What is the World Trade Organization?
See also HN special report Trade, Hunger and Poverty
The World Trade Organization was established by a series of international (negotiations leading to) agreements signed in Marrakech, Morocco on April 15, 1994. These agreements concluded understandings emanating out of the Uruguay Round of negotiations held under the auspices of the General Agreement on Tariffs and Trade (GATT) but went considerably farther in establishing a new organization with new powers, the WTO.
The GATT is a series of multilateral treaties embodying the results of seven rounds of negotiations agreeing to progressive tariff reductions that have taken place since 1947, culminating most recently in the Uruguay Round. The successor to this series of trade treaties, the World Trade Organization (WTO) includes 134 member countries that have agreed to certain basic rules and tariffs to govern their mutual trade in goods and services. WTO rules include those prior agreements of the GATT but go considerably beyond the framework of the GATT in several important respects.
The World Trade Organization agreements go farther than previous GATT agreements reducing tariffs in that the WTO is a legal body with the ability to make certain binding determinations on its members, making members subject to trade sanctions for violation of WTO rules after adjudication and appeal. GATT panel adjudications were not strictly binding, unless agreed to by all parties including the defendant and the plaintiff. In spite of its looser framework there was considerable pressure to accept GATT panel rulings in order to maintain the force of treaties and agreements that were thought to be beneficial overall.
The GATT is generally credited with liberalizing world trade, which has grown enormously since its inception, and helping to underpin the postwar prosperity, at least in the industrialized countries. As its inheritor the WTO has received the mantle of its success, although the WTO in particular has come under criticism for many of its environmental, consumer and labor related rulings.
Why All The Controversy?
Labor standards, especially child labor, the environment, health and phytosanitary (food safety) measures, product standards, and intellectual property rights have been in the forefront of controversy over the WTO. Labor standards and environmental protections are not incorporated into current WTO rules. Their omission and certain trade-related rulings, which affect them adversely, cause a great deal of concern. Labor fears competition from unprotected, non-unionized workers with few rights and wretched conditions. Environmentalists see WTO rulings as environmentally unfriendly and see the lack of inclusion of specific environmental standards as a cause for more general alarm.
WTO regulations, where they do exist, have been a key cause of controversy. WTO standards in the areas of food and drug regulation call for science-based "Health and Phytosanitary Measures," which pose the least obstacle to trade consistent with the protection they seek. Product standards should be based on international standards and such as to cause minimum disruption to trade. Countries wishing to participate, as members in the WTO must sign the "Trade Related Intellectual Property Rights (TRIPS) Convention, pledging to protect intellectual property rights. In the case of agricultural seeds, this allows for national certification standards but would protect royalties for patented seed certified nationally.
Concerned groups have claimed that the WTO goes considerably farther than the GATT in trying to harmonize health and phytosanitary measures and product standards. Consumer groups have complained that WTO standards are too favorable to trade at the expense of health and consumer protection. Farmers have complained that intellectual property rights for seeds, both genetically modified (GMO's) and certified hybrid and open pollinated seed, is exploitive in the case of open pollinated reproduction of second generation varieties and does not recognize the genetic property base - - with origins around the world - -, of much of the current bio-tech and other seed development. Industry has, on the other hand, complained that the phytosanitary measures are too loosely written as they allow for national standards that do not conform to the "Codex Alimentaris" [see box], the international reference on food safety developed under the auspices of the World Health Organization and FAO. Industry complains also of the complex and differing national certification procedures for seeds.
The greatest amount of frustration with the WTO, however, is not with its framework for health and phytosanitary measures, nor with that for intellectual property rights, as much as with interpretation of them by WTO adjudication panels. Under the guise of harmonization and fair trade the WTO has declared certain product standards, health and phytosanitary measures, after challenge by one member, inconsistent with free trade agreements and asked offending parties to redraft or abolish them. Many, including some groups in successful plaintiff countries, feel that these rulings were not well grounded, favor trade at the expense of labor, consumer and environmental protection and have undermined national sovereignty or present the risk of so doing. Defenders of the WTO, including many producers trying to sell their product under fair rules of competition, would argue that the rulings represent a sound, science based regulation of international trade in a world becoming smaller and increasingly interrelated.
