CAFOD rough guide to WTO

The rough guide to the WTO

In November 2001, the world's trade ministers plan to assemble in Doha, Qatar's capital city, for the first time since their inaugural summit, which triggered the "battle of Seattle" in November 1999. That meeting ended with tear gas on the streets and deep divisions in the conference hall,helping to propel the fledgling World Trade Organisation to global notoriety. This briefing looks at the history and workings of the institution, and some of the issues that are likely to surface in the months ahead.

Where did the WTO come from?
The WTO came into being on 1 January 1995 as the successor of the General Agreement on Tariffs and Trade (GATT), an international agreement to reduce tariffs and other barriers to trade. GATT was born in the aftermath of World War II as the US and Britain sought to establish a stable, multilateral economic system to prevent the trade wars and economic rivalry that had contributed to the Great Depression and the rise of fascism.

However, the US Congress rejected the idea of setting up an International Trade Organisation on a par with the International Monetary Fund (IMF) and World Bank. GATT became their poor relation, limited to a set of rules and periodic talks on further trade liberalisation. Only 50 years later was a standing body finally established.

GATT developed through a series of rounds of international trade talks, culminating in the Uruguay Round (1986-94) which agreed the creation of the WTO.

Talks under the GATT were largely limited to tariff reductions on trade in manufactured goods. Until the Uruguay Round, agriculture was excluded as too socially and politically sensitive. Successive rounds steadily reduced tariffs on trade in manufactured goods from an average of 40 per cent in the 1940s to four per cent today.

From the 1970s, as tariffs came down, attention turned to other issues affecting the flow of trade, such as dumping (selling goods at less than production cost to gain market share) and what are called 'non-tariff barriers', for example blocking imports on health grounds.

The Uruguay Round took this gradual expansion of the GATT's remit a giant step further, by including for the first time agriculture, services (eg finance, telecoms) and intellectual property rights (patenting regimes).

What is the WTO for?
The WTO has four main functions:

to administer the implementation of the Uruguay Round agreements
to provide a forum for further negotiations
to administer dispute settlement
to review member countries' performance on trade liberalisation

The last two, and in particular the "court" of the dispute mechanism, are what makes the WTO significantly different from the GATT. Any WTO member can take another member to the WTO court. There is also an appellate body if countries wish to appeal against the court's decisions. If a member wins a case, it is authorised to impose trade sanctions up to the amount it is adjudged to have lost. This is of little value to small countries: Ecuador was once given leave to impose sanctions on the EU in a dispute over bananas!

The dispute settlement mechanism means that the WTO, unlike the International Labour Organisation (ILO) or the UN, has teeth. If a country violates an ILO convention,all the ILO can do is issue a statement. If a country breaks a WTO agreement, it faces trade sanctions.

On the other hand, unlike the IMF and the World Bank, the WTO does not lend money, and so has less immediate financial leverage over developing countries.

In practice, the WTO, World Bank and IMF act in concert to push developing countries along the road to liberalisation.Often a WB/IMF "structural adjustment programme" will push a country into trade liberalisation measures which are then "locked in" through WTO agreements.

What are the WTO's basic rules?
The WTO has two fundamental principles, called "National Treatment" and "Most Favoured Nation treatment"(MFN).

National treatment: A foreign company or product in a member state has to be treated the same as (or better than) a comparable domestic company or product.
MFN treatment: Trade concessions (eg lower tariffs) given by one member to another must be extended to all members.

In the Orwellian style favoured by most international institutions, both terms mean the opposite of what they say: "national treatment" means governments cannot treat national producers more favourably than international ones, and "most-favoured nation" prevents any nation from being "most favoured"!

Exceptions to these key principles are made in certain circumstances, for example government bodies - such as the NHS in Britain - buying goods and services are exempt from both National Treatment and MFN obligations,allowing them to give preference to local suppliers. Poor countries are given more leeway than rich ones, a provision known as "Special and Differential treatment".

How is the WTO structured?

