Filipe Távora *

[email protected]

The World Trade Organization

[and its critics]

*Lic. Sociologia (1996);

Pós-Graduado em International Economics (2007).
Integra presentemente a Equipa de Missão para o acompanhamento da Presidência
Portuguesa da União Europeia (área de protecção civil).
O presente trabalho foi apresentado na Universidade de Londres, em Março de 2007
1. Introduction

In November 1999, the members of the World Trade Organization met in Seattle for a
meeting which rapidly has been known as “the battle of Seattle”. It was the first
coordinated mass revolt against global capitalism in the modern era. Here was an
event that united labour unionists, environmentalists, consumer advocates, human-
rights activists, farmers, organic food lovers, AIDS activists, the list goes on.
Anti-Globalization protesters and the world‟s less developed countries argued that the
processes within the WTO had gone far enough and the very future of the organization
was called into question.
The rebuilding process of the WTO began in Doha, in November 2001. The meeting
between the then 142 members concluded with de decision to launch a new round of
talks, to be called the “Doha Development Agenda”. Undoubtedly, these talks were
designed to increase even more the liberalisation of trade, but such a goal is to be
tempered by a policy of strengthening assistance to developing countries in their
pursuit of economic growth, employment and poverty reduction, the promotion of a
global sustainable development and even a global policy for environmental protection.
The aim of this paper is to examine, briefly, the conditions that led to the creation of the
WTO and, somehow, to try to understand the concerns of those some who feel that
global economy is increasingly beyond their influence. In the particularly case of this
paper, we will concentrate upon the criticisms made by developing countries and
environmental movements.

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2. Trade Protection policies and the origins of global institutional systems

During periods of instability and change, the political impetus for protectionist policies
may prove unstoppable. It is sometimes a general sentiment that a country‟s health
and welfare is best ensured by denying foreign advantage.
Based on the Mercantilist paradigm, many politicians and economists advocate
securing trade gains at the expense of other countries, by erecting barriers against
imports and aggressively promoting exports. But this feeling is more apparent in some
moments and places than others. When the world economy is booming it becomes less
relevant since all are becoming richer; when economic growth slows, become stagnant
or even shrinks, the protectionist barriers go up and then one country‟s economic
fortune can be at the expenses of another‟s.

At such times, it requires considerable diplomatic effort to prevent

trade restrictions from spreading. A general collapse in world trade,
everyone agrees, is bad for all, but what does it matter if my country
alone subsidies its export and protects its vital industries? Such is the
argument of the “free-rider” – who benefits most if everyone else
agrees to the rules.1

The balance of payments problems that many countries experienced after the oil crisis
of 1973 and the recession of the early 1980s led many politicians around the world to
call for trade restrictions. Although a “trade war” was turned aside, there was a gradual
increase in non-tariff barriers, such as subsidies on domestic products, the prohibition
of imports that did not cope with particular specifications, severe administrative delays
in customs clearance, limits on investment by foreign companies, and governments
favouring domestic firms when purchasing supplies.

3. Predecessors of the WTO

- The International Trade Organization (ITO)

Following the end of the Second World War, international leaders were anxious to erect
institutions into the international system capable to protect the world from a possible

1
Cleaver, 2007, p.93

3
repetition of such disastrous events. The US took the lead in advancing the view that
free trade would represent an important mechanism for consolidate world peace.
The Allies, particularly the United States and United Kingdom, began discussions about
the reconstruction of the world economic order. In 1944, at the Breton Woods
conference, those countries signed an agreement that provided the outline for a post-
war economy. Three pillars, therefore, were foreseen for the purpose of maintaining
international economic cooperation: The International Monetary Fund, the World Bank
and the International Trade Organization.

Following the bilateral trade negotiations between the US and Britain, successive
multilateral conferences were held between 1946 and 1948. The outcome of this
process was the Havana Charter, the draft agreement for the creation of the ITO, which
was signed by 53 of the 56 countries participating in the conference.

However, despite this “promising” multilateral commitment, the ITO never came into
existence.