The method of deliberation of WTO dispute panels, where differences on these and other measures are heard, without public access or verbal presentation by the parties -- submissions are written not oral--are thought by some to be excessively secretive, leave little room for the airing of differing points of view, to exclude third party interest in the dispute's resolution and to overly favor trade at the expense of all other considerations. The nature of the rulings has also been questioned. WTO panels have based their jurisprudence on a fairly textual interpretation of the trade agreements. The exclusion of precedent from national laws, intent expressed in other multilateral treaties as those on environmental protection, popular expression and cultural tradition, as well as the narrow interpretation of scientific findings as they relate to human and environmental risk from food and drugs and the exclusion of most labor and environmental considerations which relate to production rather than trade, have made the panel determinations unsatisfactorily narrow to many and raised a maelstrom of criticism in Seattle and beyond.
WTO panel decisions asking the United States to revise the "CAFÉ" standards, mandating emission levels on cars after challenge by the Europeans, as well as a ruling ordering the U.S. to modify the clean air act, after challenge by Venezuela, have been thought to be particularly detrimental to environmental standards in the United States. Panel decisions requiring Europeans to accept artificial hormones in imported beef have caused particular concern to consumers there. The Japanese have been particularly troubled by rulings ordering them to narrow their import and phytosanitary regulations for certain fruits and nuts as they fear infestation by codling moths from which Japan is now free. The list of WTO panel rulings that are stridently objected to is long!
How Will the WTO Affect Hunger?
The agreement signed at Marrakech, Morocco, creating the World Trade Organization and accepting the agreements on tariffs and trade reached during the Uruguay Round of negotiations, recognized the difficulties developing countries might face in acceding to a more liberalized trade regime under the WTO. A declaration of intent was signed at Marrakech by the developed countries, agreeing to examine the situation regarding trade among developed and developing countries, in view of addressing any deterioration in terms of trade or well being of the developing countries more generally.
The declaration to deal with possible negative effects of the WTO on developing countries was reaffirmed at the 1996 Ministerial meeting. WTO members agreed to:
So far few permanent steps have been taken to implement the declaration regarding developing countries. While food aid has increased, this has more to do with short term surpluses in the developed countries than enhanced commitments called for in the declaration. General assistance levels and especially agricultural assistance continue to decline.
The Uruguay Round brought agriculture under the jurisdiction of the GATT/WTO for the first time. Tarification of agricultural quotas --the replacement of quotas with tariffs, agreement to lower tariffs progressively, and reduction in aggregate measures of support were some of the principal trade measures, along with the accompanying rules on acceptable health and phytosanitary measures (SPS) and intellectual property rights (TRIPS). [See box.]
Tarification measures were generally favorable to developing countries, which were allowed to set their tariffs at unchallenged levels for entry into the WTO. Reduction in aggregate measures of support (AMS) are also thought to be generally favorable as they allow for direct payments or income supplements to farmers but call for reductions in other types of price supports and subsidies, including export subsidies with which most developing countries are ill equipped to compete. Schedules for AMS reduction and levels of reduction were also given favorable treatment when compared to developed countries. (For importing developing countries, however, the loss of export subsidies on potential imports could result in higher food prices).
Most experts predicted that the reduction of subsidies agreed to under the Uruguay Round would lead to higher agricultural and food prices, hence the Marrakech concern for enhanced food aid levels and import financing. They reasoned that production costs previously absorbed by governments and consumers through taxes, would shift to being passed along through rising prices. This has not been the case. Even after several years of substantial subsidy reduction, agricultural prices are at historic lows in real terms. No one, of course, can say what prices would have been without the change in subsidies. The analysis of the effects of WTO measures, however, leaves a lot to be desired. Food prices on the other hand have remained high as processing costs have continued to grow. World hunger has also grown over the past several years due more to the lack of jobs and low income levels in many countries, coupled with inadequate safety nets in others. These social and economic phenomena, more than the price of food, explain hunger in the midst of plenty.
What Can We Expect?
