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(This is the 4th and final part of a series of posts on this topic)

Are there any institutions that reduce the ability of a relatively peaceful public majority to counter the influence of the relevant special interests?

I discuss three institutions here – lack of democratic accountability; the poor performance of the mass media; and government propaganda.

Some of the military and covert interventions occur with little oversight by Congress. In such cases, there is not even a formal democratic check on the policy through congressional representatives. The intelligence agencies, for example, conduct projects that are not properly identified on the budgets approved by Congress. Historically, projects by US intelligence agencies have included not merely spying, but also political intervention in other countries, arms exports, supporting of coups and political assassinations.

The poor performance of the mass media means that when a decision to militarily intervene is publicly aired, much of the voting public does not receive a balanced account of the issue. Academic analysis of the US mass media system notes various factors that contribute to the poor performance.

A factor that relates closely to mass media, but that nonetheless deserves independent mention is that of Defense Dept PSYOPS (psychological operations) programs. Even when these are theoretically aimed at an international audience rather than the domestic one, the nature of global news coverage in mass media is such that the psyops influence domestic audiences as well.

US voters other than an identified group of special interest (see Part 1) formally have the capacity to influence the government policy making and to temper the influence of their fellow constituents in the identified group. However, these are institutional reasons that reduce the likelihood and efficacy of the tempering.

Secrecy

Special Access Programs or SAPs are highly classified programs funded in a way to keep the budget secret. The budgets for such programs can be acquired through fake labels for projects or by channelling funds from other government agencies to the Defense Dept and the intelligence agencies. The Defense Dept began this practice with the Manhattan Project during WWII, which allowed the atomic bomb to be built without Congressional knowledge.

Such Special Access Programs (also known as black projects covered under a black budget) are extensively used and can be well funded. For some indication, in 1992, a Library of Congress report noted that the GAO (Government Accountability Office) had identified 185 such programs and that recent estimates (since authoritative indicators are unavailable) suggest secret military spending of $30 to $35 billion per year (Caldwell 1992). Since then, the black budget is thought to have expanded. In 2003, it was reported to be at its highest since 1988 (Morgan 2003). Much of the program involves research and development of expensive technology and weapons such as aircraft. However, the black budget also includes the budget for covert action by the many intelligence agencies.

Given the aim of plausible deniability for covert action, it is often difficult to establish where the authorization for a specific covert action was initiated (Church Committee 1975: 10).

Since the Watergate scandal, there has been a requirement that CIA covert activity (if not covert activity carried out by other intelligence services) be authorised by a Presidential finding. Moreover, a selected group of Congresspersons receive briefings on the Special Access Programs – the Senate and House Select Committees on Intelligence. However, even this reporting requirement may be waived at the discretion of the Secretary of Defense (Johnson 2004: 117-8; 2006: 103).

These provisions have not worked as intended. Congress forbade CIA funding of the Contras – an armed guerrilla group seeking to overthrow the elected government of Nicaragua. The CIA got around the problem of inadequate funding for their support of the Contras by diverting funds raised through arms sales to Iran and by turning a blind eye as traffickers smuggled cocaine into the US and diverted some money to the Contras[1].

Moreover, in the absence of Presidential findings on a specific issue, the CIA has used ‘worldwide findings’ as authority to initiate certain types of covert action. Covert operations can also be funded by seeking funds from corporations or foreign governments either as political favours or when some interests of these agents coincide with relevant interests of the decision-makers in the US government (Johnson 2006: 103-4).

The 2005 US covert intervention in the Iraqi elections used retired CIA agents and other non-governmental personnel and funds not necessarily appropriated by Congress in the belief that it is only necessary to brief congressional intelligence committees if the CIA operation is an officially sanctioned one (Hersh 2005).

Mass media

At times, a decision to intervene abroad is debated publicly before the intervention. One possible check on a representative government’s power to intervene is the action of a majority of the population exercising their democratic power over governmental policy. The majority public opinion about the justice of, or need for, a proposed intervention depends partly on the factual information available to the public, and on its consequent ability to assess the reasons advanced for the intervention by the executive branch of the government. The institution with primary responsibility and capacity for the dissemination of such factual information is the domestic mass media[2].

In cases where the government view has been captured by special interests who seek intervention, it is to be hoped that the news media would thoroughly assess the proposal to intervene to present the public with the requisite information to judge the cogency of the case for intervention. However, institutional analysis of US mass media suggests reasons that the news media’s discussion of a proposed intervention may tend to be insufficiently critical of government pronouncements. Let me outline some of the relevant analysis.

In the US mass media system, the dominant news organizations operate as profit maximizers and thus seek to minimize cost. They earn an income largely from advertising and have costs that include paying reporters and journalists and paying for independent investigations. Profit maximization places certain sorts of pressures.

It is costly to maintain a large staff of reporters to assign to stories as they arise, and it is costly to ask them to research each story, interview relevant sources, and seek out dissenting opinions. Wealthy and well organised groups can afford to make press releases, publications, briefings, and video and audio news releases about issues that affect their interests. Such groups can disseminate the press releases free of charge to news media. The cost minimising imperative of news organisations means that they will tend to have a bias towards accepting and presenting such cheap sources of news, and if at all possible, avoid incurring the cost of researching the issue themselves.

The groups with the requisite wealth for making such free press releases are, overwhelmingly, the corporate sector and the government. Thus, simply by the cost minimising imperative, news media have a tendency to over-represent the views of the corporate sector and the government. The corporate sector has long pursued a strategy for influencing media coverage of corporate issues by funding think tanks that can act as a nominally independent (not explicitly representing a corporation) source for interviewees. A very substantial US government effort in this field has long been maintained by such bodies as the Department of Defence, the Air Force, and other armed forces (see the sources cited in Herman and Chomsky 2002: 20).

All this would not be so problematic if news outlets that were credulous and uncritical due to cost minimising pressures were balanced by other news outlets that are duly sceptical and that invest resources in independent research and scrutiny. We cannot hope to design a media institution that guarantees all and only the truth relevant to each important story. The best we can do is to design a system in which the poor performance of some news outlets is not too detrimental to the level of information available to the public, thanks to the better performance of competing news outlets. Informed by the diversity of voices, citizens can then make up their own minds as to what is best supported by evidence. This public good is undercut if a small number of voices dominates the relevant media and thus drowns out smaller voices. As a systematic consideration, it is desirable that the diversity of voices be relatively equal in power and reach in important respects, so that a more powerful competitor cannot drown out its rivals.

However, the mass media system in the US is highly concentrated. This is an important part of the explanation for the media’s poor performance. Even if critical voices exist that consistently expose relevant evidence that is mostly ignored by most media, the critical voices may not reach the majority of the public. The bulk of the mass media in the US is owned by about half a dozen giant conglomerates – Time Warner, Disney, Viacom, News Corporation, General Electric and Bertelsmann (Bagdikian 2004: 3ff). There are other large media corporations that round out the dominant companies but that do not match the overall dominance of the big six. There are also some companies with particular dominance in a given medium, such as Clear Channel in radio, or Gannett in newspapers.

The power of the major media outlets lies not only in the fact that they are the direct source of news for a massive proportion of the public, but also in the fact that they set the agenda for many minor media outlets. Small news outlets that are not owned by the large media conglomerates must minimise costs like their competitors. They too try to cut spending on reporters and on investigative resources. As a result, much of their international and national news and analysis is taken from the major outlets. This is one way in which, the major outlets are agenda-setters. What they choose to discuss, the facts they present in the discussion and the tenor of their coverage set the agenda for smaller outlets who do not have the resources to independently investigate stories while remaining competitive against the major companies.

Propaganda or PSYOPS

A related problem that bears distinct mention is that of government propaganda. The over-reliance on government sources and a failure to seek out critiques of these or to fact-check them is made even more problematic when the government sources engage in what is (euphemistically) called psychological operations or PSYOPS. In an article on 19th Feb 2002, the New York Times reported that the Pentagon’s Office of Strategic Influence was “developing plans to provide news items, possibly even false ones, to foreign media organizations”, the goal being to “influence public sentiment and policy makers in both friendly and unfriendly countries” (Hart 2005). Amidst public outrage, the Pentagon closed the office, but Defence Secretary Rumsfeld quietly admitted that all of its tasks would simply be carried out by other agencies.

A relatively recent development in government news releases is the use of video and audio news releases (VNRs and ANRs). These are produced to resemble news segments on television and radio. These have long been in use by corporations to smuggle favourable coverage of their product (i.e., advertisement), into news broadcasts. The segment is intended to pass as news because it informs viewers of some technological or pharmaceutical innovation. While the PR firms producing these releases generally take care not to make false claims, they have an imperative to avoid dissenting views, downplay criticism, include paid testimonials and exaggerate effectiveness as much as possible short of a lie. US government departments, including the Defense Dept also use such releases. The releases often include reporting by former television news reporters and are in all other ways indistinguishable from news clips. Given the cost cutting imperatives of the media companies, they have an incentive to cut down on their staff of reporters or on their budget for independent news gathering, and to resort to such news releases as far as possible. Significant US government use of VNRs and ANRs has occurred at least under the Clinton and the most recent Bush administrations[3].

Often the government produced releases are distributed to international news organizations like Reuters and AP, from where they reach major US networks, and then feed through to local affiliates (Barstow and Stein 2005). While the government claims that it informs the recipient organisations about the producer of the segment, this information may get lost as it travels the chain from international news organizations, to local ones. Even if the information reaches the broadcasting agent, in the absence of a legal requirement to the contrary, the agent has an interest in neglecting to mention the source, to cast its news show in a favourable light by promoting the impression that the show’s own reporters created it.

The congressional Government Accountability Office has released at least three reports stating that the use of such releases in news may constitute “covert propaganda” on the part of the government, despite government pronouncements that the fault lay not with them but with the news broadcasters who failed to disclose the origin of the video and audio segments. The GAO has no enforcement abilities and the government has, for the most part, taken no note of the reports (Barstow and Stein 2005).

Another recent revelation about Defense Dept propaganda relates to retired military officials (Barstow 2008). Retired military officials are widely used by news stations as independent military experts (not tied to either the government or to defense companies) not merely on strategic decisions of troop movements, but also on broader policy for the US war in Iraq and Afghanistan.

The assistant Secretary of Defense for public affairs in President George W. Bush’s first term, argued that in a spin-saturated news climate, opinion is swayed most by voices perceived as authoritative and independent. Retired military analysts were identified as such voices. Since news shows were increasingly using these analysts, they were targeted as particularly influential. The idea was to treat these analysts as ‘message force multipliers’ or ‘surrogates’ (to use Defense Dept terms) who could be counted on to deliver the administration’s themes and messages to the public in the form of their own opinions.

The analysts were not paid to echo the government view. However, the analysts collectively represent about 150 military contractors either as lobbyists, senior executives, board members or consultants. Such military contractors derive an advantage from inside information about the military’s needs that is unavailable to their competitors. Analysts are of greater use to the military contractors if they can boast inside access. The Defense Dept offered just such insider access. The analysts received hundreds of private briefings from senior military leaders, officials from the White House, State Department and Justice Department. They were taken on tours of Iraq and given access to classified intelligence. Moreover, the Defense Dept maintained a close watch over the interviews and opinion pieces delivered by these analysts. Those who were critical of the administration’s policy were not invited back, thus losing their valuable inside access.

Are there any institutional features that increase the likelihood of a significant component of military and covert intervention in US foreign policy?

There are three institutional factors to discuss – the proliferation of US military bases abroad, US training of foreign militaries and pressure from the defense industry.

The US maintains a large number of military bases around the world. This makes it faster and cheaper to deploy troops whether for small-scale covert operations, or, if the bases are large, also for larger and overt interventions. In addition there are the pressures from defence industry lobbies who would stand to gain contracts from any intervention. If a given problem can be addressed both through military/covert intervention and through other means, these institutions serve to systematically make the former means more attractive for the decision makers in Y.

The US institution of training foreign militaries creates a channel of support for the relevant militaries through arms and intelligence. Such support can be a harmful sort of intervention in itself if the foreign military is repressive of the domestic population. The institution of training sometimes also allows the US to influence a foreign military to carry out US foreign policy by proxy, bypassing any domestic US compunction about the intervention.

The Defense Dept reports that in September 2001, there were 725 US military installations on foreign soil (Department of Defense 2002). According to Defense Dept reports, just before the September 11 2001 attacks, over a quarter of a million US military personnel were deployed overseas, in 153 countries (Johnson 2004: 154ff). These are the officially disclosed numbers. In addition, there exist bases that are undisclosed or secret, either because public knowledge that an installation is American would be politically embarrassing for the host government or for other reasons[1].

The presence of overseas bases in geo-politically strategic regions of the world potentially reduces the cost of at least small scale interventions abroad as personnel and equipment may not need to be moved from the US to the target region. The bases also provide personnel with an official reason for their presence in a region. This official reason can be the cover for covert operations. Thus, once a decision is made to militarily or politically interfere in a foreign country, the large number of bases stationed overseas may reduce the cost of an intervention or make a covert intervention easier to disguise.

Pressure from defense industry lobbies to prefer an interventionist alternative to a more diplomatic one may make itself felt informally through the close ties between the governmental defense establishment and the industry.

The US relies increasingly on its armed forces and intelligence agencies to deal with foreign policy issues at the expense of diplomatic resources. The general strategy has been to build close ties between the US military and the local military in a given region and thus open a channel of influence. Programs of military training and education, security assistance and foreign military sales have formed a part of this strategy. A distinct feature of this approach (as compared to official diplomatic relations) is that Defense Dept related agencies are better able to operate covertly and to engage with unstable foreign powers without public scrutiny.

