Strengths and Weaknesses of the WTO System

At the end of World War II, international institutions were set up to restore the world political balance. The new system of World Trade Organisation (WTO), under the hands of experts decide on issues, settle disputes and represents a new international constitution over countries. It was created by the Uruguay Round negotiations (1986-94) to promote free trade, with its predecessor the General Agreement on Tariffs and Trade (GATT) signed in 1947, which was the first to integrate developing countries into a multilateral system. The WTO is primarily a negotiating forum and treaty law whereby member governments take part to solve trade issues and give consent to be bound by procedural rules. Established on 1st January 1995 and based in Geneva, the WTO is the only international organisation dealing with legal rules for international trade and trade policy. The legitimacy of the organisation is focused on three main principles on trade liberalisation: the principle of reciprocity, of non-discrimination and of special and differential treatment for developing countries and least-developed countries (D. Armstrong, et al., 2007). The organisation operates on a democratic way in which State represents one vote, regardless of its political or economic burden.

However critics argue that the organisation pays insufficient attention to needs of developing countries. They also deny the democratic character of the WTO, arguing that its mode of operation favours more developed countries than developing countries.

Therefore, the main purpose of this essay is to examine on the one hand, the strengths and weaknesses of the organisation, by analysing the benefits that it has brought and the failures of this system. On the other hand, identify in some detail critics arguing that procedures of the organisation have some troubles to fairly provide the same interests for developed and developing countries. Among the key issues discussed are the WTO challenges to bring human rights, peace for all and increase wealth.

The WTO is a multilateral system that provides, firstly a contribution to international peace. After the Second World War, two developments have helped to prevent trade tensions. In Europe, international cooperation has emerged in the coal and steel sectors. Globally, the GATT was signed as the only multilateral instrument for the promotion of international trade and trade liberalisation (Australian Department of Foreign Affairs and Trade, 2010). They have been as successful as they have become the European Union and the WTO. This organisation has brought a huge contribution to peace, prosperity and rules of law in international trade relations.

Secondly, the WTO has additional powers than the GATT, one of them is the settlement of disputes. The system is based on liberals theory claiming that the use of force and self-help from countries lead to a lack of trust and conflicts, a democratic peace would be the best way to avoid wars, considering that trade disputes in 1930s led to Great Depression and the World War II (M. Doyle, 1986). Thus the WTO’s establishment was beneficial to members that have signed the agreements. For example, in 1999 Australia has successfully challenged Korean and United States meat import restrictions which led to significant benefits for Australian farmers (Australian Department of Foreign Affairs and Trade).

Thirdly, one of the WTO’s strength is the non-discrimination principle. All countries, rich or poor, have the right to complain each other in the context of dispute settlement procedures. Without a multilateral regime such as the WTO system, the more powerful countries could unilaterally impose their will on smaller countries (WTO, 2003). By reducing inequality countries have equal contribution in decision making. Unlike the GATT which was founded on US hegemony in the post World War II (Keohane, R, 1984), the WTO is based on the principle of one member, one vote. The rules-based organisation has main agreements that abided by countries and protect their rights: the GATT, General Agreement on Trade in Services (GATS), and Trade-Related Aspects of Intellectual Property (TRIPS).

TRIPS was set out to ensure all WTO members that their intellectual-property laws meet the minimum standards. It incorporates obligations contained in other intellectual-property conventions, including the Paris Convention (1967), the Berne Convention (1971) and the Rome Convention (TRIPS article 2). Intellectual-property refers to creations of the mind, such as inventions, names, images, literary and artistic works used in trade. Its strength is achieved in a particular market whereby the rights of intellectual-property influence the kind of technology that foreign companies will bring to those markets and how it will be deployed (Condon, B., 2002, pp 103-104).

Rules of non-discrimination are found in TRIPS articles 3 and 4. The most-favored-nation principle (article 4) prohibits discrimination between foreign companies from different member countries.

Strengths of the WTO are also based on the economic benefits of free trade. GATS provides for future negotiations on trade in services (GATS article XIX), regarding transparency (GATS article III): clear information about policies, and domestic regulation (GATS article VI). According to Condon, 2002, pp 67, “it allows governments to decide which service sectors they will open to foreign competition and to what extent”.

Besides, the liberalisation of trade stimulates economic growth allowing resources to be used for production. It helps to cut costs and boost national income (WTO, 2010).

However tensions among members can appear and fail to settle dispute, like the world Trade Ministerial meeting in Cancun occurred in September 2003. It focused on disagreement of agricultural issues. According to Baldwin, E. 19…, this failure shows the fragility of the existing institutional arrangements for settling trade disputes and promoting the expansion of world trade. During the negotiations at Cancun, developing countries members refused to negotiate on the Singapore issues, claiming the non-commitment of the developed countries to reduce agricultural subsidies and reduce import barriers on agricultural products.

This has revealed a more and more difficulty to negotiate, like the ongoing Doha Round (2001-) which is still in negotiation (on agriculture and services).

This failure is a lack of talks to resolve differences between developed and developing countries (Jaura, 2003). Martin Khor, director of the Third World Network, stated that ‘the deeper reason is the untransparent and undemocratic system of drafting of texts in the WTO’.

In spite of the one member, one vote system, critics argue that the organisation is even though undemocratic due to the less power of small countries which are forced by developed countries, that can also lead to a creation of groups dominating the others. Besides the policies of the WTO impact aspects of society and the planet. Citizen input by consumer, environmental, human rights and labor organisation is ignored (globalexchange).

