World Trade Organization (WTO) and Power Play

World Trade Organization (WTO): the Power it Wields over the World

1.0 Introduction

The document “WTO in Brief”[1] describes the World Trade Organization as the only trade organization dealing with the global rules of trade among nations. Its main function is to ensure that trade flows smoothly, predictably and as freely as possible. In promoting free trade the WTO focuses on assisting consumers enjoy from a variety of choices, assuring producers and exporters that foreign markets will be available and by lowering trade barriers, it assists to lower other barriers amongst people and nations.

The heart of the WTO is the Multilateral Trading System[2] consisting of agreements, negotiated and signed by a wide majority of the World’s trading nations and ratified by their parliaments. These agreements are legal ground rules for international commerce. Essentially they are contracts guaranteeing member countries important trade rights. They also bind governments to keep their trade policies within limits to everybody’s benefit.

2.0 Evolution of the GATT to WTO

The Bretton Woods conference (1944) was the starting point for a new world order with three cornerstones: International Monetary Fund (IMF), International Bank for Reconstruction and Development (IBRD) and International Trade organization (ITO). During the negotiations for ITO some countries saw a need for immediate tariff reductions that resulted in a General Agreement on Tariffs and Trade (GATT) with an initial membership of 23 nations in 1947. GATT was intended to be a stepping stone towards the establishment of the ITO and embodied many principles of the proposed ITO Charter.

In 1948 the ITO Charter was successfully completed in Havana which set basic rules for international trade and other international economic matters. The ITO charter however never entered into force, the US congress rejected it repeatedly. The usual argument against the new organization is that it would be involved into internal economic issues. In 1950, President Harry Truman announced that he would no longer seek the approval of the ITO charter and thus doing formerly away with ITO. In the absence of ITO, the world nations turned to GATT to handle problems concerning their trade relations.

GATT became an important provisional but promising institution for the promotion of an integrated global trading system. It is classified in the US as a treaty based on Reciprocal Trade Agreement Act. The agreement is based on the “unconditional most favored nation principle.” This means that the conditions applied to the most favored trading nation (i.e. the one with the least restrictions) apply to all trading nations.

One striking feature of the GATT history is the successive rounds of negotiations which led to new schedules of tariff concessions and new commitments towards greater liberalization. GATT signatories occasionally negotiated new trade agreements that all nations would enter into. Each set of agreements was called a round. In general each agreement bound members to reduce certain tariffs. Usually this would include many special cases of individual products, with exceptions or modifications for each country. The eighth round held in Uruguay from 1986 to 1994 is the one that ushered in the World Trade Organization along with many other agreements.

3.0 The GATT/WTO Rounds

As has been mentioned above, each set of GATT agreements was known as a round. Each of the eight rounds is summarized as follow

3.1 Geneva Round (April to October 1947)
The negotiations were based on bilateral “product by product request offer” basis. 123 negotiations were completed and 20 schedules established containing the tariff reductions. The agreements covered 45,000 tariff concessions amounting to about $10 billion in trade. This was a successful round since the US was enthusiastic about free trade, was willing to cut its tariffs on imports from Europe and did not put pressure on European countries to abandon their trade restrictions.

3.2 The Annecy, France Round (April to August 1949)
There was an additional 10 in membership. 13,000 more tariff reductions were negotiated. An agreement was reached that the accession of a new member country does not require unanimity, but only 2/3 majority of all existing member countries. And if a member votes against accession does not need to extend trade policy concessions to this country.

3.3 Torquay Round, England (September 1950 to April 1951)
Accession was extended to five more countries. There were additional tariff reductions emerging from 500 negotiations which were modest. 8,700 tariff concessions were made. The major problem during this round was between US and UK on bilateral trade cuts. During this round US communicated that the ITO charter would not be resubmitted to the US congress and thus marked the end of ITO.

3.4 Geneva Round (1955/1956)
After the difficulties in Torquay GATT remained in active and membership stagnated with some members withdrawing and very few more members being accessed. The momentum to lower tariffs was lost. There was growing protectionism in the US in retaliation to the European countries who were reluctant in eliminating their trade barriers. Low tariff countries were also frustrated by their inability to bargain effectively by high tariff countries. This round too produced meager results worth $2.5 billions of tariff reductions.

