WTO - World Trade Organisation - 1995

 

The Agreement establishing the WTO commits its member states to a variety of

objectives:

 

improved standards of living,

 

full employment,

 

expanded production of and trade in goods and services,

 

sustainable development,

 

an enhanced share of developing countries in world trade.

 

 

The Agreement commits its members to contribute to these objectives ‘by entering into reciprocal and mutually advantageous arrangements directed to the substantial reduction of tariffs and other barriers to trade and to the elimination of discriminatory treatment in international trade relations’.

 

The WTO as an institution is committed to trade liberalization.

 

 

 

Roots of the WTO:

 

Out of the ashes of WW2 there was a feeling that much of the world should not only be re-structured but to varying degrees planned

 

Government Intervention as a mechanism was quite widely acceptable and was of course one implication that could be drawn from the ascendancy of Keynesian economic theory - at least so far as Britain was concerned.

 

In the wake of the failures of markets in the inter-war period, the basic idea that government could use its resources or at least manage affairs to arrange investment to promote industrial expansion seemed a workable mediation between markets and government - what Macmillan (PM 1957-1963) in the 1930s had called 'the middle way'.

 

 

Such ideas had found some resonance even in that most free-market/capitalist of systems - the US during the depression years via FDRs 'New Deal' policies.

 

In other words thee was political acceptability for what might be seen as a politics of macro-economic planning at some level.

 

"Following the end of the Second World War, international leaders

were anxious to build safeguards and institutions into the

international system that would protect the world from the

recurrence of such disastrous events. The US took the lead in

advancing the view that free trade provided an important

mechanism for achieving world peace." (Amrita, 2005, p.10)

 

 

Planning for post-war reconstruction was being prepared during the war such that In 1944, at the Bretton Woods conference, the US and Britain signed an agreement that provided the blueprint for the post-war economy.

 

Three pillars were envisaged for the purpose of maintaining international economic cooperation:

 

the International Monetary Fund (IMF),

 

the International Bank for Reconstruction and Development (or the World Bank)

 

the International Trade Organization (ITO).

 

 

Certainly this was no turn to socialist economics but, was a planning for a stable economic order via managed capitalism on the basis not of a top-down set of rules but more of a bottom-up set of negotiated settlements between participating states over (tariff) free trade (as the preferred version of trade).

 

In this the ITO would take the lead...

 

 

But largely because of US congressional politics, it all fell apart and President Truman abandoned it in 1950. Equally other countries realised that without US involvement an economic inter-national economic co-ordinating structure would be meaningless.

 

It envisaged as doing many things:

 

"commercial policy, the 106 articles of the ITO extended to areas of

employment, economic development, restrictive business practices,

and commodity agreements. It gave recognition to the importance

of ensuring fair labour standards, and also incorporated provisions

that allowed governments to address their development and

humanitarian concerns" (Havana Charter)

Furthermore it was to be a specialised agency of the UN

Negotiations:  1944 onwards

 

Forces that disrupted the creation of the ITO were:

 

US preference for a wholly free-trade model vs Britain and others wanting to especially trade with friends or old Imperial allies

 

and this built into the Charter an expanding systems of rules for exceptions

 

a phenomenon known as logrolling (a variant of you scratch my back (low value issue for you) and I'll scratch yours (low value for me)

 

In a preference ordering

 

1) a, b, c

2) b, c, a

3) c, a, b

 

1 &2 will gang up to achieve b

2 &3 will gang up to achieve c

1 &3 will gang up to achieve a

 

 

Problem: externalities = real world frustration and over-complicated agreements wherein the overall shape of charter satisfies no-one fully.

 

General dis-satisfaction build up across time and criticism grows.

 

 

Developing countries especially got involved after 1946 and demanded that the Charter include exceptions that allowed them to impose special quantitative and other restrictions to facilitate their economic development. They were successful partly as a result of the value-climate of those days when everybody wanted to be seen to get on.

 

 

Even the US found it was under pressure to request exception for is own home interests such as in agricultural imports etc.

