International Trade and the World Trade Organization
In 1999 thousands of protestors descended on the streets of Seattle, in the United States, in what has since become a symbol of the battle of ordinary citizens against the brutal effects of globalization. Trade negotiators had to be ferried from their hotels to the conference under armed guard, riot police fought running battles with an estimated 30,000-50,000 protestors from across the world and, eventually, the talks collapsed. That event was a turning point, bringing public scrutiny, for the first time, to an organization whose operations had hitherto been confined to technocrats meeting behind closed doors. Seattle gave rise to a new generation of fair-trade activism that has inspired millions of people across the world to question the way the WTO operates, the fairness of its policies and its effect on developing countries and the poor.
Those in favor of free trade under the WTO model argue that it results in higher national incomes, greater choice of goods and services, and lower prices for consumers. They also argue that WTO agreements would spur economic development for poorer, disadvantaged nations.
WTO agreements are among the most far-reaching global policies of any multilateral organization. Some of them override domestic laws and many are progressive (meaning they can only be strengthened with time). Increasingly, WTO policies are shifting away from governing trade in goods, into other areas such as labor and intellectual property rights. And there are proposals to broaden the rules to allow international companies to provide services traditionally offered by government, such as education and healthcare.
What is the WTO?
What is this organization that has generated so much global passion? The WTO was established in 1995, to oversee a 50-year-old multilateral trading system – agreements and decisions that bind governments to keep their trade policies within certain bounds. Even though these agreements are negotiated and signed by governments, their purpose is to help private companies produce, import and export goods and services. It is arguably the most powerful multilateral institution. It can make global trade rules, monitor compliance and settle disputes among its 153 member states. Unlike any other multilateral organization, the WTO has the backing of a court, the Dispute Settlement Body (DSB), which has power to enforce its rules. The DSB presides over disputes and imposes sanctions on violators.
Since 1948, when the multilateral trade system was designed, the General Agreement on Tariffs and Trade (GATT) has presided over several rounds of international trade negotiations. The last completed and largest of these was the Uruguay Round, concluded in 1994. The round was negotiated over 8 years culminating in the adoption of a list of about 60 agreements, annexes, decisions and understandings. The Uruguay Round agreements set up the WTO to take over from GATT. While GATT had mainly dealt with trade in goods, the WTO extended its power to include a broader range of sectors such as intellectual property rights and trade in services.
The Uruguay Round agreements fall into six main areas:
- the umbrella agreement, the Agreement Establishing the WTO
- agreements for the three broad areas the WTO covers – goods, services and intellectual property – the General Agreement on Tariffs and Trade (GATT), the General Agreement on Trade in Services (GATS), and the Trade-Related Aspects of Intellectual Property Rights (TRIPS)
- an agreement on dispute settlement, the Dispute Settlement Understanding
- and one to review members’ trade policies, the Trade Policy Review Mechanism.
The WTO is currently hosting a new round of trade negotiations, the Doha Development Agenda, launched in Qatar in 2001. It proposes the broadening of international trade rules to include such issues as government procurement and trade and investment. It had been scheduled for completion in 2005, but suffered delays and, after an almost make-or-break nine-day ministerial summit in Geneva at the end of July 2008, was put on hold while America went to the polls in 2008. Further delays are expected as India is due to do the same in 2009 and a new European Commission will be put in place later the same year. Despite its intention to focus on developing countries, the round mostly failed to live up to those expectations.
The WTO headquarters are in Geneva, Switzerland. The organization has more than 600 staff and is headed by a director-general, Mr. Pascal Lamy, former EU trade commissioner, and four deputy directors-general. The WTO secretariat services delegations of member countries during negotiations and assists countries to implement agreements. It handles negotiations allowing new members to join, provides technical support to poorer member states (especially the least developed countries) and its legal staff assist in interpreting agreements and settling disputes. It has an annual budget of about US$ 165 million, contributed by members on the basis of total trade the member conducts.