Director General
Normally serves for six years. In 1999, members were unable to agree on the appointment, and compromised with a split term. Mike Moore, from New Zealand, has a three-year term from 1999-2002; in September 2002, Supachai Panitchapakdi from Thailand will take over for a further three years.

Secretariat
Five hundred permanent staff (a small fraction of the numbers at the World Bank or IMF) based in Geneva, with an annual budget of US$69m.

With its small secretariat, the WTO is driven by its member governments to a much greater extent than the World Bank or IMF, which have a stronger institutional role based on significant internal research and policy-making.

Ministerial Conference
The WTO's chief policy-making body, composed of government ministers from member states meeting every two years. Seattle was their last outing. Their next is planned for Qatar.

General Council
The most senior permanent body, based in Geneva, it meets several times a year.Delegates from all member states with representatives in Geneva can attend.

Committees
Beneath the General Council are a number of specialist councils and committees of members, eg on trade in goods or Trade Related Intellectual Property Rights (TRIPs).

Voting
Unlike those in the IMF and the World Bank, voting in the WTO is based on one member one vote. In practice, however, all decisions are reached without a vote through a combination of consensus, fudge and arm-twisting by the big powers. Nevertheless the system theoretically gives developing countries a majority voice.

Besides these formal structures, WTO member state delegates in Geneva are involved in a permanent round of meetings to discuss bilateral issues and agree joint positions.

Joining and leaving
As of September 2001, the WTO had 144 members, with another 28 countries interested in joining. China and Chinese Taipei (the official name for Taiwan as a WTO member) are the most recently approved members. Any state or customs territory having full autonomy in the conduct of its trade policies may become a member ("accede to") the WTO, but all WTO members must agree on the terms. This is done by establishing a working party of members and through negotiations. The remaining large non-members are Russia and the Ukraine.

To paraphrase Oscar Wilde, there is only one thing worse than being in the WTO, and that is not being in the WTO! Withdrawal would be very damaging for any government, potentially leading to retaliation from other members (by slapping tariffs on the departing member's exports) and a flight of foreign investment. No member country has left so far.

Where does the UK fit in?
The UK, along with other EU members, is represented in the WTO by the EU's chief trade negotiator, Pascal Lamy, Director General for trade. UK officials and politicians therefore devote much energy to negotiating and agreeing the EU position on WTO issues. In Whitehall, the lead department on the WTO is the Department of Trade and Industry (DTI); Baroness Symons is the minister responsible for WTO affairs. However other ministries, such as DFID (development) and DEFRA (agriculture and environment) also play important roles in their areas of interest.The UK's contribution to the WTO budget for 2001 was US$4.6m.

What's wrong with the WTO?
An international body for regulating world trade is a good idea,if only to stop the rich countries bullying the poor, but the WTO as currently constituted is failing to do that.

Dogmatic attachment to liberalisation
The 15 WTO agreements were drawn up at the height of the enthusiasm for free market economics, and are a product of dogmatic attachment to liberalisation and deregulation. The world may have moved on since then, but the WTO has not. It sees trade liberalisation as an end in itself, rather than a means to an end (such as eradicating poverty). There is plenty of evidence that while liberalisation in some circumstances can help the poor, in others it can do serious harm, for example by letting in floods of cheap food imports that wipe out the livelihoods of small farmers. Maize prices received by poor Mexican farmers have halved since Mexico opened its borders to cheap US maize, causing havoc in the countryside. One Latin American negotiator in Geneva concludes: "If you have a really open economy like ours, it's impossible to protect your farmers with WTO rules."

This ideological bias may explain why the WTO pays almost no attention to the impact of its agreements. A recent report by the UK parliamentary international development select committee concluded: "We are astonished at the lack of empirical study of the Uruguay Round on developing countries. Adequate resources must be provided to fund such a review." To date, no such review has even begun.

Northern double standards
In the words of one North African ambassador at the WTO, "The message from North to South in the Uruguay Round was 'you continue to liberalise, we'll continue to subsidise.' The Uruguay Round is a story of unkept promises." Northern governments and companies have proved adept at including loopholes in the agreements to benefit themselves. According to the UN, northern protectionism is robbing the developing world of an export income of $2bn a day, many times more than the total inflows of aid.