 

 

Altogether, the scope of the ITO had been too great as well as had opened too many avenues for endless (re-) negotiations in a multi-stakeholder situation.

 

 

However, at the same time as the ITO was being sorted out the US who were keen on restricting tariffs to promote trade (perhaps in its own interests + being the hegemon in the post-war world) came up with another idea.

 

The Truman admin sensed the troubles of getting ITO through, so in 1945  began the process of passing a Reciprocal Trade Agreements Act - a much les ambitious and troubling project.

 

Simultaneously with the negotiations on the Havana Charter, negotiations on a multilateral tariff-reduction  treaty entered into full swing at the Geneva Conference in 1947. The result of the latter set of negotiations was the General Agreement on Tariffs and Trade (GATT). This was to serve as an interim agreement until the ITO came into force.

 

This was signed up to by 23 countries including developing ones to  provide a set of rules whereby all participants would restrict tariffs as far as possible with respect to each other.

 

 

 

Compared with the ITO it was far less extensive in scope - it did not provide for what would be considered domestic matters such as labour and employment legislation.

 

 

 and less extensive than GATTs successor - it was not such a highly legal rule-bound structured organisation  as is the WTO..it rested on much more informal types of negotiation between parties.

 

GATT was little more than a negotiating forum, held together by a multilateral treaty signed by contracting parties (rather than members of an organization). To refer to joint action by the members acting as a collective body, the term ‘CONTRACTING

PARTIES’ (in the upper case) was used, as opposed to ‘organization’

 

 

 

Winham describes GATT as a ‘formally-contracted, rule-oriented, non-organizational form of cooperation in international affairs". He notes that:

 

2The elements of the GATT regime have been described by Gerard and Victoria Curzon (1976), and include a substantial reduction of trade barriers, particularly tariffs; the norm of reciprocity; the intent to build an international trade order; and the elimination of discriminatory treatment in international trade."

http://www.dal.ca/content/dam/dalhousie/pdf/cfps/staff/winham-international.pdf

 

 

However, Amrita takes a slightly different view inasmuch as he suggests that key to GATT was its informal style in practice despite the rules provided for the ways of agreement. he says:

 

In practice, however, the GATT evolved the norm of decision-making

by consensus; that is, a decision would be arrived at if none

of the parties present objected to it..

 

Whatever....

 

GATT only dealt with tariff barriers to trade.

 

and GATT continued to exist for 40 years (until 1995)

 

Across time problems arose;

 

These decisions were usually reached in the so-called Green Room meetings, which worked by invitation only. Tariff negotiations were conducted primarily on the Principal Supplier Principle: the principal suppliers and consumers of a particular product would negotiate tariff reductions and then extend the concessions to all contracting parties.

 

So developed countries were at a much greater advantage than developing ones because of:

 

1) Principal Supplier principle - the principal suppliers and consumers of a particular product would negotiate tariff reductions and then

extend the concessions to all contracting parties - and usually principle suppliers were the developed countries - so they sorted

 

2) larger staff and expertise to call on  (such that developing countries sometimes felt marginalised at negotiations)

 

 

but at least its very informality meant that tariff restriction was not too tightly adhered to when developing nations felt that they were being harmed by imports.

 

Forms of tariff rights were sometimes invented to accommodate weaker nations, e.g. Voluntary Export Restraints.

 

As GATT developed across the 60s into the 70 it provided flexible plurilateral arrangements where some of the member would make agreements not lest at the Geneva-Kennedy round in 1964-66; the Geneva-Tokyo round  1973-79; and the Geneva-Uruguay round 1986-1994

 

where the latter was the prelude to the formation of the WTO on 1st jan 1996 with 128 countries as members.

 

 

 

Why WTO rather than remaining with GATT.

 

The changing structure of world trade and the idea of comparative advantage

 

The changing comparative advantage of developed countries, led by the US, demanded that the GATT

would have to expand into the new issues of services, intellectual property rights, and investment measures

 if it wanted to keep the major traders aboard.

