Justice, Development and the WTO. Ernest CHU Oct 2014

Transcription

1 Justice, Development and the WTO Oct Perhaps one of the greatest contributors to economic growth and development in the post- WWII era is globalisation. Many argue that the level of international co-operation has had no precedence (Ohmae, 1995). However, such a liberal agenda would have been impossible to achieve on a global scale without international economic laws to facilitate negotiations, enforce standards and settle disputes. This role was given to the WTO, which then raises the question: how successful has the WTO been? For this paper, the author will analyse the aims, actions and impact of the WTO from the human rights perspective. The structure of this paper is as follows: I. Introduction of three basic liberal theories of justice: egalitarianism, Rawlsian theory of justice and utilitarianism II. Considerations of the basic definitions of poverty and economic development from a human rights perspective III. IV. Introduction of the WTO: its mission, aims and basic structure Analysis of the free trade principle of the WTO, considering the different theories of justice and the definitions of poverty and economic development V. Case study of Vietnam VI. Summary and conclusion of analysis It is the intention of the author to adopt a broader, big-picture perspective of the WTO. The author also recognises that the specifics on how the WTO handles specific cases or countries are also of great importance. Unfortunately, due to the constraints of this paper, the author must leave this for others to research. I. Liberal Theories of Justice To make sense of how the WTO s aims, actions and impacts can be justified, one must return to the philosophical roots of justice. The aim of this section, however, is not to argue which theory is superior, but rather to introduce various viewpoints with which one could analyse international economic laws. The first commonly known concept is utilitarianism. This is similar to the economic concept of utility maximisation. Advocates of utilitarianism, such as the philosopher Jeremy Bentham, deem the greatest sum of happiness of a community as the basis of morality and law. Whilst maximising happiness seems to make sense, in pursuit of such an objective, it

2 may be inevitable that some people will suffer as a consequence. This suffering, however, is not of concern under Bentham s version of utilitarianism, which is understandably criticised. Philosopher John Stuart Mill, in an attempt to salvage utilitarianism, insists that happiness can only be pursued if individual rights are not undermined. (Sandel, 2010). The second concept is egalitarianism, which is based on equality. Egalitarians insist that no human being is more or less deserving than another, and their basis of morality and law is the ideal that the differences perceived between people are based on the lottery of life, and it would be unjustified to allow luck to determine the outcome of a person s life. (Sandel, 2010). The final concept is John Rawls Theory of Justice, which emphasises fairness in justice. Rawls theory is based on how to incorporate inequities within the society. Essentially, it is some combination of utilitarianism and egalitarianism. There are two key principles of Rawlsian justice. Firstly, much like Mill, Rawls emphasises that there are basic liberties, such as freedom of speech and assembly, which must be upheld. Secondly, and more importantly, is Rawls treatment of inequity. His second principle states that inequities are acceptable as long as it benefits the least-advantaged members of society, which is also known as the difference principle. Furthermore, Rawls emphasises that all members of society must have equal opportunities. (Sandel, 2010; Sen, 2010). These three theories of justice shall be crucial to the analysis of human rights and free trade. II. Human Rights, Poverty and Economic Development To evaluate the WTO s success, one must first determine how to define success. One of the WTO s main aims is to contribute to economic growth and development. Whilst economic growth is easily quantifiable as an increase in national income, economic development is a more complex concept which requires elaboration. The World Bank, for example, draws a distinct poverty line, defined as people who live on under US$1.25 per day ( Poverty overview, 2013), which is bare minimum subsistence level. However, achieving subsistence level should not be considered acceptable, especially by the UN s standards. It is clear from Articles of the Universal Declaration of Human Rights [UDHR] (1948) that human entitlements far exceeds subsistence level. In terms of work, reasonable working conditions and fair pay must be provided. There must also be adequate health and education must be made free. Most importantly, all humans have the right to live with dignity, and living standards should be creditable. It is clear that there is a mixture of Rawlsian justice and egalitarianism: equal rights and opportunities.