The ITO had collapsed under the weight of its own ambitions. It taught
trade negotiators and their political masters some important lessons
about the reach that a multilateral trade organisation could politically
achieve at the time. It illustrated that any multilateral process risks
derailment if it does not take into account the views of affected
constituencies, whether they are domestic interests or smaller
countries at the negotiating table.2

The failures of the ITO experiment helped negotiators identify the politically feasible,
and this was to be found in the General Agreement on Tariffs and Trade.

- The General Agreement on Tariffs and Trade (GATT)

In 1945, during the discussions for the ITO, the United States proposed a multilateral
commercial treaty on tariff reductions to be negotiated by the participating countries.
Behind this proposal was the recognition by US representatives that though a a

2
Narlikar, 2005, p. 12

4
multilateral organization such as ITO would need ratification from the Congress, a trade
agreement could be negotiated and implemented much more easily. This fact, and the
negotiation on the Havana Charter, had represented the openness of the conditions for
the establishment of the GATT, which was to serve as an interim agreement until the
ITO comes into force. It was signed by 23 countries, in 1948, and was to provide a
provisional framework for multilateral cooperation until the ITO was formed. This
“temporary” agreement was the basis for the international trade system no less then 47
years.

The coverage of the GATT was very short in comparison with the ambitious ITO. As
pointed by Narikar, it was, in fact, no more than the commercial policy chapter of the
ITO, with a weak dispute settlement mechanism3. Contrary to the ITO idea, made no
mention of employment, development restrictive business practices or commodity
agreement.
The legal nature of the GATT was, perhaps, its most interesting feature. This
Agreement was little more than a negotiating forum, held by a multilateral treaty signed
by parties and not by members of an organization. In fact, it was a “formally-contracted,
rule-oriented, non-organizational form o cooperation in international affairs”.4
The result of this non-existent organizational structure of the GATT was that
commitment to it was less expensive than would have been the case for the ITO. Given
this minimal costs of participation (financial and institutional), it is not surprising that the
GATT survived for so many years.

But the weakness of the institution also meant that it did little to address the power
asymmetries that severely disadvantage developing countries in their trade relations.
The onus of negotiating and implementing agreements fell on the members
themselves, with little help from the Secretariat. Developing countries, therefore, found
themselves deficiently equipped to participate in full in the treaty, due to their limited
technical capacity.

Notwithstanding the dissatisfaction and relative marginalization of the developing

countries, the GATT continued to exist for over four decades.

In part, this longevity, especially remarkable given the difficult history

of its unborn predecessor, derived from its ability to suit the needs of

3
Narikar, op. cit, p. 16
4
Gilbert Winham, cited by Narikar, op. cit., p.16

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 the major trades from the Western world. It covered the commercial
interests of the developed countries, without making any intrusion
into their domestic jurisdictions.5

4. The WTO: formation and underlying principles

The formation of the World Trade Organization, in 1995, was intended to replace the
GATT and, somehow, was a form to rebuild the aborted ITO, tough without the
constraints that had driven to the collapse of the later.
Some contracting parties of the GATT proposed the formation of a more permanent
body, as dissatisfaction with the GATT had been evident in different quarters.
The changing comparative advantage of developing countries demanded that the
GATT would have to expand to new kind of services, like intellectual property rights
and investment measures, to mention just a few.
On the other hand, it was necessary to create a mechanism to facilitate a better
coordination between the GATT, the World Bank and the International Monetary
Found, for the coherence of the international economic system. A trade organization
able to maintain such institutional relations with other major organizations emerged as
a solution.
The official foundation of the WTO, marking the completion of the Uruguay Round, was
signed in April 1994, in Marrakesh. The new agreement covered the new issues of
intellectual property rights and investment measures and over 36.000 pages of national
schedules on goods and services. The creation of the WTO was indeed a response to
problems with which the old GATT structure could no longer cope.

The Agreement establishing the WTO commits its member states to a variety of noble
purposes: improved standards of living, full employment, expanded production of and
trade in goods and services, sustainable development, and an enhanced share of less
developed countries in international trade.

The Agreement further commits its members to contribute to these objectives by

entering into reciprocal arrangements for the purpose of substantial reduction of tariffs
and other barriers to trade, as well as to the elimination of discriminatory treatment
between countries.

5
Narikar, op. Cit, p.19.

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The WTO as an institution is clearly committed to trade liberalization. These
commitments, nevertheless, is not and end in itself, but is seen as a means to
achieving the broader social ends mentioned above.
But what means trade liberalization, in the context of the WTO?

