A Critical Examination of the Role of the WTO

Declan Fearnley

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Abstract               This presentation will deal with the origins of the WTO, briefly explain the broad role of the WTO, and focus on 1 of its sub-roles (agriculture in developing countries). The conclusion will reflect on how important a successful fulfilment of this role by the WTO is for the credible implementation of its broader agenda.

 

Origins

The WTO was established on January 1^st 1995, and was the product of the so-called Uruguay Round. This was the eighth in a series of multilateral trade negotiations held since 1947 by the GATT (General Agreement on Tariffs and Trade). This round of negotiations was started amid a climate of global recession and debt crisis in developing countries, which was threatening the success of the Tokyo Round (1973-79). In 1982, the US was looking for a new round of GATT talks to deal with protectionist pressures caused by a stronger dollar and growing unemployment, to cut subsidies, and to improve access to foreign markets for US suppliers. The problem was that the Tokyo Round, while a qualified success, had all but excluded agriculture and textiles from liberalisation. Participation in the new codes governing NTBs by developing countries was very limited. The US saw a new round of GATT negotiations as necessary to integrate developing countries effectively into the world trade system.[1] 

 

What is the WTO?

The World Trade Organization (WTO) defines itself thus;

“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 world’s trading nations and ratified in their parliaments. The goal is to help producers of goods and services, exporters, and importers conduct their business.”[2]

 

Based in Geneva, Switzerland, the WTO has a membership of 145 countries (as of 5 February 2003), a budget of 154 million Swiss francs for 2003, a Secretariat staff of 550 and a director general in the person of Supachai Panitchpakdi. It broadly states its functions as being the following:

• Administering WTO trade agreements
• Forum for trade negotiations
• Handling trade disputes
• Monitoring national trade policies
• Technical assistance and training for developing countries
• Cooperation with other international organizations[3] 

 

The principles that members sign up to are as follows:

• extending trade concessions equally to all WTO members
• aiming for a freer global trade with lower tariffs everywhere
• making trade more predictable through the use of rules
• bringing about more competition by cutting subsidies
• no country can wield a power of veto

The scope of trade rounds has steadily expanded and now includes intellectual protection, investment, trade in services and agriculture as well as trade in manufactured goods. WTO decisions can only be made or reversed by unanimous vote.

 

Doubts over the role of the WTO

Critics of the WTO’s agenda of trade liberalisation feel that expanding trade is impoverishing the third world, that the WTO has usurped the proper role of national governments, and that trade is wrecking the environment. While it is not helpful to blame the WTO for every malaise of modern-day life, there are some points about its role that make for interesting study. Professor Andrew Rose of the University of California at Berkeley says that membership of the WTO does little to increase trade flows. Professor Rose's study, covering 175 countries between 1950 and 2000, found no correlation between a country's membership of the WTO and an increase in the volume of its trade. Professor Rose explains this by pointing out even when countries join the WTO, they are not necessarily obliged to open up their markets. India, a founding member of the international trade organisation for example, continued to raise its tariff barriers for many years, while in comparison, China, admitted to the WTO in 2001, opened its economy to Western investment in the 1980s and saw a huge growth in trade.

Professor Rose says that all kinds of other trade barriers (which may be consistent with WTO rules) are still used to keep out goods that threaten livelihoods. He cites the recent steel tariffs imposed by the US on many of its trading partners, in order to prevent job losses at domestic steel plants, as a recent example of this. Professor Rose finds it hard to reconcile the existence of nation states, democracy, and complete international economic integration, although he personally believes that free trade benefits countries.[4]

 

Agriculture in developing countries and Doha-scepticism

The latest round of trade negotiations was initiated during the Doha negotiations. Headlines such as “WTO deal gets mixed reaction”, “Too early to cheer the Doha deal”, and “India's reaction to Doha talks mixed”, accompanied the reaching of a deal which encompassed such diverse issues as agriculture, the environment, services, TRIPS (Trade Related Intellectual Property Rights), anti-dumping and investment policy.

While free trade can benefit countries, there is a growing feeling of frustration in the developing countries with the WTO. Some critics hold that the WTO may not have a useful role in some sectors at all. Writing in Third World Economics, in December of last year, Chakravarthi Raghavan points out that recently, civil society groups and farm organizations representing the developing world in a joint letter addressing the WTO Director-General Dr. Supachai Panitchpakdi that,

“If fundamental reforms to end domestic support and export subsidies and credits cannot be achieved - and the latest US Farm Bill and the EU’s CAP [Common Agricultural Policy] reform status make these harder to achieve - developing countries should seriously consider whether it is worth continuing to negotiate.”

This exasperation being felt is understandable if we consider the recent example of the Haitian rice market. Haiti joined the WTO on 30 January 1996. On the WTO website, there is a list of what it sees as 10 misconceptions about itself. Misconception number 2, is that “the WTO is NOT for free trade at any cost.” It goes on,

“The rules written into the agreements allow barriers to be lowered gradually so that domestic producers can adjust. They have special provisions that take into account the situations that developing countries face. They also spell out when and how governments can protect their domestic producers, for example from imports that are considered to have unfairly low prices because of subsidies or “dumping”. Here, the objective is fair trade.”[5] Haiti is now “one of the most open economies”, in the world, with a tariff on rice of only 3% as a result of IMF conditionality. Rice imports, mainly subsidized rice from the US, have increased thirty-fold, but the price of rice in Haiti has hardly fallen and malnutrition affects 62% of the population.[6] Only big rice traders and American farmers have benefited. With high tariffs maintained in the North and the limited marketing and diversification opportunities for developing countries, liberalization of agricultural markets has only benefited the few transnational corporations dominating this trade and a tiny minority of wealthy landowners. Liberalization of market access in agriculture trade, as the experience of the Uruguay Round showed, had only depressed commodity prices and the earnings of developing countries and marginalized small farmers and their incomes while big farms are being consolidated, resulting in underdevelopment of the developing world.[7] This would seem to be at odds with the intended spirit of the Doha round.

 

Conclusion

Personally, I am in favour of trade liberalisation. However, if the WTO is serious about bringing the developing countries into the fold of mainstream world economics, there needs to be a tightening up of the monitoring of the activities of the bigger, economically stronger countries. The dispute settlement body of the WTO needs to work more effectively. The current system hands the advantage overwhelmingly to the bigger countries that can afford larger and more experienced legal teams who can tie weaker countries up in panel request deferrals for years. Some commentators may make the point that these actions are used as a leveraging tool on certain countries with respect to other broader issues other than trade. However, while this is undoubtedly true, it is also fair to make the point that economic and trade sanctions have met with mixed results. Irrespective of this, it does not take away from the fact that as long as the developing countries are made to feel that the “little man”, does not really matter, the more difficult it will be to convince them to participate fully with the developed trading nations. It is also fair to say that the WTO’s own credibility, in a broader sense is also at stake.

 

Bibliography

Books

Sander, H. & Inotai, A., World Trade after the Uruguay Round, Routledge, London and New York, 1996

Trebilcock, Michael J. & Howse, R., The Regulation of International Trade, Routledge, London and New York, 1995

Schott, Jeffrey J., 1994, The Uruguay Round – An Assessment, Institute for International Economics, Washington DC

Periodicals/Journals/Newspapers

The Economist

The Spectator

The Irish Times

The Financial Times

Third World Economics Journal

Websites

http://www.bbc.co.uk/business

http:///www.wto.org