Institute for Nonviolent Economics

The World Trade Organization at a Historic Juncture

by Sarah Laeng-Gilliatt

2006 is a historic year for the world trading system and thus for all of us. Trade policy will be decisive for our well-being because trade's purview has come to include so many aspects of our lives. As Ralph Nader has characterized it , the focus of our global economic system has become “Trade uber alles ”: that is, we have come to value trade over democracy, trade over labor and environmental laws, trade over strong local economies and trade over economic development. Trade may be free, but humans have become enslaved to the dictates of the World Trade Organization (WTO). Europeans, for example, cannot chose to eat non-genetically-modified crops, Third World countries are called “discriminatory” if they seek to strengthen their industrial base by requiring foreign companies operating in their country to buy a certain percentage of components from local producers, and human health is put in jeopardy by reduced access to essential medicines.

What happens this year at the World Trade Organization will determine much for our global trading system. The legitimacy of the organization is at a very low point for a wide range of reasons, and if the current trade negotiation doesn't meet tight deadlines during this year, the institution will be thrown into deep crisis.

While our trading system and all that it impacts is a vast and complex subject that requires careful, in-depth and nuanced reflection, here I will lay out some basic aspects of a few of the many important issues.

The Founding of the World Trade Organization

Together with the International Monetary Fund and the World Bank, the Global Agreement on Tariffs and Trade (GATT) was formed after World War II to expand trade by reducing tariffs on goods. There were eight multiyear “rounds” of negotiation of the GATT, the last one of which took place between 1986 and 1994 in Uruguay, and ushered in the WTO, which came to replace the GATT system.

The Eighth Uruguay Round made profound changes to the world's trading system through 18 agreements, one of which consisted of the earlier GATT mandate. With the WTO the scope of trade was expanded in extremely significant ways to include many sectors, especially agriculture (the Agreement on Agriculture — AoA ) and services (the General Agreement on Trade in Services — GATS). For the first time, the provision of food security, which had always been deemed a domestic concern, now became vulnerable to often rapidly changing commodity prices. The GATS forced signatories to begin to privatize and “liberalize,” or open up, their service sectors, such as financial services, education, health care, postal services and much else, to foreign companies. For example, countries had to allow foreign banks to open branches in small towns, threatening the stability of locally owned banks.

Two other agreements are noteworthy: the Trade Related Intellectual Property Rights Agreement (TRIPS), which globalized patent legislation, and the Trade Related Investment Measures Agreement (TRIMS), which set rules for foreign direct investment by, for instance, making countries grant “national treatment” to foreign investors who want to set up, for example, manufacturing plants in Third World countries, while not allowing protections to be given to local producers. The WTO's work further intruded into domestic areas by targeting “ nontariff barriers to trade,” such as national tax policies and environmental, health, labor and consumer laws that inhibit trade.

At the WTO's founding on January 1, 1995, there were 76 members; now there are 149. The WTO is based in Geneva, Switzerland, and Pascal Lamy is currently the director general. The WTO's website describes their goal as being “to help producers of goods and services, exporters, and importers conduct their business.”

The topmost decision-making body is the “ministerial conference,” and there have now been six of them. The WTO functions as a legislative body making trade policy, as an arbiter that rules on cases in its dispute-settlement system, and as an enforcer of its decisions. The latter is done by making countries that have been deemed to have nontariff barriers to trade do one of three things: (1) change their law, (2) suffer trade sanctions, or (3) pay fines. For example, when Europe refused to import U.S. beef that contained growth hormones, it was required to pay $115 million dollars annually. Thus, the WTO, with its legislative, adjudicative and executive roles, has a much more substantial institutional structure than the previous GATT and indeed is a more powerful treaty than any other. In fact, WTO rules often trump other laws, be they national or international.

