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The multilateral World Trade Organisation (WTO)

The multilateral World Trade Organisation (WTO) seeks to articulate and enforce trade rights and responsibilities between States. The number and complexity of those rights and responsibilities, and the variety of States involved threaten failure of the organisation, and point toward bilateral arrangements for the achievement of the same objectives

Introduction

The World Trade Organisation (hereafter the "WTO"), headquartered in Geneva, Switzerland, came into existence on 1 January 1995 as a result of the Uruguay Round of the GATT (General Agreement on Tariffs and Trade) negotiations and as the successor to that body. The WTO is a multilateral international organisation which has assumed the role of creating and enforcing the rules of trade applicable to dealings between nation states. If one stops to think about the geo-political and social-economic diversity of the world for even a moment it is easy to appreciate the difficult and sometimes tortuous and thankless nature of the WTO's task. A raft of complex agreements, which have been ratified by the majority of the world's trading states, underpin the work of the organisation and lend it its authority, although in practice this often proves tenuous in nature.

The Objectives and Activities of the WTO

The fundamental goal of the WTO is to facilitate and police global trade and improve the way in which exporters, and importers and the producers of goods and services, conduct their commercial activities. A much stronger body than its predecessor, the WTO presides over a vast jurisdiction. Its rules are now applicable to over ninety percent of international trade.

All economic organisations with an effectively global jurisdiction prove highly controversial. The World Bank and the International Monetary Fund are both subject to a vigorous polemic and the WTO have received a similar reception. The WTO has been subject to building criticism since its creation, something which is probably due in large part to the dramatic expansion in the scope and reach of its jurisdiction and operations in comparison with the relatively limited focus of GATT, which was confined to the reduction and elimination of tariffs on manufactured goods. In 2006, eleven years after its inception, the WTO endeavours to combat non-tariff and other anti-competitive impediments to the free flow of world trade. The organisation has the authority to challenge environmental, health and other national and supranational trading provisions which, although they may address ostensibly legitimate and laudable social goals at a domestic level, are considered to substantial barriers to international trading activities and the smooth and efficient operation of the world marketplace.

The Controversy Surrounding the WTO

This role on occasion requires the WTO to intervene in extremely sensitive and controversial territory and leaves the organisation vulnerable to claims that it meddles in national affairs. Such concerns are exacerbated by the fear that the organisation is susceptible to manipulation by its most influential powerbrokers so as to put undue pressure on, or even to bully, weaker members in the conduct of their domestic affairs. It is certainly true to say that from the outset, the replacement of GATT by the WTO provoked critical comment among critics concerned that its enhanced jurisdiction and significantly stronger enforcement abilities marked a further shift in power from national governments and private citizens to a global authority run by unelected bureaucrats but swayed by unspoken and hidden interests. In this regard there is no doubt that the organisation functions under a so-called democratic deficit, which is a criticism often levelled at international organisations. The European Commission, for one, is constantly lambasted by those who oppose the fact that it is essentially a bureaucracy although its plays a central part in the convoluted legislative processes of the European Union. The last twenty years, since the Single European Act of 1987, has witnessed a gradual depletion in the power of the Commission and a migration of authority to the democratically elected European Parliament in a concerted effort to address these concerns. It is conceded that less law emanates from the WTO than from the Commission, but the issue is essentially the same.

Of course the organisation is not without its supporters. From a positive perspective, many academic commentators (although it must be said most whose leanings could be described as right of centre), big business interests, and key national governments across the world defend the WTO as an essential body. These groups celebrate the fact that the organisation is a stronger and more generally capable undertaking than its predecessor, and broadly welcome its intervention in the global trading system, although such interests are often challenged by its activities. It is easy to forget that GATT itself was subject to wide-ranging criticism and concern - as the introduction to this paper suggests, policing international trade is a fraught and thankless task.
All that said however, the WTO does act as policeman, jury and judge on disputes relating to matters within its provenance, and it is submitted that this is not an ideal situation. Arguably it would be preferable to confine the WTO to its powers of lawmaking, investigation and prosecution, and establish a new and independent Court of International Trade, or such like, to hear and resolve disputes. In an ideal world, the roles of law creation and prosecution would also be separated. This would create three offices of international trade with clearly defined authority and hopefully eliminate some of the concerns of abuse and manipulation that currently exist.

WTO member states are entitled to challenge each other's local, state, or federal regulations as unlawful impediments to international trade under the authority of the organisation and its network of agreements. If after investigation, which may be a lengthy process, the WTO determines that the law in question is not in compliance with its own legal framework, the national government of the state in breach may be ordered to repeal or amend the conflicting law. If the defaulting state fails to comply various trading sanctions tailored to the breach may be imposed.

Such penalties have the power to focus minds and compel compliance, but they also polarise opinion and generate criticism and complaint. It can be argued that the transfer of power that has taken place from national governments to the global bureaucratic mechanism of the WTO jeopardises the underlying rationale and authority of national democracy. In turn this can be said to devalue the votes of citizens and the power of domestically elected public officials in the development of laws for the maintenance of society.