Within the US military, Unified Combatant Commands (UCCs) are joint military commands composed of forces from more than one service (such as the army and the air force). There are six UCCs in charge of six broad regions of the world, carving up all inhabited continents. The commanders in charge of each region, called combatant commanders, are four star generals or admirals and report only to the Secretary of Defense and the President. They oversee such matters as arms sales, military bases, intelligence and special operations among others. These commanders have considerable impact on foreign policy in their region and often have more impact than US ambassadors operating in the region. One major type of influence is in the cultivation of close relations with local military organizations, often in the form of training missions by US Special Forces of the local military. These close relations serve as a conduit for arms sales, allow the possibility of US spying, and act as a channel of influence upon the local armies to carry out policies favored by the US Defence Dept (Johnson 2004: 124).

The growing influence of the Defense Dept in foreign policy, exhibited for instance in the significant powers available to the regional UCCs, makes it more likely that at least a part of the US foreign policy position in relation to a country will be in the form of military intervention (Stratfor 2001). At times this will be because of explicit policy decisions in the US executive branch to deal with a perceived crisis not by diplomacy but instead by intervention in the form of arming of local military and paramilitary forces or influencing local militaries to enact US foreign policy by proxies or by other covert operations.

However, even in the ordinary course of events and in the absence of any perceived crisis, arms sales and US training of foreign militaries can be a potentially harmful form of US military and political intervention abroad. For example, such training may support (in effect, if not by intent) the military of a repressive government against the wishes of the repressed population by supplying it with arms, training and techniques to keep rebellious populations under control (Lumpe 2002: 16). The interest of the combatant commanders or of the Defense Dept in maintaining cooperative relations with the local military may trump any concern about the human rights record of the local military or the level of domestic popular support for the government even if the latter sorts of concerns have been raised by the State Dept or by Congress (Lumpe 2002: 24-5). For some indication of the breadth of such influence, note that US special operations forces alone (leaving aside regular military forces) train foreign troops in around 150 countries annually (Lumpe 2002: 1).

Here is an example. In 1991, Indonesian troops trained by the US and supplied by US weapons massacred hundreds in East Timor. This led Congress to cut all funding for Indonesia under the International Military Education and Training Program (IMET). However, the Defense Dept secretly continued its military relations with Indonesia by initiating a new program – the Joint Combined Exchange Training program (JCET).The program purported to give US Special Forces training in foreign languages and familiarity with the local military, but in fact allowed 36 training exercises with the Indonesian special forces between 1992 and 1998 (Johnson 2004: 137-8). The US Special Forces trained their counterparts in urban guerrilla warfare, surveillance, sniper marksmanship and psychological operations (Biddle 2002).

References:

Biddle, Kurt; 2002; “US training of Indonesian armed forces”; US foreign military training; Lumpe, Lora (ed); p19

Department of Defense (USA); 2002; Base Structure Report: a summary of DoD’s real property inventory; accessed at http://www.theblackvault.com/documents/basestructure2002.pdf on 10 May 2009

Johnson, Chalmers; 2004; The sorrows of empire; Verso; London

Lumpe, Lora; 2002; US foreign military training: global reach, global power and oversight issues; Foreign Policy in Focus (accessed at http://www.fpif.org/pdf/papers/SRmiltrain.pdf on 10 May 2009)

Stratfor (Stratfor Global Intelligence Update); 2001; “Foreign policy and the U.S. military: what are dangers of playing ‘cops of the world’ role?”; the paper is available by subscription at www.stratfor.com and can also be accessed legally and without subscription at http://www.worldnetdaily.com/news/article.asp?ARTICLE_ID=23554

Through which institutions are these interests able to have disproportionate influence on foreign policy?

(This post follows on from the discussion in Part 1 of this four part series)

This is a matter of the means by which a special interest group X identified in Part 1 can influence the relevant foreign policy makers in the US government. As with any special interests, these ones are likely to seek to influence policy through lobbying and campaign finance. This influence can target both the executive branch (through political parties) and Congress. A ‘revolving door’ between highly placed officers in these companies and highly placed officers in the executive branch of government also raises concerns about conflict of interest improprieties. An additional influence of defence companies on congresspersons is through the threat of removing skilled defence jobs from the congressional district. The degree of influence afforded by such mechanisms is disproportionate to the number of voters benefiting from the decision. The majority of voters may have little to gain from the policy, and may even be against military intervention. However, organised, wealthy and well-connected special interests have greater influence on policy makers through lobbying and campaign contributions than do unorganised, relatively poor and relatively poorly connected voters.

Lobbying, campaign contributions, political engineering and front-loading

A six year study (1998-2003) of Department of Defense contracts, finds that the ten largest defense contractors all spent heavily on both campaign contributions (a combined $35.7 million) and lobbying ($414.6 million). The return on their investment was a combined $340 billion in contracts over that time (Center for Public Integrity 2004). Other major lobbying industries include the energy industry. Campaign contributions and lobbying are aimed both at congresspersons and at the executive. To influence the executive branch, attention might be lavished on senior members of the relevant political parties, and on the presidential candidates.

Former Defense Dept military analyst Franklin Spinney describes the two techniques of front-loading and political engineering used by defense companies. Political engineering involves defense contractors spreading jobs and profits over as many congressional districts as possible. Complex weapons systems often involve sub-systems that are sub-contracted to other firms. Such sub-contracting increases the ability to spread production across congressional districts. This maximises the number of congresspersons who stand to lose jobs and revenue for their district’s economy (and potentially stand to lose votes as a consequence) in case the defense contract is cancelled. Such pork barrel politics also allows congresspersons to ingratiate themselves with constituents by ‘winning’ defense contracts for their district.

Those approving a defense program may have qualms about its cost. Front loading is the idea of attaining this approval by quoting unrealistically low figures in order to get the seed money for the program. Once the program is begun, it is easier to get approval for the actual, higher, costs, since failure to approve the costs would leave nothing to show for the seed investment. The approval is also made easier by political engineering, as many congresspersons stand to lose jobs and revenue in their district. By low-balling the cost, the contract is made easier to approve. By political engineering, the contract is made difficult to terminate.

Individuals in the Pentagon or Department of Defense are happy with the setup as they get control over a growing volume of resources and weapons. Individuals in the Congress are happy because this funnels government money (via Department of Defense and via defense contractors) to their districts. The contractors are happy as they ensure greater demand for their products. Spinney 1998 [originally 1990]

Revolving door

An example of the institution of a revolving door is in private equity firms. A growing number of private equity firms are investing in defense companies in order to win contracts from the Department of Defense and the newly created Department of Homeland Security. This growth is understandable given the size of the potential pool available to contractors in this area. Half of the Defense Department budget (approximately $900 billion between 1998 and 2003) has gone to contractors rather than paying for direct costs such as payrolls for the uniformed armed services (Center for Public Integrity: 2004). A 2004 report on private equity firms investing in defense companies revealed that such equity firms employ five of the past nine defense secretaries, two secretaries of state, two national security chiefs, two CIA directors and dozens of distinguished retired military officials (Ismail 2004b). For a discussion of the Carlyle Group, the private equity firm with some of the greatest revenue from defense contracts in recent years, see (Ismail 2004a).

Here is an example of a revolving door between the Defense Dept and the defense industry. In 1992, Dick Cheney, held the office of Secretary of Defense. In that year, the Defense Dept paid the company Brown & Root a total of $8.9 million to produce a classified report detailing how private companies could help provide logistics for American troops. In the same year, that company won a contract to provide logistics for American troops. Between 1992 and 1999 the Defense Dept paid Brown & Root over $1.2 billion for its work.

Cheney left the office of Secretary of Defense in 1992 and between 1995 and 2000 he was CEO of Halliburton (of which Brown & Root was as subsidiary). When Cheney began his tenure at Halliburton, the latter was doing less than $300 million a year in business with the Defense Dept. By 1999, this figure had grown to over $650 million (Bryce 2000).

The obvious worry is that the these ex-officials will be able to gain influence with their former colleagues in government and gain a competitive edge for their defense companies over competitor companies. Another worry is that if government officials are promised lucrative careers in a company after retirement from office, they may be willing to pull strings to favour that company in the awarding contracts.

References:

Bryce, Robert; 2000 (Aug 25); “The candidate from Brown & Root”; The Austin Chronicle; accessed at http://www.austinchronicle.com/gyrobase/Issue/story?oid=oid%3A78397 on 10 May 2009

Center for Public Integrity; 2004 (Sep 29); “Summary: Center Report Finds $362 Billion in No-Bid Contracts at the Pentagon since 1998”; Center for Public Integrity; accessed at http://projects.publicintegrity.org/pns/default.aspx?act=summary on 10 May 2009

Ismail, Asif M.; 2004a (Nov 18); “Investing in War: The Carlyle Group profits from government and conflict”; Center for Public Integrity; accessed at http://projects.publicintegrity.org/pns/report.aspx?aid=424 on 10 May 2009

Ismail, Asif M.; 2004b (Nov 18); “The Sincerest Form of Flattery: private equity firms follow in Carlyle Group’s footsteps”; Center for Public Integrity; accessed at http://projects.publicintegrity.org/pns/report.aspx?aid=425 on 10 May 2009

Spinney, Franklin; 1998; Defense Power Games; original version published by Fund for Constitutional Government in 1990; updated 1998 version accessed at http://www.d-n-i.net/fcs/def_power_games_98.htm on 10 May 2009

A military or an intelligence agency embodies a concentration of power. At times, concentrations of power and their deployment may be necessary. However, a cautionary acknowledgement is that there is a potential for concentrations of power being used for unjust purposes. I take it to be an uncontroversial precautionary principle that we should bind concentrations of power with various checks and balances to minimize the possibility of their being used for unjust purposes.

With respect to the US military and intelligence agencies, such checks and balances include strong democratic accountability. Any policy regarding use of the military should be vetted by an informed public. Another check is to neutralise as far as possible any systematic pressures to deploy the military. The public (or elected representatives) may still determine that military or covert action is appropriate in a given case. However, the absence of systematic pressures to act thus would ensure that this power is only deployed when determined to be necessary.

In a series of four posts (starting with this one), I discuss various domestic US institutions that either reduce democratic accountability of the military and intelligence agencies or that create systematic pressures for their use. The four posts address the following four questions.

1. What sorts of groups are likely to benefit most from military intervention by the US Government?

2. Through which institutions are these interests able to have disproportionate influence on foreign policy?

3. Are there any institutional features that increase the likelihood of a significant component of military and covert intervention in US foreign policy?

4. Are there any institutions that reduce the ability of a relatively peaceful public majority to counter the influence of the relevant special interests?

In answering these four questions, I discuss various institutions. These include: lobbying and campaign finance pressure from defence industry and from other industries on policy makers; ‘revolving door’ appointments in the relevant industries and the relevant policy offices; the threat of reducing jobs in a congressional district; the maintenance of a proliferation of US military bases abroad; the secrecy of various intelligence and military activities of agencies in the US and the lack of oversight by congress; the poor performance of mass media; and the propaganda (or psychological operations) of the Defense Dept. These institutions operate in various ways, as distinguished by the various subheadings above. Some of the institutions create a pressure on foreign-policy makers to intervene politically or militarily, others make certain types of intervention more attractive in comparison to alternative ways to address a given problem. Some institutions make it easier for the identified special interest groups to shape policy without the critical attention of either Congress or of a significant proportion of the voting population.

So, on to the first question.

What sorts of groups are likely to benefit most from military intervention by the US Government?

Systematic pressures to deploy the military are likely to emerge from the defence industry (which supplies the government with weapons and various services in the event of military action) and from large industries (especially extractive industries) that might benefit from using covert or overt military action that secures access to natural resources or to markets in foreign lands. With respect to pressure from the defence industry, this idea of the military-industrial complex has occupied popular discourse at least since former US President Dwight Eisenhower’s 1961 farewell speech upon leaving office. With respect to pressure from extractive industries, this idea has been discussed popularly in the context of colonialism and empire.

Defense industry

Traditional defense companies make the goods of war, such as weapons, ammunition, aircraft, tanks, armoured vehicles and artillery. They also provide technical services to maintain these weapons and services such as logistics, training and communications support. The major US companies in this industry include Lockheed Martin, Boeing, Northrop Grumman, General Dynamics, and Raytheon. These five are also among the six largest defense companies worldwide (the other being the UK company BAE Systems).

More recently, private intelligence-gathering companies have been contracted by government intelligence gathering agencies. Major such companies include Science Applications International Corporation, Booz Allen Hamilton and CACI International. The services of CACI include the provision of interrogators, four of whom have been accused of being directly or indirectly responsible for torturing prisoners in Abu Ghraib (Shorrock 2008: 281).

Private Military Contractors or PMCs offer personnel (as opposed to equipment) for combat zones. Their services include armed combat services, retired officers to provide strategic advice and military training; logistics; intelligence; maintenance services to armed forces; and tactical combat operations. Camp Doha in Kuwait, which served as the launch pad for the 2003 invasion of Iraq, was not only built by a PMC but also operated and guarded by one. Significant use of PMCs began in the early 1990s and has boomed in the 21st century (Singer 2005).

There are problems peculiar to the growing PMCs and to the intelligence gathering companies that are not shared by other aspects of the defense industry. For instance, while US military personnel are accountable to a system of laws defining acceptable conduct and to an institution for enforcing these laws, private contractors hired by the Pentagon may not be. While US intelligence agencies may be legally bound by laws circumscribing permissible spying and may be subject to established oversight institutions to enforce these laws, contracted intelligence gatherers may not be so easily bound by enforceable law and their activities may remain hidden from any oversight under the guise of a business secret.

These companies have significant interests tied to US foreign policy. Here are the revenues from defense activities for 2007 for some of the larger companies. Lockheed Martin received US$ 38.5 bil; Boeing received US$ 32 bil; Northrop Grumman US$ 24 bil; Raytheon US$ 19.8 bil. Of the intelligence gathering companies, SAIC received US$ 6.5 bil and Booz Allen Hamilton received almost US$ 3 bil (defensenews.com).