At its inception, the WTO was hailed as the supreme institution of global economic governance. It promised to usher in a period free from coercion since it codified rules that were backed by enforcement mechanisms and involved a consensus process including a one-country, one-vote process. It was heralded as a harbinger of global prosperity. Tremendous efficiency was promised, and thanks to the wisdom of the market the “greatest good for the greatest number” would follow. By facilitating trade between member nations and doing away with all sorts of barriers to trade, liberalizing markets and investment would create tremendous economic growth, or so it was said. It was predicted that the U.S. trade deficit would decrease by $60 billion in 10 years, that Latin American countries would boom, and that Asian growth would keep pace. Then U.S. Treasury Secretary Lloyd Bentsen even predicted that passage of the Uruguay Round would result in an additional $1,700 in annual median income per U.S. family.

However, there is another history of the beginnings of the WTO. First, in the U.S. Congress, ratification necessitated open admission that “consensus” and the one-country, one-vote system in reality meant that four countries, the “Quad” (referring to the participants in the “quadrilateral meetings”) — the United States, the European Union, Canada and Japan — would, in effect, have the bulk of decision-making power. (The Quad has now been replaced by the “Five Interested Parties”: the United States, the European Union, Australia, India and Brazil.)

Despite the far-reaching promises made by its advocates, it was hardly an institution that seemed to capture the imagination of many signatory countries. In fact, it was only the United States that lobbied for it. Nor did the WTO emerge from the historical dictates of the time, as had the GATT in the postwar period. As the scholar and activist Walden Bello writes, “The founding of the WTO, in 1995, did not respond to a collapse or crisis of world trade, like the one in the 1930s. . . . Nor was the organization necessary for global peace, since no world war or trade-related war had taken place during that period.” Instead, Bello suggests, “new, more competitive global conditions had created a situation in which American corporate interests demanded a fresh approach to the political economy of trade.”

From its onset, corporate profitability was the paramount concern of the WTO, and especially of U.S. corporations. Bello explains how its key agreements made this clear:

The Agreement on Agriculture actually institutionalized the monopolistic competition between the EU and the United States for third country agricultural markets — that is, effective competition for global markets was limited to rich and powerful agricultural interests in two economic blocs. The restrictive provisions of TRIPS gave high-tech firms a practical monopoly on technological innovation. And TRIMS, around which the global automobile industry united, created strong barriers to the emergence of new auto manufacturing in developing countries.

That corporate profits motivated the agreements was further borne out by the fact that corporations even helped to draft some of the agreements: Cargill , one of the largest multinational food and agricultural companies, on agriculture, the pharmaceuticals on TRIPS and the auto industry on TRIMS.

Developing countries were not very involved in the founding process. However, for a range of reasons, most developing countries did ratify the agreement even though it didn't involve a sense of promise for them. Even at the WTO's inception, there was a coercive process involved in getting countries to sign on, a bullying that has continued to this day. Countries that were already signatories to the GATT were told that if they didn't join in the beginning that later accession would involve very difficult, multiyear procedures. They were told that they would isolate themselves, and Mike Moore, the first director general, said the alternative was “no rules and no impartial dispute settlement — a world where commercial relations are based on economic and political power, where small countries are at the mercy of the largest, the rule of the jungle.”

The inherent contradictions within our notion of free trade and the division between rhetoric and reality in the World Trade Organization have become increasingly difficult to deny, and this has made the legitimacy of the organization erode since its inception. Two of the six rounds of trade negotiation have failed in this time. The current negotiation, initiated in Doha, in the Persian Gulf country of Qatar, in 2001 and dubbed the “development round,” just received a much-needed shot in the arm in Hong Kong after years of languishing.

From December 13-18, 2005, the WTO held its Sixth Ministerial Conference in Hong Kong. It was a highly significant event both because the future of the WTO was on the line and because major concessions were made by the developing world that, if implemented, will have a negative impact on much of the world's population. Major disagreement surrounded the key issues up to the final closing session, but individual countries were very afraid of being blamed for the collapse of the negotiations. This fear, together with a highly undemocratic process, in the end yielded the final text.

