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Commentary -- The World Trade Organization: What It Is and How It Really Works
Eugenio Díaz-Bonilla
In Seattle this past December, the vehemence of protesters against an international ministerial meeting of the World Trade Organization (WTO) attracted worldwide media coverage (see the accompanying interview). Many people, watching the angry protesters, asked themselves what was the WTO and what had it done to incite such enmity.
The demonstrators argued that unaccountable international bureaucrats in the WTO were dictating rules that violated the sovereignty of individual countries—rules that were making their food unsafe and their air dirty, killing sea turtles, and stealing their jobs.
What follows tries to clarify some of those issues and criticisms.
Fact: The WTO is run by member countries through their duly appointed public officials. These public officials not only make the substantive, strategic decisions in the WTO General Council, but, differing from other international organizations like the IMF or the World Bank, they also carry out a fair amount of the operational activities through committees and working groups. Thus, it is the governments—and not international bureaucrats—that make decisions through their officials. Whether any given government accurately represents the views of the people of a given country is an issue that only the political processes of that country can properly address, not the WTO.
Fact: The WTO legal framework has been accepted as domestic law by member countries and adapted within each country's particular internal legal framework. The argument that the WTO administers a supranational law, which encroaches upon the sovereignty of the member countries and tramples upon their domestic laws is mainly heard in the United States, where there has always been a strong current favoring unilateralism—the freedom to act without internationally imposed legal or other constraints.
Fact: The WTO dispute settlement mechanism is an arbitration procedure agreed to by all member countries. The WTO cannot force the country losing an arbitration case to change the domestic laws and regulations that do not comply with WTO obligations; neither can the WTO impose "stiff financial penalties" for noncompliance. Disputes arise when countries differ on the application of the WTO legal framework. In such cases, members have agreed that the WTO dispute settlement mechanism will resolve disagreements. As with other international arbitration systems, the WTO mechanism is placed outside the domestic institutions of any of the parties to the dispute—no country wants to have its differences with another nation decided by domestic institutions of the other party. Once the Dispute Settlement Body, which is made up of all WTO Members, has adopted a decision that finds a member country not in compliance with some aspect of the WTO agreement, there are three alternatives. First, the Member country can change its offending practice, but the WTO cannot force it to do so. Second, the country at fault could offer the complaining country market access in a different product that would be equivalent to the value of trade lost because of the offending practice. These compensations are defined and accepted by the countries in dispute. If they still cannot reach agreement, the only alternative left is for the complaining country to withdraw equivalent trade concessions from the country found at fault. These trade sanctions are defined and administered by the complaining country, not the WTO. Moreover, the sanctions are not "stiff financial penalties," but are simply the withdrawal of trade concessions previously agreed upon.
Fact: The dispute settlement process already provides information to the public. Members of civil society can participate in the dispute settlement process. The panel members that act as arbitrators are selected with the approval of the countries party to a dispute, from a pool of experts approved by WTO member countries. Nongovernmental organizations (NGOs) could and do work directly through the political process in member countries to influence all aspects of national decisions regarding trade, including the composition of panels. NGOs have been particularly active in the United States and the European Union, which have been complaining or responding parties in more than 90 percent of all cases considered by the WTO dispute settlement process.
The decisions of the panels, including the points made by the different parties in their submissions (confidential or not), are public and available on the WTO web page. NGOs have been able to make independent presentations through member countries, for example, through the US in the shrimp-turtle case. Even more, the Appellate Body in this case ruled that panels could accept documents put forward by NGOs directly. The panels in the dispute settlement process can call expert witnesses from any source, governmental or nongovernmental. The U.S. government has suggested that all submissions be made public from the beginning and that panel hearings be open to the public. WTO members may eventually accept these suggestions, but it can be argued that they are incremental improvements in a system that is now fairly transparent.
A different issue is whether panels should, mandatorily and independently from the member countries party to a dispute, hear NGO presentations. In fact, NGOs that criticize what they consider to be WTO secrecy and lack of democracy and ask for their own direct access to WTO deliberations, appear to be placing themselves in similar standing to governments representing the member countries. Of course, NGOs cannot be granted such status, and the democratic approach to influencing a government's position is through the domestic political process. Developing countries also have opposed the possibility of direct presentations by NGOs because they feel the dispute settlement process could be swamped by presentations from well-financed NGOs from developed countries and, if panels are forced to consider all those arguments, poor countries would not have the economic and legal resources to answer them all, further tilting the process against the weaker parties.
Fact: The WTO does not impose free-trade values over other important societal values, such as protecting food safety, clean air, or endangered species. Rather, the WTO holds that in pursuing environmental or consumer protection objectives, foundational values of every civilized society such as the rule of law, nondiscrimination, and due process cannot be overlooked. The argument that the WTO is affecting food safety, polluting the air, and killing sea turtles stems from misrepresentations of the rulings in three notorious cases, one against the European Union (the beef-hormone case), and two against the United States (the shrimp-sea turtle case and the gasoline case). In all three cases the final arbitration rulings made clear that all countries have the right to choose the level of protection they desire. But the rulings also stressed that such nontrade concerns must be pursued in ways that respect the rules accepted by all WTO Members.
In the shrimp-sea turtle and the gasoline cases, the WTO arbitration process found that the United States, in pursuing legitimate nontrade objectives, was either discriminating against foreign producers in favor of domestic ones or among foreign producers—violating two rules that constitute the basis for fair trade under the WTO. After the final WTO rulings, the United States, through its internal decisionmaking process, chose to protect endangered species and maintain its benchmark for air quality, but in ways that also respect the basic obligations of the WTO agreements.
The beef hormone case was brought by the United States and Canada against the European Union for banning imports of beef from countries using hormones for growth promotion in cattle. The US and Canada argued that there were international standards for the use of those hormones agreed to by the countries participating in the Codex Alimentarius of the Food and Agriculture Organization of the United Nations, and that the EU prohibited only the use of hormones for growth promotion in cattle production, but allowed the use of those or similar products for other purposes in beef production and for other meat products. Under the WTO agreements any country has the right to maintain stricter levels of protection than those agreed to internationally, by conducting a risk assessment study that justifies a level of protection. The WTO arbitration process concluded that after about a decade of applying restrictive measures, the EU had not conducted such risk assessment, violating WTO obligations. The EU, within its rights, chose not to lift the ban. Because the parties involved could not reach agreement on possible compensations in other products, the United States and Canada (not the WTO) withdrew trade concessions from the EU equivalent to the value of beef exports negated by the hormone ban.
As is the case with any institution, the WTO can be improved. But to do so, misconceptions have to be corrected. Without rule-based, open, and fair trade, the global system could go back to the rule of the strongest. Developing countries only stand to lose if such a reversion to old-style power politics occurs.
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