3 World-renowned development economist Amartya Sen (2010) describes poverty as the deprivation of capabilities, possibly the most stringent of definitions. He believes that people must be allowed to succeed, and that people should be given the capability, as well as the opportunity, to fulfil their goals. However, it does not matter whether the opportunity is taken or not: what matters is the availability of a choice to pursue goals. In light of these considerations, it is therefore important to consider the WTO s role in three different levels: a) Increasing income (economic growth) b) Providing adequate work, health and education c) Creating opportunities for the poor III. The WTO The most fundamental function of the WTO is to act as a predictable and transparent forum for negotiating free trade, in order to promote economic growth and development. It is, however, important to note that WTO members are not inherently obliged to fully liberalise trade (Waincymer, 2009). Nevertheless, the WTO seeks to facilitate dialogue between member countries in order to fulfil this aim. The WTO is especially focussed on the development of less developed countries, as well as environmental concerns. The WTO also provides legal and institutional framework to guide the actions of member countries. The three main institutional frameworks are the General Agreement on Tariffs and Taxes (GATT), the General Agreement on Trade in Services (GATS), and the Trade-Related Aspects of Intellectual Property (TRIPS). Among the agreements, the most controversial is Article XX of the GATT, which is a list of general exceptions to the GATT, and is used by the WTO block free trade, hence the controversy. Many also question the role of TRIPS in the WTO framework, and whether protecting intellectual property is the responsibility of the WTO (Thomas, 2009). The TRIPS also has questionable impacts closely related to human rights, which will be discussed later. Aside from providing the legal and institutional infrastructure for international trade, the WTO is also responsible for dispute settlement, where disagreements regarding how trade laws should be applied can be decided by the WTO panel. In principle, the WTO s aims of liberal trade and its legal and institutional structure match all liberal theories of justice (Petersmann, 2009). Specifically, the WTO aims to maximise consumer welfare through competition and division of labour (utilitarianism), protecting social rights and redistribute income (egalitarianism/rawlsian justice) and respecting individual and property rights (libertarianism). Conversely, according to Joseph (2011), the

4 WTO s definition of human rights is necessarily narrower due to its focus on the trade in goods and services, as opposed to the rights of individuals. IV. Analysis The below analysis will be divided into four parts. First, an analysis of the theoretical concepts of free trade from the economics perspective. Second, a look into the realities of economic growth induced by free trade. Third, considerations of labour rights will be discussed. Fourth, the inequities and bias of the WTO will be considered. A. The Free Trade Argument As the WTO is based on trade liberalisation, it is important to establish a reasonable explanation of how free trade can contribute to economic growth and development. The primary argument of the WTO is the law of comparative advantage. According to this economic theory, free trade is beneficial to all countries, even countries with low productivity. Hence, barriers to trade should be removed. Free-market economists, such as Friedman (2002/1961), also cite increased competition as a benefit of free trade. Competition will compel producers to lower the prices of goods and services. The WTO (2008) cites examples of food and clothing prices increasing due to protectionism. Thus, free trade can increase overall consumption of goods and services, and effectively increase welfare. However, some economists disagree that free trade helps developing economies. Renowned economist Ha-Joon Chang (2003) provides historical evidence that now-developed economies have, in fact, relied on protectionism during industrialisation to achieve economic growth. The reality for developing economies is harsh: firms from developing countries, without protectionism, cannot compete with well-established foreign firms. Free trade inevitably benefits large multinational enterprises (MNEs) due to the cost advantages from economies of scale, enabling MNEs to compete with weaker firms often found in developing countries. Thus, liberalising trade without first allowing local firms to become competitive will exacerbate, and not improve, the economies of developing countries. B. Reality of Economic Growth During the era of globalisation, poverty has in general decreased.

