The World Trade Organization

A Beginner's Guide

David Collins

• Publisher: Oneworld Publications
• Year: 2015
• eBook ISBN: 9781780745794
• Topic: Economics
• Subtopic: International Business
• Index: Economics

One of the most important yet least understood organizations in the world, the WTO is a lynchpin of globalization, allowing us to enjoy products and services from around the globe. However, it also lays bare the frailty of many industries, leading some to claim that it stokes unemployment and harms the developing world.

In this engaging introduction, David Collins examines the goals of the WTO and the difficulties experienced by member countries struggling to adapt to the pressures of globalization. Refuting the argument that the WTO should expand its mandate to cover wider social issues, Collins demonstrates how this would confuse the organization’s primary objective – to liberalize international trade. With case studies straight from the headlines and clear explanations of complex issues like regional trade agreements and currency manipulation, this lucid exposition is an essential insight into what the WTO does and how it fits into the world we know.

1
How it works: the structure and function of the WTO

A few years ago, while flipping through one of the WTO’s own publications aimed at informing the general public about what it does, I was struck by a comment near the beginning that said the WTO is best described as a table. This statement wasn’t meant to evoke a metaphysical or Freudian discussion. It was simply intended to capture the fact that the WTO is focused on allowing people to talk about things so that they can eventually come to an agreement, just as people sit around tables to negotiate. The table itself does nothing.

The WTO on its own has no interests or agenda apart from that of its constituent members. It is entirely member-driven and in that sense it is democratic, which does not fit the image of an old boys’ club of big business special interest that is often perpetuated by the media. Of course, no state would tolerate its trade policy being dictated to solely by any particular commercial interest. This is why it’s not fair to say that the WTO should do this or it should do that. ‘It’ can only do what its members want, which is itself up to the will of elected politicians around the world.

The organization

The WTO came into being on 1 January 1995 as a result of many years of negotiation among the signatory states of a treaty called the General Agreement on Tariffs and Trade (GATT), which is an international agreement among individual countries promoting free international trade in goods. In its simplest form, the WTO’s objective is to administer the GATT as well as a series of other international agreements on trade, many of which will be explored throughout this book. The WTO is headquartered in Geneva, Switzerland.

The will of the WTO is exercised through its members, and the WTO’s membership is currently composed of 161 countries at the time of writing in mid-2015. Members must be countries and only countries – not companies, cities or non-governmental organizations (NGOs). The European Union (EU), which is a member of the WTO, is strictly speaking a supranational collection of countries, but they act in unison for the purposes of international trade. With the accession of Russia in 2012, WTO membership now includes all of the major trading countries in the world. In fact, the only countries that are outside the system are those that have largely isolated themselves from world affairs, such as North Korea. In that sense, almost the entire world’s seven billion people fall under the influence of the WTO in some way.

The process for joining the WTO, known formally as accession, is different for each new member country. Each member negotiates an individually tailored agreement – called an Accession Protocol, setting out the precise terms under which it agrees to join the WTO community. This must be approved by every existing member. Common conditions attached to new members include phase-in periods for countries that are not yet full market economies, which may involve the gradual opening up of various sectors or industries to international trade over time rather than suddenly. Accession negotiations can often take many years, a fact which reflects both the difficulties involved for some countries bringing their economies into line with the WTO’s principles as well as how important WTO membership has become. In many ways WTO membership is a badge of integration into the world economy – a statement that a country is mature enough to interact in economic affairs on the world stage.

Each member has equal standing at the WTO, meaning that in theory each one has the same capacity to effect change through voting. The one-nation-one-vote ideology suggests that in one sense the WTO is truly democratic, unlike some other international organizations, like the International Monetary Fund (IMF), where voting power is allocated according to the size of each country’s economy. Of course in reality the larger, more powerful members like the US and the EU exercise greater decision-making influence because they are able to offer more concessions as bargaining chips, allowing greater access to their large lucrative markets in exchange for voting allegiance. As with most international organizations, there is a significant democratic deficit in the governance of the WTO. Strategic voting through alliance formation is most commonly associated these days with developing states that tend to negotiate at the WTO in blocs. Allegiances of this kind have had limited impact in the past because of the often superficial nature of shared interests among developing countries, which tends to break down under tight negotiations. Also, some of the larger developing countries that were expected to take on leadership roles at the WTO, such as India and China, failed to do so, often pursuing their own interests at the expense of other developing country members. India’s recent holdout over its food security programme, which did not fit with the WTO’s subsidy rules, is a good example of this.

