Reform of the WTO
is the Wrong Agenda
Food First Backgrounder, Summer 2000
In the wake of the collapse of the Seattle meetings, an opinion
has emerged that reform of the World Trade Organization (WTO)
is now the program that activist organizations, governments, and
citizens must embrace. Cited by some as a positive sign is United
States Trade Representative Charlene Barshefsky's comment, immediately
after the collapse of the Seattle Ministerial, that "the
WTO has outgrown the processes appropriate to an earlier time."
Also seen as an encouraging gesture was UK Secretary of State
for Trade and Industry Stephen Byers' statement to the Commonwealth
Trade Ministers in New Delhi that the "WTO will not be able
to continue in its present form. There has to be fundamental and
radical change in order for it to meet the needs and aspirations
of all 134 of its members."
In our view, these damage control statements provide little
indication of the seriousness about reform of the two governments
that were, pre-Seattle, the most stout defenders of the inequalities
built into the structure, dynamics, and objectives of the WTO.
It is unfortunate they are now being cited to convince developing
countries and non-governmental organizations (NGOs) to take up
an agenda of reform that could lead precisely to the strengthening
of an organization that is fundamentally very flawed.
What both North and South civil society should be doing instead
at this point is radically cut down the power of the WTO and reduce
it to simply another institution in a pluralistic world trading
system with multiple systems of governance.
Is the WTO Necessary?
The founding of the WTO in 1996 was not in response to a collapse
or crisis of world trade such as happened in the 1930s. World
trade did not need the WTO to expand seventeen-fold between 1948
and 1997, from $124 billion to $10,772 billion. It was not necessary
for global peace, since no world war or trade related war had
taken place during that period. The predecessor to the WTO, the
General Agreement on Trade and Tariffs (GATT), was functioning
reasonably well as a framework for liberalizing world trade. Its
dispute-settlement system was flexible, and with its recognition
of the "special and differential status" of developing
countries, it provided the space in a global economy for Third
World countries to use trade policy for development and industrialization.
Why was the WTO Established?
Of the major trading powers, Japan was very ambivalent, concerned
as it was to protect its agriculture as well as its particular
system of industrial production that, through formal and informal
mechanisms, gave its local producers primary right to exploit
the Japanese domestic market. The European Union (EU), well on
the way to becoming a self-sufficient trading bloc, was likewise
ambivalent, knowing that its highly subsidized system in agriculture
would come under attack. Though demanding greater access for their
manufactured and agricultural products in the Northern economies,
developing countries did not see this as being accomplished through
a comprehensive agreement enforced by a powerful trade bureaucracy.
The founding of the WTO primarily served the interest of the
United States. In 1948, the US blocked the founding of the International
Trade Organization (ITO) when it felt that this would not serve
its position of overwhelming economic dominance in the post-war
world. The US later became the dominant lobbyist for the comprehensive
Uruguay Round of the GATT with the founding of the WTO in the
late eighties and early nineties, when it felt that more competitive
global conditions had created a situation where American corporate
interests now demanded the opposite stance.
The US threatened in the 1950s to leave GATT if the US was
not allowed to maintain protective mechanisms for milk and other
agricultural products, leading to the exemption of agricultural
trade from GATT rules. In 1996, it was US pressure that brought
agriculture into the GATT-WTO system. The reason for Washington's
change of mind was articulated quite candidly by then US Agriculture
Secretary John Block at the start of the Uruguay Round negotiations
in 1986: "[The] idea that developing countries should feed
themselves is an anachronism from a bygone era. They could better
ensure their food security by relying on US agricultural products,
which are available in most cases at much lower cost." Washington
did not have only developing country markets in mind, but also
Japan, South Korea, and the EU.
It was mainly the US that pushed to bring services under WTO
coverage as well, with its assessment that in the new burgeoning
area of international services, particularly financial services,
American corporations had a lead that could be expanded. It was
also the US that pushed to broaden WTO jurisdiction to include
so-called "Trade-Related Investment Measures" (TRIMs)
and "Trade-Related Intellectual
Property Rights (TRIPs)." With the first, the US sought
to eliminate the barriers to internal cross-border trade of product
components within subsidiaries of transnational corporations (TNCs),
which had been used by developing countries to develop their own
industries; with the second, the US consolidated its advantage
in the cutting-edge so-called knowledge industries (software,
entertainment, biotechnology, etc.).