In terms of agriculture, “dumping” (the U.S. and EU practice of flooding world markets with heavily subsidized agricultural products at prices well below the cost of production, thereby depressing commodity prices and forcing small farms out of business) will continue unabated as there were no disciplines on trade distorting domestic support. The highly trumpeted agreement by the EU to end export subsidies by 2013 will, in fact, result in zero cuts to export support. This is because many actual export supports are falsely classified in the acceptable “Green Box” subsidy category, which makes them WTO-legal. According to Focus on the Global South, a research, analysis and advocacy organization, “55 billion Euros per year will continue under AoA [Agreement on Agriculture] rules and in fact the EU has the provision to increase subsidies.” Thus the EU's concession to end export subsidies in agriculture is being described as a “bluff.”

Regarding cotton, the rich countries' agreement to cut export subsidies by 2006 is widely heralded as a great concession to Africa. However, according to the nongovernmental organization the Third World Network, “this constitutes only a small portion of the trade distortion. There is no action agreed for trade distorting domestic subsidies, which amount to about USD 3.8 billion or 80–90% of total US support for cotton. Domestic subsidies also make up almost all of the European cotton subsidies.” The African Cotton Producers Association's response to the outcome was that “there has not been any concrete proposal on the most essential request.”

In return for these “concessions” that were not concessions, the developing world has signed onto highly significant liberalization agreements in services and industrial goods. Regarding services, the Hong Kong text further extends the 1994 General Agreement on Trade in Services. The current agreement accelerates the privatization and liberalization of services including what are now often public services, like education and energy, and the commons, such as water. Governments would not be able to regulate price, ensure universal coverage of services or oversee labor standards. Economist Martin Khor from the Third World Network explains that these new rules could limit access to health care because private companies, mostly from the North, would be allowed to buy up hospitals and prices would likely increase. The services text was a highly controversial one leading up to and during the meeting, and the brackets around the text, which are inserted to signify areas where there is still lack of agreement, were removed in an exclusive meeting, where many soon-to-be-signatories were not invited.

In terms of industrial goods, the Non-Agricultural Market Access Agreement (NAMA) involves countries lowering industrial tariffs; the higher the tariffs, the more deeply they will be cut. Thus the developing world, with relatively high tariffs to protect their emerging industries, will be hit the hardest. This will be devastating to Third World companies that cannot compete without tariffs. Though consumers theoretically could benefit from cheaper imports, those who lose their jobs will have considerably less income to buy the cheaper items. According to Khor , though free competition is not wholly without merit, “big bang liberalization,” as it is called — that is, removing protection suddenly and sharply across the board — could wipe out industries in developing countries and rule out poorer countries' ability to determine their own development priorities.

The Hong Kong outcomes failed the world in many ways, but here I'd like to focus on four particular shortcomings:

1. The liberalization in industrial goods and services may likely lead to greater impoverishment, debt and dependence in the Third World. A sacred canon in free trade ideology is that increased liberalization leads to accelerated economic growth. However, there is now a wealth of evidence to show that often this is not the case, including a recent World Bank study that provides data to show that tariff reductions do not lead to any significant benefits for developing countries.

The original free trade theorist David Ricardo emphasized the importance of balancing imports with exports, as well as keeping investment national. Upon implementation of the Hong Kong agreements, many countries will not be able to increase their exports to keep up with the surge in imports, and they will then face a balance-of-trade crisis. Many of the imports will include nonessential goods at very cheap prices (due to Northern-country subsidies, which allow them to go on the world market at low prices). These cheap goods will reduce the competitiveness and thus the business of local industries. An external debt will develop to pay for the imports, and then the domestic economy will have to shift further away from domestic consumption toward a greater export orientation. This can create a downward spiral of impoverishment and debt, which often creates a vicious cycle of further domination and exploitation by the rich countries.