These companies have significant business deals with the US Departments of Defense and of State, and various US intelligence agencies. Insofar as covert or overt military or political intervention abroad by US government agencies require the products and services of the arms, intelligence-gathering and private contractor companies, the companies have an interest in the US government pursuing such foreign policies.

There are also ways for the defense industry to profit from US foreign policy other than by directly selling their products to the US military establishment. The companies can sell their products to the governments of other countries. An aspect of US foreign policy is its training of foreign militaries. The US State Department’s International Military Education and Training program offered military training to 133 countries in 2002 (for comparison, there are 189 member countries in the UN). Such close contact between US military instructors and foreign officers and familiarity (during training) with US-made weapons translates into an inside track in weapons sales to these foreign governments. The seller of weapons in these transactions might be the Defense Dept or private companies licensed to sell weapons by the State Dept. This is a lucrative trade. The US is the biggest seller of munitions worldwide and exported US$ 44.82 billion in arms over the period 1997-2001 (Johnson 2004: 132-3).

Non-defense industries

Various industries (often extractive industries) would like access to the natural resources of foreign countries. Cost minimising motives predispose such companies to use means at their disposal to ensure the cheapest possible access to these resources. A foreign political aspirant’s declared intention to nationalise, say, the country’s oil industry or to raise the royalties demanded for resources, would encroach on the cost minimising motive of the company. If the company C from the US competes against a company from foreign country F over access to natural resources in a third country T, C might win the access to the resources if the political regime in T is friendlier to the government of the US than to the government of F. These sorts of considerations create an interest in influencing the US government to pursue a certain type of foreign policy, to bring about a certain sort of regime in a foreign country. Let me mention two of the better known examples of such intervention.

The US and British backed coup deposing Prime Minister Mosaddeq of Iran in 1953 and US support of the ensuing dictatorship of the brutal Shah is an example of covert US action tied up with oil interests. Mosaddeq had nationalised the country’s oil industry which at the time had a significant role for British oil interests.

The United Fruit Company successfully pressured the Eisenhower government to topple democratically elected President Arbenz of Guatemala via the CIA in 1954. Arbenz’s agrarian reform agenda was set to hurt the Company’s interests which included large landholdings in the country.

References:

Johnson, Chalmers; 2004; The sorrows of empire; Verso; London

Shorrock, Tim; 2008; Spies for Hire; Simon &Schuster

Singer, Peter W.; 2005; “Outsourcing the war”; The Brookings Institution; accessed at http://www.brookings.edu/articles/2005/0301usdepartmentofdefense_singer.aspx on 10 May 2009

By 2006 alone, over 655,000 Iraqi civilians are estimated to have died in excess of normal death rates (Burnham et al. “Mortality after the 2003 invasion of Iraq: a cross-sectional cluster sample survey”, Lancet vol 368, Oct 2006). One of the initial reasons given for the invasion involved members of the Bush administration associating Iraq with Al Qaeda (on board the USS Abraham Lincoln on May 1 2003, Bush declared the war over and suggested that in Saddam, they had removed an ally of Al-Qaeda). This line was quickly discontinued in official circles, even though it stuck around in public minds (see below) and also in journalistic presentation (for example in continued reference to the Iraq invasion as part of the so-called “war on terror”).

It is, of course, unclear how the possible complicity of officials in Iraqi government in a terrorist attack could justify an invasion of a country, given that the invasion would foreseeably result in deaths of (at least) thousands of innocents and destruction of infrastructure and livelihood (just as much as it would be preposterous for a foreign government to justify aerial bombing of the US by citing the fact that key decision-makers in US governments have led unprovoked military assaults or supported murderous regimes or paramilitaries on their sovereign soil). As many have noted, a more appropriate response to a terrorist attack would have been investigative police work to find the perpetrators and addressing any legitimate grievances.

However, putting aside the point about whether the invasion could be morally justified, let us look at the factual accuracy of the reasons advanced by the Bush administration as necessitating invasion. My focus is on the poor performance of the US mass media. I highlight evidence from authoritative sources that was available before or around the time of the invasion that undercut the case put forward by the Bush Admin. While this material could be taken as building a case for the Bush administration having intentionally misled the public in making a case for war, it is not my intention here to argue this case. Rather I want to argue that, the US mass media failed to adequately question the pronouncements of the government and to give sufficient exposure to the contradictory evidence. Given that the mass media perhaps the primary institution responsible for furnishing the public with necessary information so they can discharge their democratic duties in an informed manner,

A preliminary issue is whether more accurate reporting and greater coverage of this material would have swayed public opinion against the war (this relates to proposition 6 in the outline above). There is reason to suppose that it would have. A PIPA poll released April 2004 (a year after the invasion of Iraq) included the following findings (”US public beliefs on Iraq and the presidential election” April 22 2004, www.pipa.org). Among those who believed that Iraq was providing support to Al-Qaeda, 70% said that going to war was the right decision and 54% said that it was the best thing to do. Among who did not have this belief, 35% said the invasion was the right thing to do and 22% said that it was the best thing to do. Among those who believed that Iraq had WMD just before the war, 87% said going to war was the right decision. This percentage dropped to 56% among those who thought that even though Iraq did not have WMD, it had a major WMD program (and only 35% of this group thought the invasion was the best thing to do); it dropped to 26% among those who thought Iraq had only a minor WMD program; and to 12% among those who said it had no WMD activities at all. As a testament to the poor performance of the US mass media, note that the poll found that, even a year after the invasion, a majority of those polled continue to believe that Iraq was giving substantial support to Al Qaeda and nearly half believe that evidence of this has been found. A majority also believe that Iraq either had WMD or a major program for manufacturing them. All of this suggests some reason to suppose that if the majority of the public were informed of the facts, the opposition to war may have been considerably greater. Let us review some relevant facts and the authoritative evidence available at the time of the invasion. 

It was said that Iraq had weapons of mass destruction and refused to cooperate with weapons inspectors. In late 2002, the Bush and Blair administrations claimed to have evidence that Iraq had sought uranium from Niger. It turned out the documents that constituted this evidence were forgeries (and, apparently, very bad ones). After several months, the IAEA got hold of the documents, and on 7 March, Mohamed El-Baradei, the director general of the IAEA, reported that they were fake (Seymour Hersh “Who lied to whom?” The New Yorker, March 31 2003).

            Also in late 2002, the Bush administration claimed that aluminium tubes seized in Iraq “are only really suited for nuclear weapons programs” (Condoleezza Rice on CNN Sep 8 2002). Yet the IAEA, after investigating the claim, was highly sceptical. It seriously doubted the tubes were for nuclear weapons and believed they were likely intended for small artillery rockets instead (Joby Warrick, “U.S. Claim on Iraqi Nuclear Program Is Called Into Question” 24 Jan 2003, Washington Post).

            In fact, Scott Ritter, chief United Nations Special Commission (UNSCOM) weapons inspector at the time (from 1991-98) said that by the time he left (1998), 90-95% of Iraqi WMD had been verifiably disarmed. The rest was not enough to constitute a weapons program and would anyway turn to useless sludge by the time of invasion given the limited shelf life of the types of biological and chemical agents that Iraq possessed (p23, 29 in Scott Ritter and William Rivers Pitt “War on Iraq” 2002 Profile Books). Infrastructure and facilities had been completely destroyed and mechanisms were in place to detect from ground and air the gamma rays that accompany attempts to enrich uranium or plutonium (Ritter and Rivers Pitt 2002 p26). Attempts to start a chemical or biological weapons program from scratch (since all infrastructure had been verifiably destroyed by 1998) would require purchasing equipment and technology that could be detected. manufacture of chemical weapons would emit gases that could also be detected (Ritter and Rivers Pitt pp32-3).  

It was reported that in any case, Saddam had kicked out weapons inspectors in 1998 and that this was at least suspicious. In fact, as chairman of UNSCOM in 1998 Richard Butler attests, the inspectors were pulled out in 1998 by UNSCOM when informed by the US that the latter was about to undertake aerial bombing of Iraq (Operation Desert Fox) (Richard Butler, “Saddam Defiant” 2000, p224, Weidenfeld & Nicolson). The bombing was purportedly in response to Saddam’s sudden failure to cooperate as fully with UNSCOM. However, the context for this is that CIA spies had begun to operate with the arms inspectors and were gathering information to target Saddam (this was among the main reasons Ritter cited for his resignation from his post) (Tim Weinar, “US spied on Iraq under UN cover, officials now say” 7 Jan 1999 New York Times). Saddam’s substantial cooperation with UNSCOM, as attested by Ritter, froze with the revelations of the US using the inspectors for spying purposes.

            The administration has said that Saddam refused to allow weapons inspectors back into the country as the threat of invasion loomed, thus forcing the hand of the US. This is false. UN inspectors searched from November 2002 to March 2003, when the invasion was launched. The inspectors requested more time to continue their work (prominent voices were Mohamed El-Baradei, director-general of the International Atomic Energy Agency and Hans Blix, head of the UN Monitoring, Verification and Inspection Commission) but were denied this by the US government.

Another reason cited for the invasion was that Saddam was a cruel despot and so needed to be deposed for the benefit of inhabitants of Iraq. It is certainly true that Saddam had conducted horrific acts of repression against the Kurdish North and the Shi’a South. This much is not a matter of dispute. However, at the very least, we must weigh the benefits of deposing Saddam against the cost of removing him by war. The cost includes the deaths of at least 655,000 people by 2006 alone, as well as many foreseeable repercussions of a country’s being in a state of war, such as increasing malnutrition, morbidity and destruction of vital infrastructure. The war unquestionably made things significantly worse for the majority of the population.

Also, compare US treatment to friendly regimes that also repress marginalised communities in equally horrific manner. Despite Turkey’s ethnic cleansing of its Kurdish population over the 1990s, for example, the US has maintained friendly ties with the regime and remained its major supplier of arms.

Moreover, the US government (under the elder Bush administration) maintained friendly ties with Saddam as well as a flow of aid to him throughout the 1980s even though it was clear that he was using chemical weapons against the Kurdish population (see Phythian 1997 ‘Arming Iraq: How the US and Britain Secretly Built Saddam’s War Machine’ and Miron Rezun ‘Saddam Hussein’s Gulf Wars: Ambivalent Stakes in the Middle East’ 1992.

If the concern was for the welfare of the inhabitants of Iraq, a far easier humanitarian act, without the obvious costs of invasion, would have been to end the economic sanctions imposed by the US and UK. According to the International Committee of the Red Cross, in 1989, Iraq had one of the most modern infrastructures and highest standards of living in the Middle East (ICRC, Iraq: A decade of sanctions, December 1999). The economic sanctions followed the immense destruction visited upon Iraq by US aerial bombing in 1991, which wrecked the majority of its electricity generation, as well as many dams, water pumping stations, telephone exchanges, civilian hospitals, community health centres and schools (Edwards and Cromwell, “Guardians of Power”, Pluto Books 2006: 16). In the absence of an inflow of income, the Iraqi government was unable to rebuild the vital infrastructure. A 1999 UNICEF survey found that infant mortality in most of Iraq more than doubled in the nine years since UN sanctions were imposed (Reference number CF/DOC/PR/1999/29). While the Oil for Food program was established to enable some flow of necessary funds to the Iraqi population, an expert ‘Humanitarian Panel’ established by the UN Security Council concluded in 1999 that the program could not meet the needs of the population regardless of improvements in its implementation. In order to meet the human needs of the population, much of the destroyed essential infrastructure needed to be re-built. However, the sanctions, even with the Oil for Food program did not allow the country anywhere near enough income for this reconstruction (Edwards and Cromwell, p16). 

    The British and US governments maintained that the mass death in Iraq during the sanctions were the result not of the sanctions themselves but of the Iraqi regime withholding food and medicine from its population. Denis Halliday, UN Humanitarian co-ordinator in Iraq from 1997 to 1998 (when he resigned, calling the sanctions genocidal), said that there was no basis for this assertion. He pointed out that Secretary-general had repeatedly reported that there is no evidence of food being diverted by the Iraqi government, based on the reports of UN observers who follow the flow of food from imported shipment, right through to retail sale. Halliday also noted the external Sanctions Committee’s complicity as it approved some medicines and not others, knowing full well that some of the ordered medicines would be useless if not used in conjunction with the unapproved ones (Denis Halliday interview with David Edwards in March 2000, www.medialens.org). This then allowed accusations that much medicine sat undistributed in government stockpiles.

         All of this information, from authoritative sources, was published and publicly available before the invasion. Yet this information was dismally under-reported in the US mass media. The poor performance of under-reporting has also continued throughout the occupation as new evidence has surfaced on the deliberation of the executive branches in the US and UK.

An Aug 17 2003 publication in the British paper Independent on Sunday noted that the British government’s Sep 2002 dossier on Iraq had been changed at the last minute in a way that made the Iraq WMD situation seem worse and that this was not accepted as valid by some of the most senior experts involved. The draft of the dossier even two weeks before the release said that Iraq had chemical and biological weapons programs. The thrust of drafts of the dossier was about the existence of programs, and not about the existence of actual weapons. In the last minute changes (and without any additional supporting evidence), the claims are revised to say that Iraq has continued to produce chemical and biological weapons since the 1991 Gulf War. This change was crucial to the case for war, as such weapons produced before 1991 would have become useless due to their limited shelf life (Glen Rangwala, ”New evidence shows crucial dossier changes”, accessed at http://www.arabmediawatch.com/amw/Articles/News/tabid/76/newsid393/1997/Default.aspx).