5 Figure 1: Poverty measures from 1981 to 2004 (Bardhan, 2009) According to figure 1 above, the percentage of people globally living on under US$1 and US$2 per day have decreased. In 2004, less than half of the global population survives on less than US$2 per day. This impact, however, may not be completely attributed to free trade, as advances in technology and human capital and aid may be associated with lower levels of poverty. Nevertheless, the impact of free trade on developing countries such as China, which has an export-oriented economy, cannot be overlooked (Xu, 2011). Another important statistic is the income inequality. Whilst there is definitely an increase in inter-country inequality, the trend of intra-country inequality is mixed (Bardhan, 2009). Although the sources of inequality is debatable, most economists agree that international trade has contributed to the increase in intra-country inequality (Pavcnik, 2011; Costinot, Vogel & Wang, 2013). Worse, the inter-country inequality appears to be between the countries in the north and south hemispheres, which is known as the North-South divide. Some scholars, such as Hirst, Thompson and Bromley (2009), show that the WTO and trade liberalisation have mainly benefitted the triad countries (North America, Western Europe and Eastern Asia), but not the rest of the world. However, to what extent is inequality relevant to the discussion, especially when poverty is decreasing? It differs depending on which theory of justice one applies. For the utilitarian, inequality is of no concern, since overall wealth has increased. If, due to free trade, people have been made better off, then it is better to have free trade than without. For the Rawlsian,

6 the inequality is acceptable only if the poor is better off. As for the egalitarian, it is obvious that some form of redistribution must be implemented for justice. It is important to emphasise the difference between the utilitarian and Rawlsian approach. For the former, the benefits of free trade need not be experienced by the poor; but for the Rawlsian approach, free trade would be detrimental if the poor is exploited to increase the wealth of the rich (to be further discussed in subsequent section). The WTO, in fact, has an extremely practical approach to inequality. Although, as aforementioned, one of the core principles of the WTO is to improve the welfare of economies, especially those of developing countries, through free trade. However, practically speaking, the WTO is only concerned with trade liberalisation. Distributional justice, on the other hand, is left to the device of the local governments and other non-state actors (Waincymer, 2009). It is debatable whether the WTO should be actively involved in inequality. On one hand, the WTO is mainly involved in promoting free trade and should avoid pursuing multiple, conflicting goals which would cause the WTO to lose its focus and direction. However, if the WTO also strives for increasing welfare of countries, perhaps it should be responsible for the perceived side-effects of free trade (Joseph, 2011). In general, therefore, it appears that the increase in free trade has increased wealth of the world. The wealth, however, is not equally spread between countries, or even within countries. Whether this inequality is of any concern depends on the stance. Given the decrease in poverty rates since the 1980 s, this inequality is acceptable from the utilitarian and Rawlsian perspectives, but according to the egalitarians, the situation has in fact worsened. C. Labour Rights According to the definition of poverty and economic development based on the UDHR, one cannot simply be satisfied with the economic growth which the WTO has facilitated. Labour rights remain a controversial subject in international trade. The prominence of sweatshops (factories with poor working conditions), unequal pay and child labour are seen as the illeffects of free trade and, by extension, the WTO (Edmonds & Pavcnik, 2005; Bardhan, 2009). This is due to the impact of competition forcing producers to lower costs. Furthermore, the low bargaining power of poor labourers in the face of MNEs means the dissolution of union powers and, therefore, no protection of labour rights. Based on the UDHR, these are outright violations of human rights, and an unjustified effect of free trade. The situation, however, is not as straightforward. Despite the poor working conditions and poor pay of these sweatshops, the alternatives for the poor are worse: either alternative work opportunities offer worse pay and working conditions, or the poor will suffer from outright unemployment.