A new round of negotiations was to be scheduled over the next three years. Although temporarily shelved there is already talk of resuscitating a new round. While disagreements on agriculture (U.S. and Cairns Group [see box] vs. EU and Japan), dumping (U.S. and EU vs. Japan), environment (U.S. vs. EU and both vs. developing countries) and labor rights (industrialized vs. developing) are stark, there is much pressure to continue to make progress on trade. World trade is increasing due to a growing world population and advances in transportation, communications and industry. Facilitating trade is generally thought to underpin world prosperity, new jobs and cheaper and better access to goods, although it inevitably leads to lower wages and job displacement for some. This conviction about the beneficial effects of trade by business leaders and governing classes in the developed and developing world will likely result in agreement for another round within the next two years. Previous trade rounds, seven since 1947, have been progressively longer in recent years. Any current round may well take more than the three years talked about as a tentative schedule, given the complexity of many of the issues. Since procedurally a decision will probably be taken to hold-off any final agreement until agreements are reached on all topics scheduled for talks, a new round may realistically take until well into the new millennium before concrete changes to trade rules are made. Freer trade in health and education services is already on any future agenda as well as significant issues of further reduction in agricultural protection. How regional trade agreements will be integrated into the WTO is another important subject, for it will affect both potential accession agreements to the EU and the proposed expansion of NAFTA.
On agricultural subsidies and anti-dumping measures a compromise seems attainable which would allow talks to go forward along the lines of previous agreements. The United States has affirmed publicly that it will support negotiation of stronger environmental and labor covenants, new areas for the WTO and both of which represent extremely complex technical and political issues. With agreement of the EU they will probably in the end be able to override any objections the developing countries have that this would result in excessive interference in national prerogatives. Enforcement will remain an important caveat for any environmental or labor agreements. As national sovereignty has been a major issue in the developed as well as developing world, yielding inspection and enforcement functions to the WTO or another neutral, non-national body will present issues that may be insurmountable. A strong agreement with weak inspection and enforcement provisions would be a not unlikely outcome. Even such an agreement could lead to change as people begin to challenge assumptions that previously went unquestioned and the issues of development, fair labor standards and environmental protection are understood to be closely related.
WTO - TERMINOLOGY
AMS - Aggregate Measures of Support. Refers to the totality of national support for agriculture including price supports, export subsidies, deficiency payments, income support, research etc. Certain "green box" measures as research are exempt from restrictions. Direct payments to farmers known as "blue box" measures are also exempt. Other agricultural subsidies or support measures were as the result of Uruguay Round agreements scheduled for progressive reduction.
Cairns Group. Group of countries with major agricultural production and export interests which have joined together as an informal negotiating block at the Uruguay Round and for upcoming talks. The Cairns Group includes: Argentina, Australia, Brazil, Canada, Chile Colombia, Fiji, Indonesia, Malaysia , New Zealand, Paraguay, the Philippines, South Africa, Thailand and Uruguay.
Codex Alimentaris. Indicative food safety standards, organized and promulgated under the auspices of the World Health Organization and Food and Agricultural Organization of the United Nations (FAO). National standards for WTO members are not required to conform to codex standards but should as a rule be no more restrictive or comply with certain WTO provisions.
Committee on Trade and The Environment. Working group set up to study the relationship of trade to sustainable development and the environment and to report to the bi-annual Ministerial meeting. The work of the committee has been disappointing to date to both environmentalists and developing countries. No recommendations have been forthcoming and the level of U.S. participation has been criticized by some of these groups.
GATT - General Agreement on Tariffs and Trade. Accumulated trade agreements over 40 years incorporated into the WTO.
GATS - General Agreement on Trade In Services. Reached at the Uruguay Round after strong lobbying efforts by the United States, the GATS sets rules governing and liberalizing trade in services for the first time. Developing countries have a 10 - 15 year phase in period for certain provisions.
ISO - International Organization on Standardization. An industry group organized under the WTO to set product standards. ISO 14000 includes strictures on environmental aspects of product production. Consumer and environmental groups complain that the ISO process is effectively controlled by industry and does not allow for other party input into the standards process.