The WTO’s highest decision-making forum is the Ministerial Conference. It convenes at least every two years and is composed of representatives from all WTO member countries. It can take decisions on any WTO matter. The day-to-day running of the WTO is carried out by a number of subsidiary organs, principally the General Council. The General Council is composed of all WTO members and reports to the Ministerial Conference. The Council convenes in two forms – the Dispute Settlement Body and the Trade Policy Review Body. The former oversees the organization’s dispute settlement system and the latter carries out regular reviews of the trade policies of each member country, to see if they are in compliance.
Three other major bodies report to the General Council. They are: The Council for Trade in Goods, the Council for Trade in Services and the Council for Trade-Related Aspects of Intellectual Property Rights. The three councils monitor the implementation of their respective agreements and annexes, with the assistance of smaller bodies. There are a number of other subsidiary bodies that report to the General Council, such as the Committee on Trade and Development, which deals with issues affecting developing countries, particularly the least developed.
How the WTO functions
The WTO’s primary job is to help trade flow as freely as possible. It removes obstacles to free trade such as tariffs or cumbersome customs procedures and works towards creating uniform trade rules among members. It also informs individuals, companies and governments about existing trade policies in member countries and works to ensure that no sudden policy changes occur.
Unlike other multilateral institutions such as the World Bank and International Monetary Fund, decisions at the WTO are taken by consensus. WTO officials believe that this ensures that the interests of all members are considered. Only when consensus cannot be reached will the WTO resort to voting. Every country has one vote and a decision is taken based on a majority. Voting takes place under four scenarios:
- A 75 percent majority of WTO members may vote to adopt an interpretation of any of the organization’s agreements.
- A 75 percent majority at the Ministerial Conference may waive an obligation on any member.
- A two-thirds majority of members may elect to amend a provision, but the provision would bind only those members that accept it.
- A new member can only be admitted with the approval of a two-thirds majority at the Ministerial Conference. For example, China was admitted in 2001 and Vietnam in 2007, while a number of transitional economies of the former Soviet Union also joined in the past few years.
Most WTO members have an office in Geneva headed by an ambassador. Trade policies and negotiating positions are taken at home and then put forward by the country’s embassy in Geneva, or by experts sent in from home. Wealthier countries often have large offices, equipping them to deal with the myriad of issues, agreements, provisions and legal challenges that need to be handled in Geneva. In contrast, some of the poorest countries either cannot afford an office in Geneva or only have small ones that cannot cope with the bureaucratic machinery. This means poor countries often are presented with agreements and decisions that they did not participate in formulating.
Some countries act together in regional groupings, the largest of which is the European Union (EU) with 25 members. The European Communities, a WTO member in its own right, speaks on behalf of all EU countries. After the United States, the EU is the second most powerful negotiator at the WTO, based on economic size. Another major negotiating force at the WTO is the Cairns Group. It was set up during the Uruguay Round by a group of mainly middle-income developing countries to argue for the liberalization of agriculture. The countries are mainly agricultural exporters. They do not possess the resources owned by rich agricultural exporters such as the US and oppose policies such as the payment of subsidies by wealthy nations to their farmers.
To a lesser extent, countries of the Association of South East Asian Nations (ASEAN) also often co-ordinate their WTO negotiating positions. Occasionally countries also present common positions through the Africa Group or the African, Caribbean and Pacific Group or the Latin American Economic System (SELA).
Recently, however, another negotiating bloc has emerged. Known as the Group of 21 (G21), it was created just before the Ministerial Conference in Cancún, Mexico, in September 2003. The G21 is a group of developing countries including Brazil, China, India and South Africa. Some view the G21 as replacing the Cairns Group because it brings together many of the same countries under the new banner, with the notable exception of Canada. The G21 has emerged as a powerful negotiating bloc during the current round of negotiations. In Cancún there were three texts put out for consideration in the negotiations on agriculture, the official WTO text, an EU-US text and the proposals of the G21. The G21 countries are home to more than 50 percent of the world’s population and more than 60 percent of its farmers. Disagreements on agriculture and the introduction of a broad set of new issues into the current round led to the collapse of the Cancún Ministerial Conference, and nearly threatened to kill the round. These new proposals, known as the Singapore issues (because they were first raised at the Ministerial Conference in Singapore in 1996), cover government procurement, investment, competition, and trade facilitation. G21 nations said it was important to work out fundamental disagreements on existing WTO policies before moving into new areas.