7 Again, using the theories of justice established, the utilitarian will see sweatshops as the bestof-the-worst case scenario, and if the poor are in general better off, then sweatshops are still justified. Furthermore, if the cost minimisation from sweatshops lowers the prices of goods and services, benefitting the global population, then the utilitarian will not object, unless one takes Mill s stricter definition of utilitarianism into consideration. In terms of Rawlsian and egalitarian approaches, such labour standards are completely unacceptable. Firstly, workers do not have equality of outcome. Secondly, workers are not given capabilities to achieve more than subsistence. Especially concerning child labour, which deprives children the right to education and, therefore, the opportunity to develop their future careers. The question is, again, whether the WTO has a role in protecting labour rights. In terms of its legal framework, the WTO s role in governing labour standards is limited to Article XX(e) of the GATT (1986), which is relating to the products of prison labour. The institution charged with the duty to uphold labour rights is, in fact, the International Labour Organization (ILO). Unfortunately, the ILO s enforcement record has proved woeful (Thomas, 2009, p. 258) Therefore, as with inequality, from a moral perspective based on the UDHR, the WTO has the obligation to enforce labour standards, especially those rising from free trade. However, the link between trade and labour rights is not entirely clear. According to Panagariya (2001), labour standards may be determined by socioeconomic factors. Examples of countries such as India show that child labour is prevalent even before free trade. Furthermore, protectionism is necessary to protect labour rights, to some extent. Therefore, by promoting labour rights, the WTO s role will become even more blurred and ambiguous. Moreover, workers have voluntarily chosen to work in sweatshops, and from the liberalist perspective, any intervention, by the WTO or otherwise, is a violation of individual freedom. Economist Kaushik Basu outlines three conditions which justify intervention (as cited in Bardhan, 2009): 1. When individuals do not choose according to their best interests 2. Multiple equilibria, thus it is necessary for legislation to move workers from the bad equilibria (i.e. poor working conditions) to the good equilibria 3. The decision of workers to work in poor conditions lower the wage rate and force those who are reluctant to work in poor conditions Hence, from a moralistic viewpoint, there is no question that the WTO should intervene in labour standards, given its obligation to uphold human rights. Practically speaking, however, there simply is no consensus as to whether increased intervention would undermine the WTO s cause for trade liberalisation.

8 D. Other Biases of the WTO There are several other key areas of concern regarding the WTO s role in economic development. One of the biggest concerns is the impact of TRIPS on the right to health, specifically its impact on the access to affordable medicine. By respecting intellectual property rights, however, the price of medicine could be artificially increased for a period of up to 20 years, effectively denying the right of health to poor people. Some argue that the protection of intellectual property will encourage innovation. The research and development costs of developing new drugs are astronomical and involve highrisk investments on potentially fruitless projects (Schoen, 2013). Therefore, protecting intellectual property rights is essential to healthcare innovation. Furthermore, Howse and Teitel (2009) argue that the TRIPS issue has been at least partially resolved by the Doha Declaration on the TRIPS agreement and Public Health (2001). Article 4 of the Declaration states that: We agree that the TRIPS Agreement does not and should not prevent members from taking measures to protect public health. Accordingly, while reiterating our commitment to the TRIPS Agreement, we affirm that the Agreement can and should be interpreted and implemented in a manner supportive of WTO members' right to protect public health and, in particular, to promote access to medicines for all. However, Joseph (2011) refutes that, despite the flexibility of TRIPS in dealing with public health, Joseph develops a case for abolishing TRIPS. Firstly, Joseph notes that intellectual property rights is inconsistent with individual human rights, since the majority of patents belong to corporations and do not protect individual property rights; also, the right to health should be prioritised over individual property rights. Also, the complicated legislation and red tape still serves as a barrier to developed countries. Aside from TRIPS, another concern for developing countries is environmental protection and sustainable development. According to Chichilnisky (2009), developing countries will account for most of the global carbon emissions years from now. So far, the WTO does not have a robust legal framework for environmental concerns. Once again, the main provisions for environmental protection is in Article XX of the GATT. However, the WTO is expected to increase its role in environmental protection. Is it fair to place stringent environmental standards on developing countries? Firstly, environmentally-friendly means of production may be more costly, and with less access to more efficient technology, it weakens the developing countries ability to compete in a free trade environment. The Environmental Kuznets Curve (figure 2 below) demonstrate how each country goes through a phase of high emissions during the process of industrialisation, before being able to lower emissions.

