The WTO - a force for good

It troubles me that the perception of the World Trade Organization has been stained by the left, and that no real analysis of what actually happens in the WTO occurs anymore.

This struck me hardest the other day when I was searching for videos about the WTO on YouTube. The only thing I could find were videos of rioters, numerous videos from anti-trade (and anti-capitalist) non-government organisation, Oxfam and even a video of a colleague whom I met when I studied briefly at the World Trade Institute in Bern.

All videos completely misrepresented the operation and function of the WTO. In doing so, an anti-free trade, anti-capitalist agenda was pushed. All commentators sadly got it completely wrong.

It’s now time to set the record straight and separate fact from fiction.

Fact: the WTO is an organisation based on the consensus of its members in which each individual nation has equal voting rights.

Any agreement struck by the members will only become enforceable once the members of the WTO vote on it. Under the General Agreement on Trade and Tariffs (GATT) Article 9:1 provides for a system of consensus voting. Consensus voting requires that no one member votes against the proposed decision. If only one member objects, the policy or agreement can be blocked (though abstentions don’t stop this process). This accords tremendous power to individual nations, who are singly able to block the motion by their own vote against it.

While some circumstances require unanimous positive votes, such as amending already executed agreements (under GATT Article 10), most situations require consensus, which means that no one opposes it.

The only exception to this voting mechanism is in the case of the adoption of reports by the WTO’s own Panel and Appellate Body. In those circumstances, reverse consensus is required, that is, a report is deemed to be adopted unless there is a consensus against adopting the report. While formerly consensus voting applied to adoption of reports, it was scrapped when the Dispute Settlement Understanding was executed. This eliminated a huge problem that once plagued the effective operation of the dispute settlement arm of the WTO whereby losing parties of a dispute could simply vote against the adoption of the report to avoid its application.

This system of voting accords much more power to individual nations than any other international organisation.

Unlike the United Nations that lefties so adore, the WTO has no majority voting system, and no Security Council which creates a membership hierarchy. Each of the 157 WTO member states (correct as at July 2007) has one vote, and one vote only. It is for this reason that flexible coalitions operate so effectively within the WTO to influence policy and shape decision-making.

This is best exemplified by the efforts of the G90 group of developing countries in demanding reform to agricultural subsidies in developed economies. Without the pressure exerted by the G90, the Agreement on Agriculture would never have been executed in the Uruguay round, and Agriculture would still be beyond the realm of the WTO. The Agreement on Agriculture forced countries to turn their quantitative restrictions into tariffs, and set the stage for the first reductions in tariffs and limitations on subsidies.

Fact: the WTO affords member states policy space to pursue their own non-trade objectives.

What annoys me the most about critics of the WTO is when they assert that the WTO stops member states from pursuing their own non-trade objectives, such as environmental goals. For example, it is often asserted that it is not possible under the GATT for nations to ban imports of certain fish products if their harvesting results in the killing other living species, such as turtles, or dolphins.

This is completely untrue.

There have been a number of cases before the WTO’s Appellate Body in which it has been held that the GATT does afford space to individual member states to restrict trade in the pursuit of non-trade objectives.

The cases revolve around two main articles of the GATT 1994. The first is the requirement in Article IV that all member states must apply the “Most Favoured Nation” (MFN) principle in relation to trade with other member states. MFN requires each state to accord to a third state any advantage it accords to another state. It requires states to prevent discrimination and ensure equal treatment for like products. Likewise, the “National Treatment” principle, enshrined in Article III of the GATT, prohibits discrimination between products produced domestically and those imported from other member states. The two articles operate as constitutional principles of the WTO and are the basis of trading relations between WTO members.

But Article XX of the GATT provides a general exception to both MFN and National Treatment. It lists a number of policies that a member may pursue and as long as the measure is necessary for, or relates to, the pursuit of that policy, then it is possible for the member state to discriminate between products from different nations. The policy objectives include, inter alia, the protection of public health, protection of the environment, protection of public morality and restricting imports of products produced by the use of prison labour.

In the US - Import Prohibition of Certain Shrimp and Shrimp Products Case which came before the Appellate Body in 1998, the US argued that it was entitled to impose a measure that only allowed foreign shrimp to be imported into the US if an importer could show that the harvesting did not pose a risk to certain species of turtles.

The report delivered by the Appellate Body was ground-breaking for international environmental law. Referring to the United Nations Convention on the Law of the Sea, the Convention on the Conservation of Migratory Species of Wild Animals, and the Convention on International Trade in Endangered Species of Wile Fauna and Flora, for the first time it was held that natural resources included living species, such as sea turtles, and that therefore, it was a legitimate policy goal of nations to preserve living species as “resources”. This conclusion was in accordance with the preamble of the GATT 1994 which explicitly acknowledges the objective of sustainable development.

