"People and nature are being over-exploited. Poor terms of employment, hazardous and unhealthy working conditions, depletion of natural resources and pollution of the environment are now the order of the day. All of which makes it increasingly difficult to meet the needs of present and future generations. There is only one legitimate response to this state of affairs, the promotion of sustainable development. That - in the words of the Brundtland report - is development that meets the needs of the current generation without compromising the ability of future generations to meet their own needs."
Terms like "globalisation" and "liberalisation" are alien to the vast majority of people and yet the effects of these two interrelated trends have a direct influence on the lives of every individual, North and South, rich and poor. Moreover, these trends are gaining momentum. Technical and financial barriers to trade and financial flows are being overcome by advances in technology and by competition that makes this technology available at ever more affordable prices. Communication is now widely accessible and almost instantaneous world-wide. Financial markets in New York and Tokyo reflect developments on the other side of the world almost simultaneously. There are now an astonishing 50 million Internet users. The cost of international communications has plummeted - falling by 80% between 1940 and 1970 and by 90% between 1970 and 1990. Transport costs have also plummeted - the cost of maritime transport fell by two thirds between 1920 and 1990 and airline travel becomes ever cheaper and more accessible.
Political developments such as the ending of the cold war and of the apartheid system in South Africa have led to the integration into one global economy of many countries and regions which were not previously involved in trade and financial flows with the US, Europe or Japan.
Artificial impediments such as high tariff barriers have tumbled. In 1947 the average custom duty on manufactured goods was 47%. In 1980 it was only 6% and, should the agreements in the Uruguay Round be fully implemented, the average tariff will fall to a mere 3%.
All of these developments are reflected in increasing flows of trade, finance and information between ever-increasing numbers of countries. There is also an increase in the mobility of people (not always voluntary) to travel, to work, to live in other areas, other countries or even other continents. Finally, there is evidence of the development of a "global culture" - Coca-Cola, Marlborough, Levi's - these images and other similar brands dominate youth culture the world over.
Proponents of globalisation and the inherent liberalisation of markets as embodied in the Uruguay Round insist that there is no downside to globalisation. There are only virtues they insist, virtues such as increased productivity, higher standards of living, and improved allocation of resources. They also argue that globalisation is not a zero sum game - both developing and industrialised countries benefit from the effects of the shake-up that it involves. There are "no losers they say, only winners".
Whether or not it is true, and it is a much debated issue, that the overall gains of globalisation outweigh the losses, an essential problem lies in the distribution of these gains and losses. "It is not a homogenous world. There are at least five different levels of development. Firstly, the industrialised countries; secondly, the economies in transition; thirdly, the advanced developing countries, fourthly, the least developed ones, and lastly, the marginalised i.e. countries which are plagued by civil unrest and strife". Within each country, the population is also divided into many different economic and social strata. Countries, and sections of society within countries, are not evenly matched to take equal advantage of these global trends. Thus, evidence shows us that there are losers, both in absolute and relative terms. A process of marginalisation and exclusion has been established and the losses are borne by those least able to bear them - the poorest countries and the poorest people, in both the North and the South.
"On the Outside looking in" - Marginalisation of the Poorest Developing countries have been participating in international trade and undertaking rapid liberalisation of their domestic markets for many years, often as a result of structural adjustment programmes and export-led strategies imposed by international lending organisations as the price of foreign aid.
However, due to their low level of economic development, the collapse of the commodity markets and protectionist policies of industrialised markets, most developing countries have ended up with trade deficits. Clearly, the greater the gap between the trading partners (i.e. the poorer the developing country) the greater the trade deficit will be.
Foreign aid was supposed to fill the gap, but the end of the cold war and the resulting loss of the countries' strategic interest in the eyes of northern donors, together with economic recession in the North, have meant that aid levels have fallen to their lowest level in 20 years. They are now just 0.34% of the combined GNP of the world's richest countries. Ironically, it is again the poorest countries (many in Sub-Saharan Africa) which have been most affected by this reduction in aid.
