The meeting is at the Washington State Convention and Trade Center

Seattle: what’s at stake?

Concerns … and responses (1)

The WTO is a new and unfamiliar organization, although it builds on more than four decades of experience with GATT.

To some people, the WTO appears remote and mysterious, powerful and unaccountable. They see it as serving only to enforce a set of rules for trade which seem to conflict with central concerns of society such as jobs and incomes, economic development, the environment, health and safety, and national sovereignty.

Others are more sympathetic. They recognize the WTO as just the latest embodiment of a cooperative international effort, now half a century old, that has contributed much to economic growth around the world. But they still worry about some of its new features, most notably the impact of its binding dispute settlement procedures on the needs of poor developing-country producers, fearful consumers or endangered species.

These concerns are genuine and proper. Many are based on misunderstandings; some not. All demand and deserve a response now. And they require, for the future, a much more vigorous and sustained effort, by member governments and by the WTO itself, to establish and maintain dialogue with civil society.

Here are initial and necessarily brief responses to some of the concerns most often expressed today:

The WTO is unrepresentative and undemocratic, and undermines the sovereignty of governments 

This is a most serious accusation. And it is wrong.

The WTO, and all its associated agreements and rules, is simply the expression of the will of its member governments:

  • The agreements result from negotiations among the member governments. The whole WTO package was endorsed barely five years ago, in April 1994, as the result of the seven-year Uruguay Round of negotiations. Every member country has formally accepted the package after following its own ratification procedures, which generally involve a vote of approval by its parliament or other legislative authority.

  • The great majority of WTO members are democracies. Their governments act by consent of their peoples.

  • Decisions are generally taken by consensus. No new obligation can be placed on a member without its consent, and individual members have the power to stop changes.

  • The WTO Secretariat provides administrative and technical support to members. It has no decision-making powers.

  • Any international agreement affects sovereignty, but also represents an exercise of sovereignty: an acceptance of commitments in exchange for a similar acceptance of commitments from the other signatories. This is just as true, for instance, of the agreement on the Law of the Sea as it is of the WTO. For small countries in particular, the rule of law established for international trade by the WTO actually strengthens their sovereignty, because it protects their independence from bilateral bullying.

  • Each member has the right of recourse to an agreed dispute settlement mechanism to settle differences over whether other commitments are being respected. Final rulings on disputes, if the governments concerned fail to settle them among themselves, rest with the Dispute Settlement Body, on which all members are represented.

  • In the final analysis, any member can withdraw from the WTO on six months’ notice. None of the present 135 members has even threatened to do so.

  • The fact that over 30 more countries are lined up to join the WTO does notsuggest that they view membership as a risk to their sovereignty.

None of these points is meant to argue that improvements could not be made. A real problem, for instance, is that some of the smaller developing countries do not have the trained officials and financial resources to participate fully in the WTO’s work, and may therefore accept an agreement without fully understanding its significance.

Similarly, if governments fail to consult sufficiently with civil society, or shroud WTO processes in unjustified secrecy, important considerations may be overlooked, decisions may not be understood by the public, and suspicions may be aroused that special interests have influenced the outcome. These issues, and others like them, will be discussed in Seattle.

The WTO is concerned only with free trade 

Certainly, a central thrust of the WTO, as of its predecessor the GATT, is to encourage the removal of barriers to trade, and of other trade-distorting measures, so that goods and services can move more freely among member countries.

Over the past 50 years, as discussed in earlier pages, freer trade has proved itself a powerful means of creating better jobs, and of promoting economic growth and development. Countries that have opened themselves to trade have been able to play to their economic strengths: to specialize, use their comparative advantages, and so generate growth and higher incomes, which in turn has helped to solve economic and social problems. The growth record of countries which have preferred higher trade barriers and comparative self-sufficiency has been nowhere near as good.

Trade also contributes to making the world a safer place, by reducing poverty and creating shared interests in the stability of international relations.

But there is more to the WTO than a blind pursuit of free trade, and there is nothing automatic (or easy) about the process:

  • The member countries themselves decide how far they want to go in removing trade barriers and distortions. Each country fixes its negotiating position in the light of its own priorities, as established by its own national processes of consultation and legislation. In the course of negotiations, these positions are usually adjusted, as perceptions change of what protection is needed for domestic interests, and what gains may be obtained from other members.

    But at the end of the negotiation, the final decision to accept further liberalization or not rests with each individual member. Governments are not forced into freer trade: this is why liberalization of world trade has lagged in sensitive sectors such as agriculture, textiles and clothing.

  • The WTO itself is a negotiating forum. It offers rules, agreed on the basis of long experience, about how negotiations should be conducted. Only the member governments, however, can decide on whether to negotiate or not, on the form that negotiations should take, and on how far trade liberalization should go.

  • Long experience also means that agreements reached provide time for barriers to be reduced gradually, allowing adjustment by domestic producers. Longer adjustment times are usually given for developing countries, and especially the least-developed countries, as well as other special provisions to take account of their situation.

