Download One Economy II

Practical Ethics Series
The Ethics of Globalization IV:
One Economy (con’t)
Terry L Anderson
May 1, 2004
Primary Sources (Listed in order of extent of contribution):
 Peter Singer. One World.. 2002. Yale University Press.
 Alan Clendenning, reporting. “WTO Denounces U.S. Cotton Subsidies.” Associated Press release, April 27,
2004.
 Elizabeth Becker, reporting. “Global Trade Body Rules Against U.S. On Cotton Subsidies.” NY Times, April
27, 2004.
 Elizabeth Becker, reporting. “Lawmakers Voice Doom and Gloom on W.T.O. Ruling.” NY Times, April 28,
2004.
 Timothy Egan, reporting. “War on Peruvian Drubs Takes a Victim: U. S. Asparagus.” NY Times, April 25,
2004.
 http://www.wto.org. The World Trade Organization’s website.
Introduction
In our previous session, we began examining ethical issues involved in the shift to a single global economy and
especially the WTO as the emerging international structure controlling the One Economy. We recognized four basic
charges against the WTO by its opponents concerning they way it is managing the One Economy:
1. The WTO places economic considerations ahead of concerns for the environment, animal welfare, and
even human rights.
2. The WTO erodes national sovereignty.
3. The WTO is undemocratic.
4. The WTO increases inequality; or (a stronger charge) it makes the rich richer and leaves the world’s
poorest people even worse off than they would otherwise have been.
In the last session we discussed the first three charges and today we will focus on the last charge and try to sum up.
WTO
Before we start examining charge #4, let’s look at answers to a few of the questions we had last week.
How is the Appellate Body selected?
The Appellate Body holds hearings on charges of unfair trade practices leveled by one member state against another
and has the power to rule on the validity of the charges and may authorize trading sanctions against the accused if it
refuses to change practices found to be in violation of the treaty. We discussed last week the issue that the Appellate
Body cannot be effectively overruled by the full WTO because it requires a consensus vote and any one country
(including the loosing party in a trade dispute) can veto any attempt to overrule the Appellate Body. The question
arose as to how the Appellate Body members were selected.
From the WTO’s website I found that:
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The Appellate Body was established in 1995 under Article 17 of the Understanding on Rules and
Procedures Governing the Settlement of Disputes (DSU). It is a standing body of seven persons that hears
appeals from reports issued by panels in disputes brought by WTO Members. The Appellate Body can
uphold, modify or reverse the legal findings and conclusions of a panel, and Appellate Body Reports, once
adopted by the Dispute Settlement Body (DSB) [the General Council in another guise, which consists of all
WTO members], must be accepted by the parties to the dispute. The Appellate Body has its seat in Geneva,
Switzerland.
Either side can appeal a panel’s ruling. Sometimes both sides do so. Appeals have to be based on points of
law such as legal interpretation — they cannot reexamine existing evidence or examine new issues.
Each appeal is heard by three members of a permanent seven-member Appellate Body set up by the
Dispute Settlement Body and broadly representing the range of WTO membership. Members of the
Appellate Body have four-year terms. They have to be individuals with recognized standing in the field of
law and international trade, not affiliated with any government.
The appeal can uphold, modify or reverse the panel’s legal findings and conclusions. Normally appeals
should not last more than 60 days, with an absolute maximum of 90 days. The Dispute Settlement Body
has to accept or reject the appeals report within 30 days — and rejection is only possible by consensus
[emphasis mine].
How are disputes settled?
First stage: consultation (up to 60 days). Before taking any other actions the countries in dispute have to
talk to each other to see if they can settle their differences by themselves. If that fails, they can also ask the
WTO director-general to mediate or try to help in any other way.
Second stage: the panel (up to 45 days for a panel to be appointed, plus 6 months for the panel to
conclude). If consultations fail, the complaining country can ask for a panel to be appointed. The country
“in the dock” can block the creation of a panel once, but when the Dispute Settlement Body meets for a
second time, the appointment can no longer be blocked (unless there is a consensus against appointing the
panel).
