The World Trade Organisation (WTO)

Posted: 14 December 2007

The rules of international trade are made at the Geneva-based WTO. This began in 1995 as the successor to the GATT and was an outcome of the Uruguay round of trade negotiations. The WTO is basically an expanded GATT with greater powers. In July 2007 the WTO had 151 member countries.

The WTO has the task of enforcing the agreements that emerged from the Uruguay Round:

  • The Agreement on Agriculture (AoA);
  • The General Agreement on Trade in Services (GATS);
  • The Trade-related Intellectual Property Rights (TRIPs) agreement;
  • The Trade-related Investment Measures, (TRIMs) agreement.

A disputes settlement mechanism is administered by the WTO, in order to settle trade disputes between members. The mechanism has been used mainly by the developed countries.

A panel consisting of three people normally adjudicates on a dispute; their judgements have to be obeyed on pain of sanctions, even if theycontradict national laws. The panels invariably uphold the strict letter of free trade and their pronouncements tend to benefit TNCs. On bananas, for example, a WTO panel has ruled for the United States and Latin American countries against special treatment for Caribbeanbanana growers.

While the WTO presents itself as a forum for members to negotiate over trade liberalisation, it is therefore both a forum and a judge,exercising considerable power.

In November 2001, at a ministerial meeting in Doha, Qatar, WTO member countries launched the "Doha development agenda", a new round of talks to further liberalise trade. Due to be completed by the end of 2004, the talks made little headway. The WTO's next two ministerialmeetings, at Cancún, Mexico in September 2003, and Hong Kong in December 2005, both failed to make significant progress.

The negotiations were still dragging on at the end of 2007. It could take several years before the rules of international trade are changedto benefit developing countries.

The main areas of contention are agriculture, market access for non-agricultural products, (NAMA), and services. On agriculture, themain issue is whether Western countries will cut the subsidies they pay their farmers. These subsidies cause surpluses to be producedwhich can then be dumped in developing countries at cheap prices to their detriment of their farmers.

Although the European Union has changed its Common Agricultural Policy, EU farm subsidies remain high, as they do in most Westerncountries. Subsidies take two broad forms - export subsidies and domestic subsidies. While WTO members have agreed to eliminate export subsidies (but have not set a starting date for their elimination), many of the domestic subsidies given to Western country farmers also lead to overproduction and dumping. The Ministerial Declaration that launched the Doha agenda in 2001 calls for "substantial reductions in trade-distorting domestic support". The strength of farmer lobbies in Western countries means that progress is slow.

The elimination of cotton subsidies remains an area of contention. Some ten million farmers in West Africa have been affected by UnitedStates subsidies to its farmers which have lowered the world price of cotton. There are also disagreements over products that are considered special and sensitive and on which developing countries want safeguards.

NAMA refers to all products not covered by the WTO Agreement on Agriculture - manufactured products, fuels and mining products, fishand fish products, and forestry products. NAMA products account for almost 90 per cent of the world merchandise exports. While there is broadagreement that tariffs should be reduced, there are differences between Western and developing countries over how much they should reduced. Also about the flexibility to be given to developing countries, and the special treatment allowed for small and vulnerable developing countries.

Developing countries argue that they should lower their tariffs on merchandise by less than Western countries. This, say developing countries, is essential to safeguard fledging industries. But the West has pressed for high tariffs cuts from a number of developingcountries - it has sought, for example, average cuts of 52-65 per cent for countries like Brazil, India, Indonesia, Argentina and Venezuela. This compares with cuts in the range of 21-27per cent offered by Western countries.

During the negotiations, developing countries said they could not accept proposals that seek to impose reduction commitments on developing countries which are higher than that for Western countries.

On trade in services, Western countries are pressing for further privatisation - for example the opening up of essential services such as water supply. Many developing countries are sceptical about such essential services being in private hands. The transnational corporations who supply them, at a cost, would benefit, but not the poor who cannot afford them.

The multilateral trading system, over which the WTO presides, has still to demonstrate that it can deliver for the poor in developing countriesThe WTO has the task of enforcing the agreements that emerged from the Uruguay Round:

  • The Agreement on Agriculture (AoA);
  • The General Agreement on Trade in Services (GATS);
  • The Trade-related Intellectual Property Rights (TRIPs) agreement;
  • The Trade-related Investment Measures, (TRIMs) agreement.

A disputes settlement mechanism is administered by the WTO, in order to settle trade disputes between members. The mechanism has been used mainly by the developed countries - there have been about 150 cases, of which the United States has initiated about 50 and the developing countries, together, about 40.