3.5 Dillon Round (1960-62)
This round was named in honor of the US Undersecretary of State Douglas Dillon who proposed the negotiations. Issues at table included sharply differing tariff rates within the European Economic Community (EEC). The round was divided into two phases: the first phase was concerned with negotiations with EEC member states on creation of a single schedule of concessions based on Common External Tariff (CET). This phase resulted in 4,400 tariff concessions covering $4.9 billion of trade. The second phase was a further general round of tariff negotiations with the CET for EEC falling to 10.4%. The agricultural and textile sectors were still not considered.

3.6 Kennedy Round (1964 to 1967)
This was the first round where the negotiations reached a stalemate. Senior politicians from US, UK and EEC put together a crisis agenda to break the deadlock. Sectoral groups for the discussion of five sensitive product sets (aluminium, pulp and paper, chemicals steel, textiles and clothing) were created which allowed more scope for lobbying by producer interest groups. As a result of this round tariff protection in manufacturing dropped significantly to be between 36% to 39% in late 1960 to early 1970’s.

3.7 Uruguay Round (1986 to 1994)
A committee was established to determine the objectives of a new round of negotiations to be launched in 1986. There was no agreement among the US, UK and the EEC. The initiative was taken by G9 group of mid sized industrial nations led by India and Brazil. The Uruguay round had four themes discussed by four groups as follow: trade barriers and related matters, sector specific matters, procedures and other matters regarding trade such as TRIPS and TRIMS.

3.8 Tokyo Round (1973 to 1979)
The Tokyo Round not only focused on further reducing the tariffs but addressed various non tariff barriers to trade. These included subsidies and countervailing measures, technical barriers to trade, import licensing procedures, government procurement, customs valuation, anti dumping, bovine meat arrangement, international dairy arrangement and trade in civil air craft.

3.9 Uruguay Round (1986 to 1994)
The eighth Round of negotiations. Besides negotiations for further tariff reductions, the agenda also included negotiations on new topics including services, intellectual property, agricultural goods, textile and clothing and investment measures. Two issues relating to institutional aspects were also addressed during the negotiations: the dispute-settlement rules and the "Future of the GATT System".
The Uruguay Round is probably the most important Round in the history of the GATT/WTO, not only because it is the longest in time (1986-1993), but also because of its achievements. It is in the framework of the Uruguay Round that the WTO was created.
3.10 Doha, Quatar Round (2001)
At the Ministerial Conference in Doha, in November 2001, WTO Members decided to launch the Doha Round. Twenty-one subjects are listed in the Doha Declaration mainly centered on implementation-related issues, agriculture, services, market-access for non-agricultural products, trade-related aspects of intellectual property rights, trade & investment, trade & competition policy, transparency in government procurement, trade facilitation, anti-dumping, subsidies, trade regional agreements, dispute settlement understanding, trade & environment, electronic commerce, small economies, trade, debt & finance, trade & technology transfer, technical cooperation & capacity building, least-developed countries, special & differential treatment.

4.0 Criticism of the WTO

The WTO has been placed under strong criticism. It is seen as a growing monster that interferes with the sovereignty of nations. Some critics argue that the WTO system has gone awry and if not checked, will permanently sacrifice state sovereignty on the alter of laissez faire trade liberalism. This criticism comes as a result of its record of striking down national laws that infringe free trade principles. This shift in power from a country to a global level bureaucracy undermines the cornerstone of democracy – the citizens working with the public officials to develop laws that protect the public welfare.

The WTO negotiations take place behind closed doors and they shut out a big number of interest groups. It hence lacks a mechanism of public accountability or participation. It is not required to consult with NGO’s or release documents until after decisions are made.

Trade liberalization and Multi-lateral Investment Agreement (MIA) undermines the least developed countries long term development prospect. Small scale, locally owned firms have difficulty in competing with transnational firms because they lack comparable access to capital, economies of scale or advanced technology. This concern is particularly acute in agriculture, where WTO rules on trade and domestic policy reform undermine national strategies to ensure food security.