The Sunday Times (London) published on 1 May 2005 a memo written by a British national security aide summarising the discussion of a July 2002 meeting of Prime Minister Blair and various advisers including teh head of Britain’s MI-6 intelligence service. The authenticity of the memo (dubbed the Downing Street memo) has not been disputed by Blair’s office. Reporting back on recent conversations with the Bush administration, the MI-6 head said that Bush wanted to remove Saddam through military means and this was to be justified by a combination of terrorism and WMD, but that the case was thin and the facts and intelligence were to be fixed around the policy (www.timesonline.co.uk). Yet the US mass media was slow to report on this development and even then, gave it relatively little emphasis (Hollar and Hart, “When “Old News” has never been told”, July/August issue of Extra (accessed at www.fair.org)).

Former General Wesley Clark talked to Tim Russert on the 15 June 2003 edition of NBC’s Meet the Press and revealed that right from the day of eth September attacks on the World Trade Center, he was pressured by the White House to pin 9/11 and the terrorism problem on Saddam Hussein. When he asked for evidence to this effect, he received none (http://www.fair.org/index.php?page=1842). ]x

     The US media watchdog group Fairness and Accuracy In Reporting (FAIR) conducted a study of the major television news shows’ coverage of the Iraq war in the first three weeks of US bombing (which began March 19 2003). The study focused on the 1617 on-camera sources in news stories about Iraq on the evening newscasts on CNN, ABC, NBC, CBS, PBS and Fox. Roughly two thirds of the sources were pro-war. Anti-war sources composed only 10% of the total (the rest being classified as having no discernible position for or against the war) and only 3% of US sources. These anti-war voices were almost universally allowed only one-sentence sound-bites from interviews conducted on the street. There was not a single instance of a sit-down interview with a person identified as against the war.

    By contrast, many interviews with pro-war on-camera sources were sit-down interviews. Over half of the total number of sources (840 out of 1617) were current or former officials of the US government or military. Of those only four were identified as holding anti-war positions.

    The over-reliance on government sources and a failure to seek out critiques of these or to fact-check them is made even more problematic when the government sources engage in what is (euphemistically) called psychological warfare operations or PSYOPS. In an article on 19th Feb 2002, the New York Times reported that the Pentagon’s Office of Strategic Influence was “developing plans to provide news items, possibly even false ones, to foreign media organizations”, the goal being to ”influence public sentiment and policy makers in both friendly and unfriendly countries” (FAIR report http://www.fair.org/index.php?page=3546 ”Pentagon disinformation should be no surprise” Feb 2005). Amidst public outrage, the Pentagon closed the office, but Defence Secretary Rumsfeld admitted that all of its tasks would simply be carried out by other agencies. A memorable example of PSYOPS was the photo-op of the toppling of a statue of Saddam in Baghdad on 9 Apr 2003. As an L.A.Times scoop revealed on 3 Jun 2004, the decision to topple it was made by a US Marine colonel, and it was a PSYOPS operation to package the event as a spontaneous action by jubilant Iraqi civilians.

[The one year anniversary is fast approaching for the media-grabbing arrests of October 15 2007. In connection with that, here is an article written around that time (almost a year ago) summarising some of the issues. The article originally appeared at http://www.scoop.co.nz/stories/HL0711/S00330.htm and appears here with the author’s permission]

The Solicitor-General’s decision

On the 29^th of Oct, police asked the Solicitor General to consider authorising prosecution of 12 individuals under the TSA 2002. The Solicitor General, Dr David Collins QC, released a media statement on nov 8 2007 (http://img.scoop.co.nz/media/pdfs/0711/SolGenTerror.pdf

). The key points are these:

He does not authorise the prosecution under TSA because he thinks “at this stage there is insufficient evidence to establish to the very high standard required that a group or entity was planning or preparing to commit a terrorist act as defined in the legislation” (paragraph 10).

But, he says that this is not a criticism of the police and that they have acted entirely appropriately in referring the evidence to him (paragraph 11). He does not explain in what sense the referring of the evidence to him was “entirely appropriate”. For example, does it mean the evidence was of very serious activity that was just shy of the definition of terrorism under TSA 2002? Or does it only mean that, since some warrants were sought under the TSA, it is appropriate that the evidence was referred to him? If it’s the latter, this says nothing about the quality or nature of the evidence itself and is a merely procedural ‘appropriateness’.

He adds that he is very satisfied that police had sufficient and proper basis for investigating the activities in question under the TSA (paragraph 7). He does not clarify what it is to have a ‘sufficient and proper basis for investigating’ under an Act.

He says that police have successfully brought an end to what were very disturbing activities (paragraph 12). This tells us nothing about what the disturbing activities were, why they were disturbing or whether the police brought the activities to an end in a legitimate manner.

The SG says that the TSA 2002 legislation is “unnecessarily complex, incoherent and as a result almost impossible to apply to the domestic circumstances observed by the police in this case” (paragraph 8). In saying this, the SG is not saying that the TSA is a bad law, one that we should not have. The SG was asked only to consider whether the Police had admissible and reliable evidence strong enough to make a prima facie case, and whether the evidence could possibly enable a conviction beyond reasonable doubt. It was not his place to comment on whether the law is a good one. So, in this quote, all he seems to be saying is that the wording of the clauses of the Act makes it hard to interpret the Act. This is not a criticism of the Act in the sense that he thinks we should not have a law criminalizing terrorism. It is only a criticism of the way the Act is worded.

What does the Terrorism Suppression Act 2002 say about terrorism?

The Terrorism Suppression Act 2002 (TSA) can be found at http://www.legislation.govt.nz/browse_vw.asp?content-set=pal_statutes&jump=a2002-034

Section 5 of the Act defines terrorism. Terrorist acts include some acts defined in various international conventions (the conventions are mentioned in the Schedules attached to the TSA). But these matters relating to international terrorism are not relevant to the arrests of 15 Oct 2007. Here is the relevant part, found in sections 5(2) and 5(3).

An act is a terrorist act
IF IT:
5(2) is carried out for the purpose of advancing an ideological, political, or religious cause, and with the following intention: either (a) to induce terror in a civilian population; or (b) to unduly compel or to force a government or an international organisation to do or abstain from doing any act.
AND IT:
5(3) is intended to cause one or more of (a) to (e) below. (a) the death of, or other serious bodily injury to, 1 or more persons (other than a person carrying out the act). (b) a serious risk to the health or safety of a population (c) destruction of, or serious damage to, property of great value or importance, or major economic loss, or major environmental damage, if likely to result in 1 or more outcomes specified in paragraphs (a), (b), and (d). (d) serious interference with, or serious disruption to, an infrastructure facility, if likely to endanger human life. (e) introduction or release of a disease-bearing organism, if likely to devastate the national economy of a country.

Does the TSA criminalise protest?

It is simplistic and false to say the TSA ‘criminalises protest’. Granted, the Act says that part of the definition of a terrorist act is that it was carried out for the purpose of advancing an ideological, political, or religious cause, with the intention to unduly compel or to force a government or an international organisation to do or abstain from doing any act. But that’s only part of it. It also says that a terrorist act MUST intend to cause one or more of the harms (a) to (e) listed in section 5(3).

In Section 5(5), the Act explicitly clarifies that “To avoid doubt, the fact that a person engages in any protest, advocacy, or dissent, or engages in any strike, lockout, or other industrial action, is not, by itself, a sufficient basis for inferring that the person—

(a)is carrying out an act for a purpose, or with an intention, specified in subsection (2) [which talks about the purpose and intention of the act]; or

(b)intends to cause an outcome specified in subsection (3) [which talks about the intent to cause the harms (a) to (e) listed above].”

If the Act does not criminalise protest, what’s wrong with it?

One of the fears about the Act is that the clauses about ‘…for the purpose of advancing an ideological, political, or religious cause’ and ‘…with the intention to unduly compel or to force a government or an international organisation to do or abstain from doing any act’ can be abused by police/courts/government (perhaps ultimately by the politically motivated individuals who have greatest influence over those institutions) to target political groups who are working for progressive changes which are against the interests of those in power. I consider this a reasonable fear.

The harms listed in (a) to (e) of section 5(3) are the real causes of concern, but they are crimes independently of the TSA. So given this reasonable fear and the fact that the genuine crimes are already crimes under other acts, I don’t see why the TSA should remain in our law book as it is. Some parts of the Act

Is the state trying to suppress dissent?

I’m sure that to some degree or another various people in the government and police are alarmed about progressive activists in the country and would like them to disappear or to paint them in a bad light – that’s just part of politics and part of the fact that the ones with most power in the country have certain interests which they want to defend. This is just a general claim about politics. But that general claim is a far cry from pointing to the particular arrests of 15 Oct 2007 and claiming that they are a planned exercise to clamp down on dissent.

Whether and in what ways the TSA is used to clamp down on protest depends partly on how a court interprets the Act. The SG has not allowed charges to be filed under the TSA. So, for the moment, we won’t know how the courts would interpret the Act.

But there are other ways that the Act can be a tool for politically motivated targeting of certain groups even if no charges are filed under the Act. It is possible that the mere fact of carrying out raids in this way and targeting activists may discourage some people from being politically active. More likely, many people in the wider public may now have a poorer image of activists in the Maori sovereignty, environmental and peace causes, may see the causes as potentially violent and may be less willing to listen to or seriously consider their arguments.

The arrests were carried out in a media-grabbing and resource intensive way. Unless it can be shown that this was necessary, there is, at the very least, possible misuse of resources by the police and (perhaps unintentional) scaremongering. It’s not cool for public servants to unnecessarily act in a way that makes the public afraid. Those who are made afraid are primarily those who witness the raids themselves, but also – and in a different way – the general population. It takes considerable resources in terms of time and money to coordinate raids reportedly involving more than 300 police personnel across the country. We must demand to know why it wasn’t sufficient to calmly and quietly arrest the relevant people for firearms charges instead of using up a lot of taxpayer resources to coordinate a nation-wide, media attention grabbing stunt. The foreseeable possibility even of unintentional scaremongering ought to be considered by police when they are planning action.

Heavy handed tactics like the lock-down on the town of Ruatoki and like the reports of police ordering people out of their cars to photograph them obviously scare the people subjected to this treatment and unless there is public justification of why these measures were necessary, police should be held accountable.

There is also scare-mongering through possible breaches of ‘sub judice’, which occur when a matter yet to be proven or disproven in Court are discussed or stated as fact in public. The point of ‘sub judice’ is to ensure potential members of a jury are not influenced by misinformation or unproven statements asserted as fact. Prime Minister Helen Clark herself has made potentially sub judice comments (http://www.scoop.co.nz/stories/PA0710/S00558.htm ). Potential breaches of sub judice should also be investigated independently of their effect on chilling dissent.

We can also wonder whether the police really needed to obtain search warrants under the TSA. Evidence obtained under a search warrant for one crime may not be admissible in court proceedings regarding an unrelated crime. So, if the police thought they might file charges under the TSA, it would make sense to seek search warrants under the TSA too. The issue is whether the investigation really was serious enough for the police to reasonably expect charges under the TSA or whether the investigation never warranted these expectations and the police were unreasonably eager to use the TSA. We are in no position to assess this as we do not have access to the evidence gathered by the police.

As more information comes out, we will hopefully be in a position to judge whether the police used unnecessarily intimidating tactics, whether the surveillance of activists is legal and whether it is justified even if it is legal.

Possible chilling effects on dissent from non-police sources

While the main concern for many may be whether the state (through its police) is trying to paint political dissent in a bad light, chilling effects on dissent may be due to non-police sources too.

The media has been emphasising the ‘terrorism’ phrase and repeating things like the arrested individuals are connected to Maori sovereignty, environmental and peace groups even though, as yet, we have no reason to think that those political connections have any relevance to the charges of firearm possession.

Well before the SG had had a say on whether there was sufficient evidence to allow charges under the TSA and even before the police had petitioned the SG to consider the evidence for possible charges under TSA, the President of the Police Association said (on 16 Oct 2007) that “The major police operation behind yesterday’s raids is a reality check for those New Zealanders who dismiss the threat of home-grown terrorism as laughable” (http://www.scoop.co.nz/stories/PO0710/S00233.htm). (Note the Police Association is not the NZ Police itself, but the union to which most members of the NZ Police belong.)

We cannot blame the police or the government for the actions of agents beyond their official control (such as the media and the Police Association). We should hold these agents themselves to account for fanning alarmist flames. But also, we should note that the police bear an indirect responsibility for the irresponsible and sensationalist actions of these agents. As I have already discussed, the media-grabbing coordinated raids of the police and the decision to seek warrants under the TSA have foreseeable consequences that people will be alarmed and that media and public entities will sensationalise the events.

Particularly objectionable are leaks to media (presumably by members of the police) about ‘terrorist training camps’ and ‘threats to the lives of Helen Clark, John Key and George Bush’. These have not appeared in the charges laid against the arrested and so would not have appeared publicly as part of the normal course of reporting on charges. [Indeed, when asked why police weren’t prosecuting the arrested individuals for crimes such as conspiracy to murder, the Police Commissioner revealed on 9 Nov that “Those options were not available to us… The offences under other legislation had not been committed. So conspiracy to commit murder, conspiracy to do those other sorts of things, those offences had not been [committed?] at all” (transcript of audio from a Morning Report interview, mentioned in http://norightturn.blogspot.com/2007/11/no-conspiracy.html Transcript is by Idiot/Savant )]

The fact that these leaks have appeared in the media hints at the possibility of manipulation of public emotions on the part of members of the police (who I presume are the sources of the leaks). While investigation of the sources of the leaks would likely conclude that the sources were lone individuals acting on their own cognizance, the NZ Police still bears some responsibility for the actions of its employees, especially if they have access to sensitive evidence or are making such provocative pronouncements which can instil great fear in the public and prejudice some members of the public against groups ascribing to certain political views.