Developing countries feel cheated. Take the Agreement on Agriculture, which commits governments to reduce subsidies to farmers, arguing that these drive down prices and damage the livelihoods of farmers elsewhere. Yet the loopholes agreed in the Uruguay Round have allowed the northern governments to increase their support to farmers to an annual rate of US$360bn. That works out at US$20,000 a farmer. Added to their greater access to technology,land and bank loans, this gives northern agribusiness a massive and unfair advantage over developing country farmers.

But double standards also exist on a deeper level. With few exceptions, today's successful economies built up their national industries behind protective barriers. Today, WTO agreements are closing that option to developing countries.One Andean negotiator concludes: "Because of trade liberalisation, we cannot pursue the policies developed countries used in the past."

Undermining democracy
Deregulation introduced by governments under pressure from the World Bank and the IMF can be reversed if electorates so wish. But governments signing the WTO agreements effectively "lock in" the WTO's bias in favour of the unregulated market. While WTO officials present lock-in as a positive step, insulating governments from the influence of domestic vested interests, it is just as likely to insulate them from democracy and stoke public fears that governments have surrendered to unaccountable market forces.

Mission creep
The WTO covers a lot more than trade and tariffs. Increasingly, it involves itself in domestic issues such as investment rules and patenting regimes. If the EU's proposal for a broad agenda is adopted by the WTO, this "mission creep" will extend into many new areas: government procurement, investment, competition policy, labour standards and the environment. International rules on these matters are needed, but the WTO will bring to them its own agenda of liberalisation and deregulation,and its imbalances of power. For that reason, many developing countries and NGOs oppose further extension of its influence.

Corporations v governments
On paper, the WTO merely deals with governments. In practice, however, transnational corporations have a large, though often invisible, presence. Pharmaceutical and life science companies drove the discussion on intellectual property rights that led to the agreement on Trade-Related Intellectual Property Rights (TRIPs), extending corporate control of the knowledge economy. In the talks which established that agreement, 96 out of the 111 members of the US delegation of negotiators were from the private sector. Closer scrutiny of the 650 "NGOs" accredited to attend the Qatar ministerial meeting as observers revealed that at least 240 of them were in fact industry representatives, including the Motion Picture Association, the American Sugar Alliance and the United Egg Producers Association.Unlike Westminster, with its increasingly stringent rules, the WTO has no rules governing disclosure of corporate lobbying.

Flashpoints

1. The new round
The main debate will be over the launch of a new round of global trade talks.The EU and Japan are arguing for a broad round, termed a "development round" by both the British government and Pascal Lamy. Many developing countries disagree. As one African ambassador recently explained, "the developed countries are saying this is a development round, but when you look at the agenda, it is more about limiting our options for development."

The most important reforms required to further the interests of developing countries in the WTO are already under discussion. The WTO has a "built-in agenda" of issues arising from the implementation of the Uruguay Round, agriculture, and reform of the TRIPs agreement. CAFOD therefore does not support the introduction of new issues into negotiations at this stage. Instead the WTO should concentrate on resolving issues on the built-in agenda.

2. Implementation
Developing countries stress the need to address a range of inequities and problems that have arisen in the implementation of the Uruguay Round agreements. These are known in WTO parlance as "implementation issues".

In addition to longer transition periods for developing countries to implement the numerous Uruguay Round agreements, and the need to review TRIPs, the main implementation issues include:

* Textiles: Developed countries that agreed to open up their markets to garment and textile imports have "backloaded" liberalisation until the last possible date of the 10-year liberalisation process, effectively maintaining protection until at least 2005.
* Anti-dumping: Developed (and increasingly, large developing) countries have resorted to ever more frequent anti-dumping actions to block imports. One tactic is to use back-to-back anti-dumping actions against the same country: when one action is struck down by the WTO Disputes Panel after about two years, another immediately begins, in what is known as "trade harassment".