9 Figure 2: The Environmental Kuznets Curve (Stern, 2004) However, according to Stern (2004), the Environmental Kuznets Curve is not empirically consistent, depending on how well developing countries are able to adopt environmentally friendly processes. What remains the issue is, therefore, how much assistance the WTO will afford to developing countries to adopt environmentally-friendly procedures. V. Case Study: Vietnam To exemplify the above analysis, this section will be dedicated to a short discussion of a case study of Vietnam by Kinley, Nguyen and Murray (2009). All facts below, unless otherwise specified, are taken from this case study. In terms of economic development, Vietnam s GDP has been rapidly increasing at an average rate of 7.8% between 2001 and Part of this growth has been led by an increase in FDI due to investors expectation of Vietnam s subsequent accession to the WTO in Consequently, Vietnam s poverty rate has fallen sharply from almost 60% in the 1990 s to around 17% in 2012 (World Bank, 2014). There are, however, also concerns regarding trade liberalisation in Vietnam namely the increased competition with foreign countries. For example, the agricultural industry in Vietnam lacks competitiveness and the production scale in Vietnam is small, compared with foreign competition. The Ministry of Agriculture and Rural Development of Vietnam has estimated that less than 30% of rural enterprises have operating capital of more than US$620,000. Hence, trade liberalisation will endanger the local industries.

10 Labour rights are also affected by trade liberalisation. Vietnam s government has adopted the ILO labour standards in However, there are still parties within Vietnam who are vulnerable. Female workers in garments industry are among the lowest-paid and lowestskilled workers in Vietnam, as well as frequently working overtime (10-15 hours per week), which takes away their free time to participate in familial and cultural activities. Moreover, the job security of such workers have been worsened due to trade liberalisation and dumping, especially from China. In terms of access to medicine, the healthcare system in Vietnam is pressured by its accession to the WTO to uphold TRIPS by Since public hospitals have introduced user charges, the burden of healthcare costs has effectively shifted from the government to individuals. The legal challenges posed by TRIPS will further increase healthcare costs (Tran, 2009), which is problematic for patients in rural areas. VI. Conclusion The benefits of free trade are unquestionable: there is evidence that globalisation and trade liberalisation has increased income and standards of living, as well as creating more work opportunities and increasing competition to lower the prices of products and increase their quality. However, there are some side effects of trade liberalisation, namely: greater income inequality, exacerbation of labour standards and working conditions, as well as biased WTO policies which puts developing countries at a disadvantage. Clearly, then, in terms of fulfilling economic development from the human rights perspective, the WTO leaves more to be desired. However, in terms of justice, it depends on which perspective one chooses to take. From a strict egalitarian view, it is obvious that the WTO has assisted in the exacerbation of inequality, which is unacceptable. However, from the Rawlsian and utilitarian approaches, there is evidence to support that the world population, in general, has been made better off despite the inequality poverty is declining, for example. Hence, the question simplifies to whether we should sacrifice inequality for wealth creation. Other such trade-offs are apparent within the framework of the WTO: to accept poor working conditions in order to avoid unemployment? To accept higher medicine prices in order to safeguard incentives to innovate and manufacture better medicine? To protect the environment at the potential cost of slowing economic development? Furthermore, to what extent should the WTO intervene, if at all? Or should some of these responsibilities be left to domestic politics? In conclusion, there are some flaws with the WTO s framework. This is due to the inherent nature of free trade, which tends to exacerbate inequality, as well as the WTO s diffused

11 aims to primarily promote free trade, but also to concern themselves with the protection of labour, intellectual property and the environment, which may be in conflict with each other. Sometimes, when upholding certain principles of human rights and freedoms, other human rights and freedoms may be sacrificed. Word count: 3811

