What Wal-Mart Wants from the WTO

Jared C. Benedict/Wikimedia Commons

At the dawn of what may be the end of the ‘free-trade’ movement, here’s a look at what the world’s biggest globalization profiteer hopes to achieve from this week’s meeting.

The end is near. In the time it took to create the world, the global justice movement may herald in the demise of the World Trade Organization (WTO). For six days, from December 13th to the 18th, the WTO will hold its sixth ministerial meeting in Hong Kong. All signs point to the strong possibility that once again, the ministerial will conclude in failure. After the collapse of negotiations in Seattle in 1999 and Cancun in 2003, the WTO has tried with only limited success to get back on to its feet. The combined efforts of determined developing country governments supported by social movements the world over have successfully forced the WTO into a corner from which it seems unlikely to emerge.

Already, negotiators have been forced to abandon some of the most contentious and destructive agreements sought at earlier ministerials on investment, government procurement and competition policy. While whittled down and on its last legs, however, the agenda for the Hong Kong ministerial — if successful — threatens fundamental public rights in favor of multinational corporate expansion.

A look at Wal-Mart’s free trade history and its likely Hong Kong agenda exposes some of what’s a stake at the sixth WTO ministerial and will hopefully motivate more of us in to action.

The North American Free Trade Agreement (NAFTA) and the WTO have paved the way for Wal-Mart to become the world’s largest corporation. These agreements have enabled Wal-Mart to enter and dominate markets with its stores and for it to use those suppliers most willing to pick up, close shop, and scour the planet for the cheapest places to make products.

Wal-Mart did not open a single store outside of the United States until 1991 in Mexico. As late as 1995, the store reports that imports accounted for no more than six percent of the products sold in its U.S. stores. While some dispute that figure as far too low, there is no debate over the dramatic changes in Wal-Mart’s operations following the passage of the NAFTA in 1994 and China’s entry into the WTO in 2001. Today, Wal-Mart has more than 2,400 stores in fifteen countries outside of the United States. In 2003, consulting firm Retail Forward estimated that 50 to 60 percent of the merchandise sold in Wal-Mart’s U.S. stores was made overseas.

And Wal-Mart just keeps growing. Wal-Mart’s international sales reached $56.3 billion in 2005, an 18.3 percent increase over the previous year, and international profits rose to nearly $3 billion, an increase of more than 26 percent. In fact, Wal-Mart’s overall economic growth rate is almost four times that of the United States (3.9 percent) and the world (4 percent).

Wal-Mart and NAFTA

In 1994, the U.S., Mexico and Canada signed the most far-reaching multilateral trade and investment agreement of its time. NAFTA investment and market access rules eliminated many of the existing government restrictions on how and where Wal-Mart could operate, clearing the way for Wal-Mart to become the largest retailer in all three NAFTA countries. Today, Wal-Mart is the largest private employer in Mexico. It has nearly 700 stores and does more business than the entire tourism industry. It sells six billion dollars worth of food a year, more than any other Mexican retailer.

NAFTA eliminated tariffs and other import controls on goods moving between the three countries. This meant that Wal-Mart’s suppliers could send products to be assembled in Mexico, where labor is cheap, environmental protections weak, taxes low and protections from further regulation and government oversight even greater than in the U.S., and then send the finished products back home to sell at prices far cheaper than if the goods were produced in the United States. These factories, called maquiladoras, more than doubled in number between 1990 and 2001, from 1700 to 3600 plants.

According to the U.S. Congressional Research Service, U.S. imports from Mexico increased by 229 percent between 1993 and 2001. While U.S. exports to Mexico increased 144 percent, 60 percent of these were components being shipped to the maquiladora factories for processing, meaning little or no benefit was derived by the Mexican economy or consumer. Laws that would have addressed this problem, such as requiring a certain amount of domestic content in production, a certain amount of local investment, or a transfer of new technologies, etc., were stripped away by the NAFTA: good for the companies, bad for the country.

The dramatic rise of the maquiladoras coincided with the near collapse of the Mexican farming sector due to NAFTA’s elimination on agricultural tariffs and quotas. One and a half million Mexican farmers and their families were forced from their land and subsequently found themselves in search of work. The more unemployed workers there were, the more the maquiladoras could demand stiff sacrifices in return for jobs.

The result: average real wages in Mexican manufacturing are lower today than they were before NAFTA, the minimum wage has declined by 20 percent and hovers at around $4/day, and half of the nation now lives in poverty. As unemployment, low wages and poverty grow in Mexico, Wal-Mart’s low prices look more and more attractive and its stores continue to swallow-up the competition.

Wal-Mart and the WTO

Free trade allows corporations to be fickle in choosing their partners. If they no longer enjoy the benefits of one nation, they can pick up and move on to the next without any thought to commitment. Wal-Mart has mastered this skill. It was aided in doing so by China’s WTO membership.

Until 2000, the U.S. applied uniquely high tariffs on goods imported from China in opposition to the human rights abuses inflicted on the Chinese by their government. U.S. corporations looked to China and saw 1.2 billion potential workers in a country where unionization is illegal, workers are cheap and disciplined, unemployment is rampant and environmental protections are nil. Others saw the elimination of these tariffs and China’s potential WTO membership as moves that would increase the powerlessness of China’s workers, not only at the hands of the Chinese government but at the hands of U.S. corporations as well. In 2000, the corporations won, the tariffs were removed, and one year later, China became a full member of the WTO.