  • Explicit exceptions are provided for on health, safety, national security and a range of other public policy grounds.

  • Other WTO rules prevent unfair trade. Members can impose special import duties to offset damage done to domestic producers by imports that are unfairly subsidized or “dumped”. Safeguard rules allow temporary restrictions, even if trade is fair, if a domestic industry needs more time to adjust.

    And standing exceptions mean that all members keep the right, for instance, to regulate or prevent imports or exports of weapons, narcotics, and products of prison labour, or to maintain measures need to protect human, animal or plant life.

  • The thrust towards freer trade is not the only key principle of the WTO system. Others include non-discrimination (treating other members equally) and making sure conditions for trade are stable, predictable and transparent.

WTO rules and liberalization destroy jobs, depress wages and ignore workers’ rights 

Jobs, wages and workers’ rights are central human issues, long recognized as deserving international attention: the International Labour Organization (ILO) was founded a generation earlier than the multilateral trading system. Concern about these matters is natural and proper. Trade and labour developments do influence one another. But their relationship is complex.

Trade can be a powerful force for supporting growth, and through growth for creating jobs and reducing poverty. Countries whose trading partners open up their markets gain through higher exports: workers in export industries tend to receive higher pay and enjoy greater security. The greatest gains, however, go to the country that lowers its own barriers, since this removes distortions, lowers costs and widens choice, allowing it to use its own resources more efficiently.

Undeniably, producers and their workers previously shielded from foreign competition face new challenges when trade barriers are lowered. Some producers compete successfully by becoming more efficient, by specializing, or by shifting to production of new kinds of goods or services. Others don’t. Some displaced workers adapt quickly, finding new employment, perhaps by moving elsewhere or retraining. Again, others don’t.

Some countries are much better at making necessary adjustments than others. This is partly because they have more effective adjustment policies: better social safety nets, better educational facilities, including for retraining, and other policies that make it easier for workers to move to jobs, or for job opportunities to be created where the displaced workers are. Trade, by boosting the economy as a whole, creates resources that can be used to help adjustments happen more quickly. And as living standards rise, people demand a cleaner environment and more resources are available for education and health.

WTO rules allow time for adjustment to trade liberalization. Tariff cuts and other changes agreed on in negotiations are phased in gradually. Standing rules permit temporary safeguard and other contingency action against imports that are particularly damaging. Liberalization under the WTO, it should also be remembered, is the result of negotiations. Countries can and do refuse to open some parts of their markets if they feel that this would require unacceptably difficult adjustments. Countries can also renegotiate commitments if they are considered contrary to the national interest.

Trade accounts anyway for only a fraction of the adjustment needed in any dynamic economy. Technological advances, shifts in consumer demand, and competition from other domestic producers exert the greatest pressures for change. Adjustment, in the employment market as elsewhere, is a natural consequence of economic progress.

Simple comparisons of wage rates in rich and poor countries can be very misleading. What counts, in competition, is productivity in relation to costs: the output of goods and services in relation to the resources needed to produce them. Low wages alone are only one factor: others, in which the richer countries are generally far ahead, are workers’ skills (and ill-treated labour is generally particularly unproductive), the production equipment at workers’ disposal, managerial experience, and supporting infrastructure such as telecommunications, banking services, reliable power supplies, roads and ports.

According to a wide range of studies, imports from low-wage countries account for only 10–20 per cent of wage changes in developed countries. Of the rest, much results from “skill-based technological change” — a shift to technologies that require labour with higher levels of skill. Even that 10–20 per cent explained by imports from low-wage countries, however, can be a tempting argument for protectionism. But protection tends to raise costs, and encourage inefficiency. The OECD calculated the likely effects on US wages of imposing a 30 per cent duty on imports into the United States from developing countries. Working through the expected consequences, it found that the duty would actually reduce unskilled wages by 1 per cent and skilled wages by 5 per cent.

Some developed countries, at the urging of trade unions, periodically suggest that the WTO should consider labour issues. Developing countries have been strongly opposed, fearing that these concerns are put forward only as a cloak for protectionism. At the WTO’s Singapore meeting in 1996, ministers reconciled their differences through a statement which expressed commitment to core labour standards, affirmed their support for the ILO as the responsible international body, stated the belief that trade and trade liberalization helped in promoting these standards, and agreed that the comparative advantage of countries must in no way be put into question. They endorsed collaboration between the WTO and ILO Secretariats, but did not support any WTO work on labour standards. Some governments want to go further at Seattle, and this issue will be discussed.

In 1998, the ILO’s member governments (who are largely also members of the WTO) adopted a declaration which endorsed the basic principles of freedom of association, the right to collective bargaining, elimination of forced labour, effective abolition of child labour, and elimination of discrimination in hiring and employment practices. This year, they agreed further to prohibit the worst forms of child labour, while recognizing that child labour is largely a function of poverty and that sustained growth is the key to eliminating its exploitative and harmful forms. According to a recent World Bank study, less than 5 per cent of child workers in the developing world are engaged in export-related activities.