The Appellate Body did declare, however, that the US was in violation of the GATT. The crux of its decision however, was based on rule of law considerations: the Appellate Body held that US was using an arbitrary process to determine which imports of shrimps supposedly involved harming turtles. There was no transparent or predictable process that the US government followed to make this determination. It was an ex parte enquiry in which there was no formal opportunity for the country concerned to be heard and there was no formal, written, reasoned decision given by US officials outlining why the imports had been denied. Furthermore, there was no way that an importing country could seek review of, or appeal against, the decision.

So while the WTO Appellate Body was happy for the US to pursue a policy to protect sea turtles, the problem was with the method the US was using to determine which imports involved causing harm to sea turtles.

This was an excellent decision by the Appellate Body, demonstrating its ability to apply the GATT in the context of developments in other areas of international law, and balance non-trade objectives.

Moreover, in the EC - Asbestos Case, the WTO Appellate Body held that when a state was pursuing a policy goal, such as the protection of human life and public health, it was up to the individual member to set the level of risk it thought was acceptable. The WTO would not undertake a review of a member’s chosen level of health protection. In that case, the Appellate Body held that, under Article XX, France was entitled to enact a measure prohibiting imports and manufacture of asbestos fibres and products containing them.

The WTO Appellate Body, has however, tempered the broad flexibility that Article XX of the GATT accords by requiring that countries prove that the measure was necessary. In the Thailand - Cigarettes case, Thailand had prevented imports of foreign cigarettes, but had accorded a licence and monopoly to the Thai Tobacco Monopoly which continued to mass-produce and sell cigarettes within Thailand. The measure was subject to a complaint based on violation of MFN and National Treatment. Thailand alleged that it was entitled to impose such a measure under Article XX, for the protection of public health.

While the WTO Panel acknowledged that smoking constituted a serious risk to human health, it determined that Thailand could have used any number of less restrictive methods to achieve this end. The WTO Panel looked beyond the pretence of “protecting health” to the reality of whether the use of the exception constituted a disguised barrier to trade. In this circumstance, it did.

Fact: the WTO has been instrumental in bringing the rule of law to developing and developed nations.

One oft-forgotten aspect of the WTO is how instrumental it has been to bringing the rule of law into International Law and directly into the legal systems of newly acceding members.

The Accession Protocol of the People’s Republic of China, for example, imposed obligations on China to publish all laws affecting international trade and to ensure that judicial review of administrative actions is available in trade matters. The WTO forced China to give judicial review of governmental action as of a right. Now that certainly is something worth writing home about.

Russia is currently negotiating its own accession protocol to the WTO. Given the precedent set by China’s accession, it will no doubt be entirely within the reach of the WTO members to impose similar rule of law conditions on Russia.

Elsewhere within the WTO, aspects of the rule or law, or at least good governance are evident. Member states are required to publish national laws and precedents affecting trade obligations (Article X GATT, Article III GATS, and Article 63 TRIPS). Article X of the GATT requires member states to administer rules in a uniform, impartial and reasonable manner.

There are extensive procedural requirements in the administration of countervailing duties, such as anti-dumping measures and subsidies. The most groundbreaking work by the WTO, however, has been the transparency measures introduced in the Plurilateral Agreement on Government Procurement. Tender procedures for government contracts, for example, must be published by governments.

Furthermore, Rule of Law obligations are justiciable within the WTO itself. Affected member states can take action against another member in breach of such obligations. The dominance of WTO agreements and jurisprudence by rule of law principles illustrates that the international trading system has largely moved away from a power-oriented system to a rule-oriented system.

Fact: the WTO has brought about massive changes to the tariff and trading regime to the benefit of all members.

Over the years since the GATT 1947, the predecessor of the WTO (formed in 1995 as a result of the Uruguay Round of Trade Talks), barriers to trade have been substantially reduced. Trade distortive quantitative restrictions (such as quotas) in all areas of trade have now been eliminated (Article XI GATT). Reform of rules governing subsidies is finally taking place under the Subsidies and Countervailing Measures Agreement. The TRIPs Agreement brought uniformity to international intellectual property law.

The Dispute Settlement arm of the WTO ensures that member states have a predictable and reliable arena in which their trade disputes can be solved, without needing to resort to destructive retaliatory tariffs. The members concerned have direct involvement in who is appointed and the conduct of the proceedings, as equal members of the WTO.

The WTO still has far more work to do. There are of course aspects of the WTO that are subject to debate and still need reform, especially in Agriculture. But the WTO still provides the basic structure of an organisation capable of taking account of non-trade concerns, while introducing into international law and indeed in members’ own legal systems, important rule of law principles.

The WTO’s core strength is that its members drive its progress and control its policy direction.