The result has been nothing short of phenomenal. The U.S. trade deficit with China more than doubled from $70 billion in 1999, to $162 billion today. This means that the U.S. is buying $162 billion more from China than we are selling to it. A large percentage of these purchases are made by U.S. companies that build products in China and then ship them to the United States, like Wal-Mart’s suppliers.

Because the NAFTA makes it illegal for the Mexican government to require any sort of commitment on the part of U.S. producers to Mexico, when things started looking good in China, U.S. producers picked up and moved out. A full third of the 800,000 manufacturing jobs initially created under NAFTA have since disappeared. Due to the WTO’s elimination of tariffs and quotas on products entering and leaving China, and elimination of many of the restrictions on which companies can operate in China and where, in the last five years, Wal-Mart alone has doubled its imports from China. It opened a global procurement center in Shenzhen, China. In 2002, it bought approximately $12 billion in merchandise from China, 20 percent more than in 2001, which represented nearly 10 percent of all Chinese exports to the United States. It is the single largest U.S. importer of Chinese consumer goods, surpassing the trade volume of entire countries, such as Germany and Russia.

In 2004, the Los Angeles Times interviewed 20-year-old Ping Quixia. Quixia makes women’s underwear and other garments for Wal-Mart at the Gladpeer Garment Factory in the southern Chinese city of Dongguan. She is one of 1,200 workers, mostly young women, paid about $55 a month, living eight to a room in cramped dormitories.

“In southern China,” the paper reports, “Wal-Mart has found all the ingredients it needs to keep its ‘every day low prices’ among the lowest in the world. Although labor costs more here than it does in Bangladesh, China offers other advantages: low-cost raw materials; modern factories, highways and ports; and helpful government officials.” Wal-Mart has more than 3,000 supplier factories in China, and the number is expected to rise. But that doesn’t mean workers in China are secure.

The managing director of the Gladpeer Garment Factory said that he is likely to reduce employment in Dongguan and open a new factory in Guangxi province, where labor, electricity, housing and taxes are even cheaper. “Competition is intense, and our biggest single issue is cost … That’s why we’re going to Guangxi.”

Lee’s complaint is just as readily heard across the United States, as Wal-Mart suppliers are forced by the company to cut costs annually. In order to do so, many have closed shop in the U.S. and moved to China.

What Wal-Mart Wants in Hong Kong

Wal-Mart wants to open more stores, in more countries, under as few government regulations as possible. It therefore wants the market access rights provided by NAFTA and the WTO expanded. Wal-Mart also wants its suppliers to produce ever-more cheaply. This means, reducing tariffs on imports and exports in more countries. To this end, the Hong Kong WTO ministerial offers negotiations on the expansion of the General Agreement on Trade in Services (GATS) and on non-agriculture market access (NAMA). These two sectors plus the negotiations on agriculture are the “Three Pillars” of the Hong Kong ministerial.

General Agreement on Trade in Services (GATS) & Non-Agriculture Market Access (NAMA)

The GATS agreement restricts the ability of governments to regulate the service sector, which, as defined by the WTO includes just about everything businesses do, from selling bananas to financial services, from education to water, and from oil to electricity.

Multinational corporations have placed enormous pressure on governments to expand the service sectors covered by GATS. In Hong Kong, the United States and the European Union, in particular, are pushing for aggressive negotiations to force more countries to bring more of their service sectors under GATS and to expand the list of government regulations restricted by GATS rules.

Wal-Mart is likely particularly interested in GATS negotiations on “commercial presence” which would eliminate more government restrictions on where, when, how, or if foreign companies can open businesses, including retail stores. For example, local and national governments would not be able to pass zoning preferences for locally owned or small businesses, or laws that ban “big box stores” or chains. In fact, any law that could be argued to provide a preference to a local retailer as opposed to a foreign company, such as Wal-Mart, could be judged GATS-illegal.

This means more nations opening their doors to Wal-Mart stores without the ability to require, for example, that Wal-Mart partner with a local business, sell products made by local companies, reinvest its profits locally or limit the size of the stores it builds or the locations where they are built.

The NAMA negotiations would reduce or eliminate tariffs on imports and exports of industrial goods in more parts of the world. Wal-Mart suppliers would then have even more options for nations in which to produce goods that offer even cheaper working environments than Mexico or China. They will be able to send production inputs from the U.S., or anywhere else for that matter, build the goods in the cheaper production environment, and send the finished products either back to Wal-Mart stores in the U.S., or sell them at Wal-Mart stores around the world.

The results of increased market access and tariff elimination through the GATS and NAMA negotiations will mean more nations around the world will be forced to succumb to the economic inequalities and injustices imposed through the NAFTA in Mexico and in China through the WTO.

Wal-Mart, on the other hand, will simply continue expanding — successfully pitting the poor against the poorer in its merciless pursuit of ever falling prices and mind-boggling profits.

None of this, however, is a done deal. Negotiations can be stalled once again in Hong Kong as they were in Cancun and Seattle.

Developing country delegates need to be able to point to the streets of America, to the Halls of Congress, to the pages of the nations’ newspapers and say to the American negotiators: “you do not even have the support of your own people for the deals you are pushing, why should we follow you?”

We have six days.