 

leading to developed countries wanting to expand the range of goods and services that should be subject to no tariffs

 

Proliferation of non-tariff barriers: e.g. sanction, embargoes etc

 

More countries in the face of changing markets and political initiatives sought to be part of GATT..

and this led under the old rather informal way of negotiating to a far too complicated set of agreements.

 

Indeed as early as 1990 the EU had proposed a single dispute settling body

 

The simplicity of GATT as a tariff-restricting system was under stress and something had to give...a more formal perhaps more legalistic structure had to be put in place.

 

 

Equally the interaction with the World Bank and the IMF in terms of loans to shore up under-investment or other economic needs should be put on a firmer structured basis. (note: unlike WB/IMF WTO is a member-drive org - not a top down staff/expert led org.)

 

But he WTO was not to include issues such as employment and labour practices e.g. treatment of foreign labour

 

It was going to apply the key rule of the Single Undertaking: that all participating countries had to apply trade agreements settled at the WTO as of a piece - they could not cherry-pick parts of agreements

 

and:

 

the WTO provides its members with two firm rules that provide the basis for all trade negotiations under its auspices: the Most Favoured Nation (MFN) rule and the associated principle of reciprocity.

 

The first extends all concessions negotiated between two parties to the rest of the membership, thereby expanding the pie to be shared and also

Decision-making and negotiation processes shielding countries against the vagaries of bilateralism.

 

To guard against free-riding and make trade liberalization politically palatable at home, however, the second principle of reciprocity is

crucial.

 

Concessions negotiated under these rules have to be bound; if countries exceed the bound level, they can be penalized

 

In return under the Doha round in 2002:

Special and differential treatment: The negotiations have to take fully into account the principle of special and differential treatment for developing and least-developed countries.

Sustainable development: The Trade and Development and Trade Environment identify and debate developmental and environmental aspects of the negotiations to ensure that sustainable development is appropriately reflected.

 

The WTO covers not only the traditional area of trade in goods, as with GATT,

 

but also has General Agreements on Trade in Services, GATS - very open to asymmetries of trade - movements of highty trained doctors and other experts that were once thought of as untrade-ables. Undermines local development of experts and the tourist economy and the like. Internationalisation of hotel chains...

 

 

trade-related intellectual property rights (TRIPs),  setting minimum standards on telecoms, electronics; medicines (patents v generics problem); very difficult for developing contries to keep up with/adhere to.

 

 

and trade-related investment measures (TRIMs): policies used by governments that require foreign investors to

meet certain performance standards in order to boost their domestic economies in a particular way. Examples include local

content requirements (whereby investors must use a certain minimum of domestically produced inputs), export requirements

(multinational enterprises must export a certain proportion of their produce to improve the balance of payments position of the

country), or technology transfer requirements..and what if the inputs are not of the requisite minimum standard that WTO mandates????

no investments?

 

 

 

As has been noted:

Given all the above features, members of the WTO are far more deeply bound to its rules than the contracting parties of the

GATT ever were. These rules are more intrusive than those negotiated in the GATT; they are more formalized; and they

enjoy increased enforceability through the enhanced Dispute Settlement Mechanism that the previous regime could not afford. The organizational

structure of the WTO provides an excellent illustration of how the WTO builds on some old GATT features but formalizes and

legalizes them in a way so unprecedented that the resulting change is a qualitative one.

 

 

 

 

Crit of WTO as an organisation that is run by its members:

 

"An analysis of the structures of the WTO reveals an interesting paradox. In many ways, the WTO is one of the most expansive and

intrusive organizations of its time. Its Ministerial Conference and many committees make rules that go deep inside the borders of

states. Members must adhere to these rules or face retaliation. But simultaneously, the legacy of the GATT has ensured that the WTO

is also a very weak organization in other ways. The organization, up to its highest decision-making body – the Ministerial Conference –

is made up of the members themselves. The members have not had to surrender any of their decision-making powers to a secretariat, or

delegate them to an executive body. Any rules that the members must implement are ones that they themselves made in the councils

and committees (which are open to all of them). Any punitive action has to be exercised by the member rather the collective body, and

even the Dispute Settlement Body that authorizes such retaliations is ultimately the same as the General Council and therefore

constituted by country delegates. Given this rather frail existence of the WTO as an international organization, one might well wonder

why the WTO has attracted charges of a democratic deficit."

