|
In November and December 1999 protests disrupted a meeting of the World Trade Organization (WTO) in Seattle, Washington. The scale and intensity of the protests surprised many observers and revealed a broad range of concerns about the organization and its free trade policies. In this March 2000 article from Encarta Yearbook, New York Times reporter Steven Greenhouse explores the WTO’s functions and history. He explains why many people oppose the organization and why many other people believe the WTO is helping drive economic prosperity.
By Steven Greenhouse
When the World Trade Organization (WTO) met in Seattle, Washington, in December 1999, tens of thousands of protesters took to the streets and focused a spotlight on global trade as never before. While the tear gas and shattered windows grabbed much of the attention, the protests raised some profound questions about a powerful but little-known organization that develops and enforces rules for world trade.
 |
|
Also on Encarta |
|
 |
|
|
|
|
The protesters, who ranged from violent, self-styled anarchists to peaceful students, environmentalists, and trade union members, asserted that the WTO unfairly favored corporations at the expense of consumers, workers, and the environment. WTO officials and trade ministers vigorously defended the organization, insisting it was needed to promote international trade. Increased trade, they argued, would lift living standards around the world.
Much of the WTO’s work involves arcane trade matters, but the organization has become increasingly prominent since it was established in 1995. This growing visibility is due, in part, to the volume of world trade, which has expanded to some $7 trillion annually. Another reason for the visibility is that the WTO’s decisions frequently involve politically sensitive issues, such as whether a country’s laws and regulations that protect domestic industries, human health, or the environment violate international trade rules.
The WTO has two main purposes: to make rules for world trade and to settle trade disputes between nations. In early 2000 the WTO had 135 member nations, ranging from industrialized nations such as the United States, Germany, and Japan to developing nations in Africa, Asia, and Latin America. The WTO is currently considering membership applications from 30 other nations, including Russia, China, Saudi Arabia, and Vietnam.
|
|
Also on MSN |
|
|
|
|
|
|
Based in Geneva, Switzerland, the WTO obtains its authority from member nations, which look to the organization as a vehicle to expand world trade. Like the United Nations (UN), the WTO is essentially a club of nations, created and empowered by its members and relying on them to comply with its rules and rulings.
The WTO’s powers are most frequently exercised when it serves as a court to resolve trade disputes among nations. These judicial powers may have dramatic consequences: WTO decisions can declare the laws and regulations of sovereign nations illegal because they violate global trade rules.
The trade rules administered by the WTO are established after lengthy and often tense negotiations involving many nations. Among the rules member nations have agreed to follow is that they will not place quotas on imported goods or give domestically produced goods preference over foreign goods. The WTO permits a handful of exceptions to these rules.
WTO regulations spell out the circumstances under which the organization can settle disputes. When one member country believes that another has violated trade rules, the two countries must first seek a settlement through formal consultations. If consultations fail, the aggrieved nation can ask the WTO to convene a judicial panel and issue a ruling. WTO dispute-resolution panels are composed of three experts, usually trade lawyers, from neutral member countries. The WTO also has appellate panels that rule on final appeals. Under WTO rules, a final judgment in a trade dispute must be issued within 16 months.
A nation found to have violated trade rules has several choices. It can change the regulation or practice that the panel found improper, or it can pay compensation to the country that filed the complaint. The offending nation can also refuse to accept either of these choices, but then the aggrieved country has the right to impose punitive tariffs (taxes) on goods imported from that nation.
The most prominent trade dispute handled by the WTO during the first five years of its existence involved a complaint brought by the United States against the European Union (EU), made up of 15 countries. The United States accused the EU of violating international trade rules by prohibiting the importation of beef treated with hormones. A WTO trade panel ruled in 1997 that the EU had run afoul of world trade rules because the EU could not prove its claim that hormone-treated beef was unsafe for human consumption.
The WTO requires nations to show that import restrictions aimed at protecting human health or the environment are based on science. This rule is designed to prevent countries from arbitrarily discriminating against goods from other countries. Despite the WTO ruling, the Europeans refused to lift the ban on hormone-treated beef or to pay compensation. As a result, the WTO allowed the United States to levy penalty tariffs totaling $116.8 million annually on Dijon mustard, Roquefort cheese, truffles, and other imported European goods. The amount of the tariffs was based on the estimated cost of lost U.S. beef exports.
