international economics project

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World TradeOrganization (WTO)-

A critique

Priya Laxman Saloni TandonRoll No. 290 Roll No. 20B.A(H) Economics 3rd Year B.A (H) Economics 3rd Year


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Index

S No. TopicPage

Number

1 Overview2

2 Functioning of the WTO 3-5

3 Prominent Issues 6-13

4 Other Issues 14-17

5 WTO and Democracy 18-21

6 Bibliography 22


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WTO an Overview

The WTO's predecessor, the General Agreement on Tariffs and Trade (GATT), was estab-lished after World War II in the wake of other new multilateral institutions dedicated to in-

ternational economic cooperationnotably the Bretton Woods institutions known as

the World Bank and the International Monetary Fund. A comparable international institu-

tion for trade, named the International Trade Organization was successfully negotiated. The

ITO was to be a United Nations specialized agency and would address not only trade barri-

ers but other issues indirectly related to trade, including employment, investment, restrictive

business practices, and commodity agreements. But the ITO treaty was not approved by the

U.S. and a few other signatories and never went into effect. In the absence of an internation-

al organization for trade, the GATT "transformed itself" into a de facto international organiza-tion over the years.

The World Trade Organization (WTO) is the only global international organization dealing

with the rules of trade between nations. At its heart are the WTO agreements, negotiated

and signed by the bulk of the worlds trading nations and ratified in their parliaments. The

goal is to help producers of goods and services, exporters, and importers conduct their busi-

ness. It is a place where member governments go, to try to sort out the trade problems they

face with each other. However, it is only the stated aim of the World Trade Organiza-

tion(WTO

) to promote free trade and stimulate economic growth. Behind the general stat-ed functions of the WTO, there is a lot more that takes place that is not perceived easily.


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Functioning of the WTO

Principles

The WTO establishes a framework for trade policies; it does not define or specify outcomes.

It is concerned with setting the rules of the trade policy games. Five principles are of particu-

lar importance in understanding both the pre-1994 GATT and the WTO:

1) Non- DiscriminationIt has two major components: the most favoured nation (MFN) rule, and the national treat-

ment policy. Both are embedded in the main WTO rules on goods, services, and intellectual

property, but their precise scope and nature differ across these areas. The MFN rule requires

that a WTO member must apply the same conditions on all trade with other WTO mem-bers, i.e. a WTO member has to grant the most favorable conditions under which it allows

trade in a certain product type to all other WTO members. Grant someone a special favour

and you have to do the same for all other WTO members. National treatment means that

imported goods should be treated no less favorably than domestically produced goods (at

least after the foreign goods have entered the market) and was introduced to tackle non-

tariff barriers to trade (e.g. technical standards, security standards et al. discriminating against

imported goods).

2) ReciprocityIt reflects both a desire to limit the scope of free-riding that may arise because of the MFN

rule, and a desire to obtain better access to foreign markets. A related point is that for a na-

tion to negotiate, it is necessary that the gain from doing so be greater than the gain available

from unilateral liberalization; reciprocal concessions intend to ensure that such gains will ma-

terialise.

3) Binding and enforceable commitmentsThe tariff commitments made by WTO members in a multilateral trade negotiation and on

accession are enumerated in a schedule (list) of concessions. These schedules establish "ceil-

ing bindings": a country can change its bindings, but only after negotiating with its trading

partners, which could mean compensating them for loss of trade. If satisfaction is not ob-

tained, the complaining country may invoke the WTO dispute settlement procedures.


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4) TransparencyThe WTO members are required to publish their trade regulations, to maintain institutions

allowing for the review of administrative decisions affecting trade, to respond to requests for

information by other members, and to notify changes in trade policies to the WTO. These

internal transparency requirements are supplemented and facilitated by periodic country-

specific reports (trade policy reviews) through the Trade Policy Review Mechanism

(TPRM). The WTO system tries also to improve predictability and stability, discouraging the

use of quotas and other measures used to set limits on quantities of imports.

5) Safety ValvesUnder specific circumstances, governments are able to restrict trade. There are three types of

provisions in this direction: articles allowing for the use of trade measures to attain noneco-nomic objectives, articles aimed at ensuring "fair competition", and provisions permitting

intervention in trade for economic reasons. Exceptions to the MFN principle also allow for

preferential treatment of developing countries, regional free trade areas and customs unions.

Organisational Structure

The General Council has multiple bodies which oversee committees in different areas:

1. Council for Trade in GoodsThere are 11 committees under the jurisdiction of the Goods Council each with a specific

task. All members of the WTO participate in the committees. The Textiles Monitoring Body

is separate from the other committees but still under the jurisdiction of Goods Council. The

body has its own chairman and only 10 members. The body also has several groups relating

to textiles.

2. Council for Trade-Related Aspects of Intellectual Property RightsInformation on intellectual property in the WTO, news and official records of the activities

of the TRIPS Council, and details of the WTO's work with other international organizations

in the field.


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3. Council for Trade in ServicesOperates under the guidance of the General Council and is responsible for overseeing the

functioning of the General Agreement on Trade in Services(GATS). It is open to all WTO

members, and can create subsidiary bodies as required.