Speculation about the motives of the police action

The fear-mongering tactics (whose necessity or otherwise we will hopefully be in a position to judge as more evidence is released to the public) are objectionable regardless of the motives of the police. No matter what their motives, they should have foreseen the likely scary effect of their actions. But we can also ask what the motives were, quite independently of these objections.

I am not aware of any information that would lead me to think there was an explicit plan in the government or among police to use the arrests (even if they did not result in charges under the TSA) as a way to scare activists into being less vocal in their activism or to scare the wider population of Aotearoa, or to paint certain political causes in a bad light.

I find it hard to think that this showy action was not carried out with some purpose in mind. I say this because (1) I expect it is hard and expensive to carry out the coordinated raid involving 300 police rather than make low key arrests independently of one another and at different times as resources allow. (2) I would think the police would not repeatedly use terms like terrorism lightly, nor seek search warrants under the TSA lightly and would have a motive for doing so.

What that motive is, if one exists, we can only speculate. It might be to justify budgets of various agencies or task forces either in the police or in the intelligence community which are given the task of keeping tabs on terrorism in Aotearoa. If the agencies find no terrorists over a span of several years, their budgets may well be cut (and jobs lost) if the government thinks anti-terrorism task-forces are unnecessary in Aotearoa. For example, there is a specialist police anti-terror unit which was involved in the surveillance leading to these arrests ( http://stuff.co.nz/4238342a10.html ).

Also, some of the intelligence agencies in the country work closely with intelligence agencies of the USA, UK, Canada and Australia (as part of the ECHELON network). It may be that some individuals in our intelligence agencies feel a pull to ‘do their bit’ in what the US government has labelled the “war on terror” by uncovering potential terrorists. Perhaps these budgetary and other concerns make individuals in the relevant agencies a bit over-eager to identify groups in Aotearoa as terrorists. Perhaps the mere scare of terrorists, even if no charges are filed under the TSA, will keep the issue of terrorism alive in the minds of NZ parliamentarians so that they do not cut budgets.

The IMF and WB launched the Heavily Indebted Poor Countries initiative in 1996 to reduce the debt burden of bilateral and multilateral debt for some of the poorest and most heavily indebted countries. Forty one countries are eligible for debt relief under the program. Another program, the Multilateral Debt Relief Initiative, was launched in 2005 for a smaller subset of the HIPC countries. This promises further debt reductions for the selected countries. The aim of the program is to return the countries to a sustainable level of debt.

The HIPC initiative and related programs are certainly signs of progress and the BW institutions should be commended for changing the line they had held until 1995 – that the multilateral debt burden was not a problem (Raffer and Singer 2001: 183). Nonetheless, there are many criticisms of the program.

Criticisms of the HIPC initiative

Let me begin with some general criticisms before proceeding to criticisms specific to the way the HIPC initiative operates. The HIPC program is too limited in terms of eligible countries. There are many other countries with a large burden of debt diverting money from poverty alleviation programs[1]. Many of them owe debts not only to bilateral and multilateral creditors – as the HIPCs mostly do – but also to private creditors. Even with the HIPC countries, some countries, banks and companies choose not to take part and cannot be compelled to do so as the IMF and WB have no formal powers over them. An adequate sovereign bankruptcy mechanism with reasonable criteria for eligibility would allow many more countries to seek debt reduction and would encompass both official and private creditors.

Moreover, if countries could apply to an independent bankruptcy mechanism rather than to the creditors themselves under the HIPC initiative, we could expect that the terms would be more favourable for the debtors. It would remove potential conflicts of interest where the creditor is in charge of a debt renegotiation or relief mechanism and could compel the BW institutions (and all other creditors) to accept responsibility for their part in creating or worsening the debt crisis.

Creditors setting the terms of eligibility and defining sustainable debt levels

Some criticisms of the HIPC program revolve around the fact that the creditors themselves – rather than a neutral third party - are in charge of various features. For example, the creditors determine the eligibility criteria, thus restricting the possibility of debt relief to a smaller number of debtors than is ideal. It should be expected – at least as a precautionary thought - that the creditor would want to minimise the sum of repayment foregone. There is an element of conflict of interests in the creditor setting the eligibility criteria. For example, the initiative focuses on a country’s debt to export ratio as a criterion for eligibility. Yet this ratio has little connection to a government’s ability to meet urgent social needs while servicing debts (Sachs et al 1999: 6). The criterion should instead be related to the amount available for government spending.

The part of a country’s debt that is eligible for reduction makes a great difference to the impact of cancellation. At present, this is the amount of the debt at the time that a country entered a bilateral or multilateral debt relief program. However, the time taken over the debt reduction process from start to finish is several years. In the meantime, additional loans may be undertaken and compounded interest also functions to raise the debt. Impressive sounding commitments to cancel 90% of the debt of a country can be less impressive in reality when the percentage is calculated on the debt level of several years ago. In the years since its inception, only 23 countries have reached the ‘completion point’ where the overseeing institutions are satisfied that the debtor has and will follow the policy conditions. It is at this point that debt relief begins.

The concept of sustainability of debt is defined by the creditors and the threshold is set by them. At present, sustainability encompasses only financial matters – the level of debt a country can be expected to repay given estimates of its future economic growth. This definition ought to be changed so that sustainability is not merely financial but also social. It should encompass the ability to provide a decent level of social services and to invest in productive development (Sachs et al 1999: 4-5). Even for the financial calculation debt sustainability, the cogency of the estimates of growth, carried out by the IMF have been criticised for being too rosy. In effect, this raises the level of debt judged to be sustainable and lowers the debt reduction to which the creditors are committed (Donnelly 2007: 127) (GAO 2000: 51-3) (Stiglitz 2006: 239-40).

Debt relief is conditional on implementing certain economic policies

The HIPC and MDRI schemes require eligible countries to implement various economic policies as a condition for debt relief. I contend that debt relief should rest on the aim of lowering a debt acknowledged as having an unacceptable social cost. This implies no reason for the country to be forced to follow certain economic policies – other than perhaps transparency measures to ensure the money freed up from debt relief is used for social services and not funnelled into private coffers of the rulers. A country’s economic policy should ideally be determined democratically by its citizens. While the BW institutions are multilateral in design, their executive boards are known to be dominated by, and biased towards, developed world representatives. To give significant influence over domestic policy to external agents such as the BW institutions is prima facie an abrogation of the democratic expectations of the domestic citizens. It also leads to potential conflict of interest issues as the developed countries which dominate the BW institutions are also the creditors.

The conditions to be met by HIPC countries are determined in Poverty Reduction Strategy Papers. (PRSPs). PRSPs are prepared by the debtor country in consultation with domestic interest groups such as business and civil society, as well as consultation with the IMF. It might be argued that since debtor country agencies – both government and civil sector – are involved in forming the PRSP, the BW institutions’ imposition of conditions is minimal.

However, the PRSP must be approved by the IMF and WB executive boards. It can be turned down if it is judged to be flawed. Before the PRSP reaches the IMF and WB executive boards for approval, it must pass through a Joint Staff Assessment or JSA conducted by staff from both institutions. At this stage the paper can be modified as the debtor country authority is told of changes which would make the executive board more likely to accept it.

Quite aside from this vetting, the discussion leading to the PRSP in the debtor country is itself circumscribed. Civil society organizations involved in PRSP discussion have consistently reported that there were two parallel processes – one for ‘social’ issues and one for macro-economic issues. The NGOs were invited to comment on the former, but were not included on workshops discussing the latter (Rowden and Imara 2004: part 2). The social issues largely related to how money budgeted for social services is best spent. The macro-economic issues include privatization, trade liberalization, producer subsidies, industrial policy to promote particular industries, and policy to diversify the economy in specific ways. Overall, the PRSPs which have so far resulted show strong continuity with the structural reform agendas pursued by the IMF over the past decades. Macro-economic policy, in particular, remains the same (UNCTAD 2002: 170ff).

The amount of debt reduction is insufficient

Debt reduction advocacy groups such as the Jubilee Debt Campaign suggest that the institutions can afford to give bigger reductions in debt without jeopardising their operations. Given that the institutions are not in the business of profit maximising and are multilateral arrangements for the greatest benefit of all members, campaign groups argue that they should make larger reductions. As befits multilateral agencies, the articles of agreement of the lending arms of these institutions contain provisions for reducing debt burdens owed to the institutions, lengthening the repayment term and lowering interest charged (see Raffer 2007: 98).

This criticism is compounded by the existence of phantom debts. If the creditors sold their debt on a secondary market, they would get a far lower price than the face value of the debt. This is because buyers would only pay as much as they expect the debtor will repay. For many developing countries, it is commonly believed that they will never repay the face value of the debt. The debt burden is simply too great. The market value of the existing debt – the price the creditors would get if they sold the debt on competitive secondary markets – is far lower than the face value. This is simply the reappearance of risk in the credit market. The difference between the face value and the market value is phantom debt. Yet, the debt reduction plans are plans to reduce the face value of the debt. Accordingly, while creditors may seem to be absorbing quite a cost by committing to reduce the face value of a country’s debt by some large percentage, the actual cost they suffer is much smaller. The US, for example, is owed roughly $6 billion by the HIPCs in bilateral loans. Yet its official accounts hold the debt as being around 10% of the face value, as it expects the rest to be uncollectable (Sachs et al 1999: 10).

Unpredictability of debt management hinders long term development planning

Currently, HIPC countries cope with debt service burdens through arrears (failure to pay on time), new loans, grants and rescheduling of loans. These are unpredictable measures which do not lend themselves to being negotiated in advance. They can take up a large part of debtor government’s scarce resource of financial planners and negotiators. Moreover, the unpredictability hinders the formulation of long term development plans (Sachs et al 1999: 7-8).

There are some specific historical factors behind the large debt of developing countries today. Let me note some of these.

Several factors in the 1970s contributed to a substantial rise in sovereign debts owed by developing countries. Non-oil producing developing countries experienced a rising overall trade deficit. The largest share of this deficit was due to a deficit in trade with the industrialized countries. A smaller, but nonetheless important, share was due to the rise in oil prices (GATT 1980: 8ff). Moreover, interest rates were relatively low, making it cheap to borrow. Loans were used to finance the deficit.

At the start of the 1980s, interest rates shot up. Many of the major industrial countries were running budget deficits at the time, and were consequently borrowers. This pushed up the interest rates (World Bank 1985: 5). Previously negative real interest rates turned into historically high positive rates. Since a large share of sovereign debt was at variable interest rates, the burden of debt service rose substantially (Raffer and Singer 2001: 160).

Yet the developing countries could not service the greater debt burden by running consistent trade surpluses. For, they faced substantial protectionism by the major export markets, the developed countries (World Bank 1985: 6). They turned to new loans to finance existing debt payments.

Bail-outs and insulation from risk

Commercial banks regularly monitor sustainability of clients’ borrowing. They have risk management to ensure the overall portfolio of loans extended is not too risky. Supervisory authorities regulating commercial banks also have a brief to monitor their portfolios for the same reason. Banks are regulated because they take on excessive risk at the prospect of profit. Riskier clients are charged higher interest and are therefore more lucrative, as long as the debt is ultimately serviced. Management may discount warnings from risk managers especially as most banks are corporations with shares on the stock market and whose management is paid according to stock price movements which usually reflects short term profit performance and may place insufficient emphasis on long term viability of the portfolio (Herman 2008: 11).

Prudent conduct would see private creditors put aside part of the higher interest rate charged to riskier clients in a loan loss reserve. This reserve would compensate for cases in which the debtor is unable to repay a loan. Indeed this is part of the reason for charging higher interest in riskier loans – it allows compensation for the cases in which the risk does not pan out for the lender.

Risk insulation and over-lending have played a role in the history of developing country debt accumulation. While European banks generally maintained loan loss reserves with respect to sovereign debt, US and Japanese banks generally did not. In part this may be because of the different incentives attached to reserves in the different countries. Loan loss reserves are tax deductible for European banks, while US banks pay tax even on these (Raffer 2007: 91).

This propensity towards greater risk taking was not curbed by the big creditor governments. As we have noted, they bailed out banks. One reason for the bail outs may be that governments felt that the absence of loan loss reserves would make debtor defaults particularly painful for banks and that this justified mitigating the damage. Other reasons may be geo-political motives, and political lobbying of government decision makers by financial interests.

It was believed in 1983 that US lawmakers might require banks to refund excessive fees collected from Latin American countries. The banks charged high fees under the justification that there was a high risk that the countries might default. If they nonetheless did not really expect default – if they expected bail outs, based on previous government action – then they gouged prices (Raffer and Singer 2001: 163).

The final major factor contributing to the large debts of many developing countries occurred during the 1980s debt crisis.

Illiquidity and insolvency

Poland defaulted in 1981. Mexico declared itself unable to honour its debts in 1982. This marked the beginning of the debt crisis of the 1980s. Many countries were unable to service their debts and defaults threatened and occasionally occurred.

For most of the 80s, the overriding perception among the Bretton Woods institutions and the creditor governments was that these debt problems were a sign only of illiquidity and not insolvency. The problem was taken to be the effect of a temporary inability to pay, i.e. illiquidity. The temporary illiquidity would be resolved as debtors experience greater economic growth and export revenues. Debtors were expected to grow their way out of debt in the long run. In this view, debtors simply needed to be supported in the interim period and did not need debt forgiveness.

The support in the interim period took the form of additional loans to resolve temporary liquidity. If a country had trouble making an interest payment, it found ready access to another loan to allow it to do so. The new loans came from commercial banks as well as from multilateral institutions. A large group of commercial banks would form a syndicate and would, together, lend to a borrowing country. With debt servicing problems in the 1980s, many of the banks in the syndicates wanted to stop lending. These banks had perhaps only wanted to loan for a given period and did not want to make further loans to pay for the servicing of existing loans. Some of these banks left the syndicates, selling their claims to others on a secondary market. Others were convinced to keep lending by those syndicate members who did not mind a longer term engagement with the debtor country so long as payment eventually occurred. This ‘concerted’ or ‘forced’ lending thus kept the loans performing[1]. That is, when a debtor country was in arrears, the lenders made new loans to clear these arrears so that, at least on paper, the loans were being repaid on schedule. The WB noted in 1988 that concerted lending from 1982 onwards had mostly been to clear the substantial arrears on interest payments rather than forward looking loans for productive investment (World Bank 1988: xxiv).