Although the WTO is a relatively new international institution, its creation is firmly tied to the past. The push to create a world trade body gathered force in the aftermath of the many restrictive trade rules adopted worldwide during the Great Depression. After the Depression began in 1929, many nations placed large tariffs on imports to protect domestic industries and jobs. Most economists now agree that these tariffs aggravated the economic downturn by crippling trade and hurting companies that depended on overseas markets.
After World War II (1939-1945) Western diplomats and economists pushed to establish an international organization that would promote freer trade. The United States proposed setting up a body called the International Trade Organization (ITO), which would have extensive powers to enforce world trade rules. This organization was to complement two other institutions established shortly after the war to bolster the world economy: the International Monetary Fund (IMF) and the World Bank. The IMF’s purpose was to help stabilize the currencies and economies of many nations, and the World Bank was empowered to make large, low-interest loans to nations to spur their economic growth.
The ITO never got off the ground, however. The primary reason was the failure by U.S. president Harry Truman to persuade the Congress of the United States to approve the organization. Many members of Congress were concerned that the ITO would have the power to declare U.S. trade regulations illegal. Without the participation of the United States—the world’s largest importer and exporter—the organization collapsed.
In 1947, with the fate of the ITO still unclear, diplomats agreed to set up a far less powerful body called the General Agreement on Tariffs and Trade (GATT). That Geneva-based organization had two roles: to oversee negotiations to reduce tariffs and other trade barriers and to adjudicate trade disputes. GATT proved highly successful in lowering tariffs. During eight rounds of trade talks, the last of which ended in 1994, tariffs in the industrial world fell from more than 40 percent of the value of all industrial goods traded internationally to less than 4 percent.
However, GATT was less successful in settling trade disputes because of its limited enforcement powers. To resolve disagreements, it relied largely on achieving a consensus, but a consensus often did not develop. In addition, GATT’s dispute-resolution procedures were slow, sometimes taking three years or more. Many nations became frustrated with GATT’s inability to remove numerous long-standing trade barriers or halt the creation of new ones.
In decades past, trade barriers erected by one country often triggered retaliatory measures from other countries. These actions sometimes led to spiraling rounds of increasing tariffs and other barriers that cut deeply into international trade. Eager to prevent such trade wars, many nations that were dissatisfied with GATT backed the creation of a powerful new organization to quickly settle trade disputes with as little ill feeling as possible. At a 1994 conference in Marrakesh, Morocco, representatives from 109 nations agreed to replace GATT with the WTO, in the hope that the new trade body would be more powerful and effective than its predecessor. The WTO began operating on January 1, 1995.
Since its creation, the WTO has become a target for widespread concerns about globalization—the process by which the world economy is knit ever closer as trade barriers fall and global commerce expands. Many of the groups that gathered in Seattle criticized globalization, arguing that it helped corporations most while shortchanging workers, farmers, consumers, and the environment. The WTO became the focus of this protest, because it symbolizes and helps enforce the emerging global economic order.
Protesters in Seattle came from more than 500 different organizations. A few militant protesters called for abolishing the WTO, but most groups called for reforms that would make the trade group more responsive to environmentalists, workers, consumers, and human rights activists. Several hundred people engaged in violent acts, but the vast majority of protesters were peaceful. The police arrested about 600 people during the Seattle trade meeting.
The Sierra Club, Friends of the Earth, and other environmental groups criticized the WTO for several rulings involving national environmental regulations. In particular, these groups pointed to a WTO decision in 1996 concerning U.S. import restrictions on gasoline containing a cancer-causing agent. The ruling found that the U.S. restrictions unfairly discriminated against petroleum producers in Venezuela and Brazil. Environmentalists argued that the U.S. restrictions were fair because they also barred the sale of U.S.-produced gasoline carrying the same additive. These groups also complained about WTO plans to lower tariffs on lumber, a move they said would encourage aggressive logging that would strip many forests.