4. Trade Negotiations CommitteeDeals with the current trade talks round. The chair is WTO's director-general. The commit-

tee is currently tasked with the Doha Development Round. The Service Council has three

subsidiary bodies: financial services, domestic regulations, GATS rules and specific commit-

ments. The General council has several different committees, working groups, and working

parties. There are committees on the following: Trade and Environment; Trade and Devel-

opment (Subcommittee on Least-Developed Countries); Regional Trade Agreements; Bal-

ance of Payments Restrictions; and Budget, Finance and Administration. There are working

parties on the following: Accession. There are working groups on the following: Trade, debt

and finance; and Trade and technology transfer.

The above are the stated functions of the WTO. However, there is a lot more to its func-

tioning and a lot more that goes on behind the veil.The actions and methods of the World

Trade Organization evoke strong antipathies. Among other things, the WTO is accused of

widening the social gap between rich and poor it claims to be fixing.
http://en.wikipedia.org/wiki/General_Agreement_on_Trade_in_Serviceshttp://en.wikipedia.org/wiki/Doha_Development_Roundhttp://en.wikipedia.org/wiki/Doha_Development_Roundhttp://en.wikipedia.org/wiki/General_Agreement_on_Trade_in_Services


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WTO and Prominent Issues

Developing Countries

Critics contend that smaller countries in the WTO wield little influence, and despite the

WTO aim of helping the developing countries, the politicians representing the most influen-

tial nations in the WTO focus on the commercial interests of profit-making companies ra-

ther than the interests of all. The WTO does not seem to manage the global economy impar-

tially, but in its operation has a systematic bias toward rich countries and multinational cor-

porations and harms smaller countries which have less negotiation power. Some examples of

this bias are:

1. Rich countries are able to maintain high import duties and quotas in certain products,blocking imports from developing countries (e.g. clothing)

2. The increase in non-tariff barriers such as anti-dumpingmeasures allowed against de-veloping countries

3. The maintenance of high protection of agriculture in developed countries while de-veloping ones are pressed to open their markets

4. Many developing countries do not have the capacity to follow the negotiations andparticipate actively in the Uruguay Round

5. The TRIPs agreement which limits developing countries from utilizing some tech-nology that originates from abroad in their local systems (including medicines and ag-

ricultural products).

Developing countries have not benefited from the WTO Agreements of the Uruguay Round

and the credibility of the WTO trade system could be eroded. One of the major categories of

'problems of implementation of the Uruguay Round is the way the Northern countries have

not lived up to the spirit of their commitments in implementing (or not implementing) their

obligations agreed to in the various Agreements. The Doha Round negotiations have veered

from their proclaimed direction oriented to a development-friendly outcome, towards a

'market access' direction in which developing countries are pressurized to open up their agri-

cultural, industrial and services sectors.

The Ministerial Declaration adopted at the start of the Doha Development Round of trade

negotiations, on 14 November 2001, was a promising response to the anti-globalization riots

of the 1990s. But the WTO membership has failed to deliver the promised pro-development

changes. Finding "development" in the Doha Development Round today is like looking for

a needle in a haystack.
http://en.wikipedia.org/wiki/Dumping_(pricing_policy)http://en.wikipedia.org/wiki/Agreement_on_Trade-Related_Aspects_of_Intellectual_Property_Rightshttp://www.wto.org/english/thewto_e/minist_e/min01_e/mindecl_e.htmhttp://www.guardian.co.uk/world/1999/dec/05/wto.globalisationhttp://www.guardian.co.uk/world/1999/dec/05/wto.globalisationhttp://www.guardian.co.uk/world/wtohttp://www.guardian.co.uk/world/wtohttp://www.guardian.co.uk/world/1999/dec/05/wto.globalisationhttp://www.guardian.co.uk/world/1999/dec/05/wto.globalisationhttp://www.wto.org/english/thewto_e/minist_e/min01_e/mindecl_e.htmhttp://en.wikipedia.org/wiki/Agreement_on_Trade-Related_Aspects_of_Intellectual_Property_Rightshttp://en.wikipedia.org/wiki/Dumping_(pricing_policy)


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The examples given below suggest how developing countries have been completely side-

lined by the economic and political interests of global powers:

1. Cotton: The Fairtrade Foundation revealed last year how the $47bn in subsidies paidto rich-country producers in the past 10 years has created barriers for the 15 million

cotton farmers across west Africa trying to trade their way out of poverty, and how 5million of the world's poorest farming families have been forced out of business and

into deeper poverty because of those subsidies.

2. Agricultural subsidies: Beyond cotton, WTO members have failed even to agreehowto reduce the huge subsidies paid to rich world farmers, whose overproduction

continues to threaten the livelihoods of developing world farmers.

3. Trade agreements: The WTO has also failed to clarify the deliberately ambiguousrules on concluding trade agreements that allow the poorest countries to be manipu-

lated by the rich states. In Africa, in negotiations with the EU, countries have been

forced to eliminate tariffs on up to 90% of their trade because no clear rules exist toprotect them.

4. Special treatment: The rules for developing countries, called "special and differen-tial treatment" rules, were meant to be reviewed to make them more precise, effective

and operational. But the WTO has failed to work through the 88 proposals that

would fill the legal vacuum.

5. Medicine: The poorest in developing countries are unable to access affordable medi-cine because members have failed to clarify ambiguities between the need for gov-

ernments to protect public health on one hand and on the other to protect

the intellectual property rights of pharmaceutical companies.6. Legal costs: The WTO pledged to improve access to its expensive and complex le-

gal system, but has failed. In 15 years of dispute settlement under the WTO, 400 cas-

es have been initiated. No African country has acted as a complainant and only one

least developed country has ever filed a claim.