In the words of Narikar:

Barring a few qualifications, economists view the commitment to trade

liberalization as a welfare-maximizing pursuit. Economic theory since
the middle of the 18th century has presented the advantages of lowering
tariffs for most parties in most situations. The gains from trade derive
from specialization on the basis of comparative advantage.6

Two key values underlie the agreements of the WTO: non-discrimination and
reciprocity. By non-discrimination, WTO members commit themselves to treat foreign
goods no less than favourably that domestically produced like goods and, on the other
hand, that a product made in one member country should be treated no less favourably
than a good that originates from any other country.
The second principle, reciprocity, makes the process of agreeing to tariff concessions
politically appetizing for domestic politics of each country. It limits „free riding‟, that
might otherwise become out of control through the first principle of non-discrimination.
In addition to those two broad principles, the WTO commits itself and its members, at
least theoretically, to transparency, enforceability of the commitments and the
possibility of some exceptions, which allow governments to restrict trade under certain
circumstances. The transparency principle induces states to publish their trade
regulations and notify changes, and reminds that their policies are subject to
surveillance by the Secretariat of WTO, through its Trade Policy Review Mechanism.

5. Criticism to the WTO: lack of democratic procedures and resistance to include

the environment in negotiations

The WTO, as an institutional organization, is characterized by a legal framework

inherited from the GATT. Alongside with its agreements, structures and enforcement
capacity, sit informal negotiation processes.

6
Narikar, op cit, p. 46.

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The operating procedures of the organisation, however, tend to create imbalances
between its members. Its decision-making process, which is taken in the basis of
consensus, often creates disadvantages or developing countries. Firstly because any
objection to a particular decision should be presented by its opponents and this
translates in a very difficult condition for developing countries. About 22 member
countries have no delegation in Geneva, headquarter of the WTO, and therefore they
are not able to voice their objection to the decision under discussion.
Secondly, due to the existence of exclusionary clubs-like meetings, as the majority of
the developing countries have found themselves often excluded from such meetings.
This informal, ad-hoc, diplomatic procedures are in some way in opposition to the
broad principle of transparency that is one of the pillars of the WTO.
In regard to environmental issues, the contention of critics is that the Organization is
inadequate for the purposed of protecting the environment. There are two general
arguments for including environment in WTO discussions. The first is that the GATT is
out of date; when it was negotiated, environmentalism was not a public issue. The
second is that the environment is of such importance that WTO rules should allow
trade restrictions to support protection to the environment. A more particular argument
is concerned to agricultural policy; when the rules of free trade apply to agriculture,
exemptions should be made.
A related argument made by environmentalists is that the degradation of the
environment in the global commons (the atmosphere, the migratory species, the high
sees, etc.) requires extraterritorial reach. However, this implies with national
sovereignty of the member-states, and the WTO principles are based upon national
sovereignty of its members.
In fact, there are no cases where it can be said that WTO procedures provides effective
protection to the environment. But maybe its capacity to meet the core objective –
raising prosperity trough trade, would be undermine if the WTO would give to his
members great latitude to restrict trade to protect the environment.

6. Conclusion

Some protesters might believe there is a growing international backlash against the
WTO. But the countries queuing up to join the WTO, from the most populous and the
largest to the smallest and economically weakest, are proof that a significant part of the
world believe that their economic future lies in the WTO system. Of course the system
could be improved. But there‟s no sense to undermine its foundations and objectives.

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Bibliography

Cleaver, T. (2007): Understanding the World Economy, Routledge, London.

Moon, B. (2000): Dilemmas of International Trade. Westview Press, Oxford.

Narlikar, A. (2005): The World Trade Organization – A very Short Introduction. Oxford
University Press, Oxford.

Articles on the web:

Oxley, A. (2001): WTO and the Environment. Available at

http://www.apec.org.au/docs/oxley2001.pdf

Shaffer, G. (2001): The World Trade Organization under Challenge: Democracy and the Law
and Politics of the WTO's Treatment of Trade and Environment Matters" . Harvard International
Law Review. Available at SSRN: http://ssrn.com/abstract=828644