One of the major criticisms of the WTO was that the real negotiations take place in smaller groups, with many of the least powerful member countries effectively marginalized from the true power-brokering. Informal discussions known as ‘Green Room’ meetings (so-called because of the colour of the walls of the Director-General’s conference room in which they took place) were unrepresentative and non-inclusive. The results of these critical meetings among the most important players were then brought to the formally democratic process of full WTO membership for voting, but little practical input was possible by that point. This system of privileged debate led to accusations that the WTO was insufficiently transparent, with the vast majority of the membership (the weak developing countries) having little to no practical say in the organization’s management. Green Room-type meetings have largely been eliminated in recent years, with the Director-General reporting back to all members the results of any informal gatherings held in his offices.

Each of the WTO’s members agrees to abide by its various agreements, including the original GATT from the 1940s and a host of new agreements that were established in 1995 along with the creation of the WTO itself. They are legally binding obligations that compel the member countries to ensure that their laws relating to trade are kept within limits that have been set by the WTO community. We will be looking at many of the most important of these agreements throughout this book. In so doing, we will also see how the WTO resolves disputes that arise between the members about what exactly these agreements require them to do, and what happens if they are not followed. It is important to recognize that WTO rules do not bind people or companies, at least not directly. They apply only to the member countries, which in turn create laws that affect private citizens and firms.

Negotiations among the WTO members are an ongoing process, but it is organized into sessions that are known as ‘rounds’. Each negotiating round can last several years. Since the creation of the GATT in the late 1940s, there have been eight rounds of trade negotiations. The eighth one, the Uruguay Round, named after the location of where it was commenced, ran from 1986 to 1994 and resulted in the creation of the WTO itself. A ninth round, the Doha Round, began in 2001 and is still under way. This doesn’t mean that the negotiations still take place in Doha – this is simply where they began. The Doha Round is aimed at ensuring that the economic globalization brought about by the WTO is made more inclusive, helping the world’s poorest people, in particular by cutting subsidies to agriculture, such as those instigated by the US and the EU. As we will see later on, so far, work towards achieving this objective has met with limited success.

The initial purpose of the negotiations, which began under GATT in the 1940s, was to lower tariffs or customs duties on foreign goods, but by the mid-1990s tariffs had become so low, barely four percent on average, that the negotiations switched focus to other barriers to internationally traded goods, like subsidies and rules on health and safety. Negotiations also expanded from goods to things like services and intellectual property.

In addition to the ongoing negotiation rounds, there are regular meetings of the Ministerial Conference, which is the highest decision-making body of the WTO, composed of representatives of each of its members. There have been nine Ministerial Conferences since the WTO was established, roughly one every two years. The first one was held over a few days in Singapore in 1996, with the conference in Bali in December 2013 the most recent. The third conference, held in Seattle in 1999, resulted in mass demonstrations by various groups including anti-globalizationists, environmentalists and labour unions, as well as anarchists opposing all forms of government. Photos and video clips of the Seattle demonstrations, some of which were quite violent, are still among the most evocative impressions many people have of the WTO. In many respects the Seattle Ministerial Conference was the first time the eyes of the world’s media were focused on the then four-year-old organization. Some feel that the swift response of the US National Guard in controlling the protests permanently tarnished the image of the WTO as a democratic and open institution.

As much of the WTO’s work is highly specialized, there are a number of committees and agencies within it that are tasked with certain duties. For example, the Trade Policy Review mechanism is a special team of experts that engages in periodic evaluations of the status of each member’s international trade laws. Reports are produced by this body effectively summarizing the extent to which each country is complying with its WTO laws. This data acts as a useful form of advice to traders on the types of barriers they are likely to encounter when exporting to a given member country. While each member of the WTO is reviewed through this system, the frequency of review depends on the economic size of the country, with the larger members being reviewed more often. The Trade Policy Review system is a key component of the WTO’s mission (on behalf of its members, of course) to share information about international trade laws, which itself is seen as a vital instrument of trade liberalization.