7. Protectionist economic policies: One of the WTO's five core functions agreed atits inception in 1995 was to achieve more coherence in global economic policy-

making. Yet the WTO failed to curb the speedy increase in the number

ofprotectionist measures applied by G20 countries in response to the global eco-

nomic crisis over the past two yearsdespite G20 leaders' repeated affirmations oftheir "unwavering" commitment to resist all forms of protectionist measures.

8. Natural disaster: The WTO fails to alleviate suffering when it has the opportunityto do so. In the case of natural disaster, the membership will have taken almost two

years to agree and implement temporary trade concessions for Pakistan, where severe

flooding displaced 20 million people in 2010 and caused $10bn of damage. Those
http://www.guardian.co.uk/global-development/poverty-matters/2011/jul/29/wto-doha-fails-poorest-countrieshttp://www.guardian.co.uk/global-development/poverty-matters/2011/jul/29/wto-doha-fails-poorest-countrieshttp://www.fairtrade.org.uk/includes/documents/cm_docs/2010/f/2_ft_cotton_policy_report_2010_loresv2.pdfhttp://www.ifpri.org/sites/default/files/publications/rb16.pdfhttp://www.ifpri.org/sites/default/files/publications/rb16.pdfhttp://www.uneca.org/atpc/Work%20in%20progress/33.pdfhttp://www.wto.org/english/tratop_e/devel_e/dev_special_differential_provisions_e.htmhttp://www.wto.org/english/tratop_e/devel_e/dev_special_differential_provisions_e.htmhttp://www.wto.org/english/thewto_e/minist_e/min03_e/brief_e/brief21_e.htmhttp://www.who.int/medicines/areas/policy/doha_declaration/en/index.htmlhttp://ictsd.org/i/events/dialogues/103446/http://ictsd.org/i/events/dialogues/103446/http://www.wto.org/english/res_e/booksp_e/discussion_papers13_e.pdfhttp://www.wto.org/english/res_e/booksp_e/discussion_papers13_e.pdfhttp://www.wto.org/english/news_e/news11_e/g20_wto_report_may11_e.dochttp://www.moneycontrol.com/news/current-affairs/eu-welcomes-india-allowing-wto-waiver-forpakistan_592122.htmlhttp://www.moneycontrol.com/news/current-affairs/eu-welcomes-india-allowing-wto-waiver-forpakistan_592122.htmlhttp://www.moneycontrol.com/news/current-affairs/eu-welcomes-india-allowing-wto-waiver-forpakistan_592122.htmlhttp://www.moneycontrol.com/news/current-affairs/eu-welcomes-india-allowing-wto-waiver-forpakistan_592122.htmlhttp://www.wto.org/english/news_e/news11_e/g20_wto_report_may11_e.dochttp://www.wto.org/english/res_e/booksp_e/discussion_papers13_e.pdfhttp://www.wto.org/english/res_e/booksp_e/discussion_papers13_e.pdfhttp://ictsd.org/i/events/dialogues/103446/http://ictsd.org/i/events/dialogues/103446/http://www.who.int/medicines/areas/policy/doha_declaration/en/index.htmlhttp://www.wto.org/english/thewto_e/minist_e/min03_e/brief_e/brief21_e.htmhttp://www.wto.org/english/tratop_e/devel_e/dev_special_differential_provisions_e.htmhttp://www.wto.org/english/tratop_e/devel_e/dev_special_differential_provisions_e.htmhttp://www.uneca.org/atpc/Work%20in%20progress/33.pdfhttp://www.ifpri.org/sites/default/files/publications/rb16.pdfhttp://www.ifpri.org/sites/default/files/publications/rb16.pdfhttp://www.fairtrade.org.uk/includes/documents/cm_docs/2010/f/2_ft_cotton_policy_report_2010_loresv2.pdfhttp://www.guardian.co.uk/global-development/poverty-matters/2011/jul/29/wto-doha-fails-poorest-countrieshttp://www.guardian.co.uk/global-development/poverty-matters/2011/jul/29/wto-doha-fails-poorest-countries


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measures, according to the International Centre for Trade and Sustainable Develop-

ment, would have boosted Pakistan's exports to the EU by at least 100m this year.

9. Fair trade: 10 years after the start of the Doha Development Round, governmentshave failed to make trade fair. As long as small and poor countries remain without a

voice, the role of campaigning organisations, such as Traidcraft and Fairtrade Foun-dation, which are working together to eliminate cotton subsidies, will remain critical.

Labour

Issues oflabor and environment are also steadfastly ignored. Steve Charnovitz, former Di-

rector of the Global Environment and Trade Study (GETS), believes that the WTO should

begin to address the link between trade and labor and environmental concerns. Also, in the

absence of proper environmental regulation and resource management, increased trade

might cause so much adverse damage that the gains from tradewould be less than the envi-

ronmental costs. Further, labor unions condemn the labor rights record of developing coun-

tries, arguing that to the extent the WTO succeeds at promoting globalization, then in equal

measure do the environment and labor rights suffer. If environment and labor were to enter

the WTO system, it would be conceptually difficult to argue why other social and cultural

issues should also not enter.

Rich-country lobbies seeking on imposing their unrelated agendas on trade agreements have

now turned to agitating about trade issues with much energy understanding. The introduc-

tion of TRIPs into the WTO framework might overwhelm the organization's function.