Moreover, during this time, multilateral institutions were becoming increasingly important as creditors. While, concerted lending by commercial banks played its part in the refinancing of interest payments to ward off temporary illiquidity, the bulk of the refinancing was done by the multilateral institutions. By 1988, the WB was the principal net lender to the group of countries known as the heavily indebted countries (World Bank 1988: xxix).

This was, in effect, a bail-out. Commercial banks (like any lender in a well functioning credit market) had taken the risk that their loans might not be repaid or repayment may be delayed. When that possibility eventuated, they were effectively relieved of the burden of the risk as the multilateral institutions made new loans to ensure continued repayment. The multilateral institutions assumed the risk by bailing out the private creditors. Meanwhile, the cost of this for the debtors was substantial. Between 1982 and 1989, long term debt of all developing countries roughly doubled. The refinancing of loans relieved immediate liquidity problems, but it did so by increasing the present values of debt (Raffer and Singer 2001: 172).

What is worse for debtor countries is that, until recently, the BW institutions were less willing than private banks to reduce or reschedule claims. To maintain the image that the multilaterals do not reschedule loans, at times, the WB would lend to enable a debtor to meet the repayment deadline to IMF, thus freeing up the IMF to lend to the country again to meet the WB’s repayment deadline. OECD governments also acted as intermediary financiers on occasion (Raffer and Singer 2001: 169).

Contrast how the countries would have fared if their situation were judged to be one of insolvency rather than of illiquidity. It would have been clear that the refinancing of loans would only raise the debt burden higher.

Countries which cannot service their debts and who do not want to undertake new loans can sometimes force creditors to the negotiating table. Argentina, for example, did so in 2002 when it realised that continuing debt repayment meant tremendous sacrifice for its populace. It announced that it was unable to meet its debt obligations. It then negotiated with its creditors to convince them that it was preferable to receive some repayment rather than none at all. In 2005, 76% of its creditors settled for a repayment of approximately 34 cents on the dollar. However, Argentina prevailed only with immense negotiating skills and resolve and also faced considerable cost in that investors are put off investing in an economy in limbo, as was the case with the Argentinean economy in the years it took to reach a settlement. Most developing countries do not have the negotiating skill or resolve and may not be able to bear the cost (Stiglitz 2006: 215).

The existence of an adequate sovereign bankruptcy mechanism would make the process orderly and swift. It would also make this an option accessible to all developing countries. In the absence of a legal framework for sovereign bankruptcy, debtors may fear that declaring themselves insolvent or defaulting will drastically narrow options for future loans. The fear is that the debtor must maintain the perception of being credit-worthy in the eyes of potential lenders and that this perception may be damaged by default.

Legal and ethical liabilities of creditors

In well-functioning credit markets, creditors also have legal liabilities. Borrowers have a right to compensation if the lender was negligent in some respect and if this led to unlawful damage. This is part of the balance of rights and obligations legally distributed over creditors and debtors.

There is no adequate international legal mechanism governing sovereign borrowing. Accordingly, if a sovereign country feels wronged, it has no means of seeking redress against foreign creditors.

A discussion of liabilities in this political philosophical context must distinguish between two sorts of issues. One relates to negligence of the creditor qua lender in issuing the loan. Another relates to a broader sense of liability concerning the culpability of creditor governments and the BW institutions not qua lenders, but rather qua political agents who can shape the options available to debtor countries in borrowing and servicing. The protectionism of developed countries in areas of competitive advantage of exporting developing countries shows some degree of culpability of the developed countries in the large and growing debt burden of the developing. This is not a liability qua lender, but rather qua political agent more broadly.

There are links between these two in cases where the liability involves a bilateral or multilateral lender taking objectionable actions qua political agent which should arguably have led it to different actions qua lender. For instance, it may be argued that the bilateral creditors should have realised that their own trade protections made it hard for debtors to increase export revenue in order to service their debts. Accordingly, it might be argued that the creditors should not have treated debt problems of the 1980s as a matter of illiquidity and simply lent greater amounts at least unless they were also willing to reduce their protections.

Both bilateral and multilateral creditors have bailed out private creditors and have done so at the expense of large increases in the debt burden of the debtor country in trouble. It can be argued that they should have noted the signals this sent to lenders about being careless in risk assessment and that they should have expected this could result in over-lending. They can also reasonably be faulted for not giving more weight to the possibility that the debt problems in the 1980s were indicative of insolvency rather than temporary illiquidity. Accordingly, they should have allowed the worst affected countries to default or to negotiate reductions rather than offering new loans to them.

The possibility that the countries with debt problems were potentially insolvent and not merely illiquid has been voiced by many over the decades, especially given that the indebted countries had dim prospects of enjoying substantial export surpluses and national income in the existing economic situation. Abbott (1972) notes that in the 1960s, many countries in sub-Saharan Africa were accumulating debt faster than their economies or foreign exchange earnings were growing (Abbott cited in Raffer and Singer 2001: 163). Pearson et al. 1969 (a report prepared at the request of the World Bank) had strongly recommended debt relief while a debtor experienced balance of payments difficulty (cited in Raffer and Singer 2001: 158).

Consider the prospects for growth in export revenue, and in national income, that the developing world overall faced in the 1980s and onwards. The existence of certain factors significantly reduced these prospects. One, greater export revenue and income would depend substantially on access to the large export markets of the industrialised countries. Yet, as we have noted in passing, there was significant protection of these markets in the sectors most relevant for developing countries (World Bank 1985: 6). Two, expansion of export industries in developing countries required investment capital which, for most of these countries, would have to be sourced overseas. Yet, as we noted above, soon after start of the debt crisis of the 1980s – and certainly by 1988 – new lending to sovereign debtors had mostly been to clear the substantial arrears on interest payments rather than forward looking loans for productive investment (World Bank 1988: xxiv).

There is a second distinction between two senses in which we can discuss liabilities. One is as a legal term, the other an ethical judgment. Legally, the absence of an international legal mechanism or international agreement on sovereign debt establishing rights and obligations of both lenders and creditors makes the issue of liability difficult. If legal redress is sought for alleged liability such as negligence of lender, it is unclear how successfully this could be done under domestic laws of creditor countries, using precedents for cases of loans not made to sovereign states. If an international mechanism for handling sovereign debt were to be constructed, it should make provisions for certain sorts of liabilities and protections relevant to the issues mentioned above. Surely, debtors will want to seek retroactive redress for loans which have already occurred. Whether the international mechanism allows for this is a matter of political negotiation between debtor and creditor governments in the design of the mechanism.

In terms of the first distinction, the legal notion of liability likely applies only to liability of a lender qua lender. It does not also apply to reprehensible action by bilateral and multilateral creditors qua political agents more generally.

An ethical judgment of liability may help build a case for a particular course of action in relation to debt reduction. Debate around cancellation of odious debt is the prominent example. The demand that the creditors bear the cost of being denied repayment is bolstered by ethical judgments of liability. Ethical considerations about liability for past actions may also figure in negotiations between creditor and debtor governments in the design and construction of a mechanism for handling sovereign debt. It can do this by, for instance, allowing poor debtor countries to extract more concessions from the creditor governments in defining the appropriate balance of creditor and debtor interests and protection.

In terms of the first distinction, ethical judgments of liability encompass both liability of lenders qua lender and also liability of official creditors qua political agents who shape the options available to debtors.

Types of lenders and of loans in sovereign borrowing

The external debt burden of a country is the money owed by private debtors (companies) and by the government to foreign creditors. Roughly 62% of external debt in 2004 was owed publicly and 38% owed privately (CADTM 2005). There are various reasons why a government will borrow. We will focus on particular reasons for borrowing which are most relevant to sovereign debt crises. One reason is if export revenue is insufficient to buy all the required or desired imports. This shortfall can be covered by national reserves, but, failing that, a loan may be sought. Another is for large government investments such as in building essential infrastructure. Yet another is in order to repay other debt.

Governments may be debtors indirectly. For instance, they may be a guarantor for a public or private enterprise that directly undertakes the loan. As guarantor, the government affirms that they will pick up the tab in case the borrower defaults. This is done because governments are usually seen as less risky than other borrowers and this may lower the interest rate at which the loan is given. These are contingent liabilities for the government – it may be liable if the direct debtor defaults on debt.

A debt crisis occurs when the usual creditors lose confidence in the ability of the sovereign to repay and therefore are unwilling to continue lending.

The main types of lenders to sovereign borrowers are commercial banks; multilateral institutions such as the IMF, the World Bank and various regional development banks like the Asian Development Bank, the African Development Bank, and the Inter-American Development Bank; official loans from governments (bilateral loans), generally developed country ones; and lastly, ordinary bond holders who buy on the market.

Bilateral debt is generally of two sorts – ‘aid debt’ and export credits. Aid debt is loans given to finance infrastructure projects and other development works. With export credits, which constitute the bulk of bilateral debt, the debtor country imports goods or services from the companies in the creditor country. For example, the debtor country may ask a foreign company to undertake some construction work. If the debtor country cannot pay the company at the conclusion of the construction, the creditor government pays the company. The creditor government pays this amount as a loan to the debtor country and expects repayment. The export credit is the guarantee by the creditor government to domestic export firms that ensures they will get paid if they export to the debtor.

The poorest countries often do not find private agents willing to lend to them. They borrow from multilateral and bilateral lenders, generally at concessional rates. Loans from governments include the Official Development Assistance (ODA) funds disbursed by the OECD group of developed countries via the Development Assistance Committee (DAC).

Many ‘emerging markets’ have begun issuing bonds as a substantial form of borrowing. Emerging markets include about 25 or so developing countries that are rapidly industrializing and that are commonly considered somewhat in-between developed and developing country status. The bonds are sold to ordinary investors on the market. The government borrows money through the bond, and agrees to repay it with interest upon maturity to the bond holder. The bond market trades in these bonds between buyers and sellers based on their assessments of what the bond is likely to fetch upon maturity. Commercial and investment banks often act as intermediaries in the issuing of bonds by emerging economies. They help structure the bond offering, market the initial issue and underwrite the issue as they effect their sale to first buyers (Herman 2008: 15).

All in all, roughly 22% of external debt in 2004 was owed to multilateral institutions, 20% to bilateral governments and 58% to private creditors (CADTM 2005).

Credit markets and risk

In the general operation of a credit market, the lender expects that, some of the time, a borrower will fall behind on payments or will default altogether, unable to repay the outstanding amount. This risk is a normal part of credit markets. Based on their assessment of the riskiness of a loan to a given client, creditors charge different levels of interest. They charge higher interest rates for riskier clients. If the loan is fully and unproblematically repaid, some of the higher interest collected can be set aside as a loan loss reserve. This reserve makes up for cases of default.

The existence of risk acts as an imperative on lenders to judge the creditworthiness of borrowers, and the likely success of the investment planned by the borrower. Insulation from existing risk leads to moral hazard: the private creditors, expecting that they are insulated from adverse consequences of risky lending, act less carefully than they otherwise would. In such cases, there will be over-lending.

One element contributing to the accumulation of developing world debt is that their creditors have been insulated from risk and have therefore over-lent. Before the advent of the Bretton Woods institutions, risk was allowed to play some role in sovereign borrowing. When sovereign states defaulted, their lenders often bore the cost. There were, of course, occasions of military action to recover debts forcibly, and these shielded creditors from risk. Yet at the same time, much money was simply lost. There were many default negotiations concluding in a debt reduction. Here are a few examples of negotiated debt reductions and unilateral debt defaults. The British and French governments defaulted in the 1930s, saying that the welfare of their populations were more important than honouring the presumption to fulfil contracts in this instance. In the 1940s, nine US states suspended interest payments when their main export – cotton – could not fetch enough of a price. The 1953 London Accord halved Germany’s foreign debt (Raffer 2007: 87-8).

In the 1970s however, creditor governments bailed out their banks even when they did not adequately take account of risk. Private creditors thus received the signal that they did not need to cautiously assess risks, be selective in lending, and be prepared to suffer losses and to plan accordingly. An illustrative example is the case of US banks’ lending to Indonesia in the early 1970s. US government agencies warned private creditors about the bad state of existing Indonesian debt. The IMF placed a ceiling on the Indonesia’s external borrowing. Yet, private creditors used technical tricks to get around these restrictions, and continued to lend. When the expected crisis developed and it seemed the creditors would be out of pocket, the US government indeed bailed them out (Raffer and Singer 2001: 162). Bail outs by creditor governments as well as by the multilateral institutions led to a climate of over-lending.

What is the usual recourse when there is inability to service a debt?

Countries generally have legal mechanisms for handling difficulties in servicing debts. These serve debtors who are individuals, corporations, or even sub-sovereign bodies such as a municipality. The mechanisms can include arbitrations between creditor and debtor to work out a restructuring of the loan – perhaps to change the term of the loan, or reduce interest, or postpone payment. Debt reductions are also possible. For corporations, there may be debt-equity swaps, where the creditor erases some debt in exchange for shares or control in the company. A loan can be refinanced by obtaining a new loan. Insolvency occurs for a person or an organization when financial assets are insufficient to cover financial liabilities. A debtor claiming insolvency can appeal to be legally declared bankrupt.