Panels:
Panels are like tribunals. But unlike in a normal tribunal, the panellists are usually chosen in consultation
with the countries in dispute. Only if the two sides cannot agree does the WTO director-general appoint
them.
Panels consist of three (possibly five) experts from different countries who examine the evidence and
decide who is right and who is wrong. The panel’s report is passed to the Dispute Settlement Body, which
can only reject the report by consensus.
Panellists for each case can be chosen from a permanent list of well-qualified candidates, or from
elsewhere. They serve in their individual capacities. They cannot receive instructions from any
government.
Cotton
Last week the US lost a case before the WTO involving subsidies to cotton farmers. The argument (in a complaint
from Brazil) was that US subsidies to its cotton farmers was unfair to farmers in developing countries. It is claimed
to be the first ruling by the WTO involving agricultural subsidies (recently the US lost one concerning steel
subsidies), but many believe that it is just the first of many. Industrial subsidies have been a major issue in the EU
as trade barriers are eliminated and economies merged.
Asparagus
The US has encouraged Peruvian farmers to switch from coca leaves (for cocaine) to other crops and aided in the
establishment of a thriving asparagus industry. Less expensive labor and a wide variety of climatic zones has
allowed nearly year round production of a vegetable that was previously seasonal. But importation of Peruvian
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asparagus has decimated US production (a 55% decrease in acreage in Washington State since 1991, Del Monte
recently moved its packing plant from Eastern Washington to Peru where it could get cheaper and year-round
produce).
Fourth Charge: The poor get poorer
George W. Bush in a speech to the World Bank: “Those who protest free trade are no friends of the poor. Those
who protest free trade seek to deny them their best hope for escaping proverty.” How true is this? All the WTO
critics agree that the trade body has done more to help multinational corporations than it has done to help the poor,
but whether the poor have also gained is less clear. The leading opponents do speak with one voice. Within one
volume published by the International Forum on Globalization, Walden Bello (Thailand) and Vandana Shiva (India)
argue that free trade does not benefit the South, while Anuradha Mittal (of Food First) argue that free trade shifts
jobs from the US to Mexico and Canada. Any job shift from a rich country to a poor one almost certainly raises the
average wages in the poor country and by at least that one measure (but maybe not others) benefits the poor. But the
net effect is far more complex. So here is our first claim:
Shifting jobs from rich countries to poor ones benefits the poor.
Are we (living in a rich country) willing to help the poor in poor countries while possibly hurting workers (probably
also the lower paid) in our own country?
Another claim:
Free trade means less expensive goods, and that benefits the poor
Not all agree with either half of this claim. Free trade in agricultural products may allow poor countries to export
them, raising the prices locally benefiting the farmers but making it more difficult for the poor to buy their food. On
the other hand food donations to poor countries can lower the prices of locally grown food helping the poor but
impoverishing local farmers.
There are actually two questions that should be distinguished:
1. Has inequality increased due to freer trade?
2. Have the poor become worse off?
These are related but not the same. It is possible for inequality to increase and still leave the poor better off and this
is exactly what many supporters of the WTO argue. It is possible in an expanding global economy for everyone to
gain even while the rich gain more than the poor. Proving whether this is true or not is not easy and may depend on
how you define “poor” and “better off”. There is also complex because it appears that some of the poor are better
off and some are worse off. Many poor countries are improving but the poorest countries are not. [Recall Rawls’
ethics that modify Utilitarianism to focus on actions that benefit the most disadvantaged rather than raising the
average.]
The WTO (in a 1999 study) accepts that “the income gap poor and rich countries has increased in recent decades.”
The study asserts that in 1820, 20% of the worlds population living in the richest countries received three times the
combined income of the 20% living in the poorest countries. By 1920, the ratio was 11:1, by 1960, 60:1 and by
1997, 74:1. Not only is the gap increasing but the rate of increase is increasing. However, we need to be careful.