In place of aid, foreign direct investment (FDI) and preferential trade terms were proposed to deal with the imbalance. However, "FDI chooses its own direction and there is no compulsion for it to flow to poor countries" and so it is concentrated in the bigger developing countries. Finally, many developing countries are simply unable to benefit from trade preferences, sometimes because the benefits are not applicable to the country, sometimes because of their interpretation and implementation.
Marginalisation and exclusion of the poorest and least developed countries from the global commercial flows has been the result.
World trade represents US$4000 billion per annum, and is set to increase by 6% per annum. This represents a twelve-fold increase since the second world war. Since the early 1980s, international trade has grown half as much again as the growth of national output. This means that trade is increasingly responsible for the income of a country and of its people. Trade accounts for about one third of national income for middle-income countries and one-quarter for low-income countries.
Producers everywhere are aware of the importance of trade - in the words of a coffee farmer from the Dominican Republic - "We grow food to fill our stomach and as insurance against hard times. But it is the income we get from coffee that clothes us, pays for school fees, and buys seed and implements...".
However, the benefits of this increase in trade are skewed. The share of international trade involving developing countries barely changed between 1979 and 1990. Within this group Asia's share rose from 4.6 to 12.5% while the least developed countries - with 10% of the population- is now 0.3% - half what it was twenty years ago. Of the 48 least developed countries, 29 are members of the WTO. Since 1960 their share of international trade has fallen by 80% - from 2% to less than half of one percent. Africa's share is 1.8% and falling.
While international trade is perhaps more tangible and understandable, it is foreign direct investment which is the most important mechanism for global economic integration. TNCs represent a large part of all FDI and according to the UNCTAD World Investment Report 1995 the sales of 40,000 TNCs and their subsidiaries exceeded US$5000 billion, thus exceeding the value of international trade.
Most FDI remains in developed countries - only 25-30% being invested in developing countries. Of this, 37.5% goes to China, with countries such as Brazil, Mexico, Singapore, Indonesia and five other developing nations receiving a further 41.5%. It is clear that little is left for the least developed countries. While net foreign direct investment from the OECD countries to the developing world increased by 270% in the last decade, most went to a few Asian and Latin American countries. Of the US$80 billion of private foreign direct investment in the developing world in 1994, only US$4.5 billion went to Africa. Africa and South West Asia are almost completely excluded from flows of foreign direct investment.
Throughout the eight years of negotiations leading up to the final agreement of the Uruguay Round in 1994, developing countries struggled to defend their interests. However, in failing to deal effectively with almost all issues of central concern to developing nations, the provisions of the Uruguay Round not only failed to improve the position of developing countries and their peoples, it actively further discriminated against them, particularly the poorest amongst them. According to estimates, the Uruguay Round will lead to an increase in global revenue of between US$212 billion and US$510 billion between 1995 and 2001. However, as Ambassador Luis Jaramilla of Colombia, then chairperson of the Group of 77 developing nations, remarked: "According to some estimates, the industrialised countries which make up only 20% of the GATT membership, will appropriate 70% of the additional income that will be generated by the implementation of the Uruguay Round". The World Trade Organisation (WTO), established to implement the agreements of the Uruguay Round, possesses powerful implements to force countries to comply with regulations on trade, financial flows, and intellectual property rights. At the same time, the power of TNCs to influence world economic issues is also increasing. There is, however, no countervailing force to defend people's social and economic rights.
In a world which professes adherence to free trade and open competition, the existence of incredibly powerful TNCs which exert immense influence over international trade negotiations, wield more economic and financial power than small governments, and which effectively prevent small competitors from entering the market, is something of an anomaly.
Transnational corporations are enterprises which own production, marketing, procurement and/or research activities in more than one country. There are approximately 40,000 TNCs in existence. The top 500 TNCs control approximately 70% of world trade and 80% of foreign investment. Approximately 40% of world trade takes place within companies.