Another important agency within the WTO is the Committee on Regional Trade Agreements. This group considers whether regional trade agreements among some but not all of the WTO’s members fit within its global rules. Regional agreements must be notified to this committee, which then evaluates their legitimacy from a perspective of the WTO’s overall rules, and importantly publishes them in a database of regional agreements available to all WTO members. More than 580 such agreements have been notified to this committee as of late 2014.

Perhaps the most distinct branch of the WTO is its Dispute Settlement Body. The Dispute Settlement Body is a special arm of the WTO that resolves disputes between WTO members about the meaning and implementation of the organization’s various rules on international trade. The activities of the Dispute Settlement Body in allowing the smooth administration of the various WTO agreements will be explored more closely in chapter 3.

With all these activities (group voting, rule-making, information dissemination and dispute settlement) it is no surprise that the WTO incurs some considerable operational costs. The total budget for the WTO is around US $200 million per year, which is small given the relative importance of the organization to the global economy. It has a permanent staff of about 640 people, most of whom are engaged in administrative support. This is less, for example, than the budget and staff of the IMF or the World Bank, let alone an agency of the size of the United Nations. In the interests of transparency, each year the WTO issues its Annual Report, which outlines its activities and provides a detailed breakdown of information about its budget and staffing.

THE WTO DIRECTOR-GENERAL

The top official in the WTO is the Director-General. This person is the chief representative of the organization itself, responsible for issuing policy statements about the WTO’s activities and its take on current issues in international economic affairs as well as the more routine duty of supervising the WTO’s internal administrative functions. Because the work of the WTO can be highly political, involving the cooperation of many hundreds of diplomats and their governments, the position is well suited to an individual who has a political or policy background, rather than someone from the private sector or industry, who may be more accustomed to giving orders that go unchallenged. Past Directors-General have included Mike Moore, a former prime minister of New Zealand; Pascal Lamy, former president of the European Commission; and Peter Sutherland, the former attorney general of Ireland. As of 2014, there has yet to be a female Director-General of the WTO. The current Director-General is Robert Azevêdo, who took office in September 2013. He is a former diplomat from Brazil and the first Latin American to hold the top post of the organization. Azevêdo had long-term involvement with the WTO, acting on behalf of Brazil in a number of disputes as well as sitting as a judge in several dispute settlement cases. His participation in the WTO judicial procedures is curious given that he trained as an engineer, although this seeming inconsistency illustrates how the WTO’s rules are implemented in a highly pragmatic fashion, even while they are on occasion also legally technical. After laborious and often tense negotiations, Azevêdo earned early praise in December 2013 for his vital role in cementing the important Bali agreements on food security and cutting trade bureaucracy. He emerged as something of an eleventh-hour hero in the media’s depiction of the marathon discussions, where he insisted that failure to reach accord was not an option. While it is unlikely that the WTO will ever enjoy the representation of someone quite as appealing as Angelina Jolie (as ambassador for the United Nations High Commissioner for Refugees), Roberto Azevêdo may be as good as the WTO can expect in the way of a figurehead for the time being.

The WTO headquarters are in the Centre William Rappard on Geneva’s Rue de Lausanne. The complex, originally constructed in the 1920s, is set among trees in a park next to Lake Geneva, about a twenty-minute walk from the centre of the city; much of the building’s artwork – depicting people at various forms of work – is a reminder that it was originally the home of the International Labour Office. An extension to the old, mostly stone and brick building was completed in 2013. The extension includes an underground car park as well as new office space and several additional meeting rooms. Overall, the complex has a pleasing mix of old-world gravitas (echoing hallways with high, ornate ceilings and huge doors) and modern (glass and steel). It also boasts low energy consumption, with solar panels for water heating and sophisticated insulation. Not bad for 200 million dollars.

Still, the fact that the WTO headquarters are effectively hidden behind the cover of trees and an imposing wall in the mountains of Switzerland does not help the organization’s image as a transparent, accessible and democratic global institution. It looks more like a James Bond villain’s lair than a public building. Although the WTO is geographically remote and physically impenetrable (good luck getting inside the Centre William Rappard without a written invitation from someone important!), it has always been well ahead of the game in terms of its public outreach through the Internet. The WTO website is remarkably complete, up to date and user-friendly. And while the same could now be said of the websites of a number of international institutions, like the World Bank or the IMF, the WTO’s website has always been accessible, even during the early days of the Internet.