These figures compared income at market exchange rates. Another study found that when purchasing power was
used between 1960 and 1997 the gap actually decreased between the richest 1/3 and the poorest 1/3 and a smaller
decreasing gap between the richest 1/5 and the poorest 1/5, but an increasing gap between the richest 1/10 and the
poorest 1/10 (again showing that the very poorest are being left behind). But we must be careful: these compare the
richest countries with the poorest countries, not the poorest people; there are poor in the richest countries and a few
rich in the poorest countries. One study attempted to compare the richest and poorest 20% of individuals worldwide
and found the gap increasing, but this is very difficult to assess and only compared two time periods. Clearly these
comparisons are difficult, but it still appears that while some of the poor are getting better others (and perhaps the
poorest) are getting worse.
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Now the other question: regardless of inequality, are the poor better off? Again the data is mixed. A 1997 study
indicated that poverty has follen more in the past 50 years than the previous 500. But one in 1999, showed that per
capita GDP of the world’s least-developed nations declined 10% between 1990 and 1997. Most of these are in subSaharan Africa. One in 2001 found that sub-Saharan Africa declined 1% from 1975 to 1999 but doubled in
developing countries taken as a whole (when adjusted for purchasing power). Again, it appears that while many
poor are improving, the poorest are getting worse. China’s economic improvement plays a disproportionate role in
these figures because of its size. Another measure, life expectancy, shows a similar pattern, increasing from 55 to
66.6 years between 1962 and 1997 globally, and in the developing nations it increased from 60% that of the
industrial nations to 82%, but actually declining in the poorest nations (especially in sub-Saharan Africa partly due
to AIDS, but also in Eastern Europe after the fall of communism).
To make issues even more confusing, not everyone agrees that the observed effects are due to globalization. One
study argues that while the gap is increasing, it would have increased even more without globalization (using data
from countries that rejected liberalized trade). Another finds that globalization does cause increased poverty. A
third (similar to our other studies) that it decreases poverty on the average but increases it in the poorest. It is very
difficult to separate globalization & liberalized trade from technological change since both are occurring at the same
time. Even political changes (such as the global decline in communism) are difficult to isolate in the data.
Other issues
There are a lot of other issues associated with job export. What are the ethical wages and benefits to pay, working
conditions, non-economic impact on lives and communities, exploitation of natural resources, etc. These issues and
how multinational corporations are addressing them is far more difficult to assess than even the net economic
impact.
Conclusion on the Charge
The conclusion is that the effects of globalization are very difficult to assess with accuracy, but it appears likely that
it is improving the lives of many of the worlds poor but very likely making it worse for the poorest.
Can we do better? Almost certainly. If we agree with Rawls’, we must change the trend and focus on methods that
improve the lives of the very poorest rather than only for the average poor.
Does the WTO have the structure to accomplish this change? Probably not. It is driven primarily by the
economic pressures of the states that are members. They are not sensitive to the poorest people in those states or in
the poorest states, which cannot afford to participate.
Global economic growth can increase the size of the pot – can increase the amount available to be used to address
the needs of the poorest but we do not have a very effective global agency for using funds this way. National aid is
still used too often as a political tool, to advance foreign policy. We need a more powerful global agency that has
motivation and resources to address the world’s poorest.
Global regulation of trade should be preferable to each nation establishing policies solely for its own benefits, but
must balance environmental and human and animal rights with economic benefits. It must be more democratic to
better balance the concerns of all peoples, rich and poor.
Another Issues
Who speaks for the poor? Even if we had a global body to ethically regulate trade and economic policies, who
would best speak for the poor? The poor in rich nations? The poor in the poorest nations? Who is justified in
intervening, if the poor in a country are being abused by their own government. The poor neglected by a rich
country. The poor exploited by corrupt leaders of a poor country. Are we supporting this abuse when we funnel aid
through a corrupt government without ensuring that it gets to the poor? Are we supporting it, when we trade or
purchase resources (e.g., oil, diamonds) from a country without ensuring that the profits benefit the poor, or even the
average citizens of those countries?