Labor unions in the United States were joined by unions from around the world in criticizing the WTO for encouraging globalization without creating rules to protect basic workers’ rights. According to a series of fundamental conventions ratified by scores of nations under the auspices of the International Labour Orgnaization (ILO), these basic entitlements include the right to organize, the right to be free from discrimination, and prohibitions on the use of forced and child labor. Labor leaders argued that globalization encourages corporations to move their operations to factories in developing countries that pay low wages, use child labor, and often crush unionizing efforts. The 13-million strong American Federation of Labor and Congress of Industrial Organizations (AFL-CIO) and the International Confederation of Free Trade Unions (ICFTU) called for new WTO rules protecting labor rights. These rules would permit WTO members to levy punitive sanctions against countries where employers violate basic labor rights and where the government does little to enforce those rights.
Global Trade Watch, a group led by consumer advocate Ralph Nader, portrayed the WTO as a powerful bureaucracy that lacks democratic accountability and operates under a veil of secrecy. The group criticized the WTO’s dispute-resolution panels because their hearings are held in private and because outside groups are generally barred from seeing the evidence and from putting forward their views in a case.
Many college students protested against the WTO, asserting that its push for free trade encourages corporations to build sweatshops overseas. Some consumer groups protested the WTO’s rejection of the EU ban on hormone-treated beef. Some farm groups criticized the WTO for encouraging large-scale corporate farming, which they said puts thousands of small farmers out of business and undercuts the agricultural self-sufficiency of many poorer countries. Groups representing the developing world complained that the WTO is dominated by wealthy industrialized countries and does not give less developed nations enough of a voice in formulating new trade rules.
Past meetings of the WTO and its predecessor, GATT, encountered some protests, but the outpouring of more than 30,000 demonstrators in Seattle was unprecedented in the history of world trade talks. According to some protest leaders, the anti-WTO movement began to gather steam in 1993, even before the WTO was founded. In 1993 the U.S. Congress approved the North American Free Trade Agreement (NAFTA), which removed trade barriers between the United States, Mexico, and Canada. Critics of NAFTA claimed that it accelerated the relocation of U.S. factories to Mexico, where environmental and labor protections are weaker than they are in the United States.
After NAFTA’s passage, environmental groups and labor unions pledged to fight any future trade accords that did not address their concerns. These groups demonstrated their growing clout in 1998 when they blocked President Bill Clinton’s efforts to win new negotiating authority from Congress to extend free trade agreements such as NAFTA to other Latin American countries.
Several early WTO rulings drew fire from environmental and consumer groups, including the rulings against the U.S. ban on the gasoline additive and the EU ban on hormone-treated beef. But the WTO decision that gained the most negative attention was its 1998 ruling against a U.S. ban on importing shrimp caught with nets that did not allow threatened sea turtles to escape. A WTO panel ruled that the ban was discriminatory because Asian fishermen were given less time to comply with the rules than were their American counterparts. Defenders of the WTO applauded the ruling because it required nations to treat foreign and domestic producers in the same way. Critics said the WTO ruling showed insensitivity to threatened species.
Advocacy groups opposed to various WTO rulings worked hard to plan their protests in Seattle. Along with their grievances about specific WTO decisions were wider concerns about globalization. In particular, labor unions and groups representing the developing world argued that globalization was increasing the income gap between rich nations and poor nations, as well as the income gap between the rich and poor within individual nations. Economic troubles in Asia in 1998 and 1999 helped fuel this dismay with the WTO. Many people grew skeptical about the prevailing idea that free trade and the liberalization of markets would inevitably lead to greater prosperity.
The protest movement, aided by the Internet, built up rapidly and spread around the world. Numerous Web sites were created to publicize the WTO’s shortcomings and to provide information about the protests. Before meeting in Seattle, protest groups held extensive discussions on how to make WTO trade rules friendlier to consumers, labor, and the environment. Activists also debated how to harness globalization so that it would do more to lift those at the bottom of the economic ladder.