Looking briefly at the chart on the previous page reveals that the turnover of many TNCs is greater than the national income of many developing countries. In fact, the turnover of four of the biggest corporations (General Motors, Ford Motors, Exxon and Shell) exceeds the gross domestic product of the whole of Africa. Even "small" TNCs such as Advanced Micro Devices, (listed as the 500th American TNC) has an annual turnover of US$2.5bn, equal to the GNP of Mali!
The structure and modus operandi of TNCs has changed over recent years. While the turnover of the top 200 has increased (from 24.2% of gross international product in 1982 to 28.3% in 1995) the rate of growth has not been as dramatic as anticipated. However, profits of this same group of 200 TNCs increased by 75% between 1990 and 1995. This reflects a dramatic tendency towards concentration of industries through mergers and buy-outs.
Secondly, while TNCs remain mostly of Japanese, US or European origin (190 out of the most important 200), there are now some TNCs originating in the South. (The remaining 10 come from South Korea, China, Brazil, Venezuela and Mexico.) Third, TNCs have changed their strategy of acquiring control over all stages of production (plantations, processing plants, shipping lines, factories and even retail outlets and insurance cover) to concentrating their ownership in capital- and knowledge-intensive sectors while out-sourcing the rest of the risky processes. Thus Coca-Cola prefers to buy cane sugar from different countries rather than to own plantations as the latter would mean capital would become immobile. In any case, forcing plantations to compete with each other in the market ensures that prices of cane sugar remain low.
The power of these TNCs is undisputed in such sectors as commodities, cars, electrical goods, computer technology, food, and cigarettes. However, while in some areas there is fierce competition between several TNCs for market share (such as in the computer industry), in other areas which are of particular concern to developing countries such as commodities, a few TNCs control the entire chain. For example, Unilever controls 85% of tea sales in India and 98% of the packaged tea market! Similarly, twenty companies control the international coffee trade, only one of which originates in the producing countries; and six companies control 70% of the wheat trade.
TNCs have the power to greatly influence world trade and investment and the development paths of Southern (and Northern) countries and their peoples. They also have the power to abuse their dominant position - which many do. Small countries are often in no position to exact terms from TNCs. They need the foreign investment - particularly in the light of reduced aid flows and continuing debt crises in most developing countries. They therefore have to accept TNCs on their terms.
"Like many other developing countries, the Caribbean governments have actively encouraged the arrival of transnational enterprises by offering tax exemption and by restricting imports form rival foreign firms. Cheap labour is a further attraction since, the transnationals are allowed to pay Caribbean workers much less than they have to pay their own workers to produce the same goods with the same company. According to a manager in St. Kitts, Caribbean workers work more minutes per hour at 10% higher productivity than in the Unites States while the wages are one-tenth of those in the US."
Mobility is a key characteristic of the TNCs - they can move production quickly from one country to the next in search of the ideal combination of cheap labour, slack labour laws, skill base, infrastructure and tax breaks. While labour costs and conditions are not the sole issue on which TNCs make their choice about location, they are very important as we can see in Asia at present - as wages in the original four "Tigers" rise and labour laws become tighter, TNCs are moving into other countries such as Malaysia and Vietnam. While the previous section has outlined how Africa and Southwest Asia have been almost excluded from international trade and foreign investment to the "benefit" of some Asian and Latin American countries, it is clear that the "benefits" of attracting foreign investment to these regions has not come without a price - often in the form of sub-human working conditions for those working in TNCs and the sweat-shops to which they sub-contract.
It is, however, important to qualify the above image of TNCs. First, few developing countries dispute that trade and investment is important for their development. TNCs have the potential to provide an engine of growth, employment and trade. In many host countries jobs are provided, often to women who would otherwise be condemned to a life of rural or urban poverty. However, TNCs generally offer little transfer of technology to the community. Because of the vast operations of TNCs, transfer pricing ensures that the declared profits made in any one country are a fraction of reality, and hence taxes raised on these profits are limited. The type of production and trade promoted by most TNCs is therefore not sustainable in the long run. However, the potential of TNCs to assist development remains huge.