TRIPs resulted in reduced welfare for developing countries and the world as awhole. Intellectual property does not belong in the WTO, since protecting it is simply a mat-

ter of royalty collection.

The WTO weakens the power of citizens to champion human and labor rights through the

policies of their governments. Basic principles of the WTO, such as most-favored nation sta-

tus (MFN) and blindness to production and processing methods (PPM), prohibit distin-

guishing among trading partners because of bad human or labor rights records. For example,

a congressional study has confirmed that a proposed U.S. law banning the importation of

products made with child labor would violate the General Agreement on Tariffs and Trade,

the main WTO treaty. This is because child labor is a production method, not a physical

property of the product.

Already, U.S. federal courts have cited WTO challenges in striking down a "selective-

purchasing" law passed by Massachusetts that denied government contracts to companies

doing business with the military government of Myanmar, a notorious human-rights violator.

Europe and Japan had begun dispute-settlement proceedings against the law in the WTO,
http://www.guardian.co.uk/environment/fair-tradehttp://www.guardian.co.uk/environment/fair-tradehttp://www.traidcraft.co.uk/get_involved/campaign/time_to_nip_US_cotton_subsidies_in_the_budhttp://www.fairtrade.org.uk/http://www.fairtrade.org.uk/http://en.wikipedia.org/wiki/Labor_relationshttp://en.wikipedia.org/wiki/Natural_environmenthttp://en.wikipedia.org/wiki/Steve_Charnovitzhttp://en.wikipedia.org/wiki/Gains_from_tradehttp://en.wikipedia.org/wiki/Labor_unionhttp://en.wikipedia.org/wiki/Intellectual_propertyhttp://en.wikipedia.org/wiki/Intellectual_propertyhttp://en.wikipedia.org/wiki/Labor_unionhttp://en.wikipedia.org/wiki/Gains_from_tradehttp://en.wikipedia.org/wiki/Steve_Charnovitzhttp://en.wikipedia.org/wiki/Natural_environmenthttp://en.wikipedia.org/wiki/Labor_relationshttp://www.fairtrade.org.uk/http://www.fairtrade.org.uk/http://www.traidcraft.co.uk/get_involved/campaign/time_to_nip_US_cotton_subsidies_in_the_budhttp://www.guardian.co.uk/environment/fair-trade


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which they dropped when the U.S. courts ruled the legislation unconstitutional. In 1998, the

Maryland state legislature also narrowly defeated a similar law targeting the Nigerian dictator-

ship. The Clinton administration lobbied heavily against the legislation, focusing on potential

challenges to it under the WTO.

The elimination of such legal leverage weakens the power of citizens to defend human rightsthrough the policies of their governments. For example, the widespread government sanc-

tions against South Africa's apartheid system would probably have been illegal under the

WTO.

Environment

However, when it comes to the environment, The WTO is an agreement for managing trade

and not the environment or any other area of public policy. If it is to be given the task of

realizing other international public policy objectives, such as protecting the environment, itscapacity to meet is core function - raising prosperity through trade - will be undermined. It is

true the word environment doesnt appear in the GATT. Sustainable development was

added as one of the general objectives of the World Trade Organization when it was estab-

lished in 1994. While environmentalism and ecology were not common terms in public

policy until the nineteen seventies, governments had been acting for many years to conserve

and protect natural resources. The first international institution for conservation, the World

Conservation Union (IUCN) was established in 1948. The key difference between 1948 and

today is that environmentalism enjoys a higher political priority in most countries and appre-

ciation of its importance is wider in the community.

There are several provisions in the WTO agreements dealing with environment. There is areference to sustainable development as one of the general objectives to be served by the

WTO in the Marrakech Agreement which established the WTO. There are provisions in theAgreement on Agriculture and the General Agreement on Trade in Services (GATS). How-ever by far and away the most important provisions as far as environmental issues are con-cerned are Article XX of the GATT and the Agreements on Sanitary and PhytosanitaryMeasures and the Agreement on Technical Barriers to Trade.

Article XX waives members of the obligation to apply fundamental commitments, particu-

larly non-discrimination, in certain cases. They include protection of national security, pro-tection of morals, preservation of national cultural heritage. Of particular importance is the

right to waive the rules in order to protect human, animal, plant health and safety. It permits

restrictions on trade to protect human, animal and plant life health and safety, matters not

inconsistent with the objectives of the GATT. It also permits restrictions if they comple-

ment national programs for conservation of resources.


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The capacity of governments to prevent the entry of such products into their national terri-

tory in this way enables governments to maintain the integrity of national environmental

programs.

Experience with use of Article XX of the GATT over many years revealed weaknesses in

some provisions, particularly where the latitude to act was so wide that governments usedthe provisions to secure economic protection. Actions were taken to reduce the amount of

discretion governments had to restrict trade.

A complaint about the WTO provisions is that trade restrictions on how a product is pro-

duced or processed are not permitted. The WTO did not permit one member to restrict

trade with another on the basis that they did not apply policies which the first party pre-

ferred. The environmental case is that if one method of processing

causes environmental damage, then an importer should be able to express preference for the

product processed in a way that does not cause environmental damage. WTO provisions

generally do not allow trade to be restricted on those grounds. The TBT Agreement recog-

nizes related processing technology as a relevant consideration for applying a mandatory

technical standard to protect the environment. However this is a limited application and the

extent of its meaning has not been tested.