12 References An introduction to trade and environment in the WTO. (n.d.) World Trade Organization. Retrieved from Bardhan, P. (2009). Globalisation and human rights: An economist s perspective. In S. Joseph, D. Kinley, & J. Waincymer (Eds.), The World Trade Organization and human rights: Interdisciplinary perspectives (pp ). Cheltenham: Edward Elgar. Chang, H. J. (2003). Kicking away the ladder: Infant industry promotion in historical perspective. Oxford Development Studies, 31(1), Chichilnisky, G. (2009). Energy security, economic development and climate change: Carbon markets and the WTO. In S. Joseph, D. Kinley, & J. Waincymer (Eds.), The World Trade Organization and human rights: Interdisciplinary perspectives (pp ). Cheltenham: Edward Elgar. Costinot, A., Vogel, J., & Wang, S. (2013). An elementary theory of global supply chains. Review of Economic Studies, 80, The Doha Declaration on the TRIPS agreement and Public Health. (2001). The World Trade Organization. Retrieved from Edmonds, E. V., & Pavcnik, N. (2005). Child labour in the global economy. Journal of Economic Perspectives, 19(1), Friedman, M. (2002). Capitalism and freedom. Chicago, IL: University of Chicago Press. (Original work published in 1961). The General Agreement on Tariffs and Trade. (1986). Retrieved from Hirst, P., Thompson, G., & Bromley, S. (2009). Globalisation in question. Cambridge, UK: Polity Press. Howse, R., & Teitel, R. G. (2009). Beyond the divide: The International Covenant on Economic, Social and Political Rights and the World Trade Organization. In S. Joseph, D. Kinley, & J. Waincymer (Eds.), The World Trade Organization and human rights: Interdisciplinary perspectives (pp. 1-38). Cheltenham: Edward Elgar. Joseph, S. (2011). Blame it on the WTO? A human rights critique. Oxford, UK: Oxford University Press. Kinley, D., Nguyen, H., & Murray, O. (2009). Viet Nam, human rights and trade: implications of Viet Nam s accession to the WTO. In S. Joseph, D. Kinley, & J. Waincymer (Eds.), The World Trade Organization and human rights: Interdisciplinary perspectives (pp ). Cheltenham: Edward Elgar. Ohmae, K. (1995). The end of the nation state: The rise of regional economies. New York, NY: The Free Press. Panagariya, A. (2001). Labor standards and trade sanctions: Right end wrong means. Paper prepared for presentation at the conference Towards an Agenda for Research on International Economic Integration and Labor Markets, East-West Center, Hawaii. Retrieved from Pavcnik, N. (2011). Globalization and within-country income inequality. In M. Bacchetta, & M. Jansen (Eds.), Making globalization socially sustainable (pp ). Geneva: WTO Publications. Petersmann, E. U. (2009). International trade law, human rights and the customary international law rules on treaty interpretation. In S. Joseph, D. Kinley, & J. Waincymer (Eds.), The World Trade Organization and human rights: Interdisciplinary perspectives (pp ). Cheltenham: Edward Elgar. Poverty overview. (2014). The World Bank. Retrieved from Sandel, M. J. (2010). Justice: What s the right thing to do? London, UK: Penguin Group. Schoen, D. (2013, September 24). Intellectual property rights matter. Forbes. Retrieved from

13 Sen, A. (2010). The idea of justice. London, UK: Penguin Group. Stern, D. I. (2004). The rise and fall of the Environmental Kuznets Curve. World Development, 32(8), Tran, T. L. A. (2009). Vietnam's membership of the WTO: an analysis of the transformation of a socialist economy into an open economy with special reference to the TRIPS regime and the patent law (Doctoral thesis). Retrieved from White Rose (2688). The University of Leeds, UK. The Universal Declaration of Human Rights. (1948). The United Nations. Retrieved from Thomas, C. (2009). The WTO and labor rights: Strategies of linkage. In S. Joseph, D. Kinley, & J. Waincymer (Eds.), The World Trade Organization and human rights: Interdisciplinary perspectives (pp ). Cheltenham: Edward Elgar. Waincymer, J. (2009). The trade and human rights debate: Introduction to an interdisciplinary analysis. In S. Joseph, D. Kinley, & J. Waincymer (Eds.), The World Trade Organization and human rights: Interdisciplinary perspectives (pp. 1-38). Cheltenham: Edward Elgar. The World Bank. (2014). Poverty headcount ratio at national poverty line (% of population) [Data file]. Retrieved from The World Trade Organization. (2008). 10 benefits of the WTO trading system. The World Trade Organization. Retrieved from Xu, C. (2011). The fundamental institutions of China s reform and development. Journal of Economic Literature, 49(4),