Although TNCs represent a powerful economic force, in terms of employment they are marginal players - employing just 3% of the labour force world-wide. Nor are TNCs oblivious to cut-throat competition which in turn makes them highly dependent on public image, marketing and media reports, and consequently vulnerable to campaigns by consumer movements. A hint of a scandal regarding child labour in the media was sufficient to bring the GAP clothing company to the negotiating table to establish a code of conduct for its operations world-wide. Public campaigns regarding child labour in textile production, football manufacture, and the rug and carpet industries have had a marked effect on the behaviour of TNCs.
Likewise, it is erroneous to assume that all TNCs operate to maximise profits at any cost (human or environmental). There are examples of TNCs which follow an ethical business code and respect workers' conditions. It would be equally erroneous to assume that TNCs are alone in abusing workers rights. As they only employ 3% of the international labour force, and as there is a large percentage of the labour force working in intolerable conditions, clearly, other employers are also to blame for failing to ensure basic workers' rights. This is the result of many different issues - sometimes it is linked to the activities of TNCs as more and more production is out-sourced to local sweatshops, and sometimes it is the result of the low level of economic development of the country itself.
In order that TNCs contribute to real development in the South, and set an example to other enterprises, they must act responsibly towards all those, from producers to consumers, who have a stake in their activities. This will only come about under pressure from consumers who are increasingly disturbed by images of gross exploitation, and who demand guarantees from TNCs that workers' rights are being respected. Already significant progress has been made in this area (see chapter 2).
While trade liberalisation is opening up global markets for some goods, services and capital, interventionism and protectionism remain common in two key areas of particular importance to the South - agriculture and textiles.
In the US and the EU, protection of the agricultural sector remains very high. Markets are protected in a number of ways, among which are:
While the Uruguay round did stipulate that all tariff barriers must be reduced and all non-tariff barriers transformed into tariffs and then reduced, in reality it appears that very little is going to change in the coming years in this sector. New ways of maintaining protection without infringing the Uruguay rules are being developed. In the US and EU, subsidies represent about half the value of agricultural production! According to the OECD, public transfers to agriculture in the US were US$29,000 per agricultural worker in 1995. In the same year in Mindanao, one of the main maize producing regions in the Philippines, the average worker's income was less than US$300. The assistance received by each agricultural worker in America represents about 100 times the income of a maize producer in the Philippines.
On the other side of the world, in Mexico, a smallholder maize farmer faces the same situation: "They say free trade is good for our country. They say it will bring new opportunities and more wealth. But where is our opportunity? We cannot compete with this American maize. How can they produce it so cheap? What are we to do? This free trade will be the end of us. Our only opportunity is to leave our land and move to the city".
Dumping of cheap surpluses on the world market is not limited to wheat. For example, dumping of beef in West Africa by the EU in the late 1980s has ruined the local beef market for nomadic Fulani herders. There are many other examples including cereals and sugar. It is ironic to note that, if the agricultural markets were liberalised, then food-producing and exporting countries and people in the South would benefit, but those living in the cities and depending on imported food would have to pay higher prices. During the Uruguay Round, the countries affected by this potential loss (many of the least developed, mostly African, food importing nations) demanded compensation in the form of increased assistance and debt relief. Unsurprisingly, the demands fell on deaf ears.
Two thirds of African countries or 356 million people, and eighteen Latin American countries depend on primary products for over half their export earnings. Moreover, Africa depends for over 70% of its export earnings on just three commodities of which coffee and cocoa are the most important.
But the price of primary products relative to manufactured goods is constantly declining (by approximately 0.5% per year). Added to this deteriorating situation is the fact that the prices of primary products are renowned for extreme fluctuations. The reasons for this decline are many and varied:
One example of the latter is the current proposed directive of the EU to allow chocolate manufacturers to replace up to 5% cocoa butter with other vegetable fats. Another example is the replacement of sugar in soft drinks with HFCS - high fructose corn syrup.
Yet another reason for the instability of the market is speculation on the commodity exchanges. With the liberalisation of financial transactions and the development of such tools as hedging and forward buying, TNCs and speculators are in a position to control the price of commodities as never before. Almost all International Agreements set up to control the market for primary commodities have now collapsed. (Only that for rubber survives).