The violation of worker’s rights and environmental standards is used by governments to gain unfair advantage in trade. Issues of child labour or environmental destructive technologies are not taken into account. Hence a feeling that the WTO puts downward pressure on country laws to match lower international standards. A country with lower international standard could therefore challenge the law as an impediment to trade.

5.0 WTO and Power

5.1 About Power
This analysis therefore discusses the evolution and operations of the WTO from a power perspective. Power has been defined as the capacity of one person’s actions to get another to do otherwise than he or she would have done. Power is extended to other concepts such as influence which simply is the realized or exercised power and authority which is the legitimated power.

Emerson (1962), provides that power to control or influence others resides in control over the things he values, which may range all the way from oil resources to ego support. Power therefore resides implicitly in the other’s dependency. Dependence and power are thus explained as follow:

Dependence (Dab). The dependence of actor A upon actor B is (1) directly proportional to A’s motivational investment in goals mediated by B and (2) inversely proportional to the availability of those goals to A outside the A-B relationship.

Power (Pab). The power of actor A over actor B is the amount of resistance on the part of B which can be potentially overcome by A.

5.2 The WTO and Power

5.2.1 The anatomy of the WTO

5.2.2 The WTO Membership and Structure

The WTO is made up of 146 members. It has several groups members. The main driving force behind the WTO is the USA and the EC. The second group wielding influence is the Cairns Group of Nations led by India and Brazil. These countries are mainly considered to be the middle income countries. Other small coalitions include the Third World Network (TWN), the Like Minded Group (LMG).

The following table summarizes the organogram of the WTO. See the appendix for the real organogram.

Top Organ
Ministerial Conference also referred to as Committee of the Whole (Cow)
Second level Bodies
Dispute settlement body
General Council (Trade negotiating Committee
Trade policy review Body
Third level
Committees,
Council for trade in goods
Council for TRIPS
Council for trade in services

parties and working groups
Committees, parties
Plurilaterals, committees and working parties

The needs of the countries represented by their Ministers of Trade is to find markets for the product produced in their countries and to negotiate for best deals for products not available in their own countries. The various interest groups exist to ensure that they get the best out of the WTO negotiations.

The second level and third level consists of country representatives and WTO bureaucrats. Country representatives are there to advance the interests of their own countries while the bureaucrats are there to advance the ideals espoused by WTO.

This is the anatomy of the WTO from the charts. However, the real WTO is not as presented here. In essence the Ministerial conference is not the overall decision making body. Some of the country representatives are just holding pseudo portfolios in Geneva and may not be effectively representing their countries. The decision making process is carried out in “green houses” by hand picked committee of whole. Other ministers attending the meeting are only surprised by the launch of a final agreement which they are required to sign.

5.2.3 Resource Flows

Ideally the WTO system is built upon the rule of law, the respect for the sovereign equality of nations. It is an open rule based multilateral trading system based on democratic values. The legitimacy of its processes is based on inclusivity. This should be the first biggest resource available to the WTO, its membership.

A majority of the WTO members are the Least Developed Countries with the least resources. Most of these countries lack the technical know-how of the complexity of international trade. This especially applies when models are presented in the Ricardian or the Hecksher Ohlin traditions or in some theoretical aspects underlying aspects of international trade. On the other hand, the powerful members of the WTO are those from the developed world. These have expertise and enormous resources.


5.2.4 How critical are these Flows
The way resources flow and change hands is mainly to promote the interests of the powerful countries. During 1999, during the electoral process to elect the new director general after Renato Ruggierro a gentleman’s agreement to have a representative from the third world was broken. Supachai Panitchpaki from Thailand was the favorite of the majority. However the selection process was made so tense with pressure being applied to LDC’s to change their position and elect Mike Moore. At long last a negotiation had to be reached which allowed Mike Moore to reign for the first three years then followed by Supachai. During the conclusion of the Doha Rounds countries that remained opposed to the round such as India, Pakistani and Kenya were put under undue pressure with Prime Minister Tony Blair calling directly the prime ministers and the presidents of the countries to advice their ministers to soften their positions. This softening came with various advantages such as Musharaf was accepted by the Americans as a legitimate president, India got enough concessions and Kenya increased its share in the AGOA among other benefits.