2. The Hong Kong deal was antidevelopment. Despite the development mandate in the “Doha Development Round,” the interests of the developing countries were completely sidelined in the final text coming out of Hong Kong. The earlier GATT, and then again the work program in Doha, acknowledged the need for “special and differential treatment” for smaller economies. The idea is that to level the playing field, developing countries should not be subjected to the same rules, expectations, regulations and implementation periods that wealthier countries are expected to abide by. In order to allow poorer countries to participate in trade in an equitable way, these countries should be allowed to use protective tariffs and should be given preferential access to industrialized markets.

The various outcomes of the Hong Kong agreement continued the hypocrisies and the double standards for which the global North has become known. As a result, there has been almost complete unanimity among the nongovernmental organizations following the negotiations that the meeting was a failure in terms of development.

3. The process of the negotiations was highly undemocratic, and this is the only way that the Hong Kong deal could get through. The closing session was carefully choreographed to prevent delegates from participating in decision making. There were no microphones for trade ministers to make comments or objections, and there was a highly intimidating atmosphere in which the chair would proclaim, “It is so decided,” about issues that had been highly controversial just hours earlier, without even looking at delegates. However, Venezuela and Cuba did manage to register reservations to the text (by walking up onto the stage and interrupting the chair), and, indeed, this was the first time reservations have ever been made during a closing session that claimed agreement.

Furthermore, the Hong Kong meeting perpetuated the secretive, exclusive and undemocratic methods for which the WTO has become famous. Besides the opening ceremony and closing session, the rest of the 450 meetings, 6 major gatherings and 200 consultations by facilitators that took place during the week were characterized by Khor as “ nonmeetings .” He writes, “There will be no records or minutes of these meetings or of the negotiations. Who said what, indeed what countries were invited or were present, will not be known or at least will not be made public.”

For an in-depth description of the undemocratic process, go to www.twnside.org.sg/title2/twninfo336.htm.

4. India and Brazil are co-opted. As Walden Bello describes in his article “The Real Meaning of Hong Kong: Brazil and India Join the Big Boys Club,” after the collapse of the Fifth WTO Ministerial, which took place September 10–14, 2003, in Cancun, the United States and the European Union realized that they had to change their negotiating strategy if they wanted to move the negotiation forward. They managed to divide and conquer the G-20, a negotiating bloc of (now) 21 developing countries, which had resisted new agreements in Cancun. They expanded their elite club of the Quad to include India and Brazil, which then, ironically, since they had headed up the G-20, pressured many developing countries to sign on to agreements against their interests.

In reflecting on the process leading up to and during Hong Kong, Bello discusses early-20 th -century Italian thinker Vilfredo Pareto. He held that the most successful elites are those that manage to co-opt the leaders of the mass insurgency that set out to remove them from power and enlarge the power elite, while preserving the structure of the system. Indeed, it seems this proved a successful tactic of the United States and the European Union in Hong Kong.

To read Bello's insightful article, go to http://www.focusweb.org/content/view/799/55/ .

The future of the Multilateral trading system in question

Given these aspects of the WTO's 11-year history, there are now several currents happening simultaneously in which many of the inherent contradictions in the system are becoming impossible to deny. There is a crisis of confidence within the corridors of power themselves. There is growing dissatisfaction around the world with the environmental, social and economic impacts of this system, and grassroots movements are extremely well organized and more linked with one another. There are new negotiating alliances and power shifts, and rhetoric about reform of negotiating processes has been rendered doublespeak by continued use of bullying, bribing and threatening largely by the rich countries. Lastly, the Hong Kong meeting amply demonstrated how a diverse world cannot conform to the strict mandates of a one-size-fits-all economic system. Taken together, these forces are creating a tremendously fertile brew, the outcome of which could go in either very promising or extremely dangerous directions.

Major contentions continue regarding key issues, and this agreement faces tight deadlines in the year ahead. Any agreement resulting from the round has to be approved by Congress, and there is pressure to accomplish this before the expiration of the U.S.'s trade promotion authority (which involves a simple yes or no vote to the entire package, rather than agreement by agreement) on July 1, 2007. Inability to stay within this time frame, and thereby conclude the Doha negotiation, would put the institution into deep crisis.

