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." 6

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 dotted line.

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 diffusion."

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 markets.

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 in decision-making.

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 system.

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 economic democracy.

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 own choosing.

World Trade Organization