The resource flow amongst the rich countries are critical, because they can be used to manipulate the outcomes they want. The Kenyan representative after the Doha agreement expressing his disappointment just said “we were presented with a draft a final draft to which no other adjustments could be made.” In the COW during the Doha Round the last minister to hold onto his position was the Indian minister. The Caribbean too that held up to the end got a massive aid to support their economy after the 9/11.

5.2.4 Bargaining Tacit

Buying Votes
Countries receive a package of aid and a bilateral short term bilateral trade agreement with the US or the EC.

Locked out of the COW (those sympathetic to EU, US)
This is the important committee that ratifies the document. Aileen (2003) in her power and politics says the countries chosen during the Doha finale included those that wield a lot of influence such as Brazil and India amongst the LDC’s. Among the Latin American countries included are Paraguay, Peru and Chile because they tend towards EC and USA. In Africa South Africa, Tanzania, Kenya and Nigeria. Zimbabwe would never get to the COW. In Asia Japan, India, Singapore, Quatar.

Intimidation
Stubborn countries among these few countries would be strongly intimidated to give in while in the green room.

Forced Rounds
This was a case of the Doha Round which was meant to be a Ministerial Conference but was turned to a round despite so much protest from the LDC’s. The LDC’s wanted sometime to digest the results of the Uruguay round.

Parallel Meetings
Many decisions of the WTO are not taken in the COW or in the green room but in informal meetings amongst the rich countries. At other times parallel meetings would be taking place in another location of the world away from the ministerial conferences. One example is a case where while the ministerial conference was taking place in Doha, the agreement document was being developed by the rich countries in Singapore.

Dividing members
Members have been divided into various groups and given labels such as Cairns or MIC’s which makes it shameful for them to take a hard stance against a motion. In fact it is backward to complain in WTO a sort of quasi or no solution to problems. So it has become a fashion whenever the MIC’s have to complain they pretend to be defending Africa while in essence they are releasing their own soul cry.

Terrorism (those who are for us stand with us)
The rise of terrorism too has complicated the ability of the poor countries to challenge the decisions of the WTO. Accounts are also given to show that after 9/11 countries became too cautious to raise complaints openly. They would do so but after a careful survey of the environment around them.

5.2.5 Alternative Strategies

Bhagwati (2004) advices the developing countries with a modicum of power to resist the political play of the rich countries to having the trade-unrelated issues in the WTO. While the WTO continues to serve as an important tool for globalization, sectional agendas could deviate it from the objectives that brought it to existence. This would mean that WTO should concentrate in promoting rule based relationships as opposed to power based relationships. However, as the saying goes you cannot bite the hand that feeds you and may be this would be an expensive way to move.

6.0 Conclusion

We described the WTO as the only organization that deals with trade rules across the world. In the heart of the WTO lies the multi lateral trading system based on the principle of the unconditional most favored nation. It must be acknowledged that the role played by the WTO is important, however, it is important that it tries to consider the interests of all its stakeholders as it evolves. Agendas should not be dominated by a few powerful group of nations but by all the trading nations of the world.

References
1. Bhagwati Jagdish (Jan/Feb 2005) “reshaping the WTO.” Far Eastern Economic Review
2. Richard Emerson, “Power Dependence Relations,” American Sociological Review (1962) (32)
3. Criticism of WTO, http://en.wikipedia.org/wiki/criticism_of_the_wto
4. WTO Structure, www.wto.org
5. Lawrence l. Herman; (15 September 2000)Cross Border Issues - "Criticism Of The WTO Should Be More Balanced" http://casselsbrock.com/publicationdetail.asp?aid=155
6. International Trade Organization http://en.wikipedia.org/wiki/International_Trade_Organization
7. General Agreement on Tariffs and Trade; http://en.wikipedia.org/wiki/GATT
8. General Agreement on Tariffs and Trade (GATT)/WTO History http://www.adb.org/Documents/Others/OGC-Toolkits/WTO/wto0100b.asp
9. Eileen Kwa (2003), Power, Politics in the WTO

[1] Wto.org
[2] Ibid