The primary role of the World Trade Organization (WTO) is to resolve trade disputes between its 144 member states. This makes it a critical organization in Global Governance. The Uruguay rounds established the needs of both developed and developing nations and this was to be the impetus for the founding principles of the WTO. The priority agenda for the developed nations was to embed intellectual property (TRIPs) and general agreements on trade in services (GATS). Developing nations were keen to establish a legitimate framework for equality under the law, they requested that agricultural, textile and clothing agreements be made comprehensible. As countries embrace export led growth, disputes between states become more common. Although; the WTO originally dealt only with trade disagreements it has now expanded its role to agriculture, services, trade related investment measures and intellectual property. The WTO is important for globalization, because it provides a diplomatic forum for settlement of disputes, which may otherwise lead to armed conflicts or trade wars. The WTO was created to replace the GATT system, which was ill equipped to handle the changing dynamics of globalization. The WTO has a unique power that most other international government organizations do not have, an enforceable legislature and powerful judicial authority. The heart of the principle of WTO is to create a fair and just system where all member states are equal in the “eyes” of the law.
There is growing concern that the founding principles of the WTO are being ignored and that the systems in place now are ill equipped to dealing with the problems of the emerging and third world economies. There seem to be three key contributing factors, firstly the judicial process is financially unfeasible for developing economies, domestic protectionism has severe consequences on developing nations as principles of fairness are ignored and lastly the WTO is constantly undermined by inter-governmental agreement that often oppose the principles of the WTO.
In order to fully comprehend the challenges faced by the WTO, it is imperative to first understand the principles, structure and practices on which it is based. The WTO was created in 1995, to replace the controversial GATT system for regulation of free trade. The main principle of the WTO is to provide member States a platform to settle trade disputes in an unbiased manner within a legitimate legal framework. For such ideals to be achieved strong structural and legal organization is required. The legislative and judicial arms of the WTO provide these. The WTO has two key objectives, the first is to interpret and apply existing rules or legislation, and the second is to enforce the commitments made by its members. The WTO mandate requires three main guarantees from all its member States. First, for membership, the country must accept all the terms and conditions of the WTO to maintain equal legal standing within the organization. Secondly, WTO decisions are legally binding. Thirdly, all-important decisions taken by the WTO are reached through consensus of members. The last mandate ensures that all members are treated fairly. The dispute settlement understanding (DSU) which is the judicial arm, often referred as the “crown jewel”, imposes the WTO guidelines on all member states to reinforce the idea of equality and fairness. Trade disputes between nations can be solved in two ways, the first is through intergovernmental negotiations and the second is through mediation by the WTO. Although the guiding principles of equality and fairness are protected, the issues facing the WTO are a paradox on these principles.
WTO is constantly undermined by governmental agreements, which are often reached outside the jurisdiction of the WTO. In such situations the economically dominant countries bullies its weaker counterpart into seceding on an alternate agreement that goes against the one proposed by the WTO. The WTO must take a stand against alternate policies formed outside the jurisdiction of the organization. This is otherwise a challenge to the legitimacy of the WTO. For example, in the soft wood lumber dispute Canadian soft lumber, which was cheaper then American lumber, was unfairly added duty so as to allow American companies to compete. Canada used the WTO and won the case, against the United States. However, the United States was keen to make new provisions for the lumber agreement that would benefit American production even against free trade agreement. The WTO was created to regulate the common and shared beliefs of nations on trade and governments that bypass the WTO to resolve trade disputes threaten its legitimacy. The reason that the success of the WTO has been mixed is due to intergovernmental agreements that ultimately resolve disputes outside the framework of the DSU.
There are limitations to the principles that call for equality and it is important to recognize that the WTO originates from the GATT system, which means that most of the original polices are simply updated. A key issue with the structure of WTO is that legitimizes retaliation. Retaliation occurs when one of the parties involved in the dispute fails to abide by the decision of the DSU. Retaliation is a provision where by a country has the authority to pass sanctions, as punishment, on the offending party. However retaliation depends heavily on economic strength of the countries in question. For example an important market like the United States or European Union, which are economically dominant, can undermine any sanctions imposed on them.
Another major issue, that primarily affects developing nations, is the exorbitant legal costs. This makes the WTO inaccessible to financially weaker member states. An article by Keisuke Lida, “Is WTO dispute Settlement Effective?” states:
First of all, WTO are not cheap. A small firm or the government of a developing country may find it unaffordable. Therefore, it will simply keep silent…. However, as long as the government (and Firm) on the other side knows that the complaints cannot afford to file a WTO dispute, there is less incentive to concede.