A panel consisting of three people normally adjudicates on a dispute; their judgements have to be obeyed on pain of sanctions, even if they contradict national laws. The panels invariably uphold the strict letter of free trade and their pronouncements tend to benefit TNCs. On bananas, for example, a WTO panel has ruled for the United States and Latin American countries against special treatment for Caribbean banana growers.

While the WTO presents itself as a forum for members to negotiate over trade liberalisation, it is therefore both a forum and a judge, exercising considerable power.

In November 2001, at a ministerial meeting in Doha, Qatar, WTO member countries launched the "Doha development agenda", a new round of talks to further liberalise trade. The talks are due to be completed by 2005.

Progress on the Doha development agenda has been minimal. The World Trade Organisation's fifth ministerial meeting in Cancún, in September 2003, failed to make progress (see "Cancún - hope in midst of collapse" in newsfile), and attention shifted the WTO's general council meeting in Geneva in late July 2004. WTO Director-General Supachai Panitchpakdi had warned that if there was no deal in July it could be years before talks resumed.

After a scheduled two-day meeting had spread to five days, there was a deal, a so-called "July package". But the deal does little more than establish the modalities for future negotiations. It could still take several years before the Doha development agenda is completed and the rules of international trade are changed to benefit developing countries.

Agriculture remains the main area of contention. In the July package, WTO members agree to eliminate export subsidies and other forms of export support to farmers. This support encourages overproduction and the dumping of surpluses in developing countries, to the detriment of their farmers.

The snag, however, is that WTO members did not agree a starting date for the elimination of these subsides. Neither are export subsidies the only problem. Many of the domestic subsidies given to Western country farmers also lead to overproduction and dumping. The Ministerial Declaration that launched the Doha agenda in 2001 calls for "substantial reductions in trade-distorting domestic support". But the July package is vague on specifics.

Brazil's Foreign Minister, Celso Amorim, was nonetheless optimistic, saying that the agreement was good for trade and for social justice and that it was the beginning of the end of farm subsidies.

But according to Oxfam ''there is little....to guarantee reforms that would help the poorest countries....no cast-iron commitments..no clear timeline for reform.''

Some of the specific problems of developing countries are nonetheless recognised in the package, thanks largely due to the alliances they formed in Cancun, alliances which improved their bargaining position. The text recognises that developing countries "must be able to pursue agricultural policies that are supportive of their development goals, poverty reduction strategies, food security and livelihood concerns". Although weak on specifics, this passage could be seen as a recognition that development policy should not be hampered by international trade rules.

The elimination of cotton subsidies was called for by West African cotton producing countries. Some ten millions farmers in West Africa have been affected by US subsidies to its farmers which have lowered the world price of cotton. But the package merely says that the cotton issue will be "addressed ambitiously, expeditiously, and specifically, within the agriculture negotiations". But this does not necessarily mean anything.

The section on market access for non-agricultural products is "by far the worst decision" taken at the meeting, believes Martin Khor of Third World Network. He says that it threatens many developing countries with cheap industrial imports which could overwhelm local goods and industries. At least three elements of it will have serious negative effects on development, believes Khor.

Firstly, it advocates a formula which sharply reduces tariffs, with steeper cuts for higher tariffs. For example, a 40 per cent tariff on a product would have to be reduced to 7 per cent Many developing countries have relatively high industrial tariffs to protect their local industries, and they will be the hardest hit.

Secondly, developing countries would lose having a "safety zone" where they can choose to raise tariff rates in the event of serious difficulties arising from import competition. And thirdly, there is a "sectoral tariff component" in which many sectors would be slated for fast-track total elimination of tariffs. The text says participation by all will be important, implying the sectoral component could be compulsory. If sectors are selected that are important in a developing country's domestic production, then the risks to its domestic industries will be heightened.

"If the negotiations that follow are not handled properly, and these measures are accepted, they could threaten the share and the very survival of many local firms and industries in developing countries. They may not be able to compete with imports if tariffs are brought to zero or to low levels", believes Khor.

On trade in services, the package recommends the further opening up of the services sector, in other words privatisation. But this will benefit the transnational corporations who supply the services, at a cost, rather the poor who cannot afford them.

Overall the package "maintains the status quo and does not change the fundamental imbalance in the multilateral trading system," said Moussa Faye of Action Aid Senegal.

The multilateral trading system, over which the WTO presides, has still to demonstrate that it can deliver for the poor in developing countries.