The general case for not making provision in the WTO for the right to restrict an import ac-

cording to the environmental effect of the way in which it was processed or produced is that

to do so assumes the WTO should include provisions to secure public policy objectives oth-

er than trade. There is a difference between allowing exceptions to protect national policiesand creating provisions which enable governments to force other to adopt non-trade objec-

tives.

The purpose of the WTO is to enable countries to gain the benefits of an open trading sys-

tem. If it is to be used as an instrument to achieve environmental purposes, the case in prin-

ciple is made for it to be used to secure objectives in other areas of international public poli-

cy such as health, labor standards, postal services, human rights and air transport standards.

If this were to happen, the WTO would cease to be effective in meeting its primary purpose,

not just because it would be overloaded with policy objectives which have not intrinsic func-

tional relationship to trade, but because giving members of the WTO the right to pick and

choose specific areas in which they could insist on certain standards being met before trade

was permitted would undermine the capacity of the WTO to allow members to exploit com-

parative advantage.


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Decision Making

The decision makingin the WTO can be characterized as over-simplified, ineffective, unrep-

resentative and non-inclusive; more active participants, representing more diverse interests

and objectives, have complicated WTO decision-making, and the process of "consensus-building" has broken down. They argue that the GATT decision making worked in the past

because there were fewer countries actively engaged and there was no compulsion for all

countries to adhere to the results. They have thus proposed the establishment of a small, in-

formal steering committee (a "consultative board") that can be delegated responsibility for

developing consensus on trade issues among the member countries. The Third World Net-

work has called the WTO "the most non-transparent of international organisations", because

the vast majority of developing countries have very little real say in the WTO system.

The lack of transparency is often seen as a problem for democracy. Politicians can negotiate

for regulations that would not be possible or accepted in a democratic process in their own

nations. Some countries push for certain regulatory standards in international bodies and

then bring those regulations home under the requirement of harmonization and the guise of

multilateralism. This is often referred to as Policy Laundering.

Throughout the postwar era, governments worked together in eight rounds of multilateral

trade negotiations in the General Agreement on Tariffs and Trade (GATT) to produce con-

crete benefits for all participants. GATT agreements substantially opened industrial country

markets (although high barriers remain in agriculture and apparel) and contributed im-

portantly to economic growth in developing countries, particularly in Asia and Latin Ameri-ca. Countries came to the GATT to do business and largely left their political rhetoric to

the talkathons of the United Nations and its agencies. The system worked by consensus: no

votes on senseless resolutions; no decisions by majority rule.The consensus rule was not

abused. Developed countries, particularly the United States and the European Community,

drove the GATT agenda and negotiations but did not insist on full participation by all coun-

tries. In turn, developing countries did not block progress in trade talksboth because the

accords posed few demands on them and because they made huge gains from the commit-

ments of the developed countries extended to them on a most-favored nation basis. Moreo-

ver, as the weaker partners in the GATT, they benefited significantly from the well-functioning of the multilateral rules-based system.

The WTO still operates by consensus, but the process of consensus-building has broken

down. This problem emerged long before the WTO ministerial in Seattle; indeed, it was evi-

dent at the birth of the WTO itself. It has two main causes:
http://en.wikipedia.org/wiki/Decision_makinghttp://en.wikipedia.org/wiki/Consensushttp://en.wikipedia.org/wiki/Policy_Launderinghttp://en.wikipedia.org/wiki/Policy_Launderinghttp://en.wikipedia.org/wiki/Consensushttp://en.wikipedia.org/wiki/Decision_making


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WTO membership has greatly expanded, encompassing many developing countries that pre-

viously were outsiders or inactive players in trade negotiations. The GATT had 23 signato-

ries when it came into effect in January 1948, and 84 signatories by the end of the Tokyo

Round in 1979. More than 110 countries signed the Uruguay Round accords in Marrakesh in

April 1994 (including several countries with observer status in the GATT). As of January2000, the WTO has 135 members with an additional 31 in the process of accession. As a re-

sult of domestic economic reforms, including trade liberalization undertaken unilaterally and

pursuant to GATT negotiations, developing countries now have a greater stake in the world

trading system and a greater claim on participation in the WTO's decision-making process.

WTO members can no longer free ride on negotiated agreements. Starting with the Uru-

guay Round accords, countries have had to participate in all of the negotiated agreements as

part of a single undertaking. This requirement means that developing countries have to

commit to substantially greater reforms of their trade barriers and trade practices than they

did in the past. Consequently, they need to be better informed about issues under negotia-tion. In the Uruguay Round, many countries had to accept obligations developed without

their participation, and which required the implementation and enforcement of regulatory

policies that they have had great difficulty in fulfilling.

More active participants, representing more diverse interests and objectives, have complicat-

ed WTO decision-making. China's prospective accession will amplify this problem by adding

another politically powerful player that will demand a strong voice in the WTO. In addition,

WTO decision-making has become more complicated as member countries face increasingly

complex issues (for example, intellectual property rights) on the WTO negotiating agenda.

The traditional Green Room process, in which a relatively small number of self-selected

developed and developing countries get together to decide on divisive issues, excluded too

many newly active players in WTO negotiations and thus had problems building consensus.

In the course of preparations for the Seattle Ministerial, developing countries tabled about

half of the proposals made for the WTO agenda. The Geneva decision-making machinery

could not accommodate the diversity of views.