After Seattle, the WTO held talks to discuss these concerns, but progress has been negligible. In September 2001,former WTO Director General Peter Sutherland wrote: "I find it scandalous that two years after a solid programme was tabled by developing countries in Geneva, almost nothing tangible has been agreed in response."

3. Negotiating capacity
The large governments maintain permanent negotiators in Geneva, and fly in experts on particular issues from relevant ministries. Nearly half of the least-developed country members of the WTO have no representation in Geneva and those that do have only one or two people to cover the WTO, ILO, UNCTAD and other international bodies based there. They simply can't keep up.

One exasperated African negotiator told CAFOD, "On an average day there are 10 or 12 meetings, on different issues, all starting at the same time. It's not workable. They know you are weak and you walk out frustrated. I've been attending meetings for four years, and it's hard to write two lines about how my country has benefited."

When the pace of negotiation steps up, the imbalance grows. One NGO attending the Seattle ministerial meeting counted 594 representatives of the EU and its member states, while many developing countries had only one or two delegates.

4. Labour standards
The link between trade and labour standards has proved highly divisive at the WTO. The debate has centred around the introduction of a "social clause" which would oblige WTO members to respect specified core labour standards. While this proposal has won widespread support from the international trade union movement and some northern governments, it is deeply opposed by many southern governments, who fear its potential for disguised protectionism.

CAFOD believes the WTO has yet to prove it can be trusted with an issue as important as labour standards. Governments should concentrate on supporting and strengthening the ILO.

5. Agriculture
Agriculture is of unparalleled importance to many developing countries - more than half the world's poorest people depend on farming. The WTO's Agreement on Agriculture is seen by many developing countries as the worst example of northern double standards. One African negotiator laments: "On agriculture, the promise was 'liberalise and things will get better'.The opposite has happened. Now we have food insecurity."

Agriculture is part of the "built-in agenda" of negotiations that began in Geneva in 2000. These talks were mandated by the Uruguay Round agreements, and so did not fall victim to the debacle in Seattle. The list of problems is long (and covered in a separate CAFOD paper), but stems from a combination of northern protectionism and the negative impact of abrupt trade liberalisation in the South where, according to one African ambassador: "Cheap imports are coming in, destroying jobs. We are becoming beggars in our own country."

CAFOD has proposed the introduction of a 'Development Box' of measures permitted for developing countries into the Agreement on Agriculture. This would enable developing country governments to put the interests of small farmers and food security before the need to liberalise.

Whatever the problems of the South, however, the biggest clash is likely to be over the EU's Common Agricultural Policy, seen by both northern and southern governments as a prime example of protectionism with damaging impacts on farmers in other countries.

6. TRIPs
The TRIPs agreement has been one of the WTO's most controversial, because it strengthens private companies' ability to put patents on life forms and genetic sequences and increases corporate control over access to seeds. This is a vital issue in developing countries.

Developing countries also resent the pressures they are under to forgo the flexibility theoretically guaranteed under the TRIPs agreement to put health needs before property rights. In Brazil and South Africa, this flexibility has been challenged by pharmaceutical companies in the courts, and by the US government through bilateral pressure.

Further Information from CAFOD

Food Security and the WTO: http://www.cafod.org.uk/policy/wtofoodsecurity.shtml
Recommendations for ways forward on institutional reform of the WTO: http://www.cafod.org.uk/policy/wto-reform.shtml
Proposal for a 'Development Box' in the WTO Agreement on Agriculture: www.cafod.org.uk/policy/devbox.htm
A Human Development Approach to Globalisation: http://www.cafod.org.uk/policy/polhumdevglobfull.shtml
The Rough Guide to Globalisation: http://www.cafod.org.uk/policy/policyroughguide.shtml
These papers can be ordered from mgriffith@cafod.org.uk or by post from
Matt Griffith, CAFOD, Romero Close, Stockwell Rd, London SW9 9TY

The rough guide to the WTO was written by Duncan Green of CAFOD's public policy unit.

To arrange press interviews please contact Patrick Nicholson tel: 0207 326 5559 or
e-mail: pnicholson@cafod.org.uk

^top