It was also the US that forced the creation of the WTO's formidable
dispute-resolution and enforcement mechanism, after being frustrated
with what American trade officials considered weak GATT efforts
to enforce rulings favorable to the US. As Washington's academic
point man on trade, C. Fred Bergsten, head of the Institute of
International Economics, told the Senate, the strong WTO dispute
settlement mechanism served American interests because "we
can now use the full weight of the international machinery to
go after those trade barriers, reduce them, get them eliminated."
It has been Washington's changing perception of the needs
of its corporations that has shaped and reshaped the international
trading regime. It was not global necessity that gave birth to
the WTO in 1990. It was the American assessment that the interests
of its corporations were no longer served by a loose and flexible
GAIT, but rather needed an all-powerful and wide-ranging WTO.
From the free market paradigm that underpins it, to the rules
and regulations set forth in the different agreements that made
up the Uruguay Round, to its system of decision-making and accountability,
the WTO is a blueprint for the global hegemony of corporate America.
The WTO is necessary to corporate America, but not to the
rest of the world. The need for the WTO is one of the biggest
lies of our time, and its acceptance due to the propaganda principle:
if you repeat a lie often enough, it will be taken as truth.
Can the WTO Serve the Interests of Developing Countries?
When the Uruguay Round was being negotiated, there was a notable
lack of enthusiasm from the developing countries. Largely passive
spectators, with a great number not even represented during the
negotiations, the developing countries were dragged into unenthusiastic
endorsement of the Marrakesh Accord of 1994, which sealed the
Uruguay Round and established the WTO. There were a few developing
countries in the Cairns Group, a group of US-aligned developed
and developing agriculture exporting countries, who took an active
role in pushing the WTO in the hope this would improve market
access for their agricultural products in the North, but they
were a small minority.
To try to sell the WTO to the South, the US evoked the fear
that staying out of the WTO would result in a country's isolation
from world trade (like North Korea) and stoked the promise that
a "rules-based" system of world trade would protect
weak countries from unilateral acts by big trading powers. With
their economies dominated by the IMF and the World Bank, and with
the structural adjustment programs pushed by these agencies having
as a central element radical trade liberalization, most developing
country delegations felt they had no choice but to sign on the
However, over the next few years these countries realized
they had signed away their right to employ a variety of critical
development policy measures. The comprehensive and tightened Uruguay
Round was fundamentally anti-development in its thrust. This is
evident in the following:
Loss of Trade Policy as Development Tool
In signing on to the GATT and WTO, Third World countries were
committed to banning all quantitative restrictions on imports,
reduce tariffs on many industrial imports, and promise not to
raise tariffs on all other imports. In so doing, they effectively
gave up the use of trade policy to pursue industrialization objectives.
The Resstriction of Technological Diffusion
Like the TRIMs agreement, the TRIPs regime is seen in the
South as effectively blocking industrialization and development
efforts of Third World countries. This becomes clear from a survey
of the economic history of almost all late-industrializing countries.
A key factor in industrial take-off has always been relatively
easy access to cutting edge technology. To a great extent, the
US industrialized by using and paying very little for British
manufacturing innovations, as
did the Germans. Japan industrialized by liberally borrowing
US technological innovations, while barely compensating the Americans.
And the Koreans industrialized by liberally copying US and Japanese
product and process technologies, and with little payment.
What is "technological diffusion" from the perspective
of the late-industrializing countries, is "piracy" from
that of the industrial leader. The TRIPs regime takes the side
of the latter. It represents what one UN agency describes as "a
premature strengthening of the intellectual property system...that
favors monopolistically controlled innovation over broad-based
The likely outcome is that a Southern manufacturer would simply
pay royalties to license a technology rather than to innovate,
perpetuating technological dependence on Northern firms. TRIPs
enables technological leaders, in this case the United States,
to greatly influence the pace of technological and industrial
development in rival industrialized countries and the Third World.
The Watering Down of the "Special and Differential Treatment"
Principle The central tenet of the United Nations Conference on
Trade and Development (UNCTAD)-a more pro-South organization disempowered
by the establishment of the WTO-is the critical nexus between
trade and development. Developing countries should not be subjected
to the same expectations, rules, and regulations that govern trade
among the developed countries. Due to historical and structural
circumstances, developing countries need special consideration
and assistance in leveling the playing field for them to be able
to participate equitably in world trade. This includes both the
right to use protective tariffs for development purposes and preferential
access of developing country exports to developed country markets.