"Like-Minded Group." - Informal negotiating alliance of developing countries during the Uruguay Round. The "Like-Minded Group" included: Cuba, Dominican Republic, El Salvador, Egypt, Honduras, India, Indonesia, Malaysia, Nigeria, Pakistan, Sri Lanka and Uganda.
LLDCs - Least Developed Countries. As measured by income per capita. 48 developing countries are considered LLDCs of which 29 are WTO members and 6 more are in the process of accession to the WTO.
MEA - Multilateral Environmental Agreements. A number of international agreements on the environment as the Kyoto protocol or the Biodiversity Treaty include provisions that affect the use of natural resources in production (air pollution, land conservation, etc.) or the protection of species from production processes (drag-net fishing, destruction of habitats, etc). These signed and ratified treaties have come in conflict with WTO rulings. These treaties also have provisions for trade sanctions for violators of treaty provisions which conflict with WTO rules prohibiting unauthorized restrictions on trade. International legal principles according precedence to the most recent international treaty or agreement when followed to their conclusion, as currently interpreted by the WTO, would have the possible effect of undermining environmental agreements which have international sanction.
MRA's - Mutual Recognition Agreements. Side agreements pledging to exchange information on product standards. A troublesome aspect of the MRA's has been whether their approval status remains solely with the executive branch or as with a treaty resides in Congress. MRA's once implemented have also been thought to set up minimum WTO standards under principles of mutual recognition of product standards, going perhaps beyond their original intent.
NFIDCs - Net Food Importing Developing Countries. Includes 18 developing countries. The official WTO definition includes four small net food exporters (Sri Lanka, Honduras, Kenya and Mauritius) because they are major cereal importers.
PPM - Non-product related production measures. These refer to environmental pollution, child labor, and other conditions of production of a product related more to the process by which it is produced than to the product itself. WTO rules are generally construed to have little jurisdiction over PPM's. This has been a source of concern to environmentalists and labor unions that feel that opening trade could lead to an increase in abusive production practices. The United States favors placing these issues on the agenda for a subsequent round of negotiations.
SPS - Sanitary and Phytosanitary Regulations. Refers to food and drug regulations. These are left in principle to the WTO member states to determine within certain requirements. However, when exceeding standards laid out in the "codex alimentaris" (food) or more generally for drugs, national regulations must meet certain conditions. The same SPS must be applied nationally as for imported products, must cause the least trade disruption consistent with its purpose and must be based on a scientific assessment of risk. WTO rulings concerning SPS measures have been widely criticized by consumer groups as being excessively in favor of trade promotion and consequently insufficiently sensitive to health risks. The codex itself is criticized by consumer groups as being excessively influenced by industry and minimalist for certain products. Difficulties in assessing national measures arise because of the imprecision and complexity of scientific analysis of risk and what consumers have interpreted as a WTO requirement to prove the likelihood of harm rather than accept an inference of potential harm.
Tarification. Refers to the conversion of all non-tariff restrictions on imports as quotas or variable levies, to tariffs. Tarification levels by product were agreed to under the Uruguay Round for all agricultural products as well as scheduled reductions in these same tariffs. Developing countries were allowed to set their own tariffs for previously restricted products without contest. Reductions will be negotiated in this round. Tariff levels for some previously untraded products were set quite high.
TBT's - Technical Barriers To Trade. Refers to non-tariff barriers to trade in goods and services including differing product standards, labeling requirements, health and phytosanitary regulations, certification and other property rights issues.
TRIMS - Trade Related Investment Measures. Agreed to at the Uruguay Round the TRIMS Agreement governing foreign investment requires rules governing foreign investment to be consistent with those for domestic investment. A broader investment treaty promulgated under the auspices of the OECD after the Uruguay Round was tabled after an unprecedented internet campaign by consumer and environmental groups aligning themselves with developing countries.
TRIPS - Trade Related Aspects Of Intellectual Property Rights. This agreement, which resulted from the Uruguay Round, requires all WTO members to sign, pledging to protect and honor property rights (patents, copyright, etc) through their domestic legislation. Developing countries have 10 - 15 years to phase in full compliance with TRIPS.