A Dichotomy of Opinion

Critics contend that so-called trade liberalisation undertaken on the WTO's terms ultimately weakens the long-term prospects for development of the world's poorer nations. These concerns very much mirror the cynical and hostile reception given to various progressive IMF and World Bank policies in recent years. On the other hand, those supportive of the organisation's work assert that the WTO allows economically weaker countries broader and deeper access to the industrialised markets of richer states than would otherwise be available. It is submitted that there is some merit in both these opposing points of view.

Persistent Criticisms of the WTO

Left wing commentators emphasise the WTO's lack of ostensible democratic legitimacy, contending that the institution exercises an unprecedented degree of control over a growing majority of the world's population. It has been argued that, in maintaining a neo-Keynesian regulatory function over world economic affairs, the WTO is essentially serving to protect powerful Western interests and what critics would label the Washington-Wall Street Alliance. The WTO's detractors assert that this bias has the effect of forcing economically weaker member states to conform to a harsh regime of free trade, austere public finances, export-driven growth and widespread national privatisation and deregulation which, although effective or even ideal in some circumstances, may not be in their bests interests in their particular situation.

Although such blanket policies may further the interests of multinational corporations and international investors, it is submitted that such strategies can indeed be said to have a damaging influence on the fragile market economies of certain vulnerable countries when viewed over a short or medium term. This has ostensibly resulted in restricted industrial growth, environmental destruction, and in some cases increases rather than decreases in poverty and inequality. It is submitted that this is perhaps an unduly negative stance, and possibly a case of glass being considered half empty rather than half full, in particular given the fact that the WTO is only in the eleventh year of its operation and most macro-economic policies take many years to reach full maturity and fruition. However, the stated concerns are persistent and substantial and deserve mention.

The WTO has been criticised as failing to properly account for the interests of SMEs , which constitute an essential faction of every national economy, in its rules. In particular the fact that SMEs may have difficulty competing effectively with multinational firms because they are unlikely to have comparable access to capital, scale economies in production and transport, technological innovation, mature wholesale networks, sophisticated marketing channels or extensive research and development funds, is said to be overlooked or at least not adequately catered for in many WTO provisions. There is a possibility that bilateral agreements would add a layer of flexibility that would allow this issue and other local factors of a similar ilk to be taken into consideration, but then this is only likely to occur where there is a fine balance of power and interests between the parties. In most cases one party will be significantly more powerful than the other in bilateral negotiations and in those circumstances it is unlikely that the dominant trader will have much in the way of sympathy for the locally owned enterprises of its trading partner. At least a global view allows such considerations to be factored into the economic equation at some point, albeit perhaps with not the emphasis that will satisfy every party all the time.

Multilateral arrangements have been subject to particular criticism in the sensitive and politically contentious of field agriculture. WTO rules on agricultural trade and policies on the reform of domestic agricultural policy have been accused of weakening if not damaging national strategies to guarantee food security.

Moreover, multilateral WTO rules have been criticised for imposing an inflexible blanket ban on protectionist provisions designed to protect small domestic firms operating in the services sector. For example, multinational banks are now allowed to open branches in small towns to compete with locally owned banks with strong community links. It is true that bilateral arrangements would allow local circumstances and interests to be protected with more precision, but ultimately is such protectionism a good idea or valid long term option? It is submitted, probably not. Generally speaking, it is a matter of basic economic theory that free trade will allow the best products and services to flourish, to the benefit of the greater market and the individual consumer.

Analysis and Commentary

The title to this paper invites us to consider whether it would be to the advantage of world trade to replace the multilateral policies of the World Trade Organisation with a series a bilateral arrangements between trading partners. This commentator believes that such a move, while attractive from a certain perspective and on certain grounds, would represent a backward step in global economic relations. The WTO offers certainty, consistency and enforceability in what is becoming an increasing integrated world marketplace. A system of bilateral arrangements would be legally dense and enormously complex, resulting in thousands of separate agreements, and such would fly in the face of the trend of continued consolidation adopted by powerful trading blocks such as the European Union and NAFTA. In a ideal world a bilateral cobweb could be tailored to meet the needs of each contracting party, but we do not live in an ideal world. Inevitably, in a bilateral situation, the most powerful country will be able to exercise undue influence over the terms to be agreed and the weaker party will have little or no leverage to resist. Although the WTO is criticised over its potential for bias, and these concerns have been recognised above, it does at least have the advantage that its rules are set down after a negotiation process involving all 149 signatory member states, and this must inevitably entail a balancing of power and a smoothing of influence which is considerably better than anything that is likely to be achieved bilaterally.