While the pre-WTO version of GATT was not centrally concerned
with development, it did recognize the "special and differential
status" of the developing countries. Perhaps the strongest
statement of this was in the Tokyo Round Declaration in 1973,
which recognized "the importance of the application of differential
measures in developing countries in ways which will provide special
and more favorable treatment for them in areas of negotiation
where this is feasible."
A significant shift occurred in the Uruguay Round which gave
birth to the WTO. Policies meant to redress structural inequalities
in the global trading system gave way to measures which regarded
the problem of developing countries as simply that of catching
up on an essentially even playing field. This is not surprising
in light of the neoliberal agenda that underpins the WTO, which
posits that there are no special rights or protections needed
for development. The only acceptable route to development is radical
free trade and liberalization of investment.
Perhaps the best indicators of the marginal consideration
given to developing countries in the WTO is the fate of the measures
that were supposed to respond to the special conditions of developing
countries. Two of the agreements which promoters of the WTO claimed
were specifically designed to meet the needs of the South were:
* The Agreement on Textiles and Clothing, which mandates that
the system of quotas on developing country exports of textiles
and garments to the North would be dismantled over ten years.
* The Agreement on Agriculture (AoA), which, while very "imperfect,"
nevertheless was said to promise greater market access to developing
country agricultural products and begin the process of bringing
down the high levels of state support and subsidization of EU
and US agriculture, which resulted in the dumping of massive quantities
of grain on Third World markets.
What Happened to these Measures?
The Agreement on Textiles and Clothing committed the developed
countries to bring all textile and garment imports "under
WTO discipline" in four stages, ending on January 1, 2006.
A key feature was supposed to be the lifting of quotas on imports
restricted under the Multifiber Agreement (MFA), and similar schemes
which had been used to contain penetration of developed country
markets by cheap clothing and textile imports from the Third World.
However, developed countries retained the right to choose which
product lines to liberalize and when, so that they first brought
mainly unrestricted products into WTO discipline, and postponed
dealing with restricted products until much later.
Thus, in the first phase all restricted products continued
to be under quota. Only items where imports were not considering
threatening-like felt hats or yarn of carded fine animal hair-were
included in the developed countries' notifications. The notifications
for the coverage of products for liberalization on January 1,
1998 showed that "even at the second stage of implementation
only a very small proportion" of restricted products would
see their quotas lifted.
When it comes to the AoA, minimal gains in market access over
five years have been accompanied by even higher levels of overall
subsidization-through ingenious combinations of export subsidies,
export credits, market support, and various kinds of direct income
payments. The AoA was sold to developing countries during the
Uruguay Round as a major step toward providing market access to
developing country imports, and bringing down the high levels
of domestic support for first world farming interests, which result
in dumping of commodities in Third World markets.
The figures speak for themselves: the level of overall subsidization
of agriculture in the Organization for Economic Cooperation and
Development (OECD) countries rose from $182 billion in 1995 when
the WTO was born, to $280 billion in 1997, and $362 billion in
1998. The collapse of agricultural negotiations in Seattle is
the best example of how extremely difficult it is to reform the
AoA. Until the bitter end, the EU opposed language in an agreement
that would commit it to "significant reduction" of its
subsidies. The US was not blameless. It resolutely opposed any
effort to cut back on its particular forms of subsidies, such
as export credits and direct payments to farmers, as well as any
mention of its practice of dumping products in developing country
WTO Decision-Making as a Central Defining Process
Can the system of WTO decision-making be reformed? The pre-WTO
GATT functioned through a process called "consensus."
In the GATT, a one-country one-vote system was initially tried,
but the big trading powers saw this as inimical to their interests.
The last time a vote was taken in GATT was in 1969.9 The system
that finally emerged has been described by one economist as one
that "does not work by voting. It works by a consensus arrangement
which, to tell the truth, is managed by four-the Quads: the United
States, Japan, European Union, and Canada." '° He continued:
"Those countries have to agree if any major steps are going
to be made, that is true. But no votes." "
So undemocratic is the WTO that decisions are arrived at informally,
via caucuses convoked in the corridors of the ministerial negotiations
by the big trading powers. The formal plenary sessions, which
are the central arenas for decisionmaking in democracies, are
reserved for speeches. The key agreements to come out of the first
and second ministerials of the WTO-the decision to liberalize
information technology trade taken at the first ministerial in
Singapore in 1996 and the agreement to liberalize trade in electronic
commerce arrived at in Geneva in 1998-were all decided in informal
backroom sessions and simply presented to the full assembly fait
accompli. "Consensus" really functioned to render non-transparent
a process where smaller, weaker countries were pressured or bullied
to conform to the consensus forged among major trading powers.