All members of the WTO are required to sign an agreement that irrevocably binds them to financial and legal terms of the WTO. It then becomes the prerogative of the WTO to utilize its funds in any manner so chosen by the organization. What follows is that the WTO has the power to subsidize judicial costs for those countries that demonstrate financial needs. Although industrialized nations such as China, Brazil and India are able to benefit from the WTO, not all nations are able to afford the high costs of the legal framework. There is a need to help poor nations by subsidizing costs, which will allow all countries to fight legal cases on an even playing field, and secondly removing the use of retaliation. For instance, the small nation of Antigua, gained consent from the WTO to retaliate against the United States, the U.S then blocked Antigua’s online gambling, which in effect violated GATS. Antigua relies heavily on American imports, and its options to impose sanctions are limited and will have no effect on the United States economy. Small and economically weak countries do not often retaliate because they simply have no influence on strong markets such as the United States or the European Union. This suggests that even if African countries are able to afford legal frame works to fight violations, punishments in the form of economic retaliation would work only if the country is a major economic player. Africa has thirty-three members, but to the exception of Egypt and South Africa; there have been no case disputes presented. A major issue is that most African nations cannot afford the legal costs associated with cases; secondly most offending governments and corporations recognize and use this to their unfair advantage. The ideal of fairness in the WTO will remain an illusion unless, the WTO is able to reduce costs for weaker nations to access legal frame work.
Many developed nations have been accused of being protectionists, and providing subsides to ensure that their local markets can be globally competitive. There has been a growing misconception propagated by developed nations that developing nations are simply unable to compete in price. Any nation that is able to do so is accused of dumping and is then charged a dumping fee. As an example, agricultural subsidies of over 250 billion dollars, given to farmers in some developed nations hurt their poorer counterparts. These powerful nations often get special treatment at the WTO and obligations are less compulsory. This means that more often than not they are allowed to get away with the subsidies. This is the crux of the problem faced by most developing nations in the face of rowing globalization. Despite the principles of equality and fairness, evidence suggests that developing nations are getting the short end of the stick. The challenges faced by the WTO seems to be political rather than moral in nature and solutions can only be reached when global interests supersede domestic policy, especially in regards to dumping laws.
Economically powerful nations are constantly able to exploit loopholes in the agricultural policy of the WTO. Unlike North America, Asia and Latin America, Africa is at a significant disadvantage as sub-Saharan Africa cannot afford to subside its agriculture nor does it have the legal framework to fight dumping. Market manipulation results in “price shocks”, which has a devastating impact on the poor nations. For instance in 2008, due to market manipulations the price of food was at its peak and this lead to mass rioting in many poor nations. Africa is most vulnerable to the devastating consequences that arise from protectionism laws that violate the principles of the WTO. State subsidies and protectionism has become increasingly rampant after the recession and countries like China, U.S, Brazil, and Canada are constantly accused of protecting domestic enterprise. A classic example of protectionism is when President Obama proposed that a 20% tax credit be provided for all corporations willing to relocate to the United States. The Doha round, which had been deadlock, promised to address these questions of protectionism and subsidies, that ultimately manipulate prices, and ultimately cause poor nations to suffer.
Although industrialized nations appear to exploit the legal framework of the WTO, poorer nations have started filing more complaints since the year 2000. In this sense there is improvement that the WTO is still evolving. From 1995-1999, the number of complaints filed by developing nations went up from forty-one to one hundred and forty nine. This means that developing nations are now in the process of fighting trade violations. This trend of disputes filled by developing nations has been increasing over time, and as of 2001 71% of the disputes filed originated from developing nations. As mentioned earlier not all developing nations are able to afford the costs of the legal process. This warrants a call for better access to countries such as in Africa that have demonstrated inability to file complaints, the WTO has a moral duty to ensure access to such members. The WTO has promised equality to all its members however, analysis shows that discrimination and exploitation based on economic output is still a major concern.
Since its origin from the GATT system, the WTO has demonstrated its ability to adapt and evolve with the dynamic global economy. The WTO must ensure that it continues to monitor decisions by the DSU, as countries may create a new policy and pressure the opposing side to agree. The WTO members must come to a consensus to open access to members who cannot afford the legal procedures. Countries that embrace protectionism must abandon policies that create unfair competition and ultimately harm international trade. The WTO has shown remarkable progress as developing countries are slowly beginning to rely on it to fight exploitation and domination in the Global Market.
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