Proponents of the system are pulling out all the stops to reach agreement regarding the remaining details by the deadlines this year. The stakes are high. The failure of this round of negotiation could be a fatal blow to WTO, to this “precious system, the jewel in the crown of multilateralism ,” in the words of Mike Moore, a former WTO director general.

In crisis moments such as these when legitimacy of a power structure seems to be extremely low, power holders tend to cling all the more to outdated ways and to assert them coercively, often in desperate and less-than-savory ways. Yet at the same time anomalies and symptoms of breakdown in our economic system are also leading to visionary organizing.

From the perspective of civil society (including the broad range of grassroots movements and nongovernmental organizations) and the incredibly unified position of these highly diverse groups, the purported multilateralism is hardly all that multilateralism could be — it is a far cry from what is needed for a democratic, flexible, pluralist trading system in which all voices are reflected in policy equitably.

For them, “no [Doha] deal is better than a bad deal.” In fact, the abolition of this organization, which was born of U.S. corporate and hegemonic needs, could allow vibrant alternatives to unfold and flourish. Perhaps a failure of the WTO could give space for real responses to the crises we face — from climate change happening faster than anyone predicted, to the globalization of poverty, to the emergence of new diseases, to food insecurity, to the tremendous power of the military-industrial-political complex, to imperial hubris. These problems are the high stakes for civil society; indeed, the vast majority of the world's population yearns for real solutions to these survival issues.

The challenge before global civil society is to ask very basic questions such as, How is it, and why is it, that the WTO is increasingly moving in antidevelopment directions? Why are developing countries signing on? Why are governments continuing to promote corporate interests against their own people? Why are all the people involved working so hard, often into the wee hours of the night, to spin their wheels in ruts in which they've been mired for years in light of the growing evidence that this system is failing us all? Don't the poverty, the consumption environmental breakdown and the erosion of democracy resulting from these agreements vastly overshadow the fears of being blamed for causing the demise of the negotiations? Don't the suicidal outcomes pale in comparison with the threats? And isn't the South organized enough to link together to prevent the various forms punishment that might ensue for not conforming?

These questions bring us to the powerful realization that it is time for fundamental rethinking of some of the basic values that could and should be underlying our global trade system. We could design an economic system that allows for true economic development, for a diversity of economic systems, for a healthy planet with great biodiversity and happy people who know love more than consumption and who have meaningful work that meets spiritual needs.

We do not have to accept this highly competitive economic system that, for example, pits African cotton producers against U.S. cotton farmers. We can recall Mahatma Gandhi's visit to Lancashire where thousands were unemployed in the textile mills on account of Gandhi's efforts to sever Indian dependence on British-milled cotton. Full of resentment and indignation at first, after hearing Gandhi's stories of Indian poverty they then cheered him, the very man who had brought about their unemployment. So, similarly, we could have an economic system that institutionalizes and encourages solidarity between farmers the world over.

Indeed, our current economic system is one possible path of many. These are human-written policies, and we can rewrite them. Rather than arguing about market access and orienting developing countries' economies first and foremost around large-scale production for export, we could be promoting the local on a global scale. Rather than advocating trade as the highest law of the land at the expense of strong local economies, communities and bioregions, we could work to trade only when goods cannot be produced locally. Rather than focusing the conversation on subsidies that benefit monocultural producers and multinational corporations, we should shift the debate toward supporting small-scale, sustainable, diversified local production for local consumption. In so doing, soil, water, biodiversity — the Earth itself — would be nourished for future generations.

For further information on the WTO and links to many international organizations campaigning on these issues, go to the Institute for Nonviolent Economics at www.nonviolenteconomics.org . To learn about the many vibrant alternatives being promoted by nongovernmental groups, go to the International Forum on Globalization's program on alternatives at www.ifg.org/programs/alternatives.htm or to the “Alternatives for the Americas” document at www.web.ca/comfront/alts4americas/eng/eng.html.