In general, law surrounding bankruptcy balances the principle of honouring the debt rightfully owed to creditors against the principle of ensuring that one must not be forced to fulfil contracts if that leads to inhumane distress. Such distress would include the seizure of basic means of sustenance for an individual, for example. If the debt cannot be met without causing inhumane distress, then some level of repayment less than full is negotiated through an arbitrator and both debtor and creditors are bound to it.

There are some special concerns when the agent seeking bankruptcy is a governing body. The US Code, for example, deals with such agents separately in chapter 9 of its title on bankruptcy. What are commonly referred to as ‘chapter 9 proceedings’ allow for the adjustment of debts of a ‘municipality’ (essentially, a sub-sovereign body within the state, such as a city or a county). Given that the financial future of the municipality will affect the lives of its residents, those who have a right to be heard during a hearing on a possible bankruptcy, include municipal employees, local residents and non-resident owners of real property among others (US Code title 11 ch 9). This allows an avenue for residents to voice their concern if they would be caused great distress by possible actions taken against the municipality.

Certain revenues and assets of the municipality are immune to seizure for the sake of repaying debts. These are to do with basic services that a municipality is expected to provide for its residents, such as transportation or utilities (11USC 902, 927). This is one avenue whereby inhumane distress to residents is proscribed.

Moreover, unless the debtor municipality consents to this, the court may not interfere with the political or governmental powers of the debtor, or with its property or its use or enjoyment of any income-producing property (11USC 904). This is to respect the value of sovereignty. Unlike other debtors such as corporations, municipalities are representatives of citizens and their means of self-government. This value of municipalities to their citizens remains protected.

There is no international legal mechanism for dealing with insolvency of sovereign states. This absence is another prominent factor contributing to the large debt burden of developing countries.

References

CADTM. (2005). Les chiffres de la dette. <http://www.cadtm.org/IMG/pdf/vademecum2005b-2.pdf>Accessed on 31-07-2008

Herman, B. (2008). “Introduction: the players and the game of sovereign debt.” Dealing Fairly with Developing Country Debt. C. Barry, B. Herman and L. Tomitova (eds), Wiley-Blackwell.

Raffer, K. (2007). “Risks of lending and liabilities of lenders.” Ethics and International Affairs 21(1): 85-106.

Raffer, K. and H. Singer (2001). The economic North-South divide: six decades of unequal development. Northampton MA, Edward Elgar.

The WTO was established in 1995 as the successor of the General Agreement on Tariffs and Trade (GATT) which was created in 1947. Much of the GATT agreements on trade were carried over into the WTO, though there have been changes and additions in rounds of negotiations since then. Let me list the purposes that the WTO sets itself and the main principles by which it guides itself. I expand on this basic description of the WTO in later sections where I discuss the organisation’s position on trade and development relating to developing countries in particular.

The declared objective of the World Trade Organization (WTO) is to help trade flow smoothly, freely, fairly and predictably. It claims to do this neutrally, administering trade agreements, acting as a forum for trade discussions and settling disputes, reviewing national trade policy issues through technical assistance and training programs and cooperating with other international organizations (Peet 2003: 158) (WTO website).

The preamble to the Marrakesh agreement establishing the WTO in 1995 states the premise under the members come together to negotiate rules for international trade includes the following: “…relations in the field of trade and economic endeavor should be conducted with a view to raising standards of living, ensuring full employment and a large and steadily growing volume of real income and effective demand, and expanding the production of and trade in goods and services, while allowing for the optimal use of the world’s resources in accordance with the objective of sustainable development, seeking both to protect and preserve the environment and to enhance the means for doing so in a manner consistent with their respective needs and concerns at different levels of economic development…” (Marrakesh Agreement). This sets the aims of the organization into the egalitarian context of this thesis.

Members of the WTO are party to various agreements that set rules for the conduct of international trade. Part of the reason why such a set of rules is needed is this. The rules provide individuals, businesses and governments around the world with some confidence that there will be no sudden changes to policy in terms of the conditions with which they must comply in international trade. The rules thus have to be transparent and predictable (WTO website). This fosters an environment conducive to greater international trade and is in keeping with one of the aims set out in the Preamble of the Marrakesh agreement establishing the WTO.

The Preamble of the Marrakesh Agreement establishing the WTO also lists the following aims for the organisation. One: a system of trade that allows optimal use of world resources. By promoting specialisation in areas of comparative advantage, countries’ resources are put to their most productive uses. Two: to ensure that developing countries, and especially the least developed among them, secure a share in the growth in international trade commensurate with the needs of their economic development. With open access to the richer and larger markets of the developed countries, the developing countries have greater scope to increases their export revenue and thus national income.

According to the Preamble, the organisation pursues these aims by the following means. One: a system of trade that allows for reciprocal and mutually advantageous benefit. The reciprocal benefit consists of a country opening itself up to imports in return for export access to the markets of others. The mutual advantage lies in consumers in two trading countries benefiting from greater competition and lower price as their economies specialise in the direction of comparative advantage. The owners of different factors of production in the trading countries also benefit in ways we expect from the Heckscher-Ohlin model.

Two: raising standards of living, ensuring full employment and a large and steadily growing volume of real income and effective demand. These are to be considered in relation to international trade. If a country can raise national income through greater export revenues, it can improve the standard of living of its inhabitants. Access to a greater variety of commodities than are produced nationally may also contribute to this. Employment can be generated by export industries and can be reduced by import barriers erected by trade partners.

Three: a substantial reduction of tariffs and other barriers to trade and elimination of discriminatory treatment in international trade relations. Removal of barriers to trade allow countries to access larger markets through exports

According to article III (5) of the Marrakesh Agreement establishing the WTO, the organization also aims for coherence in global economic policy-making with the International Monetary Fund (IMF) and the International Bank for Reconstruction and Development (IBRD), the latter being one of the branches of the World Bank.

The members of the WTO must adopt certain agreements. The two main principles of these agreements are these.

One, the Most Favoured Nation (MFN) principle stipulates that if a WTO member country grants a trade deal, such as lower customs duties, to one trading partner, it must automatically extend that deal to all other WTO member countries. Some exceptions are permitted, but only under strict conditions. The exceptions are as follows: a group of countries may implement a Free Trade Agreement (FTA) which applies only to goods traded within the group while discriminating against goods originating from outside the group; countries can allow developing countries special access to their markets; a country can initiate barriers against products which are traded unfairly from a specific country; with respect to services, countries can discriminate in limited circumstances (Article I of GATT 1947).

Two, the National Treatment policy stipulates that imported and locally-produced goods should be treated equally, at least after the foreign goods have entered the market. The same applies to foreign and domestic services, and to foreign and local trademarks, copyrights and patents (items of intellectual property). Since this policy only applies once the good, service or item of intellectual property has entered the domestic market, customs duties on imports are permitted even without an equivalent tax on the corresponding domestically produced item (Article III of GATT 1947).

In working to reduce trade barriers, the WTO can allow countries to introduce changes slowly and usually gives developing countries longer to comply.

The agreements of the WTO apply to three main areas of trade: goods, services and intellectual property. The General Agreement on Tariffs and Trade (GATT) governs trade in goods. The core of this is the GATT agreement of 1947. The WTO is a successor to the GATT arrangement as it evolved over the decades until the 1995 replacement of GATT by WTO. The General Agreement on Trade in Services (GATS) governs trade in services. The Agreement on Trade-Related Aspects of Intellectual Property Rights (Agreement on TRIPs) governs intellectual property.

As can be expected with such wide ranging aims, they sometimes require conflicting policies. In such cases, the relative importance of the conflicting aims or means to these aims must be judged and some compromise must be reached. The provisions for Special and Differential Treatment are an instance of this.

Preferential treatment of developing countries

The WTO (and GATT before it) recognises the particularly vulnerable position of developing countries and especially of the poorest among these, such as the least developed countries. With this vulnerability in mind, the organization allows some differential treatment of developing countries that does not apply to developed countries. The Special and Differential Treatment (SDT) provisions of the WTO give developing countries special rights and allow developed countries to treat developing countries more favourably than they would other WTO members. Let me briefly outline the evolution of SDT (Hoekman and Kostecki 2001: Table 12.1).

GATT 1947 Article XVIII acknowledged the special status of countries ‘which can only support a low standard of living and are in early stages of development’ by allowing them to apply some trade restrictions in order to raise standards of living. For example, it mentioned infant industry protection as an additional facility granted to these poor and developing countries (GATT 1947: Article XVIII.2a).

In 1964, the United Nations established the UNCTAD (UN Conference on Trade and Development).

In 1965, a Part IV on ‘Trade and Development’ was added to the GATT agreement. The principles and objectives of this part include the following. It recognizes that export earnings can play a vital part in development and that joint action is essential to the development of developing countries. It notes that the parties to the GATT agreement may enable the less developed members to use special measures to promote their trade and development. It describes paths which may benefit the poorer countries, such as rapid and sustained expansion of exports and diversification of their economies away from an excessive dependence on the primary sector. It notes that the developed countries party to the agreement do not expect reciprocity for commitments to reduce barriers to imports from the developing countries.

However, while Part IV pronounces on various issues of interest to developing countries and describes policies which would benefit them, it does not legally oblige the developed countries to implement the described policies for the benefit of the poorer countries. It contains no legally binding obligations other than to consult.

The Generalized System of Preferences (GSP) scheme was put into motion by the UNCTAD in 1968. It calls on developed countries to grant tariff preferences to developing countries on a non-reciprocal basis. The preferences are granted unilaterally and voluntarily. There is no legal obligation that the preferences be granted, and there are no binding specifications on the areas in which the preferences should be granted.

In 1971, the GATT grants an authorization for the GSP preferences. The waiver is made permanent by the 1979 decision of the GATT known as the Enabling Clause[1]. The Clause enables contracting parties to accord differential treatment to developing countries as a departure from the MFN principle since it allows that the favourable treatment granted to a group of developing countries need not be extended to other contracting parties. This consolidated the concept of non-reciprocity, where trade concessions made by country X to country Y (say, lowering of tariffs on imports from Y) need not be reciprocated by similar concessions from Y.

Early years of GATT and the sidelining of developing countries

One attempt at making up for the particularly vulnerable situation of the developing countries was to exempt them from some of the obligations GATT placed on developed country members. This occurred in the early years of the GATT agreement, precursor to the existing WTO arrangement.

In the first twenty years of the GATT, developing countries were given few obligations, but at the same time, they had only a weak voice in negotiations and little power with which to assert their interests.

Article XVIII of the GATT rules allowed poor developing countries to take protective measures against imports. Developing countries could thus be members of GATT, and yet still evade some of the obligations placed on the developed countries. These rules allowed the developing countries greater freedom in determining their developmental policy. However, this advantage came with a cost. The exemptions allowed the developing countries to introduce trade protections at their own discretion. This rendered doubtful any concessions made by a developing country: it could effectively rescind the concession at its discretion. Accordingly, these countries had even less bargaining power to shape negotiations in their interests (Stiglitz and Charlton 2005: 43).

Developing countries benefited from liberalization of industrialized countries because of the MFN principle. However, the fact that they could evade many obligations to reduce trade restrictions meant that they only had a peripheral role in negotiations. This resulted in developing countries having little influence on the way that the industrialized countries liberalised. Those with a greater role in negotiations set the agenda according to their interests. They chose to discuss sectors of the economy that were of greatest concern to them, and where they had the most to gain. Liberalization in trade of goods of interest to developed countries occurred swiftly. Yet, liberalization in trade of goods of interest to the developing countries – especially labour-intensive goods – lagged behind and the developing countries ultimately suffered. Had the developing countries had greater influence in setting the agenda for negotiations, they would likely have focused on areas in which they could benefit most from reductions across the world – areas such as agriculture or labour intensive production and manufacturing.

Many developed countries were fine with the peripheral role of developing countries and with the resulting focus of negotiations. The small markets of the poor developing countries were not particularly attractive to these developed countries. Thus, the latter did not mind too much that the developing countries did not make as many concessions in removing their trade barriers. Moreover, the developed countries were glad at the peripheral role of the developing countries as it meant that they were spared the pain of removing their own trade barriers to products in which developing countries have a comparative advantage. The developed countries mostly sought to liberalize trade in those goods that were traded intensively between developed countries as these countries had the most attractive markets (Stiglitz and Charlton 2005: 93, 44).

The result was a system where the trade policies of the developed countries could be said to be discriminatory against the developing countries, even though the MFN was not generally violated. The most serious barriers to trade were erected in goods where developing countries typically had a comparative advantage (for example, agriculture and various labour-intensive goods), as these countries had little say in setting the agenda of trade negotiations and little credibility to offer in exchange for concessions they might extract from the developed (Johnson 1967: 79).

In 2004, there were once again suggestions (from the EU trade commissioner) that the developing countries might have a “Round for Free”[2]. That is, they might have a round of trade negotiations without having to make many concessions. They could thus benefit from the reductions in MFN rates that occurred, without themselves conceding reductions.

This would be undesirable for the same reasons as the undesirability of the sidelining of the developing countries in the early years of the GATT. Whatever other effects the so called Round for Free might have, it would also reduce the developing countries’ power to influence agenda setting and the direction of trade liberalization. An alternative would be if the developing countries were involved in designing the very core of new WTO policy, so they could participate in agenda setting and steer the design in the direction of their interests. This alternative is preferable to the strategy under discussion which simply exempts developing countries from policies which have been drawn up without their interests in mind (Keck and Low 2006: 180).

Moreover, allowing minimal liberalization by poor countries affects not only their developed country trade partners, but also their fellow developing country trade partners. The volume of trade between developing countries, or South-South trade, is growing much faster than that of world trade. Developing countries often face higher tariff barriers in other developing country markets than in developed country ones. There is potentially much to be gained for developing countries if their developing country trade partners lower trade barriers to them (Stiglitz and Charlton 2005: 94).

For these reasons, the peculiar needs of developing countries cannot adequately be met through a ‘Round for Free’-type exemption (and resulting exclusion from negotiation) of developing countries from obligations imposed on other countries.