The current system provides input into the decision-making process by a number of large

developing countries but excludes representation of the interests of the majority of WTOmembers. Ironically, these largely developing countries are the ones being asked to under-

take more substantial liberalization of their trade barriers and reform of their trade practices

than their industrialized partners; they deserve more of a voice in the WTO's decision-

making process.


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HOW TO MAKE WTO DECISION MAKING MORE INCLUSIVE AND MORE

EFFICIENT

The WTO needs to establish a small, informal steering committee (20 or so in number) that

can be delegated responsibility for developing consensus on trade issues among the member

countries. Such a group would not undercut existing WTO rights and obligations nor therule of decision making by consensus; we are not advocating proportional or weighted vot-

ing. Each member would maintain the ultimate decision to accept or reject such pacts.

Participation should be representative of the broader membership, and be based on clear,

simple, and objective criteria:

Absolute value of foreign trade (exports and imports of goods and services), ranked

by country or common customs region.

Global geographic representation, with at least two participants from all major re-gions.


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Other Issues

Financial Crisis:The Need for Regulation and TransparencyThe immediate problem is the credit crunch. Roughly 90 per cent of international trade is

financed with a short-term credit. Trade finance is one of the most favored since it provides

creditors with collateral that is boatload of cargo. Yet trade finance is being offered at 300

basis points about the LIBOR and even at this high price it has been very difficult for some

developing countries to get trade finance.

As we witness the financial crisis bleed into the real economy, the lack of such a safety har-

ness in the global financial system is in my view glaringly apparent. What is clear is that the

international financial system suffers from a lack of regulation, a lack of transparency, a lack

of accountability.

Trade in goods and services represents only about 2 per cent of international transactions,

but it takes place in one of the most internationally-regulated environments ever created. No

such regulations exist for international finance, and drawing them up will be considerably

more difficult and complex than concluding the Doha round, itself a relatively complex se-

ries of negotiations.

Farm Subsidies

In the media, this July meeting [of the Doha Round] was portrayed as a failure but an

agreement is now on the table for slashing trade-distorting domestic farm subsidies. We have

known for some time that direct export subsidies will be eliminated in agriculture. Likewise

in the rich countries duties will be eliminated on at least 97 per cent of exports from the

poorest countries.

The rules that were negotiated 15 years ago [in the Uruguay Round] do not fit the world of

today. Rules, which permit rich countries to pour billions of dollars into agricultural pro-

grams which impoverish developing countries and farmers, are seen by many as inequitable.Many find it unjust to have a WTO tariff system where tariffs in rich countries are 3 or 4

times higher on exports from the poorest countries than they are on products from other

rich countries.


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Global Imbalances and ImmigrationThe harsh reality is that opening trade reshuffles economic and social fabrics, and that cre-

ates political hardship. In whichever condition, the moment some constituencies are better

off, others are worse off, there begins a political problem.

If you take the example of the U.S. and look at the huge trade deficit with China, people see

this as a U.S.-China issue. Whereas, they dont realize that a large part of this huge trade def-

icit (bilateral) is offset by a Chinese deficit with many Asian countries who produce goods

which then go to China which then go to the U.S.

Making sure that goods and money flow freely is the right way to reduce the incentive to

immigration. If trade or finance were to flow less than they flow today, then the constraint

on people to move would probably be harder. Yet it is the monumental debt and deficit

burdens in the U.S. that are at the root of the global financial crisis. The argument that the

free flow of goods and capital will reduce the incentive to immigration applies only between

two national economic structures that are qualitatively similar and whose intensive parame-

ters are quantitatively similar. Under these conditions the free flow of goods and capital may

tend to equalize conditions geographically between similar socio-economic frameworks. But

between structurally very different economies, the free flow of goods and capital, but not

people, introduces profound socio-economic distortions that impel distressed populations to

migrate. Global policymakers need to understand not only the economics of aggregate

growth, but the socio-economic impact of globalized flows on the distribution of income

and on the welfare of human beings.

Gats IssueInitiated in February 2000, far-reaching negotiations are taking place which aim to expand

the WTOs General Agreement on Trade in Services (GATS) regime which could subordi-

nate democratic governance in countries throughout the world to global trade rules. These

GATS negotiations are taking place behind closed doors with little or no consultation of the

sectors most affected by them.

The existing GATS regime of the WTO, initially established in 1994, is already comprehen-

sive and far reaching. The current rules seek to gradually phase-out all governmental "barri-ers" to international trade and commercial competition in the services sector. The GATS co-

vers every service imaginable including public services in sectors that affect the environment,

culture, drinking water, health care, education, social security, transportation services, postal

delivery and a variety of municipal services. Its constraints apply to virtually all government

measures affecting trade-in-services, from labor laws to consumer protection; including regu-


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lations, guidelines, subsidies and grants, licensing standards and qualifications, limitations on

access to markets, economic needs tests and local content provisions.

For many countries in the South, this invasion of peoples basic rights is not new. Over the

last several decades, the structural adjustment programs of the IMF and the World Bank

have been used to force many governments in the South to dismantle their public servicesand allow foreign-based healthcare, education and water corporations to deliver services on a

"for profit" basis. Under the proposed GATS rules, developing countries could experience a

further dismantling of local service providers, restrictions on the development of domestic

service providers, and the creation of new monopolies dominated by corporate service pro-

viders based in the North. By dramatically increasing market control by corporations and by

threatening the future of public services, the GATS 2000 agenda could trigger a global as-

sault on the commons and democracy both in the North and the South. Moreover, the bind-

ing enforcement mechanisms of the WTO will ensure that this agenda is not only imple-

mented, but rendered irreversible.