This picture of decline of the commodity sector hides different elements. While Asian countries experienced a 60% increase in value between 1980 and 1992, Latin America increased by 5%, and Africa declined by 50%. For Africans dependent on commodities, the result of this turmoil in the market is that crops can no longer be looked after as fertilisers and pesticides are too expensive, social expenditure (health and education) is cut and sometimes even food cannot be afforded. At this stage, the only option left for small cocoa or coffee farmers is to tear up their bushes and move to the cities since prices are so low that they fail to cover production costs. In Asia and Latin America the picture can be equally grim for workers. Here, production is carried out mostly on large plantations owned by TNCs rather than on small holdings. For those who work on these plantations (usually of bananas and sugar cane) conditions are difficult and often dangerous.
Despite its importance for developing countries, the problems of the commodity sector have not been adequately discussed or explored in the Uruguay Round.
For many countries in the South, textile and clothing industries are the starting point for industrial development. They require limited capital investment and technology. However, since the introduction of the Multifibre Arrangement in 1974, Northern markets have remained protected against "cheap" imports from the South. The overall cost of the MFA to developing countries has been estimated at US$50bn per year.
Although the MFA is to be gradually dismantled under the Uruguay Round, southern countries complain that the process is too slow, and starts with products that are of little interest to them. They insist that they are expected to comply immediately with the demands of structural adjustment programmes imposed by the World Bank, while northern countries are given at least ten years to readjust to competitive conditions in textiles. In addition, even after the MFA is dismantled, the tariffs on textiles and clothing will remain higher than the average tariff.
Trade and investment that depends on the exploitation of the most marginalised, be they in rural communities or in urban slums, is not sustainable. Forcing small farmers to neglect their land and crops, to move to over-crowded cities in search of work and food, reducing workers to human production machines, where they have no rights and no protection is not a model of development that can reduce poverty and improve the conditions of the poorest into the next century. Yet the Uruguay Round will at best not improve this system, at worst it encourages its perpetuation. There is an urgent need for a new vision of responsible and sustainable trade. There is a need for a "people's protectionism" to shield the poorest from the worst effects of globalisation. There is also a need for assistance to be directed towards those most marginalised (such as traditional communities, small industries, and marginalised farmers) so that they can establish a basis from which they can participate in the process of globalisation to their own benefit, rather than to their exploitation.
Fair Trade is one initiative that attempts to correct at least some of the prejudices that small producers and exploited workers encounter in the face of growing control by profit-motivated TNCs and international failure. It is a model that could serve as a symbol of a different sort of trade, one that would serve to benefit producers and consumers alike. It is to this subject that we turn in the next chapter.
"A dominant economic theme of the 1990s, globalization encapsulates both a description and a prescription. The description is the widening and deepening of international flows of trade, finance and information in a single, integrated global market. The prescription is to liberalise national and global markets in the belief that free flows of trade, finance and information will produce the best outcome for growth and human welfare. All is presented with an air of inevitability and overwhelming conviction. Not since the heyday of free trade in the 19th century has economic theory elicited such widespread certainty.
"In the 1970s and 1980s, Bangladesh earned millions of export dollars by supplying frog legs for the fashionable restaurants of Europe and North America. For more than a decade, the farmers of Bangladesh scooped frogs by the bucketful from their paddy fields....By the late 1980s more than 50 million a year were being killed... But in 1989 the Bangladesh Government stopped the trade when it realised the country was making a net loss from it. What had been forgotten was that the frogs, being voracious insect eaters were in fact a natural control on the number of crop damaging insects in the farmers' fields. With the frogs removed, farmers had no option but to use pesticides instead. But that cost money. By 1989 Bangladesh was importing significantly more pesticide to cope with the loss of frogs.
Government figures showed it was spending some US$30 million more each year to earn US$10 million in exports. Rural people were being pushed further towards the economic edge by having to pay for pesticides to replace the frogs for which they got only minimal returns.