Among its weaknesses, the U.S. voice for environmental protection is critical at the WTO (Hunter and Van Dyke, 1996). Disputes on environmental provisions challenged the U.S. law, like the ‘tuna-dolphin’ dispute, Mexico exported tuna to the U.S. but cannot prove that it meets the dolphin protection standards from the U.S. Marine Mammal Protection Act (19…). The U.S. have to make embargo on all imports of the fish from Mexico, because this also means that dolphins killed in tuna fishing nets.

When Mexico asked for panel (WTO dispute 4, 1991), whereby all stages in dispute are encouraged to consult each other to settle “out of court”, it concluded that the U.S. are not allowed to take trade action in order to enforce its domestic laws in another country. This dispute was managed by the WTO trade experts, but with almost no input from environmental experts. Environmental laws should be revised as they tend to be unilateral which is inconsistent with the WTO that has the main purpose of a multilateral trading system.

Many strengths bring the legitimacy of the organisation on settling dispute, different principles were set up to respect both developed and developing countries on trade liberalisation. Pascal Lamy, the Director-General of the WTO argued that a 30-fold growth in international trade in terms over the past 60 years was made possible by progressive reductions in tariffs. “Before the GATT negotiations, average tariffs in the industrial world were around 20 to 30 per cent and trade was constrained by quantitative restrictions” (speaking at the SIEPR and SCID, 27 October 2008).

However, concerning the gap between rich and poor countries he added “we acknowledge that the poorest are simply not equipped to take on the obligations of the rich”. The issue is that industrially developed countries have dominated the negotiations due to the differential rules, preferential subsidies and their post-colonial weight (Sharat G. Lin, 2008).

Arguably, the “WTO members with greater resources, such as the United States and EU, thus drive WTO agendas” (Shaffer, 2005 pp. 134). Critics argue that the gap is not due to a market power but a lack of legal capacity, besides the central problem for developing countries is that they are missing out on early settlements (Busch and Reinhardt, 2003). They believe that poorer complainants are less able to induce early settlement than wealthy complainants. Moreover, poor countries are disadvantaged because of their limited legal capacities. According to their dataset from WTO 2000 database (Busch and Reinhardt, 2003, pp. 727-728), the gap between developed and developing countries is clarified that under the WTO, poorer complainants fare worse than equally sized, wealthier complainants. The example of India and Australia showed that their settlement procedures do not equally reflect the interests of developed and developing countries. Indeed, their GDPs in 2000 are quiet similar (1995 US $ 460 billion) with different income levels of $459 and $23,837, respectively. According to their Model 2, WTO 1995-2000 (table 3, pp. 728), it predicts that India would have a 41 percent chance getting the defendant to concede, while Australia’s figure is at 73 percent. Even though the WTO is based on a multilateral system, the organisation tends to favour developed countries as they are more influential and have an impact on developing countries.

Another issue to take into account is the inadequate challenges and costs of implementation for some developing countries, especially less-developed countries (LDCs), when it comes to implement rules in new trade areas (e.g. TRIPS), developing countries have to grant some concessions in terms of longer periods for implementation. In agriculture and textiles trade, insufficient progress has been made by developed countries in lowering trade barriers (Armstrong, D. et al., 2007 pp. 239). This key issue takes into account the fairness of the WTO’s principles. Indeed, the principle of special treatment for developing countries and LDCs tend to unequal access and status in trade disputes. While many poorer countries have played the role of liberalisation and removed subsidies, the U.S. and the EU have not. Besides in 1995, OECD countries spent $182 billion subsiding agriculture and the report in 2000 put US, EU and Japan subsidy rates at $20,000 a farmer (Agricultural Policies in OECD Countries, 2000, Paris). The same problem is found in the Agreement on Textiles and Clothing where clothing quotas were negotiated bilaterally by the Multi-Fiber-Agreement.

These issues led to the Ministerial Conference in Doha, November 2001. However the priority to open services markets’, to reduce tariffs on imported agriculture and subsidies for domestic agriculture have delayed progress on the Doha Development Agenda. The persuasion argument is often used by critics explaining that developed countries exploit the trade liberalisation to their advantage by persuading developing countries that it will serve their economic interests (Armstrong, D. et al., 2007 pp. 250). For example through the Preferencial Trade Agreements (PTAs) that give preference access to certain products and countries. They allow to reduce tariffs among participating countries, but tend to be a bilateral trade between two parties to the agreement with the rest of the world.

The strongest argument is found in the policy brief wrote by Aurore Wanlin (2005) for the think tank the Center for European Reform stated that the collapse of the Doha round would call into question the future of the WTO’s credibility. Developing countries and NGOs accuse the organisation to promote economic liberalisation at the expense of development, social and environmental goals. The EU and US businesses would prefer a regional or bilateral trade agreements, such as PTAs, to gain greater market access abroad. In addition, developing countries are not homogeneous between them, for instance the G20 group gives major developing countries like Brazil and India greater trade talks. The same for China that argues that it made concessions when it joined the WTO in 2001, and would not play the role proportionate to its economic weight.

For all these reasons, it is thus true that the Doha’s failure would weaken the organisation. The gap between developed and developing countries is still present.

What all these issues remind is that “power and material self-interest have trumped fairness and justice in the design of international economic institutions and policies” (Kapstein, E. B., 2005, pp. 80).

Kwa, (1998) stated that “the benefits of increased trade are not widely shared”. The LDCs represent 20 per cent of the world’s population, they generate a mere 0.03 per cent of the trade flows. Besides the principle of reciprocity that is one country negotiates concessions in an area. However these negotiations take place among developed countries and some of richer developing countries.

According to Kwa (1998) the other key issue is that developing countries have less human and technical resources than developed countries. Thus when they enter negotiations they are less prepared than developed ones. That is why Nelson Mandela in Uruguay Round stated that rules are not necessarily fair because of the different circumstances of members.