The many government officials, economists, and business executives who support the WTO defend it as essential to the expansion of world trade. These defenders point to numerous economic studies demonstrating that trade helps lift living standards around the world. One of the most influential of these studies, authored by economists Jeffrey Sachs and Andrew Warner of Harvard University, found that developing countries practicing free trade in the 1970s and 1980s grew more than six times faster than developing countries with protectionist policies. Another study, published in 1993 by the Organization for Economic Cooperation and Development (OECD), found that protectionism cost the world economy more than $400 billion annually.
According to free trade advocates, trade makes more goods available to more people, disseminates new technologies, and encourages a more efficient allocation of resources among nations. In addition, supporters note that trade helps hold down inflation and increase product quality around the world because imports create competition that compels domestic industries to keep prices down while producing better goods and services.
In Seattle, WTO director-general Michael Moore dismissed arguments that the group was undemocratic. He noted that the organization’s member nations, most of which have democratically elected governments, wrote the WTO’s rules and selected its leadership. WTO supporters also deny that the group favors corporations, saying that freer trade helps all segments of the world economy—corporations, workers, farmers, consumers, and developing nations.
Moore repeatedly asserted that increased trade was the best tool to raise living standards in developing nations. Through trade, he explained, a country such as South Korea has living standards that rival those of many wealthy nations. Thanks to trade, South Korea has moved from having an agricultural economy to being an industrial powerhouse, producing automobiles, television sets, and other sophisticated products.
Despite a general consensus within the WTO about the importance of freer trade, multilateral rounds of talks aimed at removing trade barriers have often stumbled and even collapsed—as happened in Seattle. Trade negotiations encounter major obstacles because individual nations or regional trading blocs have interests that clash with those of other nations. For example, some nations battle for the right to keep out imports to protect infant industries from competition. Other nations want to preserve a unilateral right to punish countries that they think are trading unfairly.
In recent decades, recurring clashes have occurred over various high-stakes economic issues. Many of these issues center on establishing timetables for the removal of restrictive trade barriers, including agricultural subsidies, quotas on textile imports imposed on the developing world, and rules that bar insurance companies, investment banks, and telephone companies from doing business in other countries.
In Seattle two key issues divided developing nations from wealthy nations and contributed heavily to the collapse of the talks. These issues were labor rights and the developing world’s sense that a handful of powerful, industrialized nations were dominating the negotiations.
Many ministers from developing nations were angered by the U.S. proposal to create a WTO task force on labor rights. Backed by U.S. labor unions, President Clinton wanted the task force to recommend trade rules that would allow sanctions to be used against nations in which violations of basic labor rights are prevalent. But ministers from the developing world, led by India and Egypt, insisted that allowing sanctions for violating labor rights would open the door to a disguised form of protectionism. They argued that the real goal of the sanctions was to restrict imports from developing countries and to protect American workers from low-wage foreign competition. Developing nations also complained that labor unions and the U.S. government were attempting to dictate Western-style labor standards, including a minimum wage, to poorer nations. The two sides dug in during the labor rights fight and never came close to agreement.
In past rounds of trade talks, the United States, the EU, and Japan largely set the agenda, hammered out much of the final agreements, and pressured the developing world to accept those agreements. All this seemed to change in Seattle when developing nations, which represent the overwhelming majority of WTO members, grew angry about their exclusion from key meetings. Caribbean nations led a move among developing countries to block the launching of new multilateral trade talks until the WTO gave a stronger voice to the developing nations.
Developing nations were also uneasy about proposals by industrialized nations to insert environmental safeguards into trade agreements. These nations feared that the safeguards, such as the U.S. import ban on shrimp caught in nets that threaten sea turtles, could be used to restrict their exports. In addition, developing nations called for an easing of intellectual property restrictions in areas such as patents. Easing these restrictions would, for example, allow foreign drug producers to make medicines for acquired immune deficiency syndrome (AIDS) available more readily and less expensively in Africa.