An ironical twist was added to the story when it was found that some of the companies importing pesticides were also involved in exporting frogs - benefitting twice over at the expense of the framers......
This is just one of many examples - export of tropical wood from Ghana to the point of near ruination of its forests; production of beef in Botswana for export by a few wealthy landowners leading to the depletion of the fragile soil and decimation of the wildebeest herd, production of electrical goods and clothing in sweat-shops within Export Processing Zones (EPZs) or in subcontracting units where people work in sub-human conditions. None of these fundamental human rights and ecological concerns are included in the price of most of the products on sale.
Among the criticisms of globalisation, the most basic one concerns the inequalities that it creates. This was illustrated in the American review, Foreign Policy (winter 1995-96) which revealed that while ten Southern countries were 'emerging', more than 100 others were effectively excluded from the development process. 45% of humankind lives in these countries. Of the remaining 55% of the global population, 20% (broadly, the middle classes of emerging countries) were progressively becoming rich consumers while 35% (workers in Northern countries) were experiencing ever-increasing social divisions.
One of the results of the drive by developing countries to attract TNCs is the creation of Export processing Zones (EPZs) in Asia and "Maquilas" in Central and Latin America and the Caribbean. Host countries establish these zones which offer tax-breaks to TNCs and where labour laws are non-existent. These zones are where many of the textiles and electrical goods on Europe's shelves are produced. These zones at least provide employment, often for women who would otherwise never find paid employment. But the price is high as the following examples show:
"The 'new concentration camps' is how one trade unionist described Central America's maquilas where over 200,000 mostly women workers are employed making clothing and other consumer goods for markets in the USA and Europe. In Guatemala maquiladora workers are paid between $1 and $2 per day for 9-10 hour days. Sometimes they are forced to work as long as 18 hours. At the Lucasan factory in Guatemala, workers are locked in the factory from 8.00 am to 8.00 pm six days a week. At other factories workers required to work until midnight have been locked in the factory until they begin to work again early in the morning. When large orders come in, workers are given amphetamines so that they can work 60 hours without stopping.
Threats and verbal abuse are common and plant supervisors beat women workers for simple mistakes, for lateness or even for talking with co-workers. Sexual abuse by their bosses is one price many women pay to keep their jobs. The factories have few windows or ventilation fans and no protection against chemicals or dust. Exits are usually locked.
The factories are often located in sheet-metal structures which are easy to dismantle and transport. They can be moved from one free trade zone to another or even from one country to another. That is exactly what happens when the owners want to avoid obligations to creditors, to the government and to their workers. Changing the officially-registered name of the companies is frequently done for the same reasons..."
This example is the rule rather than the exception of conditions in the EPZs and Maquilas.
TNCs also know that to control knowledge is to control competition. They own 90% of the technology and product parents in the world. This was one of the most hotly disputed aspects of the Uruguay Round negotiations.
Taking the case of India, patenting laws are designed not to protect the interests of the patent holders but to encourage the transfer of technology for the benefit of the community. Pharmaceuticals are only allowed patent protection seven years; only processes, not products can be patented to encourage local innovation; foreign companies can be required to allow other producers to use their patented processes if they themselves are not using them or marketing them in that country. As a result prices of pharmaceuticals have been kept low in India. Under the Uruguay Round all this will change- India will no longer be allowed to use these safeguards and so newer drugs and pharmaceutical will dramatically increase in price.
Another concern of developing countries is that the new laws of patenting will allow TNCs to take advantage of traditional and community knowledge of local plants to patent a product and appropriate all the benefits. One US company stands to make millions of dollars from two drugs, an anti-carcinogenic and an anti-leukaemia agent from Madagascar. Once modified (biologically/genetically), no matter how slightly, companies can patent the product without making any payment whatever to the community.
Some see it as an unavoidable evil. As one Asian trade expert said "We need to guarantee copyrights, trademarks and patents if we want to attract foreign investment". Others feel more strongly. Farmers groups in India have held mass rallies in the streets and in 1993 a building belonging to the transnational seed-marketing company Cargill was burnt to the ground.