Current Special and Differential Treatment (SDT)

Developing countries currently have a greater role in negotiations relative to the sidelining in the early GATT years. The following are the main types of current SDT measures:

· provisions aimed at increasing trade opportunities through market access (for example, there are exemptions from the MFN principle so that developed countries are enabled to allow greater market access to exports of developing countries);

· provisions requiring WTO members to safeguard the interests of developing countries (these are not legally binding obligations on developed countries, but rather clauses to the effect that ‘developed countries will endeavour to be considerate of poor country interest. Here is an example. “The developed contracting parties shall to the fullest extent possible … give effect to the following provisions: (a) accord high priority to the reduction and elimination of barriers to products currently or potentially of particular export interest to less-developed contracting parties…” (GATT 1947: Article XXXVII.1));

· provisions allowing flexibility to developing countries in rules and disciplines governing trade measures (this can occur in the form of allowing them some choice in whether to implement agreements requiring regulatory or administrative reform);

· provisions allowing longer transitional periods to developing countries; and

· provisions for technical assistance.

Some examples of SDT from WTO agreements are footnoted below[3].

The types of SDT that I will mostly focus on are efforts to increase market access for developing countries and provisions requiring developed countries to safeguard developing country interests. This is not to mark these provisions as more important than other SDT provisions, many of which are very valuable. The focus simply reflects my chosen circumscription of the discussion. Greater market access for developing economies is encouraged via differential obligations on removing subsidies or tariffs and via exemptions from the MFN principle. In some cases developing country governments are allowed to maintain domestic support for certain producers even though developed country governments are enjoined to reduce these[4].

Exemption from the MFN principle enables developed countries to lower tariffs on imports from developing countries without also offering the same reduction to like imports from other countries.

The idea is that even if a developed country is unwilling to lower its trade restrictions on imports of some product across the board, it may be willing to lower those restrictions on imports of that product from developing countries. The preference margin is the difference between the tariffs set on imports from the selected developing countries and that set for other countries (which can be referred to as the MFN rate). The longer term aim is the reduction of MFN tariff rates towards zero (as per para 3(b) of the Enabling Clause). The preferential treatment is intended as temporary and lasts as long as MFN rates are above zero.

Reasons for Special and Differential Treatment of developing countries and especially of Least Developed Countries (LDCs)

Let me list four different sorts of reasons presented in support of special and differential treatment or SDT (Page and Kleen 2005: 6-8).

First, consider the original justification, which was informed by Prebisch 1950 and Singer 1950, and which lies at the foundation of the United Nations Conference on Trade and Development (UNCTAD) and in the adoption of Part IV of GATT. The justification is that developing countries are different in ways that policies best for developed countries are not necessarily best for the developing. These latter countries need to transform the structure of their economies rather than merely expanding the existing structure. The sort of structural transformation involves, for example, promoting particular sectors of the economy in order to develop fluency in more technology-intensive industries. This can require planning and intervention by the government, as well as some temporary loss in efficiency while the intervention in the market bears fruit. Further, developing economies often differ in sectoral composition and in the size and competitiveness of firms. As a result, the argument goes; policies may have different effects to what would be expected in developed countries. There may be lower gains from trade than would be expected for a developed country. Or there may be lower efficiency cost of subsidies (the loss in efficiency caused by the introduction of a subsidy). The idea that developing countries need to intervene more than developed countries need to is the basic argument behind SDT designed to allow developing countries to follow different policies.

Two, trade liberalization can require costly economic and institutional adjustments. For example, developing countries often need to expand production in an export sector or need to enter new foreign markets and there can be substantial costs to making these economic adjustments. To help developing countries make these adjustments and to make the costs more bearable, rules can be modified or transitional rules can be implemented. Ensuring that countries are subject to lower tariffs in a transitional period can make the cost more bearable. The idea is that this will put them on par with (rather than give them an advantage over) domestic producers in the importing developed countries. Even if they do have an advantage over the import competing firms in the developed country, the exporting developing country firms are often too small to make much of a difference to the competitors.

Other substantial costs can be in terms of development of the requisite infrastructure of laws, regulations and policies. Developing countries will probably need to make the biggest changes to comply with the so-called ‘Singapore Issues’. The Singapore Issues refer to a group of topics discussed during the 1996 WTO Ministerial Conference at Singapore. The topics include investment protection, competition policy, transparency in government procurement, and trade facilitation. There are heavy costs attached to the creation and enforcement of new competition policy, investment regulations, and trade and customs procedures. Generally, developing countries have the furthest to go to meet these regulation and procedural standards, and often face a shortage of the requisite legal, administrative, bureaucratic and other expertise to design and implement the changes.

Three, many believe that developed countries have benefited disproportionately from past GATT rounds as well as from present WTO arrangements, and that they do so at the expense of developing countries. SDT is seen as a way of redressing the balance. There is evidence that developing countries, particularly the LDCs, had few economic gains and suffered some losses from the Uruguay Agreement (the round of negotiations ending in 1994) of the WTO (see, for example, Page and Davenport 1994). This is due in part to some distortions in the existing WTO system. For example, there is greater protection in sectors like agriculture and textiles – where developing countries have the comparative advantage – than there is in sectors where the developed countries have the comparative advantage. Even some of those who think greater and freer trade is beneficial to all, might think that such existing distortions need to be offset by preferential treatment for developing countries. These measures can be supported either as a second best economic solution or as a confidence-building measure to include the developing countries despite perceptions of an unfair distribution of advantages from previous rounds of negotiations. Supporters of this view can retain free trade as the ultimate objective, whilst acknowledging that if the protectionism of developed countries prevents us from getting there in the immediate future, then we can at least encourage lower trade restrictions for those most in need of the benefits of trade and those too small to raise protectionist fears (namely, developing countries, especially LDCs and small countries).

Four, some reject the basic premise of GATT, which is that all countries can gain from trade, and argue that some types of countries need different policies. The view is that some countries need permanent special treatment because of peculiar features such as their size or geography. The view holds that many of the poorest countries, or countries that gain least from trade, are not just less developed, but are unable to follow the same path as other developing countries. Such countries may be too small to diversify away from dependence on one or two export commodities, making them more vulnerable to world price changes in that single commodity. They may also have greater import dependence, as their economy may not be of sufficient size to produce a great diversity of products. Regarding matters of geography, many small economies happen to face greater costs due to greater distance from large markets and from suppliers and many happen to be particularly vulnerable to natural disasters. They still have a comparative advantage in some products, but the absolute disadvantage means they can never secure a high income (Winters and Martins 2004: 348).

All this means that these small countries in free trade would possibly find that they cannot establish a commanding position in any export. They have relatively high costs due to inability to match the economies of scale of larger economies and the cost of importing inputs from distant regions as well as high transport costs in shipping their goods to large markets, which are also distant. Their unusually high reliance on imports for many essentials may make inhabitants particularly vulnerable to fluctuations in world prices and in export revenue (with which to pay for imports) in the absence of interventions to stabilise the effects of these on the economy.

Criticisms of existing arrangements for SDT

Both debate internal to the WTO and academic literature external to it contain various criticisms of existing SDT measures. The criticisms are used to different ends by different authors, and there are many proposals for improving the system: for example, fine-tuning the SDT provisions; changing the sorts of industries in which SDT provisions have had most impact; reducing the role of some sorts of SDT in trade negotiations; and alternative systems of preferential or progressive trade regulations. I will use the criticisms as basis for a particular alternative, namely, the Market Access Proposal discussed below. For the time being, let me list some of the criticisms in the literature. For ease of presentation, I group the criticisms under three loose sub-headings: costs imposed by the SDT scheme on developing countries; bias against the areas of greatest interest to developing countries; and unnecessarily moving trade further from efficient specialisation.

Costs imposed by the SDT scheme on developing countries

Rules of origin are regulations determining a product’s country of origin. An importing country can sometimes impose different tariffs or duties on imports from different countries, perhaps because of differential treatment of particular groups of developing countries or because of bilateral trade agreements. Determination of country of origin affects the tariff or duty that is imposed. There are currently many bilateral trade agreements and preferential treatment arrangements. Rules for determining country of origin and tariff rates vary from country to country. Often products contain components or inputs from many different countries. All of this combines to make determination of country of origin a complex matter which imposes transaction costs on exporters. The cost lies in researching and assessing the likely duties one must pay to export to a given country and in keeping up with the countries of origin of all components. This is particularly costly for small corporations and traders, and for developing countries (Sutherland et al 2005: 22).

Policy makers and advisors have finite resources and must make trade offs. Keeping up with the complex negotiations on SDT at the WTO and on GSP with particular developed countries can require a lot of resources. Yet, greater of preferential market access in international trade is only one aspect of poverty alleviation and accordingly, there is an opportunity cost to this use of resources. For, there are other critical areas in poverty alleviation such as macro-economic policy, basic health provision, infrastructure provision, education, effective governance and property rights. There is the danger that the Doha Development Agenda of the WTO (part of the most recent round of WTO talks) and, more generally, negotiations regarding preferential market access through GSP and SDT, can absorb all trade-policy making resources and much bureaucratic and analytical capacity in many developing countries, at the expense of other development areas (Winters 2002: 1-2). If preferential treatment is desired, an arrangement which avoided the complexity of the existing arrangements would be preferable insofar as it would free up more scarce resources for other urgent needs in developing countries.

The utilization rate is the ratio between imports covered by a GSP scheme that actually receive preferences and imports covered by a GSP scheme. There are many reasons why, even though a product is covered by the GSP scheme of a country, its developing world trade partners do not export that product to it in large quantities. For example, there may be high compliance costs, restrictive rules of origin and a lack of understanding of technicalities. The low level of industrialization and diversification in many developing countries may mean that they are unable to initiate or expand production of many of the commodities covered by a GSP scheme (Page and Kleen 2005: 14-5). It may also be because of ongoing uncertainty about tariffs in the future. To function as an incentive to traders in developing countries, preferences must be predictable and stable enough to allow traders to rely on them in planning exports and increases in production. For various such reasons, the utilization rates for developing countries are generally quite low, especially for LDCs (UNCTAD 1999: para 56-7).

Bias against the areas of greatest interest to developing countries

There is a lower preference margin on agricultural goods than on industrial goods. (Recall that the preference margin is the difference between the tariffs set on imports from the preferred developing countries and the MFN rate (the tariffs set for other, non-preferred, countries)). It is generally granted that the poorer developing countries depend more substantially on agriculture and the primary sector more broadly. The comparative advantage of developing countries generally lies in the primary sector. The fact that preference margins in this area are nonetheless lower, may reflect the fact that grantor and not grantee interests determine the preferences (UNCTAD 1999: para 53).

The Enabling Clause does not place formal obligations on developed countries[5]. The exemptions from MFN, for example, are entirely voluntary on the part of the grantor developed countries. The grantors are not obliged to give tariff preferences at all, and in cases where they do choose to provide tariffs, they decide unilaterally which products and countries will be covered.

Once preferences are granted, they are not binding on the grantor countries and can be altered to exclude certain products, or even withdrawn entirely at the grantor’s discretion. Without binding obligations, preference providers face pressure from their own import-competing domestic lobbies to minimise the scope of their preferential schemes. The result is that interests in the preference grantor country, rather than the interests of the grantee country, determine the products covered and the types of preference offered.

In the case of the EU’s GSP (Generalized System of Preferences), once the scheme led to successful exports, the EU began setting annual quotas that considerably restricted the advantage that the exporting countries could extract from the preferences. Or again, in 1992 US withdrew $60 million worth of pharmaceutical imports from their preference scheme because the US Trade Representative determined that India had weak patent protection that adversely affected US companies (Sutherland et al. 2005: 25).

Unnecessarily moving trade further from efficient specialisation

I have mentioned that differential treatment in terms of tariff rates creates a ‘preference margin’: the difference between the rate imposed on all other countries (the MFN rate) and the rate imposed on the preferred country. The margin allows the preferred country a competitive edge over other exporters. The preferred country develops an interest in stalling negotiations to reduce MFN rates, because such a reduction would narrow the preference margin and thus its competitive edge (Sutherland et al 2005: 23). Since some developing countries face the MFN rate while others face the preferred rate, the latter countries’ stalling of negotiations to reduce MFN rates hurts the former developing countries[6].

Insofar as the preferences apply to one group of developing countries and not to other developing countries, they often simply divert trade from some poor countries to others, at the whim of the country granting them. That is, while a country may have been importing from developing country X before preferences, after preferences, it finds it cheaper to import from developing country Y. In terms of efficiency, trade diversion can switch demand away from an efficient (but not-preferred) producer to a less efficient (but preferred) producer.

The EU’s ‘Everything But Arms’ (EBA) agreement granted duty free and quota free access for all LDC (Least Developed Countries) exports except for arms and for three sensitive agricultural products. To put this preference into context however, note that the LDCs produce almost nothing that is directly competitive with EU production. The countries produce such small amounts that the removal of duties on their exports will rarely reduce prices sufficiently in the EU to expand demand from EU consumers. Instead, the EBA diverts EU purchases from other countries to LDCs. Generally the countries which compete most closely with the LDCs are countries whose incomes fall just outside the ‘least developed’ limit. These countries, very nearly as poor as the LDCs, see their demand diverted to LDCs (Winters 2002: 25).

This does not benefit the developing world as a whole, but only shifts the same amount of export revenue from one needy country to another. Moreover, since the choice of preference recipient is up to the grantor country, this leaves some potential for political favouritism and punishment in extending or withdrawing preferences to developing countries (Stiglitz and Charlton 2005: 100).

A preferable system would institute a rule-based and principled mechanism for differentiating between rich and poor, and strong and vulnerable economies. Many possible systems can be designed with this aim in mind. I will investigate one proposal in the literature.