum of Enterprises for Sustainable Development be attended by the chairmen of Ethical Investment Committees of TNCs together with Members of the European Parliament and Members of the Select Committees of the National Parliaments involved with trade, development and cooperation policies, and all those directly affected by the activities of TNCs;

And I call upon all to recognise that this Forum will constitute the cornerstone of a new and incremental approach to development and co-operation - augmenting and supporting existing mechanisms and institutions, to satisfy a crucial need for more and better managed sustainable development assistance.