At a press conference in Seattle, US Trade Representative
Charlene Barshefsky, who played the pivotal role in all three
ministerials, described the dynamics and consequences of this
system of decisionmaking with surprising frankness:
"The process, including even at Singapore as recently
as three years ago, was a rather exclusionary one. All meetings
were held between 20 and 30 key countries... And that meant 100
countries were never in the room."
After registering her frustration at the WTO delegate's failure
to arrive at consensus via the supposedly broader "working
groups" set up for the Seattle ministerial, Barshefsky warned
delegates: "... [I] have made it very clear and I reiterated
to all ministers today that, if we are unable to achieve that
goal, I fully reserve the right to also use a more exclusive process
to achieve a final outcome. There is no question about either
my right as the chair to do it or my intention as the chair to
do it...." '3 And she was serious about ramming through a
declaration at the expense of non-representation.
In damage-containment mode after the collapse of the Seattle
Ministerial, Barshefsky, WTO Director General Mike Moore, and
other rich country representatives have spoken about the need
for WTO "reform." But none have declared any intention
of pushing for a one-country/one-vote majority decision-making
system, or a voting system weighted by population size, which
would be the only fair and legitimate methods in a democratic
international organization. Such mechanisms will never be adopted,
for this would give the developing countries a preponderant role
Should We Push for Reform of the WTO?
Reform is a viable strategy when the system in question is
fundamentally fair but has simply been corrupted, such as the
case of some democracies. It is not a viable strategy when a system
is as fundamentally unequal in its purposes, principles, and processes
as the WTO. The WTO systematically protects the trade and economic
advantages of the rich countries, particularly the United States.
The WTO raises inequality to the level of a principle of decision-making.
Its main purpose is to reduce the tremendous policing costs to
the stronger powers that would be involved in disciplining many
small countries in a more fluid, less structured international
It is not surprising that the WTO is currently mired in a
severe crisis of legitimacy. It is a highly centralized, unaccountable,
non-transparent global institution which seeks to subjugate, control,
or harness vast swathes of global economic, social, political,
and environmental space to the needs and interests of a global
minority of states, elites, and transnational corporations.
The dynamics of such an institution clash with the burgeoning
democratic aspirations of peoples, countries, and communities
in both the North and the South. The centralizing dynamics of
the WTO are incompatible with the efforts of communities and nations
to regain control of their fate, and achieve a modicum of security
by decentralizing economic and political power. The WTO remains
a Jurassic institution in an age of participatory political and
For a Fair System of International Trade Governance
Developing country governments and international civil society
must not allow their energies to be detoured or hijacked toward
reforming the WTO. Today's need is not for another centralized
global institution, reformed or unreformed, but for the decentralization
of institutional power, and the creation of a pluralistic system
of institutions and organizations interacting with one another
amid broadly defined and flexible agreements and understandings.
It was under such a more pluralistic global system, where
hegemonic power was still far from institutionalized in a set
of all encompassing and powerful multilateral organizations, that
Latin American and many Asian countries were able to achieve a
modicum of industrial development in the period between 1960 and
1970. It was under a more pluralistic world system, with a GATT
that was limited in its power, more flexible, and more sympathetic
to the special status of developing countries, that the East and
Southeast Asian countries were able to become newly industrializing
countries through activist state trade and industrial policies
which departed significantly from the free market biases enshrined
in the WTO.
The alternative to a powerful WTO is not a Hobbesian state
of nature. It is always the powerful that stoke this fear. In
a world marked by a multiplicity of international and regional
institutions that check one another, the reality of international
economic relations would be a far cry from the propaganda image
of a "nasty and brutish" world. Of course, the threat
of unilateral action by the powerful would be ever present in
such a system, but it is one that even the powerful hesitate to
take for fear of its consequences for their legitimacy, as well
as the reaction it would provoke in the form of opposing coalitions.
Developing countries and international civil society should
aim not at reforming the WTO, but instead radically reducing its
power through a combination of passive and active resistance,
so that it might be checked by other international organizations,
agreements, and regional groupings. These would include such diverse
actors and institutions as the United Nations Conference on Trade
and Development, international human rights and environmental
agreements, the International Labor Organization, and evolving
regional organizations. In a more fluid, less structured, more
pluralistic world with multiple checks and balances, the nations
and communities of the South will be able to cane out the space
to develop based on the values, rhythms, and strategies of their