Some key issues
WTO and development:
The current round has been dubbed the Doha Development Agenda following pressure from poorer nations who feel that the benefits of the Uruguay Round have only accrued to rich nations. More than 70 percent of the gains of the Uruguay Round have gone to developed nations and the rest to a few middle income countries. Least developed countries have fared the worst, with sub-Saharan Africa losing more than $1 billion a year between 1995 and 2004, according to the United Nations Development Programme. Many are demanding a redress of the inequities of the Uruguay agreements – such as protectionist policies still in place in industrial countries that discriminate against goods produced by developing countries. Fair trade activists often complain that the richer and more powerful members of the organization, such as the US, are promoting free trade only in sectors that benefit them while continuing to protect those of interest to developing countries, such as textiles and agriculture. For instance:
- Under the WTO Agreement on Agriculture, rich countries continue to spend about $300 billion annually on farm subsidies, despite pledges to reduce them. As a result, subsidies depress prices for poor countries and create unfair competition for poor farmers in developing countries who are not subsidized. Rich countries however continue to stymie efforts by developing countries to eliminate subsidies at the current round of negotiations.
- The Agreement on Trade Related Aspects of Intellectual Property Rights (TRIPS) is also contentious. Developing countries and fair trade activists have long argued that intellectual property should not fall under WTO rules as it has far-reaching consequences for development. For instance, TRIPS provisions restrict the ability of poor nations to access cheaper, generic drugs to combat serious illnesses such as AIDS.
- Developing countries also argue that for a genuine development round, the General Agreement on Trade in Services (GATS) needs to incorporate their trade needs. At the moment it is heavily tilted in favor of industrial nations. It, for instance, promotes financial liberalization, an area rich countries enjoy a comparative advantage in. Industrial nations are resisting proposals to broaden the agreement to permit liberalization of areas of interest to poor countries, including labor-intensive sectors such as construction, which would allow free movement of workers from poor to rich countries.
- Groups opposed to privatization point out that what industrial countries failed to achieve through World Bank and International Monetary Fund policies, they are now seeking to attain through GATS, a legally enforceable agreement. GATS is strongly geared toward privatization and the complete liberalization of domestic markets. Through what is known in WTO terms as making a commitment, member countries pledge to deregulate certain sectors of their economies to foreign competition. A commitment is irreversible and activists see this as increasing the reach of multinational corporations into developing countries.
One of the reasons for the breakdown in talks at the Ministerial Conference in Cancún was an insistence by some industrial countries to introduce into the WTO a whole new range of issues that would produce binding agreements at the end of the present round. The areas are: Trade and Investment, Trade and Competition Policy, Transparency in Government Procurement and Trade Facilitation. Under these proposals, preferences to domestic companies, such as lower taxes, would be disallowed. They also would give foreign corporations an equal footing to compete for government tenders and allow them to provide even local services such as water and education. Many developing countries are not convinced of the need to increase their WTO obligations. They also fear that agreements in some of these areas would harm their capacity to develop their local industry. Many are more concerned about ironing out outstanding issues from the Uruguay Round.
Transparency and accountability
While the texts of agreements are made public, WTO negotiations are highly technical, and take place mainly behind closed doors in Geneva, without the input of domestic constituencies such as parliaments. Even among member countries, the negotiations are not transparent. The more powerful nations often meet alone in what are termed ‘green rooms,’ to decide on crucial aspects of the negotiations before opening them up to other members. While smaller nations technically have the ability to oppose the proposed agreements, they often lack the resources to engage fully in the discussions.
The WTO has become a policymaker at the global level. In a democratic country, citizens participate in the creation of legislation and government policy. There is increasingly little opportunity for citizens, especially in developing countries, to do so when it comes to policies negotiated in Geneva. For instance, many countries are opening up sectors of their economies to international competition at the current GATS negotiations, behind closed doors and without letting their citizens know what has been committed. Unless the WTO becomes more transparent and accountable, developing countries may have more to loose under the current round of negotiations a growing number of trade activists believe.
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