Does the WTO put trade ahead of economic development, and ignore other problems of developing countries? 

Trade and economic development are not alternative objectives. Trade fosters growth and development. Developing countries with open trade policies have consistently grown faster than closed economies. The great majority of WTO members — more than three quarters — are developing countries. They are members by their own choice, and full participants in all the organization’s work and decisions.

In the early years of the multilateral system, not many developing countries were GATT members. Those who were made few commitments to open their markets to imports. Most put their faith in policies of import substitution, hoping this would encourage the growth of their own production capacity, and stayed largely on the sidelines in trade negotiations up to the end of the 1970s.

Disappointment with the consequences, and the example provided by a few countries which adopted more liberal and market-oriented policies and enjoyed much faster growth, led to a sea-change in the trade policies of many developing countries in the 1980s. They reduced trade barriers, joined fully in the Uruguay Round negotiations, and accepted all the results. Many have achieved considerable trade success.

A third of the world’s largest trading countries are now developing countries. Developing countries’ share in world trade has risen from a fifth to more than a quarter in just 12 years, and their share of trade in manufactures has doubled, to 20 per cent.

These trends are directly in line with the WTO’s own objectives. The Preamble to the Marrakesh Agreement singles out the aim of “ensuring that developing countries, and especially the least developed among them, secure a share in the growth in international trade commensurate with the needs of their economic development”.

Concerns of developing countries have been increasingly reflected in the trade rules, and in the course of negotiations. Special rules were added to the GATT in 1964 which gave priority to their trade needs, and stated that developed countries would not expect reciprocity from them for trade concessions made to them.

Later agreements added the principle of special and differential treatment for developing countries, and authorized trade preferences for and among them.

The WTO agreements generally give developing countries more time than developed countries to bring their policies into line with the new rules. Several agreements, notably those on agriculture and subsidies, require less liberalization by them than of developed countries. Obligations of least-developed countries are much fewer and smaller than those of other countries. Developing countries’ insistence on their needs in the Uruguay Round led to major gains, such as the agreements on agriculture, and on phasing out restrictions on trade in textiles and clothing.

Developing countries are a major force in WTO work. The leverage given them by the WTO rule of consensus has allowed them to press successfully for recognition of their concerns, and also to block proposalswhich they believe inconsistent with their interests.

Using the dispute settlement rules, they have fought back successfully against policy decisions by developed countries that discriminate against them, whether on textiles, bananas or through environmental measures.

On certain issues, some make common cause with developed countries: the influential Cairns Group of agricultural exporters is made up almost equally of developed and developing countries.

This does not mean that developing countries are satisfied with the present situation. As shown by their proposals for the WTO’s future work programme, many share concerns that tend to set them at odds with developed members. These include:

  • belief that better implementation of existing WTO agreements, including faster removal of textiles restrictions, longer transition timetables for developing countries and greater technical assistance, should have priority over negotiation on new issues
  • desire to change or ease some WTO rules which they believe give inadequate weight to their situation
  • disappointment at continuing barriers to their exports, particularly against processed products based on their own natural resources
  • concern at the practical burdens involved in taking part in WTO work for the small delegations of developing countries, and at the cost of dispute cases
  • special problems of the least-developed countries (see the previous chapter of this booklet)

In addition, like all other members, each developing country seeks through the WTO to reach national objectives that reflect its own particular economic and trade strengths and weaknesses. By no means all issues split members along North/South lines. In several areas, including that of agriculture mentioned above, groups of developed and developing countries make common cause.

The outcome of one dispute is often cited as evidence that WTO rules go against the interests of developing countries. This is the banana case, in which the United States successfully complained that its trade interests were damaged by the way in which the European Union gave preferential access to the EU banana market to imports from Caribbean and other countries linked with it by the Lomé Convention.

This complex and difficult case cannot be explained in a few words, but two points need to be stressed.

First, the complaint was not brought only by the United States, but also by four developing country exporters in Latin America whose banana exports were adversely affected by the EU’s arrangements.

Second, the dispute ruling concerned the way in which import restrictions and domestic regulations were applied. Neither the dispute judgement nor the complainants have questioned the European Union’s right, granted to it by the GATT in 1994 and the WTO in 1996, to give tariff preferences to its Lomé associates.

Other developing-country economic problems such as debt burdens, the decline in flows of official development aid, and unstable commodity prices, fall outside the responsibility of the WTO, but are obviously relevant to their trade concerns.

Such linkages between trade and other economic policies are recognized in the WTO agreement, which requires the WTO to work with the IMF and World Bank to achieve greater coherence in global economic policymaking. This cooperation, which also brings in UNCTAD and other agencies, particularly in efforts to help the least-developed countries, is expanding steadily.