None of this is to decry the enormous task facing the WTO. The world is a vastly complex political and socio-economic jigsaw and it is in a constant state of flux. The global market is beset by rival perspectives across every conceivable issue possessed by hugely diverse countries. Simply put, the so-called global "community" seldom agrees on anything at all, let alone the "sordid topic of coin". When the condition of the Earth's environment - something in which all states have an equal interest - fails to inspire even a modicum of consensus, what hope is there for profit and loss and international barter? As indicated in the introduction to this paper, the WTO's role is an unenviable and difficult one.

It can therefore come as no surprise that the WTO, like the World Bank and IMF before it, is subject to criticism from one quarter or indeed seventeen others. Of course there are problems, and these will probably prove durable, but given the reality behind geo-political and trading relations it is a testament to the WTO that it manages to function any status and efficiency at all. That it has been able to achieve a credible working state is in itself no mean feat. In light of the yawning differences in development that distinguish the world's societies, and with a view to the many religious, cultural and other social divides that define our national communities, it is argued that it would be almost impossible to satisfy all of the parties and all of the interests all of the time. The task is made all the more difficult when one recognises that some of interests consolidated under the WTO are not just divergent but polar opposites. However, it is submitted that this should not be considered justification for throwing in the towel and opting for bilateral agreements. It should instead be deemed a challenge susceptible to compromise: that is surely the only way forward for global trade.

The WTO will inevitably face continued difficulties in the fraught and contentious world of international commerce. It would be advised to confront the concern that the organisation is a standard-bearer for European and American interests because they undermine its global reach and authority and it is submitted the underlying criticism is not without some foundation. It is argued that, ultimately, the WTO should distance itself from a view of world affairs which is biased towards the West, and that it should take care to adopt a global view on policy making, investigation and enforcement. However this must be accomplished with due sensitivity and deference towards the economic powerhouses of the West, because without their support and cooperation the work of the WTO would be rendered meaningless.

The breathtaking growth of the Chinese and Indian economies, which together support about one third of the world's population has dramatically changed the political and economic canvass of the world. The early years of the twenty first century have seen and will continue to witness an unprecedented shift in power from West to East. This is perhaps another good reason for the West to support the WTO. It is entirely possible that China would dominate bilateral agreements with almost all its western trading partners, and therefore multilateral arrangements might present a more attractive option. In simple terms, it is not just second and third world states that could benefit from the protection of multilateral negotiations. Even advanced and wealthy first world market players are likely to be attracted to the notion of multilateral talks when the alternative is facing up to a giant alone. In this sense the WTO is probably necessary to enable all but four or five of the world's most powerful trading states to preserve their positions of authority and influence in the global market.

The point has already been made that it is easy to forget that GATT itself was subject to wide-ranging criticisms and concerns. It was predictable that the WTO would face a similarly bumpy ride and almost inevitable given the increase in powers awarded to the new organisation. That said however, perhaps the greatest fundamental weakness of the current WTO regime lies in the concentration of power and function afforded to the organisation. It is debatable whether the WTO should, in the long term, continue to act as lawmaker, investigator, prosecutor, jury and judge in trading disputes within its provenance, and it suggested that this is not an ideal situation. It has been argued in this paper that it would be better to divide the WTO's powers into three bodies dedicated respectively to lawmaking, enforcement and adjudication.

In closing it is also worth restating the observation that the World Trade Organisation is only in the eleventh year of its operation. It is true that many of its policies and rules have yet to bear ample fruit, but then it is a hard fact that most macro-economic policies take years to reach full maturity and it may be many more years before the global impact of the new rules the organisation has implemented can be fairly evaluated. In terms of responsiveness and manoeuvrability, the world economy is more of a super tanker than a canoe. Assuming that the member states play their part in running their economic affairs in line with the WTO rules, a fairer point in time to make an appraisal of the organisation might be 2015 or thereabouts, once it has been in operation for twenty years.

THE END
WORD COUNT: 3000 (excluding footnotes)

BIBLIOGRAPHY

Richard Peet, Unholy Trinity : The IMF, World Bank and WTO, (2003) Zed Books.

Sarah Anderson and John Cavanagh, World Trade Organization, January 1997, Institute for Policy Studies, Editors: Tom Barry and Martha Honey: http://www.fpif.org/briefs/vol2/v2n14wto_body.html.

Richard Laming, The democratic credentials of the new European Union: does the Constitution increase the EU's democratic legitimacy?: http://www.federalunion.org.uk/europe/democraticcredentials.shtml.

Jennifer Mitchell, The European Union's "Democratic Deficit": Bridging the Gap between Citizens and EU Institutions: http://www.eumap.org/journal/features/2005/demodef/mitchell.

Problematic Features of Non-Violation cases: http://www.jeanmonnetprogram.org/papers/98/98-9--II.html

Sparks Fly In WTO Agriculture Negotiations, ICTSD Bridges Weekly Trade Digest, 13 February 2001: http://www.ictsd.org/html/weekly/story1.13-02-01.htm.

http://www.wto.org/
http://www.fpif.org/
http://www.globalexchange.org/campaigns/wbimf/facts.html

 

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