II. Irreconcilable Differences

Economist Jagdish Bhagwati of Columbia University has been one of the most visible and resolute intellectual advocates for free-market globalization, but lately he sounds a lot like Lori Wallach, the brainy lawyer who leads Global Trade Watch. "The process of trade liberalization is becoming a sham," Bhagwati wrote recently in the Financial Times, "the ultimate objective being the capture, reshaping and distortion of the WTO in the image of American lobbying interests."

Wallach and other leaders of worldwide popular dissent have been making the same argument about bait-and-switch diplomacy for a decade. "Oh, absolutely," Bhagwati exclaims. "People like Lori Wallach are right." The multinational corporate interests essentially hijacked the pure "free trade" principles Bhagwati espouses and turned "free-trade agreements" into their own agenda for a densely layered legal code--investment rules that impose a straitjacket of do's and don'ts on developing-country governments.

The rights of foreign capital and corporations are to be expanded; the rights of sovereign nations to decide their own development strategies steadily eliminated. A country must not require multinationals to form joint ventures with domestic enterprises. It must not limit foreign ownership of its natural resources. National health systems, water systems and other public services must be open to privatization by foreign companies. Underdeveloped countries must, meanwhile, enforce the patent-rights system from the advanced economies to protect drugs, music, software and other "intellectual property" assets owned by wealthy industrialists. Any poor nation that dares to resist the WTO rule will face severe "sanctions"--huge cash penalties--and possibly de facto expulsion from the trading club.

"The developing countries are scared out of their wits now," Bhagwati says, "because they don't understand what they're being forced to sign. The agreements are going way outside the trade issues and involve a helluva lot of things like your access to oil, your access to intellectual property and capital controls.... When I looked through the investment agreements, it was worse than reading my insurance policy for the fine print. I couldn't make anything out of it, and I'm a reasonably informed person, a pretty smart economist as they go."

Exactly. Obfuscation is power. The politics of trade resembles a maliciously lopsided power play in which the wealthiest industrial nations press the weak to accede to their terms or else get nothing back at the bargaining table, and very possibly lose their access to foreign capital or development aid. Trade ministers from poor countries naturally resist, but they don't have deep squads of corporate lawyers to argue the fine points and they don't want to be the troublemaker accused of blowing up the trading system.

The stakes for poor nations, as Wallach explains, are enormous. "If these rules go through, that's the end of it for developing countries," she predicts. "It pulls up the ladder from them, because all the development tools the United States and Europe used in their own industrial development would be removed." Those tools include protective tariffs to shelter infant industries, directed state subsidies, controls on the inflows of foreign capital to stabilize the economy, regulatory powers over industry and many other provisions. The US government used all these measures aggressively and brilliantly during the nineteenth and early twentieth century to build the nation's economic power.

Unlike global reformers like Wallach, Bhagwati opposes labor and environmental standards in global agreements for roughly the same reason most developing countries do. They regard them as extraneous to trade and as further injuries to their sovereign discretion and comparative advantage of low wages. "Look, I am a social democrat," the Indian-born, English-educated professor insists. "I approve of unions. I am in favor of human rights and environmental values." But these matters should be developed in domestic law, not by international agreement, he argues. The advocates of the so-called social issues "have gotten onto what the business lobbies are doing and are now trying to advance their own goals through the trade agreements. And the multinationals are so keen to get markets...they're like salivating dogs, they will make concessions on labor rights and the environment, the minimum necessary, just to get you out of the way. They're a bunch of cynical bastards."

All the lobbying pressures--business and social--are sowing a new skepticism toward international agreements among the developing nations, Bhagwati warns. "The poor countries used to see multilateralism as a defense of the weak," he explains. "That's our traditional argument, remember. With multilateral institutions, we would be able to contain the big guys. But now, because all these extraneous nontrade issues are being brought in by newer and newer business lobbies, people in developing countries are beginning to feel crowded. They feel this turning into an assault on the weak--disguised as multilateralism. So I think we need to wake up."

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