Just as important to the collapse of negotiations in Seattle were the many disputes among industrialized nations. One long-standing issue of contention was the EU’s program of agricultural subsidies (government payments intended to support a desirable enterprise or policy). The EU, for example, helps farmers cover the costs of exporting agricultural products. European officials, with backing from Japan, insisted that such subsidies are needed to keep many small farms in business. But Australia, Brazil, Canada, the United States, and other major agricultural exporting nations demanded the elimination of these subsidies, arguing that they give European farmers an unfair advantage in agricultural trade. Tensions between the United States and Europe also erupted over health standards for agricultural imports, with the Europeans reasserting their authority to ban products they deem unsafe.
The United States clashed with Japan and many developing nations over an attempt to establish a group to review the U.S. use of punitive measures to halt dumping (selling goods abroad below their production cost or at a price lower than that at which they were sold in their home market). Pushed by powerful labor unions, the United States often acts unilaterally and levies tariffs on goods, such as steel, that it concludes were dumped. Many nations insist that these antidumping laws undermine the WTO’s goal of eliminating unilaterally imposed trade sanctions. The U.S. government defends these antidumping laws as essential to safeguarding American industry from cutthroat foreign competition. United States negotiators eventually agreed to allow the formation of a group to review dumping, but they insisted they would not surrender U.S. power to penalize dumping.
Developed nations fought over other issues, including the U.S. demand to bar taxes on Internet commerce and whether to restrict the trade of genetically modified food.
Many trade officials in Seattle laid part of the blame for the collapse of the talks on the massive street protests. They noted that the protests encouraged the United States to take a less flexible position on labor rights and encouraged the industrialized world in general to support environmental protections. At the same time, several ministers said, the protests emboldened some developing nations to take a tougher stand against letting the wealthy nations dominate the meeting.
Few trade experts voice optimism that the WTO will launch a new round of trade talks any time soon. Nor do they believe that a broad agreement on subjects ranging from farm subsidies to labor rights will be reached quickly or easily when a new round does begin.
Many experts suggest that it would be wiser for WTO member nations to scale back any new round of trade talks to a few resolvable topics. However, some WTO officials and trade ministers insist that it is vital to set high expectations to help remove the many remaining trade barriers.
In the absence of a new round of talks, some ministers may seek to negotiate on individual issues, such as reducing farm subsidies or lifting restrictions on services. Those who favor a piecemeal approach to trade talks point to the success of the protocol signed in January 2000 by more than 130 nations in Montréal, Canada, that sets rules for trade in genetically modified products.
It remains an open question whether the WTO will adopt any of the protesters’ demands. Many ministers say they expect little progress on labor rights and environmental safeguards as long as the United States remains inflexible on these issues. At the same time, many developing nations remain dead set against including labor rights and environmental protections in trade agreements. United States officials hope their use of steady diplomacy will eventually persuade developing nations to accept these protections in future trade accords.
The one concern raised in Seattle that the WTO appears most willing to address is the protesters’ demand for the WTO to drop its veil of secrecy. Many trade ministers concede that the WTO’s lack of openness is difficult to defend. Some supporters of the WTO acknowledge that permitting wider access to the group’s proceedings would encourage a better understanding of its work and possibly reduce the anger directed toward it.
About the author: Steven Greenhouse is a reporter for the New York Times. He has covered economics, foreign affairs, and labor issues for the Times.
For further reading:
Faux, Jeff. “Slouching Toward Seattle.” American Prospect, 6 December 1999.
Grady, Patrick, and Kathleen Macmillan. Seattle and Beyond: The WTO Millennium Round. Global Economics Ltd., 1999.
Kahn, Joseph. “Global Trade Forum Reflects a Burst of Conflict and Hope.” New York Times, 28 November 1999.
Krueger, Anne O. The WTO as an International Organization. University of Chicago Press, 1998.
Lal Das, Bhagirath. The World Trade Organization: A Guide to the Frameworks for International Trade. Zed Books, 2000.
Source: Encarta Yearbook, March 2000.
Appears in
Trade Agreements; Foreign Trade; Globalization; United States (Economy); Tariff; General Agreement on Tariffs and Trade; Commercial Treaties; Tariffs, United States; World Trade Organization; Free Trade; North American Free Trade Agreement
|
Hotmail
Messenger
My MSN
MSN Directory
Appears in