Corporate Patent ProtectionismAll intellectual property policies must allow governments to limit patent protection in order

to protect public health and safety. This is especially essential in relation to life-saving medi-

cines and life forms. The patenting of life-forms and their parts, including microorganisms,

must be prohibited in all national and international regimes. Current intellectual property

rules in trade pacts, such as the WTOs Trade Related Intellectual Property Rights (TRIPs)

agreement, obstruct consumer access to essential medicines and other goods, lead to private

appropriation of life forms and traditional knowledge, undermine biodiversity, and keep im-

poverished countries from increasing their levels of social and economic welfare. There is no

basis for inclusion of such intellectual property claims in a trade agreement.

At the Doha Ministerial, the WTO agreed to non-binding language stating that the TRIPS

agreement should not prevent WTO members from taking measurers to protect the public

health. Since the language was non-binding, the reality is unfortunately that the TRIPS

agreement still makes it hard to make affordable medicines available to people. In addition,

pharmaceutical companies are angling to weaken and destroy even this non-binding pro-

public health interpretation at the Cancun Ministerial.

The patenting of life forms and their parts, and other intellectual property rights over biolog-

ical resources must be prohibited in all national and international regimes. Genetic diversity

is not a category of private property, and biopiracy or theft of traditional knowledge must be

stopped.


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Agreement On AgricultureThe Agreement on Agriculture (AoA) is fraudulent because the subsidies going to export

oriented industrial farming have not been reduced (but instead have gone up), whereas thesmall farmers are suffering from import liberalization wiping out their livelihoods and in-

comes. To avoid further calamities to millions of small farmers, action must be taken imme-

diately to drastically reduce or remove support for export-oriented agriculture and to reverse

import liberalization.

Measures taken to promote and protect genuine food sovereignty and security as well as to

promote small farmers practicing sustainable agriculture must be exempted from interna-

tional trade rules. The trading system must not undermine the livelihood of peasants, small

farmers, artisanal fishers and indigenous peoples that support local economies.

The basic human right to food can only be realized in a system where food sovereignty is

guaranteed, meaning the right of peoples to define their own food and agricultural policies as

well as the right to produce their basic foods in a manner respecting cultural and productive

diversity.

Investment LiberalizationThe WTO Trade Related Investment Measures (TRIMS) Agreement must be eliminated. All

countries and especially third world countries must have the right to use policy options (such

as local content policy) to increase the capacity of their own productive sectors, especially

small and medium enterprises. One of the outcomes of the Doha ministerial was to open the

door to possible negotiations on the so-called "New Issues" (investment, competition policy,

procurement and trade facilitation) despite opposition from countries in the South. This will

be one of the main points of controversy in Cancun, as the EU and Japan in particular con-

tinue to push for these negotiations. OWINFS opposes any attempts to start negotiations on

investment rules, investment framework or an investment agreement of whatever kind in the

WTO.


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WTO and Democracy

Democracy is thought of as simply being a system of government that includes popular elec-tions. But this is not all. To demonstrate consider the example of a ten person committee

that needs to elect a chairman where each person has one vote. Imagine that one of these

ten had the power to threaten the others to vote in the way he/she wanted. Now even

though the system would be structurally democratic many people would not consider it

'truly' democratic. This is because in general our notion of democratic includes not just the

structural notion but also that people are free to exercise their rights and that the system

leads to a tolerably fair outcome.

The following three principles are the basis for an institution such as the WTO to be consid-

ered democratic:

a. Universal membership and accession mechanisms.b. Participatory and effective decision-makingc. A fair sharing of the benefits of the system

Despite complaints about WTO's slowness admitting new members (China and others)

WTO does have close to universal membership (144 member countries as of 30/01/2002)

and open, fair accession mechanisms.

The structure of the WTO is admirably democratic not only in voting methods but in having

an open and reasonably fair rule system and dispute settlement procedure. However though

the WTO is democratic in structural terms in practical terms it is less so. In general it does

seem that the rich developed countries have power control disproportionate to their num-

bers. How much this is the fault of the WTO is a good question. Rich, powerful countries

have almost invariably used their position to sustain and reinforce their position, often by

exploiting the less powerful. The fact that this happens in the WTO is not necessarily the

WTO's fault. Of course one could argue that the WTO allows a greater degree of pow-

er/exploitation etc to the rich countries than would otherwise be the case but this seemsdoubtful and in fact it seems plausible that WTO would provide an environment where less

powerful countries are actually less vulnerable to exploitation. Thus overall the WTO does

do a reasonable (though far from perfect) job of being democratic.

However, where WTO really fails is the unfair implementation of WTO principles.

In general two interpretations of fairness are there:


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a. 'Negative' fairness: Potential equal access for countries, equal status in tradedisputes etc, i.e. no special treatment for anyone.

b. 'Positive' fairness: Actual equality between countries in negotiations, treat-ment etc.

'Negative' fairness is more about the rules and 'Positive' fairness is more about what actuallyhappens. For example while all countries are entitled to have a representative on the General

Council of the WTO many poor countries cannot always afford adequate representation.