 

 

 

 

Other lines of criticism of the WTO

 

Anti-dumping difficult to police

 

 

....are not so abstract and have to do with the simmering frustration of developing countries' weakness in

negotiation as the expertise as well as the pace of negotiation lead them to often agree to proposals to just get a few crumbs of advantage.

 

 

Developing countries have long been resentful of the relative ease with which developed countries, both in the GATT and the WTO,

have been able to bludgeon them into consensus, and keep expanding the agenda of the organization despite the reservations that

developing countries have consistently had with this. This leads to distrust between developing and developed countries.

 

 

For example: An Oxfam report points out that Cambodia was required to give up the use of generic medicines as part of its

accession package, even though the WTO actually exempts LDCs from implementing this part of the agreement on intellectual

property rights until 2016. (Amrita, 2005)

 

 

Another example: prior to the Uruguay Round, only 22% of industrial products from developing countries were

bound. Post Uruguay Round, this figure had risen to 72%. Developed countries, in turn, took their own commitments on

industrial products even further, increasing the share of their bound industrial tariff lines from 78% to 99%. (Hoekman and Kostecki, 2009)

 

And of course developing countries are far more affected in their income from tariff binding that are developed economies.

 

Equally average tariff levels in developed countries goods appear low but on goods where developing countries have comparative advantage, developed countries tariffs are high thereby excluding the developing country for importing those items.

 

 

 

 

The complex structure of WTO

see page 13 and, for info as to what kinds of trading goods and service they are concerned with see p.7

 

 

 

 

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Seminar & Reading

 

The WTO’s creation on 1 January 1995 marked the biggest reform of international trade since after the Second World War. It also brought to reality — in an updated form — the failed attempt in 1948 to create an International Trade Organization.

Much of the history of those 47 years was written in Geneva. But it also traces a journey that spanned the continents, from that hesitant start in 1948 in Havana (Cuba), via Annecy (France), Torquay (UK), Tokyo (Japan), Punta del Este (Uruguay), Montreal (Canada), Brussels (Belgium) and finally to Marrakesh (Morocco) in 1994. During that period, the trading system came under 'General Agreement  on Trades and Tariffs' (GATTs), salvaged from the aborted attempt to create the ITO. GATT helped establish a strong and prosperous multilateral trading system that became more and more liberal through rounds of trade negotiations. But by the 1980s the system needed a thorough overhaul. This led to the  and ultimately to the WTO


Reading:
1) http://www.cfr.org/international-organizations-and-alliances/world-trade-organization-wto/p9386

2)  http://www.economist.com/news/leaders/21611064-world-trade-organisations-whole-approach-negotiating-free-trade-needs-radical-change-no?zid=301&ah=e8eb01e57f7c9b43a3c864613973b57f

from: The Economist - a critical piece. (2014)

3) https://poldev.revues.org/1744
A longish and sophisticated piece from the Geneva Institute of International Relations that surveys the nture and effects of the agreements of the recent (and moderately successful, givn the complexity of negotiations) Bali round of talks that are the last part of the very inconclusive 'Doha round of talk from previous years.
Bali especially relates to LDCs - 'least developed counries' - in relation to liberalisation of global trade.

note: The Bali Package is a trade agreement resulting from the Ninth Ministerial Conference of the WTO in Bali on 3–7 December 2013. It is aimed at lowering global trade barriers and is the first agreement reached through the WTO that is approved by all its members.  The package forms part of the Doha development round which started in 2001.
and Doha into bali agreements have their roots in the so called Uruguay Round years before.

 

 

4) a short piece that looks at the results of the Bali round in terms of implications for development and LDCs - least developed countries.
http://www.odi.org/comment/8056-wto-bali-declaration-least-development-countries-trade-facilitation-agriculture-doha-round