The WTO’s mandate

The essential objective of the WTO is to minimize obstacles to global trade. While its mandate has expanded from its mid-twentieth-century focus on trade in manufactured goods to capture the movement of intangibles like services as well as intellectual property, and its efforts have shifted away from tariffs to other forms of protectionism like subsidies, the WTO has remained true to its original ideal. It is a trade organization, so to the extent that its activities touch on other policy areas, it only deals with them in as much as they affect trade. The WTO is careful to restrict its involvement to only those matters which are truly trade related. This narrow focus has attracted criticism, primarily because failure to deal with other related and often vital issues of global concern could be seen as a wasted opportunity or short-sightedness. Since the WTO has considerable credibility in terms of its engagement with the global community, it is well placed to weigh in on various pressing policy matters. But it has generally chosen not to.

There are several key issues that remain beyond the scope of the WTO. First, it has no formal competency over matters relating directly to labour, including either the wages of employees or their working conditions around the world. Of course, any time a trade rule affects someone’s ability to obtain and keep their job, then labour issues are clearly engaged. This tension has been the source of considerable criticism because of the obvious link between efficiency in the production and export of goods (especially manufactured ones) and low wages. In theory, firms gain a competitive advantage by paying their workers less – their goods become cheaper in world markets than those produced by firms whose employees are paid relatively more. This strategy has itself been called into question. Paying workers higher wages often leads to more productive output, but the fact remains that labour-intensive companies tend to locate where wages are low (currently East Asia, especially Vietnam and Thailand, now that wages in China have begun to rise). While WTO supporters could quite rightly assert that wages are the responsibility of domestic governments and not an aspect of international trade law or policy, this argument loses some credibility because employees have little to no bargaining power vis-à-vis their employers because, unlike companies, they are not internationally mobile. Workers cannot readily move to where there are jobs or where wages are higher because of strictly enforced immigration laws around the world. Indeed, it is often said that while the WTO has established global markets for goods and services, it has done nothing to achieve the final pillar of globalization – the free movement of people across borders.

Much to the consternation of the Green movement and NGOs like Friends of the Earth and Greenpeace, in one sense the WTO doesn’t have anything to do with the environment or climate change either, at least not directly. Members of the WTO are not required to make any commitments not to pollute the air or water or to preserve wildlife. That’s up to the governments of each of the member countries. In another very real sense, an issue that may seem to be trade related may to another person be viewed as an environmental matter. The WTO does allow members to have their own policies on protecting the environment, even where this might have an adverse effect on international trade. The WTO tries not to get in the way of environmental protection, even though it doesn’t proactively aim to do anything to save the natural world as part of its formal mandate. It could do more – but then it would cease being an organization devoted to liberalizing international trade and would become something quite different, more like a system of global government.

It is worth pointing out that the international trade of goods is not as damaging to the environment as some critics may believe. The carbon footprint of products sourced from across the world, like exotic fruits, is not necessarily higher than those which are produced locally. This is because there are many factors that influence the carbon emissions associated with a given item, only one of which relates to transportation. For example, maintaining greenhouses in colder climates is itself carbon intensive, as are many mechanized production techniques. Contrary to what you might think, a 2007 study by Cranfield University in the UK showed that flowers imported into...

Table of contents

• Cover
• Title Page
• Copyright
• Contents
• List of acronyms
• Introduction
• 1: How it works: the structure and function of the WTO
• 2: The three pillars: the principles of tariff reduction, non-discrimination and transparency
• 3: In the courtroom: the WTO dispute settlement system
• 4: Playing fair: non-tariff barriers to trade
• 5: Money isn't everything: public interest exceptions to WTO rules
• 6: Not just things: the liberalization of trade in services
• 7: Health and safety: food and product standards as barriers to trade
• 8: Keeping it real: the protection of intellectual property rights
• 9: Trade is for everyone: the WTO and developing countries
• Conclusion: the future of the WTO
• Further reading
• Index