Similarly while all countries in theory negotiate on the level in reality there is a large differ-

ence between a country that can afford a large team of negotiators and experts and a poor

country that can afford only one person. In both these cases the WTO is 'negatively' fair but

is not 'positively' fair. The WTO is strongly committed to creating a level playing field when

it comes to free trade. WTO principles include 'Trade without Discrimination' and 'Promot-

ing Fair Competition', and the WTO has rules to prevent unfair behaviour like dumping. If

the WTO does explicitly favour any group it should only be poor and undeveloped countriesthat are being assisted. However there are several examples where the WTO fails to even be

'negatively' fair and in fact favours a particular group and often the better off, developed

countries. For example:

a. Agriculture - This is probably the most blatant violation of the WTO principles.WTO Agreement on Agriculture commits governments 'to improve market access

and reduce trade-distorting subsidies in agriculture'. However a combination of pres-

sure when the agreement was written and manipulation since mean that the worldmarket in agricultural commodities is not fair at all but is actually heavily slanted in

favour of the rich northern countries. In particular while many poorer countries have

liberalized and removed subsidies (sometimes with disastrous consequences) the US

and the EU have not. For example in 1995 OECD countries spent $182 billion sub-

sidising agriculture and a OECD report in 2000 put US, EU and Japan subsidy rates

at $20,000 a farmer. Finally it is worth remarking that the AoA was actually supposed

to be slanted towards worse off countries and to benefit them considerably. World

commodity prices were supposed to rise and the EU and US proportion of the world

market was supposed to drop thus benefiting Southern producers. Neither of theseoutcomes has been achieved.

b. Multi-Fiber Agreement (MFA) and the Agreement on Textiles and Clothing(ATC) - Pre-WTO and from 1974-1994 clothing quotas were negotiated bilaterally

and governed by the MFA. As is clear from the word quota the world of trade in

clothing and textiles was most definitely not one of free trade. Given that it is often

developing countries that wish to export textiles they were often the losers from this


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arrangement. The ATC is a transitional agreement running from 1994 to 2004 and is

supposed to govern a changeover period in which textiles and clothing are progres-

sively incorporated into the GATT's framework. In doing so it perpetuates the pro-

tectionist legacy of the MFA.

c.

Politics and Trade - In theory, members of the WTO gain access to each other'smarkets on even terms. However, some critics argue that in practice, the WTO has

become a way to force politics into trade causing long-term problems. One problem

is apparent concessions the organization has made to its charters. The most striking

example is the system of tariff brokering that takes place through an organization

designed to reduce barriers to trade. The WTO rules allow a nation to protect certain

industries if the removal of tariffs would have undesirable side effects, which include

the loss of vital domestic industries. Food production is one of the most common,

but steel production, auto production and many others can be added at the discretion

of the nation. More worrisome is a push by developed nations to have labor effects

job loss, reduced hours or wagesadded to the list of reasons for justified tariffs. So,

while unwinding the tariff might hurt the workers in that industry, it could lessen the

burden on everyone else. The WTO has gotten into the business of brokering tariff

agreements.

Anti-dumping measures and restrictive quotas are simply tariffs by another name, even

though they are treated differently by the WTO. While the WTO can boast that the number

of international tariffs has fallen since its inception, many reductions have been balanced by

the introduction of these "stealth tariffs".

Many critics of the WTO also contend that the organization has struggled with one of the

basic goals it set for itself: transparency. Even in one of its main functions - settling disputes

through negotiation - the WTO is infamously opaque when it comes to revealing how

settlements were reached. Whether settling disputes or negotiating new trade relations, it's

rarely clear which nations are in on the decision-making processes. The WTO has been

attacked from both the left and right because of this reticence.

Free market proponents attack the WTO on the grounds that it's an unnecessary entity.

Rather than making complicated and heavily politicized agreements between nations on what

they can and can't protect, free market thinking suggests that trade should be left tocompanies to work out on a deal-by-deal basis. They believe if the WTO were really

designed to encourage trade, it would force member nations to drop all protective measures

and allow true free trade, rather than facilitating tariff negotiations.

In the end, the countries using the WTO to protect their own industries may only hurt

themselves if it causes their own industries to become more inefficient without true


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international competition. According to economic theory, a lack of competition takes away

the incentives to invest in new technology, keep costs under control and continually improve

production because the domestic company will simply be able to inflate prices to just under

the tariff-set price of foreign goods. In the meantime, the international competitors will only

get leaner, hungrier and better at succeeding in spite of barriers. If this cycle continues, theinternational competitors could emerge as the stronger companies, and consumers may

choose their products on the basis of quality, perhaps even paying a premium over domestic

goods. While it's debatable whether the organization is useful economically, the WTO is very

important politically.


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Bibliography

a. The Journal of Commerce Article

b. Reforming the WTO: Toward More Democratic Governance and Decision-MakingResearch paper by Saif Al-Islam Alqadhafi Gaddafi Foundation for Development

c. IISD websitehttp://www.gao.gov/new.items/d01727.pdf

d. Book - Developing Countries and the WTO: Policy Approaches by Gary P. Sampsonand W. Bradnee Chambers

e. Living, labour, environmental standards and the WTOStaff paper by Tom Nanki-well

f. WTO and the Environment working paper by Alan Oxley
http://www.gao.gov/new.items/d01727.pdfhttp://www.gao.gov/new.items/d01727.pdfhttp://www.gao.gov/new.items/d01727.pdfhttp://www.gao.gov/new.items/d01727.pdf

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